<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 28, 1997
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
(Name of Small Business Issuer in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 3843 13-3152648
(State or Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification
No.)
</TABLE>
200 NORTH WESTLAKE BOULEVARD, SUITE 202,WESTLAKE VILLAGE, CA 91362
(805) 381-2700
(Address and Telephone Number of Principal Executive Offices)
200 NORTH WESTLAKE BOULEVARD, SUITE 202, WESTLAKE VILLAGE, CA 91362
(805) 381-2700
(Address of Principal Place of Business or Intended Principal Place of Business)
RONALD E. WITTMAN
200 NORTH WESTLAKE BOULEVARD, SUITE 202
WESTLAKE VILLAGE, CA 91362
(805) 381-2700
(Name, Address and Telephone number of Agent for Service)
------------------------------
COPIES OF COMMUNICATIONS TO:
C.N. Franklin Reddick III, Esq. David Alan Miller, Esq.
Murray Markiles, Esq. Peter M. Ziemba, Esq.
Troop Meisinger Steuber & Pasich, LLP Graubard Mollen & Miller
10940 Wilshire Boulevard 600 Third Avenue
Los Angeles, California 90024 New York, NY 10016-2097
(310) 824-7000 (212) 818-8800
Fax (310) 443-8601 Fax (212) 818-8881
------------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING
SECURITIES TO BE REGISTERED REGISTERED SHARE(1) PRICE(1)
<S> <C> <C> <C>
Shares of Common Stock $.01 par value (Common Stock)(2)... 1,725,000 $5.00 $8,625,000
Redeemable Common Stock Purchase Warrants, each to
purchase one share of Common Stock (Warrants)(3)........ 1,725,000 $.75 $1,293,750
Shares of Common Stock underlying Warrants................ 1,725,000 $5.00(4) $8,625,000
Underwriter's Purchase Option(5).......................... 1 $100 $100
Shares of Common Stock included as part of Underwriter's
Purchase Option......................................... 150,000 $5.50 $825,000
Warrants included as part of Underwriter's Purchase
Option(5)............................................... 150,000 $.825 $123,750
Shares of Common Stock underlying Warrants included as
part of Underwriter's Purchase Option................... 150,000 $5.00 $750,000
Warrants issued to investors in a private placement....... 1,600,000 $.75 $1,200,000
Shares of Common Stock underlying the Warrants issued to
investors in a private placement........................ 1,600,000 $5.00 $8,000,000
Total..................................................... -- -- $29,442,600
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT OF
SECURITIES TO BE REGISTERED REGISTRATION FEE
<S> <C>
Shares of Common Stock $.01 par value (Common Stock)(2)... $2,613.63
Redeemable Common Stock Purchase Warrants, each to
purchase one share of Common Stock (Warrants)(3)........ $392.05
Shares of Common Stock underlying Warrants................ $2,613.63
Underwriter's Purchase Option(5).......................... --
Shares of Common Stock included as part of Underwriter's
Purchase Option......................................... $250.00
Warrants included as part of Underwriter's Purchase
Option(5)............................................... --
Shares of Common Stock underlying Warrants included as
part of Underwriter's Purchase Option................... $227.27
Warrants issued to investors in a private placement....... $363.64
Shares of Common Stock underlying the Warrants issued to
investors in a private placement........................ $2,424.24
Total..................................................... $8,922.00
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Includes 225,000 shares of Common Stock which may be issued on exercise of a
45-day option granted to the Underwriter to cover over-allotments, if any.
See "Underwriting."
(3) Includes 225,000 Warrants which may be issued on exercise of a 45-day option
granted to the Underwriter to cover over-allotments, if any.
(4) Represents the exercise price of the Warrants.
(5) To be sold to the Underwriter. Pursuant to Rule 457(g), no separate
registration fee is required.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED FEBRUARY 28, 1997
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
1,500,000 SHARES OF COMMON STOCK AND
1,500,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
All of the 1,500,000 shares of common stock ("Common Stock") and 1,500,000
Redeemable Common Stock Purchase Warrants ("Warrants") offered hereby (together,
"Securities") are being sold by Dental/Medical Diagnostic Systems, Inc.
("Company"). Each Warrant entitles the holder to purchase one share of Common
Stock at a price of $5.00 per share during the four year period commencing one
year from the date of this Prospectus. The Company may redeem the Warrants, once
they become exercisable, at a price of $.01 per Warrant, upon not less than 30
days' prior written notice if the last sale price of the Common Stock has been
at least 190% of the then current exercise price of the Warrants ($9.50 based
upon $5.00 exercise price) on each of the 10 consecutive trading days ending on
the third day prior to the date on which notice is given. See "Description of
Securities."
Prior to this Offering, there has been only a limited public market for the
Common Stock and no public market for the Warrants. The Common Stock is quoted
on the NASD OTC Bulletin Board ("OTC Bulletin Board") under the symbol "DMDS."
On February 14, 1997, the high bid and low ask price of the Common Stock were
$4.375 and $4.375, respectively. See "Price Range of the Common Stock." The
Company has applied to have the Common Stock and the Warrants approved for
quotation on the Nasdaq SmallCap Market under the symbols "DMDS" and "DMDW,"
respectively. There can be no assurance that an active trading market will
develop for either the Common Stock or the Warrants, or that, if developed, any
such market will be sustained. It is anticipated that the initial public
offering price will be between $4.00 and $5.00 per share of Common Stock and
between $.25 and $.75 per Warrant. See "Underwriting" for information relating
to the factors considered in determining the public offering price of the
Securities and the exercise price of the Warrants.
--------------------------
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION. PROSPECTIVE INVESTORS SHOULD CONSIDER
CAREFULLY THE DISCUSSION UNDER "RISK FACTORS" COMMENCING ON PAGE 8 AND
"DILUTION" ON PAGE 15 OF THIS PROSPECTUS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share........................................ $ $ $
Per Warrant...................................... $ $ $
Total(3)......................................... $ $ $
</TABLE>
(1) Does not include a 3% nonaccountable expense allowance which the Company has
agreed to pay the Underwriter. The Company has also agreed to sell the
Underwriter an option ("Underwriter's Purchase Option") to purchase 150,000
shares of the Common Stock and/or 150,000 Warrants and to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, as amended ("Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company, including the
nonaccountable expense allowance in the amount of $ ($ if
the Underwriter's over-allotment option is exercised in full), estimated at
approximately $ .
(3) The Company has granted the Underwriter an option, exercisable within 45
days from the date of this Prospectus, to purchase up to 225,000 additional
shares of the Common Stock and/or 225,000 additional Warrants on the same
terms set forth above, solely for the purpose of covering over-allotments,
if any. If such over-allotment option is exercised in full, the total Price
to Public, Underwriting Discounts and Commissions, and Proceeds to Company
will be $ , $ and $ , respectively. See
"Underwriting."
This Prospectus also relates to the offer and sale by certain persons
("Selling Securityholders") of the Warrants issued to the Selling
Securityholders in exchange for the warrants ("Bridge Warrants") that were
issued to them in connection with the Company's November 1996 bridge financing
("Bridge Financing"). The Warrants offered by the Selling Securityholders are
not part of this underwritten Offering and the Company will not receive any of
the proceeds from the sale of such Warrants. Without the prior consent of the
Underwriter, the Selling Securityholders may not sell such Warrants for a period
of 24 months from the date of this Prospectus.
The Securities are being offered by the Underwriter subject to prior sale,
when, as and if delivered to and accepted by the Underwriter and subject to the
approval of certain legal matters by counsel and certain other conditions. The
Underwriter reserves the right to withdraw, cancel, or modify this Offering and
to reject any order in whole or in part. It is expected that delivery of
certificates representing the Securities will be made against payment thereof at
the offices of the Underwriter in Jersey City, New Jersey, on or about
, 1997.
M.H. MEYERSON & CO., INC.
FOUNDED 1960
525 WASHINGTON BOULEVARD
JERSEY CITY, NEW JERSEY 07310
(201) 459-9500
(800) 888-8118
The date of this Prospectus is , 1997
<PAGE>
[Inside Cover:Photograph depicting TeliCam intraoral camera, monitor with
dentist and patient in the foreground]
<TABLE>
<C> <S>
- Network-ready
- Built-in Video Capture Mechanism
- TeliCam's Upgradable Microprocessor Chip
- Uni lens Handpiece Design
- Ergonomically-Balanced Handpiece
- Innovative Control Panel
</TABLE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE COMMON STOCK
AND THE WARRANTS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND
SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS.
EACH PROSPECTIVE INVESTOR IS URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY.
UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS HAS BEEN ADJUSTED
TO REFLECT A ONE-FOR-2.197317574 REVERSE STOCK SPLIT OF THE COMMON STOCK
EFFECTED ON JANUARY 13, 1997, AND A PROPOSED ONE-FOR-1.333333333 REVERSE STOCK
SPLIT WHICH THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED AND WHICH WILL BE
SUBMITTED TO VOTE OF THE STOCKHOLDERS ON MARCH 21, 1997 ("REVERSE STOCK
SPLITS"). THIS PROSPECTUS AND OTHER INFORMATION INCORPORATED HEREIN, CONTAINS
CERTAIN FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF, AMONG OTHER
FACTORS, THE FACTORS SET FORTH UNDER THE CAPTION "RISK FACTORS" COMMENCING ON
PAGE 8 OF THIS PROSPECTUS. PROSPECTIVE PURCHASERS OF THE SECURITIES OFFERED
HEREBY SHOULD CAREFULLY CONSIDER THE SPECIFIC MATTERS SET FORTH UNDER "RISK
FACTORS," AS WELL AS THE OTHER INFORMATION AND DATA INCLUDED IN THIS PROSPECTUS,
PRIOR TO MAKING AN INVESTMENT IN THE SECURITIES OFFERED HEREBY.
THE COMPANY
Dental/Medical Diagnostic Systems, Inc. ("Company"), designs, develops,
manufactures and sells high technology dental equipment. Currently, the
Company's primary emphasis is on the manufacture and sale of an intraoral camera
system known as the TeliCam System and a dental office networking system, known
as InTELInet, for use in connection with the TeliCam System. The TeliCam System
displays close-up color video images of dental patients' teeth and gums. These
TeliCam images assist dentists in displaying dental health and hygiene problems
to patients and, as a result of such display, promote patient acceptance of
treatment plans. The TeliCam System offers dentists the ability to capture and
display multiple video images without an expensive external capture device such
as a video cassette recorder or color printer, thereby providing a low-cost
alternative to the more expensive traditional intraoral dental camera systems.
For this reason, the Company believes that the TeliCam System should be
particularly attractive to the overseas market because printed copies of dental
images are not generally required by foreign insurance companies. The Company
commenced shipments of TeliCam Systems to customers in February 1996. Through
December 31, 1996, the Company had sold 2,070 TeliCam Systems to dentists
throughout the United States, as well as several dental schools, and 940 TeliCam
Systems internationally. The Company is in the process of finalizing the
development of an enhanced version of the TeliCam System, the DMD System One,
which it anticipates introducing in the third quarter of 1997.
In November 1996, the Company introduced the InTELInet networking system for
the TeliCam System. The InTELInet networking system allows networking of
multiple TeliCam Systems in a dental practice so that each TeliCam System
connects to a central printer. Because the TeliCam System has the capability to
capture and store images in its CCD chip, the TeliCam System, unlike competing
intraoral dental camera systems, does not require the memory of a printer or
other image storage device for use during patient examinations. However, because
U.S. insurance companies generally require hard copies of treatment data, and
for patient record keeping purposes, it may be desirable to print hard copies of
the captured images. The InTELInet system allows multiple TeliCam Systems to be
linked to a single printer, generating substantial savings to dentists by
eliminating the need for multiple printers or video cassette recorders, each
dedicated to a single intraoral dental camera, which are required by competing
systems. Generally, the cost of a color printer is the second most significant
cost element in each intraoral camera system. The InTELInet networking system
offers additional benefits by allowing for office expansion and can accommodate
multiple additional TeliCam Systems. From its introduction in late November
1996, through February 25, 1997, 99 InTELInet networking systems have been
installed by the Company or independent installation contractors retained by the
Company.
In addition to its work on the DMD System One and the InTELInet system, the
Company is currently participating with third parties in the development of a
teeth whitening system. This system would utilize a high energy, high pressure
ionized gas in the presence of an electrical current to create a laser-type
light to
3
<PAGE>
effect teeth whitening. The Company believes that the teeth whitening system can
produce faster results at lower cost than currently available teeth whitening
systems. Currently, the leading system for teeth whitening in the dental office
requires more than two hours of the dentist's time. The Company is currently
testing technologies for whitening teeth that have the potential to whiten teeth
in a dentist's office in substantially less time and by a dental hygienist
instead of the dentist. The testing involves the compatibility of the light
source and catalytic chemicals to produce effective and rapid teeth whitening.
The technology also functions as a curing system for curing composites,
adhesives and sealants used in dental bonding and repair. Currently available
light curing systems can achieve similar results to those anticipated to be
produced by the system currently being tested by the Company. However, the
Company believes the curing system it is testing can be sold at a price point
significantly below that of functionally competitive systems. If the teeth
whitening system is successfully developed, the Company may be required to enter
into contractual arrangements with the third party developers retained by the
Company prior to marketing the system. The Company is also negotiating a joint
venture to develop digital x-ray technology for the dental market. This
technology, if successfully developed, would provide a more user-friendly
digital x-ray system comparable to functionally competitive systems at a
significantly lower price point. Digital x-ray systems, including those
currently on the market, reduce radiation exposure compared to conventional x-
ray systems, allow dentists to view x-ray images in real-time without the
time-consuming process of film development and eliminate the need to use and
dispose of chemicals required to develop conventional x-ray film. This
technology also will allow database storage and recall of images for comparison
purposes.
The Company intends to use a significant portion of the net proceeds of this
Offering to develop and introduce new products and to expand domestic and
international sales. Its primary strategy in pursuing these objectives is to
expand its product lines both through internal development and through
acquisitions and joint ventures and expand sales of its products by establishing
additional distributor relationships internationally.
The Company's principal executive offices are located at 200 N. Westlake
Boulevard, Suite 202, Westlake Village, California 91362, and its telephone
number is (805) 381-2700.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered........................... 1,500,000 shares of the Common Stock and
1,500,000 Warrants. Each Warrant entitles the
holder thereof to purchase one share of the
Common Stock at a price of $5.00 per share
during the four year period commencing one
year from the date of this Prospectus. The
Company may redeem the Warrants, once they
become exercisable, at a price of $.01 per
Warrant upon not less than 30 days' prior
written notice if the last sale price of the
Common Stock has been at least 190% of the
then current exercise price of the Warrants
($9.50 based upon a $5.00 exercise price) on
each of the 10 consecutive trading days
ending on the third day prior to the date on
which notice is given. See "Description of
Securities."
Common Stock Outstanding Prior to
this Offering.............................. 2,985,537 shares
Common Stock to be Outstanding After this
Offering................................... 4,485,537 shares
Proposed Nasdaq SmallCap Market Symbols...... Common Stock: DMDS
Warrants: DMDW
</TABLE>
USE OF PROCEEDS
The Company intends to apply the net proceeds of this Offering approximately
as follows: (i) $1,700,000 to repay in full the secured promissory notes
("Bridge Notes") of the Company issued in the Bridge Financing; (ii) $1,300,000
for product development; (iii) $1,300,000 for acquisitions and joint venture
financing; (iv) $300,000 for the repayment of certain loans made by an affiliate
and a former affiliate of the Company; and (v) $1,400,00 for working capital and
general corporate purposes. See "Use of Proceeds" and "Certain Transactions."
RISK FACTORS
The Securities offered hereby involve a high degree of risk, including,
without limitation, the risk of the Company's limited operating history and
history of losses; the risks associated with dependence upon a single product;
the risk that new products will not be developed successfully; and the Company's
dependence upon acquisitions and joint ventures to grow its business. See "Risk
Factors."
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The summary financial information set forth below is derived from the
consolidated financial statements of the Company appearing elsewhere in this
Prospectus. This information must be read in conjunction with such consolidated
financial statements, including the notes thereto.
<TABLE>
<CAPTION>
TEN MONTHS
ENDED INCEPTION TO
DECEMBER 31, MARCH 2,
1996(1) 1996(2)
------------ --------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................................................................... $ 11,673,102 $ 220,623
Gross profit........................................................................ 4,987,638 18,508
Operating expenses:
Selling, general and administrative............................................... 4,360,736 1,111,391
Research and development.......................................................... 322,467 528,426
Operating income (loss)............................................................. 304,435 (1,621,309)
Income (loss) before income taxes................................................... 215,721 (1,625,213)
Net income (loss)................................................................... $ 137,151 $ (1,625,213)
------------ --------------
------------ --------------
Net income (loss) per share......................................................... $ .05 $ (1.57)
------------ --------------
------------ --------------
Number of shares used in computing per share amounts................................ 3,019,213 1,035,778
<CAPTION>
DECEMBER 31, 1996
----------------------------
ACTUAL AS ADJUSTED(3)
------------ --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................................... $ 1,058,836 $ 5,085,870
Working capital..................................................................... $ 2,256,474 $ 6,283,508
Total assets........................................................................ $ 4,718,441 $ 8,555,174
Current liabilities................................................................. $ 1,772,433 $ 1,772,433
Non-current liabilities............................................................. $ 1,708,383 $ 80,126
Total stockholders' equity.......................................................... $ 1,237,625 $ 6,860,194
</TABLE>
- ------------------------
(1) On February 5, 1997, the Company changed its year end from a fiscal year
ending on the Saturday nearest to February 28 to a December 31 fiscal year
end. Information provided is for the ten-month period from March 3, 1996
through December 31, 1996.
(2) Information provided is for the period from inception (October 23, 1995) to
March 2, 1996.
(3) Assumes the Offering closes in April 1997 and reflects the receipt of the
net proceeds of approximately $6,000,000 from the sale of the Securities
offered hereby assuming a public offering price of $4.50 per share of Common
Stock and $.50 per Warrant, and the application thereof to (i) the repayment
of the Bridge Notes in the principal amount of $1,600,000 and accrued
interest of $100,000 and the related effect of writing off approximately
$190,000 in financing costs related to the Bridge Financing and the discount
on the Bridge Notes of $188,000 relating to the valuation of the Bridge
Warrants; and (ii) the repayment of loans in the principal amount of
$273,000 made by an affiliate and former affiliate of the Company.
UNLESS OTHERWISE INDICATED, ALL SHARE, PER-SHARE AND FINANCIAL INFORMATION
SET FORTH HEREIN ASSUMES NO EXERCISE OF (I) THE UNDERWRITER'S OVER-ALLOTMENT
OPTION TO PURCHASE 225,000 SHARES OF COMMON STOCK AND/OR 225,000 WARRANTS AND
THE WARRANTS ISSUABLE UPON EXERCISE OF THE UNDERWRITER'S OVER-ALLOTMENT OPTION;
(II) THE UNDERWRITER'S PURCHASE OPTION TO PURCHASE 150,000 SHARES OF COMMON
STOCK AND/OR 150,000 WARRANTS AND THE EXERCISE OF THE WARRANTS ISSUABLE UPON
EXERCISE OF THE UNDERWRITER'S PURCHASE OPTION; (III) THE WARRANTS TO PURCHASE
1,500,000 SHARES OF COMMON STOCK OFFERED HEREBY; (IV) THE WARRANTS ("RESALE
WARRANTS") TO PURCHASE 1,600,000 SHARES OF COMMON STOCK INTO WHICH THE BRIDGE
WARRANTS HAVE BEEN AUTOMATICALLY CONVERTED ON THE DATE OF THIS PROSPECTUS; AND
(V) STOCK OPTIONS TO PURCHASE 220,154 SHARES OF COMMON STOCK GRANTED TO
EMPLOYEES, DIRECTORS AND CONSULTANTS OUTSIDE OF THE COMPANY'S 1997 STOCK
INCENTIVE PLAN PRIOR TO THE DATE OF THIS PROSPECTUS; NOR DOES IT INCLUDE 350,000
SHARES OF COMMON STOCK RESERVED FOR ISSUANCE PURSUANT TO THE COMPANY'S 1997
STOCK INCENTIVE PLAN.
6
<PAGE>
THE COMPANY
The Company was organized in New York in 1981 under the name Edudata
Corporation and reincorporated in Delaware in 1983 by Sun Equities Corporation
("Sun") which owned approximately 81 percent of the Company's outstanding common
stock until August 11, 1995. At that time, Sun distributed the shares of the
Company that it owned to its stockholders in the form of a dividend.
The Company was initially organized to provide education in the use of
personal computers, to market software programs developed by others, and to
provide a broad range of advisory services to businesses in conjunction with
both computer and non-computer related management issues. The Company's original
concept was modified, however, and until 1987, the Company was engaged in the
ownership and operation of technical schools through its subsidiaries, Betty
Owen Secretarial Systems, Inc. and Taylor Business Institute, Inc., and in the
development, construction and sale of single-family homes and commercial
buildings through its majority-owned subsidiary, Lytton & Tolley, Inc. In 1988
the Company disposed of its subsidiaries and their operations and determined to
use the proceeds to acquire another business. From 1988 to early 1996, the
Company's operations were limited to exploring opportunities to acquire or to
become an operating business.
On March 1, 1996, the Company acquired all the outstanding securities of
Dental\Medical Diagnostic Systems LLC, a California limited liability company
("DMD"), and Bavarian Dental Instruments, Inc., a California close corporation
("BDI"), in exchange for the issuance by the Company of a total of 1,706,626
restricted shares of its Common Stock. As a result of these transactions, the
former members of DMD and former stockholders of BDI gained a majority of the
Company's voting securities and the management control of the Company was
transferred to the former management of DMD and BDI. See "Management--Executive
Officers and Directors." For accounting purposes these transactions were treated
as a recapitalization of DMD and BDI, with DMD and BDI combined as the acquiror
(reverse acquisition). As a result, the combined historical financial statements
of DMD and BDI became the financial statements of the Company. Further, since
the Company's assets at February 29, 1996 consisted solely of approximately
$660,000 in cash and cash equivalents and the Company had no operations in the
seven years prior to the transactions, for accounting purposes these
transactions were recorded by the Company as the issuance of Common Stock for
cash held by the Company.
7
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS
INHERENT IN AND AFFECTING THE BUSINESS OF THE COMPANY AND THIS OFFERING,
TOGETHER WITH THE OTHER INFORMATION IN THIS PROSPECTUS, BEFORE MAKING AN
INVESTMENT DECISION.
LIMITED OPERATING HISTORY AND HISTORY OF LOSSES. While the Company has been
in existence since 1981, its operations between 1988 and its acquisition of DMD
and BDI in March 1996, were limited to the exploration of acquisition
opportunities. Dental\Medical Diagnostic Systems, the division of the Company
which designs and markets the Company's TeliCam System, and BDI, a subsidiary of
the Company, have only been in operation since October 1995. For the period from
inception (October 23, 1995) to March 2, 1996, the Company incurred a net loss
of $1,625,213, and for the ten month period ended December 31, 1996, the Company
had net income of $137,151. The ability of the Company to sustain profitability
will depend, in part, upon the successful marketing of existing products and the
successful and timely introduction of new products. There can be no assurance
that the Company will be able to generate and sustain net sales or profitability
in the future. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
DEPENDENCE UPON A SINGLE PRODUCT. The TeliCam System intraoral dental
camera is currently the Company's primary product and, together with related
products such as the InTELInet system and the DMD System One, will account for a
substantial portion of the Company's revenue for the foreseeable future. There
can be no assurance that the TeliCam System will be more effective than
competing products or technologies, or will be successfully marketed. The
Company is still in the early stages of marketing the TeliCam System and related
products, and, consequently, the degree to which the market will accept this
product is still uncertain. If the TeliCam System and related products cannot be
marketed successfully on a sustained basis, it is likely that the Company's
business operations would be substantially and adversely impacted. See
"Business--The TeliCam System."
IMPORTANCE OF NEW PRODUCT DEVELOPMENT TO GROWTH. The Company's ability to
develop and introduce new products successfully on a timely basis will be a
significant factor in the Company's ability to grow and remain competitive. New
product development often requires long-term forecasting of market trends, the
development and implementation of new designs, compliance with extensive
governmental regulatory requirements and a substantial capital commitment. The
medical and dental device industry is characterized by rapid technological
change. As technological changes occur in the marketplace, the Company may have
to modify its products in order to keep pace with these changes and
developments. The introduction of products embodying new technologies, or the
emergence of new industry standards, may render existing products, or products
under development, obsolete or unmarketable. Although the Company intends to
devote a significant portion of the proceeds of this Offering to developing new
products, there can be no assurance that the commitment and use of such funds
will result in improved or new products or that if successfully completed, such
improved or new products will be cleared or approved by the appropriate
governmental authorities and gain market acceptance. Any failure by the Company
to anticipate or respond in a cost-effective and timely manner to government
requirements, market trends or customer requirements, or any significant delays
in product development or introduction (including, without limitation, the
Company's DMD System One), could have a material adverse effect on the Company's
business, operating results and financial condition. See "Business--DMD System
One," "Business-- InTELInet System" and "Business--Product Development
Activities."
SIGNIFICANT PORTION OF PROCEEDS USED TO SATISFY INDEBTEDNESS; BENEFIT TO
INSIDERS; BROAD DISCRETION OF MANAGEMENT IN APPLICATION OF
PROCEEDS. Approximately $2,000,000 or 33%, of the net proceeds received by the
Company from this Offering will be used to repay outstanding indebtedness, and,
therefore, will not be available for future operations. Approximately $300,000
of such amount will be paid to an affiliate and former affiliate of the Company
including Robert Gurevitch, the Company's Chairman of the Board and Chief
Executive Officer. Approximately $4,000,000 or 67% (71% if the Underwriter's
over-allotment
8
<PAGE>
option is exercised in full) of the net proceeds of this Offering will be
allocated and used for working capital, general corporate purposes, research and
development, and possible joint ventures and acquisition of businesses
complementary to the Company. Although the Company intends to apply the net
proceeds of this Offering in the manner described under "Use of Proceeds," the
Company's management and its Board of Directors have broad discretion within
such proposed uses as to the precise allocation of the net proceeds, the timing
of expenditures and all other aspects of the use thereof. The Company will have
broad discretion regarding how and when the proceeds of this Offering allocated
to working capital and general corporate purposes and the possible acquisition
of complementary businesses will be applied and will use a portion of such
proceeds to pay salaries, including salaries of its executive officers. The
Company reserves the right to reallocate the net proceeds of this Offering among
the various categories set forth under "Use of Proceeds" as it, in its sole
discretion, deems necessary or advisable based upon prevailing business
conditions and circumstances. See "Use of Proceeds" and "Certain Transactions."
NEED FOR ADDITIONAL CAPITAL. It is possible that the net proceeds of the
Offering, together with cash generated from operations and the proceeds of a
line of credit currently being negotiated by the Company may not provide the
Company with funds needed to expand its operations and otherwise meet its cash
requirements for the next twelve months. See "Use of Proceeds." To the extent
that the funds generated by this Offering, together with then existing
resources, are insufficient to fund the Company's planned activities and, to the
extent the Company is unsuccessful in concluding negotiations of an acceptable
line of credit, the Company will need to raise additional funds through bank
borrowings, public or private financings, or otherwise. If additional funds are
raised through the issuance of equity securities, additional dilution to
stockholders may occur. No assurance can be given that additional financing will
be available when needed or that, if available, it will be on terms favorable to
the Company or its stockholders. If needed funds are not available, the Company
may be required to curtail its operations, which could have a material adverse
effect on the Company's business, operating results and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
EXPANSION THROUGH ACQUISITIONS AND JOINT VENTURES. The Company intends to
expand its product line and domestic and international markets, in part, through
acquisitions and joint ventures. The Company's ability to expand successfully
through acquisitions and joint ventures will depend upon the availability of
suitable acquisition or joint venture candidates at prices acceptable to the
Company, the Company's ability to consummate such transactions and the
availability of financing on terms acceptable to the Company. There can be no
assurance that the Company will be successful in completing acquisitions or
joint ventures. Such transactions involve numerous risks, including possible
adverse short-term effects on the Company's operating results or the market
price of the Common Stock. The Company is engaged in discussions relating to
product development joint ventures but, as of the date of this Prospectus, the
Company is not engaged in negotiations to acquire any business. Certain of the
Company's future acquisitions may also give rise to an obligation by the Company
to make contingent payments or to satisfy certain repurchase obligations, which
payments could have an adverse financial effect on the Company. In addition,
integrating acquired businesses and joint ventures may result in a loss of
customers or product lines of the acquired businesses or joint ventures, and
also requires significant management attention and may place significant demands
on the Company's operations, information systems and financial resources. The
failure effectively to integrate acquired businesses and joint ventures with the
Company's operations could adversely affect the Company. In addition, the
Company competes for acquisition and expansion opportunities with companies
which have significantly greater financial and management resources than those
of the Company. There can be no assurance that suitable acquisition or
investment opportunities will be identified, that any such transactions can be
consummated, or that, if acquired, such new businesses can be integrated
successfully and profitably into the Company's operations. Moreover, there can
be no assurance that the Company's historic rate of growth will continue, that
the Company will continue to successfully expand, or that growth or expansion
will result in profitability. See "Business--Growth Strategy."
9
<PAGE>
DEPENDENCE ON THIRD-PARTY SUPPLIERS. With the exception of the TeliCam
System's CCD processor unit, the Company believes that there are multiple
sources from which it may purchase the components of the TeliCam System. The
Company anticipates that it will obtain certain of the components of the TeliCam
System from a single source or a limited number of sources of supply. Although
the Company believes it will be able to negotiate satisfactory supply
arrangements and relationships, the failure to do so may have a material adverse
effect on the Company. Furthermore, there can be no assurance that suppliers
will dedicate sufficient production capacity to satisfy the Company's
requirements within scheduled delivery times or at all. Failure or delay by the
Company's suppliers in fulfilling its anticipated needs may adversely affect the
Company's ability to market the TeliCam System. See "Business--Manufacturing and
Component Parts." Pursuant to an agreement with Boston Marketing Company, Ltd.
("Boston Marketing") the Company has the exclusive right to market TeliCam's CCD
processor unit ("Teli Units") to the dental market ("Boston Marketing
Distribution Agreement"). See "Certain Transactions." Boston Marketing is a
licensed distributor of the Teli Units under a separate agreement with their
manufacturer. The agreement between Boston Marketing and the Teli Units
manufacturer obligates Boston Marketing to meet minimum purchase obligations. If
Boston Marketing fails to meet these obligations, Boston Marketing will be
terminated as a licensed distributor. In the event of such termination, the
Company, as a sublicensee subdistributor of Boston Marketing, may lose its right
to purchase the Teli Units. Moreover, in the event the Company is unable to meet
its minimum annual purchase obligations under the Boston Marketing Distribution
Agreement, and, as a consequence, such agreement terminates, the Company may be
required to find an alternative source for the primary component of its TeliCam
System. The Company believes that, in the event the Company loses its right to
sell the Teli Units, replacement components could be developed by and obtained
from third parties, but that this may take more than six months. The potential
delay associated with locating an alternative source of supply would have a
significant adverse effect on the Company's operating results and financial
condition. In addition, there is no guarantee that an intraoral dental camera
system utilizing the replacement components will be accepted by the dental
marketplace. See "Business--Manufacturing and Component Parts."
FLUCTUATIONS IN QUARTERLY RESULTS. The Company's business is subject to
certain quarterly influences. Management's prior experience in the industry
would indicate that net sales and operating profits are generally higher in the
fourth quarter due to the purchasing patterns of dentists and are generally
lower in the first quarter due primarily to increased purchases in the prior
quarter and during the summer months due to a reduced volume of trade shows and
increased unavailability of dentists due to summer vacations. The Company plans
to increase expenses to fund greater levels of research and development and to
fund investments in joint ventures and acquisitions. To the extent that such
expenses precede or are not subsequently followed by increased revenues, the
Company's business, quarterly operating results and financial condition will be
adversely affected. Additionally, use by the Company of a portion of the
proceeds of the offering to repay the Bridge Notes will cause the Company to
incur a charge in the second quarter of 1997 of approximately $378,000.
Quarterly results may also be adversely affected by a variety of other factors,
including the timing of acquisitions and related costs, the release of new
products and promotions taking place within the quarter. Other factors that may
influence the Company's quarterly operating results include the timing of
introduction or enhancement of products by the Company's or its competitors,
market acceptance of the DMD System One, the InTELInet System and other new
products, development and promotional expenses relating to the introduction of
new products or enhancements of existing products, reviews in the industry press
concerning the products of the Company or its competitors, changes or
anticipated changes in pricing by the Company or its competitors, mix of
distribution channels through which products are sold, mix of products sold,
product returns, the timing of orders from major distributors, order
cancellations, delays in shipment and general economic conditions. Due to all of
the foregoing factors, it is also likely that in some future periods the
Company's operating results may be below the expectations of analysts and
investors. In such event, the price of the Company's Common Stock would likely
be materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
10
<PAGE>
EXTENSIVE GOVERNMENT REGULATION. The Company's products and its
manufacturing practices are subject to regulation by the United States Food and
Drug Administration ("FDA") pursuant to the Federal Food, Drug and Cosmetic Act
("FDC Act"), and by other state and foreign regulatory agencies. Under the FDC
Act, medical and dental devices, including those under development by the
Company must receive FDA clearance or approval before they may be sold, or be
exempted from the need to obtain such clearance or approval. FDA regulations
also require the Company to adhere to certain "Good Manufacturing Practices"
("GMP") regulations, which include validation testing, quality control and
documentation procedures. The Company's compliance with applicable regulatory
requirements is subject to periodic inspections by the FDA.
The process of obtaining required regulatory clearances or approvals can be
time consuming and expensive, and compliance with the FDA's GMP regulations and
other regulatory requirements can be burdensome. Moreover, there can be no
assurance that the required regulatory clearances will be obtained, and those
obtained may include significant limitations on the uses of the product in
question. In addition, changes in existing regulations or the adoption of new
regulations could make regulatory compliance by the Company more difficult in
the future. Although the Company believes that its products and procedures are
currently in material compliance with all relevant FDA requirements, the failure
to obtain the required regulatory clearances or to comply with applicable
regulations could result in fines, delays or suspensions of clearances, seizures
or recalls of products, operating restrictions and criminal prosecutions, and
would have a material adverse effect on the Company. See "Business--Government
Regulation."
COMPETITION. The manufacture and distribution of medical and dental devices
is intensely competitive. The Company competes with numerous other companies,
including several major manufacturers and distributors. With respect to the
intraoral camera market, the Company has at least five major competitors. Most
of the Company's competitors have greater financial and other resources than the
Company. Consequently, such entities may begin to develop, manufacture, market
and distribute systems which are substantially similar or superior to the
Company's products. See "Business--Competition."
RAPID EXPANSION OF THE COMPANY'S BUSINESS. From inception (October 23,
1995) through December 31, 1996, the Company has experienced rapid and
substantial growth in revenues and geographic scope of operations. Any future
growth may place a significant strain on management and on the Company's
financial resources and information processing systems. The failure to recruit
additional staff and key personnel, to have sufficient financial resources, to
maintain or upgrade these financial reporting systems, or to respond effectively
to difficulties encountered during expansion could have a material adverse
effect on the Company's business, operating results and financial condition.
INTERNATIONAL OPERATIONS. For the ten-month period ended December 31, 1996,
international sales have accounted for approximately 20% of the Company's net
sales, and the Company expects that international sales may increase as a
percentage of sales in the future. Consequently, the Company is subject to the
risks of conducting business internationally, including unexpected changes in,
or impositions of, legislative or regulatory requirements, fluctuations in the
U.S. dollar which could materially adversely affect U.S. dollar revenues,
tariffs and other barriers and restrictions, potentially adverse taxes and the
burdens of complying with a variety of international laws and communications
standards. The Company's international sales involve potentially longer payment
cycles and the Company may experience greater difficulty collecting accounts
receivable. At December 31, 1996, six of the Company's international
distributors accounted for 75% of the Company's accounts receivable. The Company
currently depends on third party distributors for substantially all of its
international sales. Certain of the Company's third party distributors may also
act as resellers for competitors of the Company and could devote greater effort
and resources to marketing competitive products. The loss of, or other
significant reduction in sales to, certain of these third party distributors
could have a material adverse effect on the Company's business and results of
operations. The Company is also subject to general geopolitical risks, such as
political and economic
11
<PAGE>
instability and changes in diplomatic and trade relationships, in connection
with its international operations. There can be no assurance that these risks of
conducting business internationally will not have a material adverse effect on
the Company's business. Further, any failure by the Company to predict or plan
for changes in the international arena could have a material adverse effect on
the Company's business, operating results and financial condition. See
"Business--Marketing and Sales--International Sales and Distribution".
DEPENDENCE ON KEY PERSONNEL. The Company's future performance will depend
significantly upon its Chairman of the Board and Chief Executive Officer, Robert
H. Gurevitch, and upon certain other key employees of the Company. The loss of
service of one or more of these persons could have a material adverse effect on
the Company's business and operations. The Company has entered into Employment
Agreements with Robert H. Gurevitch and Dewey Perrigo, the Company's Vice
President of Sales, pursuant to which they each have agreed to render services
to the Company until October 1, 1999. See "Management -- Employment Agreements."
The Company has applied for "key person" life insurance on Mr. Gurevitch in the
amount of $2,000,000, of which the Company would be the sole beneficiary, but
there can be no assurance that such insurance can be obtained or that, if such
insurance is obtained, the proceeds of such insurance will be sufficient to
offset the loss to the Company in the event of his death. The Company does not
maintain any insurance on the lives of its other senior management. In addition,
the Company's success will be dependent upon its ability to recruit and retain
qualified personnel. Any failure by the Company to retain and attract key
personnel could have a material adverse effect on the Company's business,
operating results, and financial condition. See "Management."
LIMITED PROPRIETARY PROTECTION. The Company's success and ability to
compete is dependent in part upon its proprietary technology. The Company's
proprietary technology is not protected by any patents. Consequently, the
Company relies primarily on trademark, trade secret and copyright laws to
protect its technology. Also, the Company is currently implementing a policy
that most senior and technical employees and third-party developers sign
nondisclosure agreements. However, there can be no assurance that such
precautions will provide meaningful protection from competition or that
competitors will not be able to develop similar or superior technology
independently. Also, the Company has no license agreements with the end users of
its products, so it may be possible for unauthorized third parties to copy the
Company's products or to reverse engineer or otherwise obtain and use
information that the Company regards as proprietary. If litigation is necessary
in the future, to enforce the Company's intellectual property rights, to protect
the Company's trade secrets or to determine the validity and scope of the
proprietary rights of others, such litigation could result in substantial costs
and diversion of resources and could have a material adverse effect on the
Company's business, operating results and financial condition. Ultimately, the
Company may be unable, for financial or other reasons, to enforce its rights
under intellectual property laws. In addition, the laws of certain countries in
which the Company's products are or may be distributed may not protect the
Company's products and intellectual property rights to the same extent as the
laws of the United States.
The Company believes that its products do not infringe any valid existing
proprietary rights of third parties. Although the Company has received no
communication from third parties alleging the infringement of proprietary rights
of such parties, there can be no assurance that third parties will not assert
infringement claims in the future. Any such third party claims, whether or not
meritorious, could result in costly litigation or require the Company to enter
into royalty or licensing agreements. There can be no assurance that the Company
would prevail in any such litigation or that any such licenses would be
available on acceptable terms, if at all. If the Company were found to have
infringed upon the proprietary rights of third parties, it could be required to
pay damages, cease sales of the infringing products and redesign or discontinue
such products, any of which alternatives, individually or collectively could
have a material adverse effect on the Company's business, operating results and
financial condition. See "Business--Proprietary Rights."
12
<PAGE>
POSSIBLE INFLUENCE BY EXISTING MANAGEMENT. Following this Offering, the
present officers and directors of the Company and their affiliates will
beneficially own approximately 22.7% of the outstanding Common Stock of the
Company. Accordingly, they will have the ability to influence significantly the
election of the Company's directors and most corporate actions. This
concentration of ownership could have the effect of delaying or preventing a
change in control of the Company. See "Principal Stockholders."
LIMITATION OF LIABILITY AND INDEMNIFICATION. The Company's Amended and
Restated Certificate of Incorporation limits, to the maximum extent permitted by
the Delaware General Corporation Law ("Delaware Law"), the personal liability of
directors for monetary damages for breach of their fiduciary duties as a
director, and provides that the Company shall indemnify its officers and
directors and may indemnify its employees and other agents to the fullest extent
permitted by law. The Company has entered into indemnification agreements with
its directors and executive officers which may require the Company, among other
things, to indemnify such directors against liabilities that may arise by reason
of their status or service as directors or officers (other than liabilities
arising from willful misconduct of a culpable nature), to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified, and to obtain directors' and officers' insurance, if available on
reasonable terms. The Company intends to purchase directors' and officers'
liability insurance after the completion of this Offering. Section 145 of the
Delaware Law provides that a corporation may indemnify a director, officer,
employee or agent made or threatened to be made a party to an action by reason
of the fact that he was a director, officer, employee or agent of the
corporation or was serving at the request of the corporation against expenses
actually and reasonably incurred in connection with such action if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, if he had no reasonable cause to believe his conduct was unlawful.
Delaware Law does not permit a corporation to eliminate a director's duty of
care, and the provisions of the Company's Amended and Restated Certificate of
Incorporation have no effect on the availability of equitable remedies, such as
injunction or rescission, for a director's breach of the duty of care. See
"Management--Limitation of Liability."
LIMITED PRIOR MARKET; ARBITRARY OFFERING PRICE; POSSIBLE VOLATILITY OF STOCK
PRICE. As of the date hereof, there has been no public market for the Warrants
and only a limited public market for the Common Stock. Although the Common Stock
has been sporadically traded on the OTC Bulletin Board, and it is the intention
of the Company that the Common Stock and Warrants will trade on the Nasdaq
SmallCap Market upon completion of this Offering, there can be no assurance that
an active public trading market for the Common Stock or Warrants will develop
and continue after the closing of this Offering. In the absence of such a
market, purchasers of the Common Stock and the Warrants may experience
substantial difficulty in selling the Securities. Moreover, there can be no
assurance that the Company will be able to continue to meet the maintenance
criteria necessary for the Common Stock and the Warrants to continue to be
listed on the Nasdaq SmallCap Market. The failure to meet these maintenance
criteria in the future may result in the Common Stock or the Warrants being
ineligible for quotations on Nasdaq SmallCap Market and trading, if any, of the
Common Stock and the Warrants would thereafter be conducted on the OTC Bulletin
Board. As a result of such ineligibility for quotations, an investor may find it
more difficult to dispose of, or to obtain accurate quotations as to the market
value of the Common Stock or the Warrants. The public offering price of the
Common Stock in this Offering and the Warrant Exercise Price have been
determined by negotiations between the Company and the Underwriter. Factors
considered in such negotiations, in addition to prevailing market conditions,
included the history and prospects for the industry in which the Company
competes, an assessment of the Company's management, the prospects of the
Company, its capital structure, the market for public offerings and certain
other factors as were deemed relevant. Consequently, the public offering price
of the Common Stock and the exercise price of the Warrants do not necessarily
bear any relationship to the Company's asset value, net worth or other
established valuation criteria and may not be indicative of prices that may
prevail at any time or from time to time in the public market for the Common
Stock and the Warrants. See "Underwriting." The trading price of the Company's
Common Stock and Warrants could be subject to significant fluctuations in
13
<PAGE>
response to variations in quarterly operating results, changes in analysts'
earnings estimates, announcements of innovations by the Company or its
competitors, general conditions in the dental equipment industry and other
factors. In addition, the stock market is subject to price and volume
fluctuations that affect the market prices for companies and that are often
unrelated to operating performance.
EFFECT OF OUTSTANDING OPTIONS AND WARRANTS. Immediately after the Offering,
assuming full exercise of the Underwriter's over-allotment option, the Company
will have outstanding Warrants to purchase an aggregate of up to 3,325,000
shares of Common Stock. This amount includes 1,725,000 shares underlying the
Warrants and 1,600,000 shares underlying the Resale Warrants into which the
Bridge Warrants have been automatically converted as of the date of this
Prospectus. In addition, there are outstanding stock options that have been
granted to employees, directors and consultants of the Company to purchase an
aggregate of approximately 220,154 shares of Common Stock at a weighted average
exercise price of $2.63 per share and the Underwriter's Purchase Option pursuant
to which the Underwriter has the right to acquire up to 150,000 shares of Common
Stock for $5.50 per share and 150,000 Warrants for $.825 per Warrant. The
exercise of any of such outstanding stock options and Warrants, and the
Underwriter's Purchase Option (and the Warrants included therein) will dilute
the percentage ownership of the Company's stockholders, and any sales in the
public market of the Common Stock underlying such stock options, Warrants and
the Underwriter's Purchase Option (and the Warrants included therein) may
adversely affect prevailing market prices for the Common Stock. Moreover, the
terms upon which the Company will be able to obtain additional equity capital
may be adversely affected, since the holders of such outstanding securities can
be expected to exercise them at a time when the Company would, in all
likelihood, be able to obtain any needed capital on terms more favorable to the
Company than those provided in such stock options, Warrants and the
Underwriter's Purchase Option. In addition, the Company has granted certain
demand and piggy-back registration rights to the Underwriter with respect to the
securities issuable upon exercise of the Underwriter's Purchase Option. See
"Management--Stock Option Grants," "Description of Securities--Warrants" and
"Underwriting."
FUTURE SALES OF COMMON STOCK. Sales of the Common Stock in the public
market after this Offering by existing stockholders could adversely affect the
market price of the Common Stock or the Warrants. See "Shares Eligible for
Future Sale."
IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of the Securities offered
hereby will experience an immediate and substantial dilution of approximately
69% of their investment in the Common Stock because the net tangible book value
of the Company's Common Stock after this Offering will be approximately $1.54
per share as compared with the assumed initial public offering price of $5.00
per Unit. See "Dilution."
ABSENCE OF DIVIDENDS. The Company has never paid any cash dividends on the
Common Stock and does not expect to pay any dividends on the Common Stock in the
foreseeable future. See "Dividend Policy."
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. The Warrants may be
redeemed by the Company at any time while they are exercisable at a redemption
price of $.01 per Warrant upon not less than 30 days' prior written notice if
the last sale price of the Common Stock has been at least 190% of the then
exercise price of the Warrants (initially $9.50, but subject to adjustment in
certain circumstances) for each of the ten consecutive trading days during a
period ending on the third trading day prior to the date of the notice of
redemption. Due to the low redemption price, notice of redemption of the
Warrants could force the holders to exercise the Warrants and pay the exercise
price at a time when it may be disadvantageous for them to do so, to sell the
Warrants at the current market price when they might otherwise wish to hold the
Warrants, or to accept the redemption price which would be substantially less
than the market value of the Warrants at the time of redemption. See
"Description of Securities--Warrants."
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<PAGE>
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE
WARRANTS. The Company will be able to issue shares of its Common Stock upon
exercise of the Warrants only if there is then a current prospectus relating to
such Common Stock, and only if such Common Stock is qualified for sale or exempt
from qualification under applicable state securities laws of the jurisdictions
in which the various holders of the Warrants reside. The Company has undertaken
and intends to file and keep current a prospectus which will permit the purchase
and sale of the Common Stock underlying the Warrants, but there can be no
assurance that the Company will be able to do so. Although the Company intends
to seek to qualify for sale the shares of Common Stock underlying the Warrants
in those states in which the Securities are to be offered, no assurance can be
given that such qualification will occur. The Warrants may be deprived of any
value and the market for the Warrants may be limited if a current prospectus
covering the Common Stock issuable upon the exercise of the Warrants is not kept
effective or if such Common Stock is not qualified or is exempt from
qualification in the jurisdictions in which the holders of the Warrants reside.
See "Description of Securities--Warrants."
ANTI-TAKEOVER PROVISIONS. The Company has an authorized class of 1,000,000
shares of preferred stock which may be issued by the Board of Directors on such
terms and with such rights, preferences and designations as the Board of
Directors may determine. Issuance of such preferred stock, depending upon the
rights, preferences and designations thereof, may have the effect of delaying,
deterring or preventing a change in control of the Company. In addition, certain
"anti-takeover" provisions of the Delaware Law, among other things, restrict the
ability of stockholders to effect a merger or business combination or obtain
control of the Company, and may be considered disadvantageous by a stockholder.
See "Description of Securities--Preferred Stock" and "Description of
Securities--Delaware Law."
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Securities offered
hereby, assuming a public offering price of $4.50 per share and $.50 per
Warrant, after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company, are estimated to be approximately
$6,000,000 (approximately $6,979,000 if the Underwriter's over-allotment option
is exercised in full). The Company intends to apply the net proceeds
approximately as follows:
<TABLE>
<CAPTION>
APPLICATION OF PROCEEDS AMOUNT PERCENT
- ----------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
Repayment of Bridge Notes.............................................. $ 1,700,000 28%
Product Development.................................................... 1,300,000 22
Acquisitions and Joint Venture Financing............................... 1,300,000 22
Repayment of Loans Made by Affiliates.................................. 300,000 5
Working Capital and General Corporate Purposes......................... 1,400,000 23
------------ -----
Total.............................................................. $ 6,000,000 100%
------------ -----
------------ -----
</TABLE>
Approximately $1,700,000 of the net proceeds of this Offering will be used
to repay the Bridge Notes issued in connection with the Bridge Financing
consummated in November 1996. The Bridge Notes consist of secured convertible
promissory notes in the aggregate principal amount of $1,600,000, bear interest
at the rate of 10% per annum and are payable upon the consummation of this
Offering. If this Offering is consummated in April 1997, the interest to be paid
on the Bridge Notes will be approximately $67,000. The net proceeds from the
sale of the Bridge Notes have been used primarily for the payment of certain
purchase obligations under a distribution agreement with a former affiliated
party and general corporate purposes. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Certain Transactions."
Approximately $1,300,000 of the net proceeds of this Offering will be
allocated to product development, including the development of an enhanced
version of the Company's intraoral camera. See "Business--Growth Strategy--DMD
System One and Product Development Activities."
Approximately $1,300,000 of the net proceeds of this Offering will be
allocated to possible business acquisitions and joint ventures for the primary
purposes of obtaining technical personnel and obtaining and expanding
technologies, products and markets. The Company is currently considering joint
ventures relating to the development of teeth whitening and digital x-ray
technology. The Company is not currently negotiating to acquire any business.
There can be no assurance that the Company will be able to successfully
negotiate any joint venture or identify and acquire any complementary business.
Approximately $300,000 of the net proceeds of this Offering will be used to
repay certain loans made by an affiliate and former affiliate of the Company,
including the Company's Chairman of the Board, in order to fund the start-up of
the Company's current operations. See "Certain Transactions."
The balance of the net proceeds of this Offering will be allocated to
working capital and general corporate purposes, including, among other things,
additional inventory and payment of general corporate expenses. If the
Underwriter exercises the over-allotment option in full, the Company will
realize additional net proceeds of approximately $979,000 which will also be
added to the Company's working capital. See "Risk Factors--Broad Discretion of
Management in Use of Proceeds."
Based on its current operating plan, the Company anticipates that the
proceeds of this Offering, and existing resources and cash generated from
operations, if any, should be sufficient to satisfy the Company's contemplated
working capital requirements through the next twelve months. The Company is also
currently negotiating a line of credit which, if obtained, would provide
additional working capital. There can be no assurance, however, that the
Company's working capital requirements during this period will not exceed its
available resources or that these funds will be sufficient to meet the Company's
longer term cash
16
<PAGE>
requirements for operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
The Company intends to maintain flexibility with respect to the use of these
funds and the amounts actually expended for each such use, if any, are at the
discretion of the Company and may vary significantly depending upon a number of
factors, including the progress of the Company's research and development and
marketing programs, technological advances, determinations as to the commercial
potential of the Company's products and the status of competitive products.
Accordingly, management reserves the right to reallocate the proceeds of the
Offering as it deems appropriate.
Proceeds not immediately required for the purposes described above will be
invested in United States government securities, short-term certificates of
deposit, money market funds or other short-term interest-bearing investments.
17
<PAGE>
DILUTION
The difference between the public offering price per share of the Common
Stock (attributing no value to the Warrants) in this Offering and the pro forma
net tangible book value per share of the Common Stock after this Offering
constitutes the dilution per share of the Common Stock to investors in this
Offering. Net tangible book value per share is determined by dividing the net
tangible book value (total tangible assets less total liabilities) by the number
of outstanding shares of the Common Stock. At December 31, 1996, the net
tangible book value of the Company was $893,939 or approximately $.30 per share
of the Common Stock (based on 2,985,537 shares of the Common Stock outstanding).
After giving effect to the sale of the Securities offered hereby at an assumed
offering price of $4.50 per share and $.50 per Warrant (less underwriting
commissions and estimated expenses of this Offering) and the application of the
net proceeds therefrom, the pro forma net tangible book value of the Company at
that date would have been $6,893,939, or approximately $1.54 per share. See "Use
of Proceeds." This represents an immediate increase in pro forma net tangible
book value of approximately $1.24 per share to existing stockholders and an
immediate dilution of approximately $3.46 per share or approximately 69%, to
investors in this Offering. If the public offering price is higher or lower, the
dilution of the investors in this Offering will be, respectively, greater or
less.
The following table illustrates the per share dilution without giving effect
to results of operations of the Company subsequent to December 31, 1996:
<TABLE>
<S> <C> <C>
Assumed public offering price................................. $ 5.00
Net tangible book value per share as of December 31, 1996... $ .30
Increase per share attributable to new investors............ 1.24
---------
Net tangible book value after the Offering.................... 1.54
---------
Dilution per share to new investors........................... $ 3.46
---------
---------
</TABLE>
The following table summarizes, at December 31, 1996, the number and
percentage of shares of the Common Stock purchased from the Company, the amount
and percentage of consideration paid and the average price per share paid by
existing stockholders and by investors pursuant to this Offering (at an assumed
price of $4.50 per share and $.50 per Warrant and attributing no value to the
Warrant before deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company.)
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- -------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing Stockholders................................... 2,985,537 67% $ 2,725,687 27% $ .91
Investors in this Offering.............................. 1,500,000 33 7,500,000 73 $ 5.00
---------- ----- ------------- -----
Total............................................. 4,485,537 100% $ 10,225,687 100%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
18
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company: (i) at
December 31, 1996; and (ii) as adjusted at December 31, 1996 to give effect to
the sale of the Securities offered hereby at an assumed public offering price of
$4.50 per share of Common Stock and $.50 per Warrant and the application of the
estimated net proceeds therefrom. See "Use of Proceeds." This table should be
read in conjunction with the Consolidated Financial Statements and related Notes
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
----------------------------
AS
ACTUAL ADJUSTED(2)
------------- -------------
<S> <C> <C>
Short-term debt:
Current portion of capital lease obligations...................................... $ 18,468 $ 18,468
Long-term debt:
Notes payable (1)................................................................. 1,355,291 --
Notes payable to related parties.................................................. 272,966 --
Capital lease obligations......................................................... 66,028 66,028
Stockholders' equity:
Preferred Stock, par value $0.01 per share, 1,000,000 shares authorized; no shares
outstanding..................................................................... -- --
Common Stock, par value $0.01 per share, 20,000,000 shares authorized; 2,985,537
shares issued and outstanding actual; 4,485,537 issued and outstanding, as
adjusted........................................................................ 29,855 44,855
Additional paid-in capital.......................................................... 2,695,832 8,680,832
Accumulated deficit................................................................. (1,488,062) (1,865,493)
------------- -------------
Total stockholders' equity........................................................ 1,237,625 6,860,194
------------- -------------
Total capitalization.............................................................. $ 2,950,378 $ 6,944,690
------------- -------------
------------- -------------
</TABLE>
- ------------------------
(1) Represents Bridge Notes payable, net of $244,709 discount.
(2) Assumes the Offering closes in April 1997 and reflects the receipt and
application of the net proceeds to (i) the repayment of the Bridge Notes in
the principal amount of $1,600,000 and accrued interest of $100,000 and the
related effect of writing off approximately $190,000 in financing costs
related to the Bridge Financing and the discount on the Bridge Notes of
$188,000 relating to the valuation of the Bridge Warrants; and (ii) the
repayment of loans in the principal amount of $273,000 made by an affiliate
and former affiliate of the Company.
19
<PAGE>
PRICE RANGE OF THE COMMON STOCK
The Common Stock is currently quoted on the OTC Bulletin Board under the
symbol "DMDS." The Common Stock is traded on a sporadic basis; therefore, the
prices quoted below are not necessarily indicative of market value. The
following table sets forth the range of the high and low bid quotations of the
Common Stock on the OTC Bulletin Board for the periods indicated as reported by
NASDAQ Trading and Market Services. These quotations reflect inter-dealer
prices, without mark-up, mark-down or commission, and may not represent actual
transactions.
<TABLE>
<CAPTION>
PERIOD ENDED HIGH LOW
- ----------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
June 30, 1996................................................................ $ 5.86 $ .94
August 31, 1996.............................................................. 5.48 3.66
November 30, 1996............................................................ 5.86 3.66
December 31, 1996............................................................ 5.68 4.39
</TABLE>
On February 14, 1997, the high bid and low ask price of the Common Stock
were $4.375 and $4.375, respectively. As of February 14, 1997, there were 244
stockholders of record and approximately 400 beneficial holders of the Common
Stock.
DIVIDEND POLICY
The Company has not paid any cash dividends on the Common Stock since its
inception and does not intend to pay any dividends on the Common Stock in the
foreseeable future. The payment of any dividends in the future will depend on
the evaluation by the Company's Board of Directors of such factors as it deems
relevant at the time and restrictions imposed by the terms of the Company's debt
obligations, if any. As of the date of this Prospectus, the Company has no debt
obligations that impose restrictions on the payment of dividends. Currently, the
Board of Directors believes that all of the Company's earnings, if any, should
be retained for the development of the Company's business.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE DISCUSSION BELOW SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS OF THE COMPANY AND NOTES THERETO INCLUDED ELSEWHERE IN THIS
PROSPECTUS.
INTRODUCTION
This discussion summarizes the significant factors affecting the
consolidated operating results, financial condition and liquidity/cash flows of
the Company for the ten-month period ended December 31, 1996, and for the period
from inception (October 23, 1995) to March 2, 1996. Except for the historical
information contained herein, the matters discussed in this Management's
Discussion and Analysis are forward looking statements that involve risks and
uncertainties and are based upon judgments concerning various factors that are
beyond the Company's control.
On March 1, 1996, the Company purchased all of the outstanding membership
interests of DMD and all of the outstanding capital stock of BDI. Immediately
subsequent to the transaction, the former members of DMD and stockholders of BDI
owned approximately 66.6% of the Company's outstanding common stock and
management control of the Company was transferred to the former management of
DMD and BDI. Accordingly, for accounting purposes the acquisition was treated as
a recapitalization of DMD and BDI with DMD and BDI combined as the acquiror
(reverse acquisition). As a result, the combined historical financial statements
of DMD and BDI became the financial statements of the Company. From inception,
in October 1995, through March 2, 1996, the Company generated net sales of only
$220,623 and incurred a net loss of $1,625,213. Because both DMD and BDI were
only formed in October and November of 1995, incurred substantial losses in
connection with the commencement of their respective operations, and commenced
sales in February 1996, a comparison of the financial information of the Company
for the ten-month period ended December 31, 1996 to the period from inception
(October 23, 1995) through March 2, 1996 is not meaningful. See "The Company."
DMD was formed in October 1995 and has been primarily involved in designing,
developing, manufacturing, and marketing TeliCam Systems. The first shipments to
customers of the TeliCam System commenced in early February 1996. BDI was formed
in November 1995 and has been primarily involved in the marketing and
distribution of dental burs imported from Russia. The first sales of burs
commenced in March 1996. On July 9, 1996, the Company determined to focus future
strategic development primarily upon high value added dental/medical products
and technology and, accordingly, decided to discontinue the dental bur product
line, comprised of low-margin, low-technology products. The Company thereafter
commenced an orderly liquidation of its inventory of dental burs, and expects
the liquidation to be completed in 1997 without significant adverse effect on
operations.
On January 13, 1997 the Company changed its name from Edudata Corporation to
Dental/Medical Diagnostics Systems, Inc. On February 5, 1997, the Company
changed its fiscal year end from a fiscal year ending on the nearest Saturday to
February 28th to a December 31 fiscal year end.
The Company has a limited history of operations which include results of
operations of the BDI product line, now discontinued. Although no assurance can
be given, the Company anticipates increased sales of the TeliCam Systems and the
introduction of new products and therefore results of operations for the period
presented may not be indicative of future results. The Company's prospects for
increasing sales and profits is subject to a number of risks, including
competitive and economic conditions, as well as the market acceptance of new
technologies the Company may seek to introduce. See "Risk Factors."
21
<PAGE>
RESULTS OF OPERATIONS
For the ten-month period ended December 31, 1996, net sales totaled
$11,673,102, generating an operating profit of $304,435. Included in these
results were sales of approximately $235,000 and an operating loss of
approximately $196,000 related to the Company's discontinued dental bur product
line. As described above, the Company expects to complete the sale of inventory
related to this product line in fiscal 1997 without any significant adverse
impact on operating results.
Net sales totaled $11,673,102 for the ten-month period ended December 31,
1996, and are comprised primarily of sales of TeliCam Systems and related
products. Total sales for this period included approximately $2,200,000 in sales
to international distributors. Sales for the period from inception (October 23,
1995) through March 2, 1996 were not significant as the Company spent the
majority of the period developing its initial product offering with sales
commencing in February 1996. As further described below, under the caption
"Fluctuations in Quarterly Results," the Company's sales are generally expected
to be higher in the fourth quarter due to the purchasing patterns of dentists in
the United States. During the ten month period ended December 31, 1996, the
month of December alone accounted for approximately $2,100,000 in net sales due
to a combination of increasing domestic and foreign sales. Domestic sales in
December were higher than normal primarily due to year end purchases by dentists
taking advantage of a $17,000 Federal tax credit for capital equipment
purchases, and to the introduction of the InTELInet system. The Company believes
that the tax credit accelerated certain TeliCam System sales that would
ordinarily have occurred in January and February 1997 and may result in reduced
first quarter 1997 sales.
Cost of sales for the ten-month period ended December 31, 1996 were
$6,685,464 or 57% of sales. As a percentage of sales, the Company expects costs
of international sales to be higher than domestic sales due to higher discounts
being required on international sales, however, this effect should be offset by
reduced warranty and service costs as well as reduced selling costs on
international sales.
Selling, general, and administrative expenses totaled $4,360,736 or 37% of
sales for the ten-month period ended December 31, 1996. These expenses relate to
administering the continuing design, development, manufacturing, and marketing
of the Company's TeliCam Systems. These expenses include advertising and
promotion expenses of $1,008,879 comprised primarily of trade show fees, trade
magazine advertising and direct mail promotions. Salaries and wages totaled
$966,745 comprised primarily of expenses for sales and production
administration, marketing, sales and customer support staff and finance and
accounting personnel. Commissions resulting from sales of TeliCam Systems and
the InTELInet product introduced in November 1996 totaled $1,223,547. These
expenses are expected to increase in absolute dollars relative to net sales in
future periods, due to the need for additional support functions as the
Company's sales increase.
Research and development expenses totaled $322,467 or 3% of sales for the
ten-month period ended December 31, 1996, and related primarily to direct
expenses of ongoing design and development of enhancements to the Company's
TeliCam System and, to a lesser extent, the Company's DMD System One. These
expenses are comprised of wages and benefits for engineering personnel, design
and development fees and raw material used in the development of prototypes.
These expenses are expected to continue at relatively the same rates in future
periods for the TeliCam System. However research and development expenses will
increase for the development of new products. Increased expenditures on research
and development resulting from application of the proceeds of the Offering to
further research and development projects and joint ventures and possible
acquisitions, are expected to result in increased expenses and may result in
correspondingly reduced earnings in future periods. See "Use of Proceeds."
Amortization of debt issuance cost totaled $31,548 for the ten-month period
ended December 31, 1996, and is the result of the cost of the sale of the Bridge
Notes, issued in November 1996, being amortized over the term of the Notes.
These costs will continue into future periods until the debt is paid. The
Company will pay such debt out of the proceeds of this Offering and,
accordingly, expects to take a
22
<PAGE>
charge of approximately $190,000 for the write off of unamortized debt issuance
costs in the second quarter of fiscal 1997. See "Use of Proceeds."
Interest expense totaled $57,166 for the ten-month period ended December 31,
1996, and consisted of interest paid on capital lease obligations and interest
accrued on the Bridge Notes and notes payable to related parties.
Net income for the ten-month period ended December 31, 1996 totaled $137,151
or $.05 per share.
LIQUIDITY AND CAPITAL RESOURCES
For the ten-month period ended December 31, 1996, the Company used net cash
of $1,631,343 in operations. The Company financed its operating cash
requirements through the sale of 422,219 shares of Common Stock in April 1996
which generated cash proceeds of approximately $1,055,000, net of issuance
costs, and through the Bridge Financing in November 1996, which generated cash
proceeds of approximately $1,315,000, net of issuance costs.
Accounts receivable increased by $1,188,544 to $1,305,143 at December 31,
1996 primarily due to the increasing sales volumes during the ten-month period
ended December 31, 1996 and due to the level of international sales during
December. Sales for the period from inception (October 23, 1995) through March
2, 1996 were only $220,000. Accounts payable and accrued liabilities totalling
$1,720,358 at December 31, 1996 decreased slightly from $1,806,640 at the prior
year end period. Inventory levels increased $461,812 to $1,513,075 due to
increased sales and production levels for TeliCam Systems.
Capital expenditures totaled $200,686 for the ten-month period ended
December 31, 1996, and resulted primarily from purchases of additional computer
equipment and test equipment to support the administrative and production
functions of the Company. Book overdrafts decreased in the current period by
$49,906. Cash on hand at the end of the period was $1,058,836.
The Company requires additional cash to continue to pay down its liabilities
(including, without limitation, the Bridge Notes issued in the November 1996
Bridge Financing) for working capital purposes to support anticipated increased
sales levels and to fund its research and development activities. Approximately
$1,700,000 of the net proceeds of this Offering will be used to repay the Bridge
Notes. The Bridge Notes consist of secured convertible promissory notes in the
aggregate principal amount of $1,600,000, bear interest at the rate of 10% per
annum and are payable upon the consummation of this Offering. If this Offering
is consummated in April 1996, the interest to be paid on the Bridge Notes will
be approximately $67,000.
Based on its current operating plan, the Company believes that the proceeds
of the Offering, together with existing resources and cash generated from
operations, if any, will be sufficient to satisfy the Company's contemplated
working capital requirements for at least the next twelve months. There can be
no assurance that the Company's working capital requirements during this period
will not exceed its available resources or that these funds will be sufficient
to meet the Company's longer term cash requirements for operations.
On February 13, 1997, the Company received a Commitment Letter from Comerica
Bank ("Comerica") confirming Comerica's intent to extend a $2,000,000 line of
credit to the Company, to be secured by a first priority security interest in
the Company's assets and by an assignment of the Company's rights under the
Boston Marketing Distribution Agreement. The credit facility will bear interest
monthly at the rate of the Comerica Bank Prime plus one-quarter of one percent
(0.25%), as it may change from time to time, through June 1, 1998. All
borrowings under the facility will be subject to a formula based, generally, on
accounts receivable and inventory. The Company intends to use the proceeds of
this credit facility for working capital and general corporate purposes.
Although negotiations of the credit facility are proceeding, the commitment of
Comerica is contingent upon the parties' ability to execute and deliver a
definitive credit agreement, reach arrangements with current secured creditors
to provide Comerica with a first
23
<PAGE>
priority lien and upon the absence of any material adverse change in the
Company's business or financial condition. There can be no assurance that the
Company will be successful in obtaining the credit facility, and the failure of
the Company to do so could have a material adverse effect on the Company's
business, operating results and financial condition.
FLUCTUATIONS IN QUARTERLY RESULTS
The Company's business is subject to certain quarterly influences. Net sales
and operating profits are generally higher in the fourth quarter due to the
purchasing patterns of dentists in the United States and are generally lower in
the first quarter due primarily to the effect upon demand of increased purchases
in the prior quarter. It is also expected that the Company's business will
experience lower sales in the summer months as a consequence of holiday
vacations and a lesser number of trade shows. Additionally, use by the Company
of a portion of the proceeds of the Offering to repay the Bridge Notes will
cause the Company to incur a charge in the second quarter of 1997 of
approximately $378,000. Quarterly results may also be adversely affected by a
variety of other factors, including the timing of acquisitions and related
costs, the release of new products and promotions taking place within the
quarter. The Company plans to increase expenses to fund greater levels of
research and development and to fund investments in joint ventures and
acquisitions. To the extent that such expenses precede or are not subsequently
followed by increased revenues, the Company's business, operating results and
financial condition will be adversely affected.
24
<PAGE>
BUSINESS
GENERAL BUSINESS DESCRIPTION OF THE COMPANY
The Company designs, develops, manufactures and sells high technology dental
equipment. Currently, the Company's primary emphasis is on the manufacture and
sale of an intraoral camera system known as the TeliCam System and a dental
office networking system, known as InTELInet, for use in connection with the
TeliCam System. The TeliCam System displays close-up color video images of
dental patients' teeth and gums. These TeliCam images assist dentists in
displaying dental health and hygiene problems to patients and, as a result of
such display, promote patient acceptance of treatment plans. The TeliCam System
offers dentists the ability to capture and display multiple video images without
an expensive external capture device such as a video cassette recorder or color
printer, thereby providing a low-cost alternative to the more expensive
traditional intraoral dental camera systems. For this reason, the Company
believes that the TeliCam System should be particularly attractive to the
overseas market because printed copies of dental images are not generally
required by foreign insurance companies. The Company commenced shipments of
TeliCam Systems to customers in February 1996. Through December 31, 1996, the
Company had sold 2,070 TeliCam Systems to dentists throughout the United States,
as well as several dental schools, and 940 TeliCam Systems internationally. The
Company is in the process of finalizing the development of an enhanced version
of the TeliCam System, the DMD System One, which it anticipates introducing in
the third quarter of 1997.
In November 1996, the Company introduced the InTELInet networking system for
the TeliCam System. The InTELInet networking system allows networking of
multiple TeliCam Systems in a dental practice so that each TeliCam System
connects to a central printer. Because the TeliCam System has the capability to
capture and store images in its CCD chip, the TeliCam System, unlike competing
intraoral dental camera systems, does not require the memory of a printer or
other image storage device for use during patient examinations. However, because
U.S. insurance companies generally require hard copies of treatment data, and
for patient record keeping purposes, it may be desirable to print hard copies of
the captured images. The InTELInet system allows multiple TeliCam Systems in
different examination rooms ("operatories") to be linked to a single printer,
generating substantial savings to dentists by eliminating the of need for
multiple printers or video cassette recorders, each dedicated to a single
intraoral dental camera, which are required by competing systems. Generally, the
cost of a color printer is the second most significant cost element in each
intraoral camera system. The InTELInet networking system offers additional
benefits by allowing for office expansion and can accommodate multiple
additional TeliCam Systems. From its introduction in late November 1996 through
February 25, 1997, 99 InTELInet networking systems have been installed by the
Company or independent installation contractors retained by the Company.
In addition to its work on the DMD System One and the InTELInet system, the
Company is currently participating with third parties in the development of a
teeth whitening system. This system would utilize a high energy, high pressure
ionized gas in the presence of an electrical current to create a laser-type
light to effect teeth whitening. The Company believes that the teeth whitening
system can produce faster results at lower cost than currently available teeth
whitening systems. Currently, the leading system for teeth whitening in the
dental office requires more than two hours of the dentist's time. The Company is
currently testing technologies for whitening teeth that have the potential to
whiten teeth in a dentist's office in substantially less time and by a dental
hygienist instead of the dentist. The testing involves the compatibility of the
light source and catalytic chemicals to produce effective and rapid teeth
whitening. The technology also functions as a curing system for curing
composites, adhesives and sealants used in dental bonding and repair. Currently
available light curing systems can achieve similar results to those anticipated
to be produced by the system currently being tested by the Company. However, the
Company believes the curing system it is testing can be sold at a price point
significantly below that of functionally competitive systems. If the teeth
whitening system is successfully developed, the Company may be required to enter
into contractual arrangements with the third party developers retained by the
Company prior to marketing
25
<PAGE>
the system. The Company is also negotiating a joint venture to develop digital
x-ray technology for the dental market. This technology, if successfully
developed, would provide a more user-friendly digital x-ray system comparable to
functionally competing systems at a significantly lower price point. Digital
x-ray systems, including those currently on the market, reduce radiation
exposure compared to conventional x-ray systems and allow dentists to view x-ray
images in real-time without the time-consuming process of film development and
eliminate the need to use and dispose of chemicals required to develop
conventional x-ray film. This technology also will allow database storage and
recall of images for comparison purposes.
BDI, a subsidiary of the Company, distributes and markets reusable diamond
dental burs pursuant to certain agreements with Russian manufacturers. On July
9, 1996, the Company determined to focus future strategic development primarily
upon high value added dental/medical products and technology and, accordingly,
decided to discontinue the dental bur product line, comprised of low-margin
low-technology products, as extrinsic to the Company's strategic goals. The
Company thereafter commenced an orderly liquidation of its inventory of dental
burs, and expects the liquidation to be completed in 1997 without significant
adverse effect on operations.
INDUSTRY OVERVIEW
The results of a recent study commissioned by the American Dental
Association ("ADA") indicate that the number of U.S. dental visits has grown,
from 360 million in 1975, to 534 million in 1995; and that the total expenditure
for dental care in the U.S. in 1995 was approximately $43.2 billion. According
to industry estimates, during 1995 there were approximately 130,000 active
dentists serving the United States marketplace in about 100,000 dental
practices.
In 1994, the U.S. dental medical/surgical equipment market was estimated by
the ADA to be a $2.5 billion annual industry, with a projected annual growth
rate of between 6% and 8%, reaching $3.5 billion annually by the year 2000. The
ADA reports that the average annual purchase of dental supplies and equipment in
1995 was approximately $19,000 per dentist. Factors contributing to this growth
include the general aging of the population, technological advances, increasing
regulatory requirements relating to infection control, and the proliferation of
dental insurance coverage. In addition to the domestic market for dental
supplies and equipment, the ADA findings indicate that there is a multi-billion
dollar annual market for such items in Europe and Asia.
GROWTH STRATEGY
The Company's goal is to be a leading manufacturer and distributor of high
technology dental products. The Company believes that its focus on the following
business strategies will help it to achieve this goal:
DELIVERY OF INNOVATIVE, VALUE-ORIENTED PRODUCTS. The Company seeks to
provide innovative products that offer a strong price-value relationship to
its customers. The Company endeavors to deliver products that offer, or will
offer, greater or differentiated operating features at competitive prices.
COMMITMENT TO PRODUCT DEVELOPMENT. From inception (October 23, 1995)
through December 31, 1996, the Company has devoted over $850,000 to product
development activities. The Company also intends to use up to $1,300,000 of
the proceeds of this Offering to the enhancement of its current product and
the development and/or acquisition of new technologies. The Company believes
that this focus on new and improved technologies is essential if the Company
is to establish and maintain a competitive position in the marketplace.
GROWTH THROUGH ACQUISITIONS AND JOINT VENTURES. The Company anticipates
that it will complement its internal growth, both in number of products and
sales, through acquisitions and joint ventures and a focus on developing and
marketing new technologies for the dental practice. The
26
<PAGE>
Company believes that acquisitions and joint ventures present an effective
means of obtaining technical personnel and obtaining or expanding
technologies, products and markets. The Company continually evaluates
opportunities for acquisitions and joint ventures, although it is not
currently party to any commitment, understanding or agreement related to
such endeavors. The Company currently intends to use up to $1,300,000 of the
proceeds of this Offering for acquisitions and joint venture financing.
EXPANSION OF DOMESTIC AND INTERNATIONAL SALES. Although both the
domestic and international dental supply markets are highly competitive, the
Company believes that the size of these markets provides an excellent
opportunity for growth. See "--Industry Overview." The Company intends to
increase its domestic sales through the introduction of new high technology
products and to increase its international sales through entry into
additional distribution agreements with foreign distributors. The Company
intends to capitalize on its experienced management and sales team to
increase its domestic and international sales. See "Marketing and Sales."
TELICAM SYSTEM
Currently, the Company's primary product is an intraoral dental camera known
as the TeliCam System. Management believes that the TeliCam System, a video
memory, full color intraoral dental camera system currently available on the
market. Traditional intraoral dental cameras consist of: (i) a handpiece, the
end of which contains the camera lens and light source; (ii) a camera chip ("CCD
chip"), with a camera chip processing unit ("CCU processor"), which interprets
the camera's video signals; (iii) video and light source cables which connect
the handpiece to the CCU processor; and (iv) an external capture device, such as
a video recorder or printer so that the dentist and patient can view the video
image. The primary distinguishing feature of the TeliCam System is its ability
to capture and "freeze" video images and display multiple images simultaneously
without an external capture device. The heart of the TeliCam System's image
capture capabilities is the Teli CCU processor which is incorporated therein.
The Teli CCU processor, which was designed specifically for intraoral dental
camera use, has a built-in image capturing mechanism or "frame grabber" computer
chip. This gives the dental professional the ability to capture from one to four
images with the touch of a button on the handpiece, and eliminates the need for
network installation and the hardwiring of external capture devices.
Additionally, the Teli CCU processor's frame grabber incorporates an automatic
light intensity control which eliminates reflection and glare from the
fiberoptic illumination for clearer video images. The Company has exclusive
world-wide rights to market the Teli CCU processor to the dental market.
Another feature of the TeliCam System is its 1/3 inch camera with near-focus
capabilities as close as two millimeters and magnification capabilities of up to
120 times the actual image, all available without the necessity of changing
lenses. The Company believes that this functionality is only available in
significantly more expensive competing models. Additionally, the TeliCam System
features an ergonomically designed, easy-to-use monocoil cable, which connects
the camera's handpiece to the CCU processor. To the extent permanent images may
be required by insurance companies, auxiliary printing systems are available
from the Company. See "Risk Factors--Competition."
INTELINET VIDEO MONITORING SYSTEM
The Company has commenced marketing of its InTELInet Video Monitoring System
("InTELInet") which generally includes two TeliCam Systems, a printer, a
video-cassette monitor, cabling and installation. InTELInet is designed to be a
cost-effective solution to the problems generally associated with standard
networking of various intraoral cameras in multiple operatories within a single
dental practice. With traditional intraoral camera networks, each camera must be
wired to a centralized printer in order to capture and store the desired image,
which must then be relayed back to the camera's monitor for viewing the image,
and back to the printer for ultimate printout. These requirements result in
substantial and expensive wiring. Also, competing intraoral cameras require
networking implementations which do not
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permit the simultaneous use of multiple cameras unless a costly printer is
attached to each camera. Consequently, this type of network requires the dental
practice to make a significant expenditure for cabling and installation and
on-site printers in every operatory. The InTELInet requires significantly less
cabling and eliminates the need for purchasing multiple printers because of the
built-in image capture capabilities of the TeliCam System. The Company
emphasizes the savings to dental practices and the ease of use of the InTELInet
in its marketing campaigns. The InTELInet is being marketed by the Company only
in the U.S. due to the general absence of multiple operatory practices outside
of the United States. The InTELInet facilitates simple network expansion and is
only compatible with intraoral dental camera's marketed by the Company.
From November 1996 through February 25, 1997, the Company has sold 99
InTELInet systems. Currently, the average sales price for a two operatory
installation is approximately $9,100 plus an additional $2,000 for each
additional operatory networked.
DMD SYSTEM ONE
The Company is currently completing the development of its DMD System One
intraoral camera. This system, designed for the medium-priced dental market, is
distinguished from the Company's current TeliCam System by its increased fiber
optic illumination, rotary focus capability which increases ease of use, and
increased image clarity. The DMD System One may also be used with the InTELInet
network. The Company anticipates introducing the DMD System One in the third
quarter of 1997; however, the development and introduction of new products may
be subject to various delays and, as a consequence, no assurance can be given
that the DMD System One will be introduced on schedule. Further, no assurances
can be given that, after its introduction, the DMD System One will achieve
market success. See "Risk Factors--Importance of New Product Development to
Growth" and "Risk Factors--Governmental Regulation."
PRODUCT DEVELOPMENT ACTIVITIES
The Company intends to use up to $2,600,000 of the proceeds of this Offering
for the development and/or acquisition of new dental high technology products.
See "Use of Proceeds." The Company expended $322,467 and $528,426 for research
and development of its products for the ten months ended December 31, 1996 and
from Inception to March 2, 1996, respectively. In addition to its work on the
DMD System One, the Company is currently participating with third parties in the
development of a teeth whitening system product. This system would utilize a
high energy, high pressure ionized gas in the presence of an electrical current
to create a laser type light to effect teeth whitening. The Company believes
that the teeth whitening system can produce faster results at a lower cost than
currently available teeth whitening systems. Currently, the leading system for
teeth whitening in the dental office requires more than two hours of the
dentist's time. The Company is currently testing technologies for whitening
teeth that have the potential to whiten teeth in a dentist's office in
substantially less time and by a dental hygienist instead of the dentist. The
testing involves the compatibility of the light source and catalytic chemicals
to produce effective and rapid teeth whitening. The technology also functions as
a curing system for curing composites, adhesives and sealants used in dental
bonding and repair. Currently available light curing systems can achieve similar
results to those anticipated to be produced by the system currently being tested
by the Company. However, the Company believes the curing system it is testing
can be marketed at a price point significantly below that of functionally
competitive systems. If the teeth whitening system is successfully developed,
the Company may be required to enter into contractual arrangements with the
third party developers retained by the Company prior to marketing the system.
There can be no assurance that the development of the teeth whitening system
will be successful or commercially viable, or that, if required, the Company
will be able to enter into marketing agreements with third parties on terms
acceptable to the Company. Additionally, the Company believes that this system
will require FDA approval prior to marketing, and as a consequence, the timing
of the domestic introduction of this product
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<PAGE>
is uncertain. Based upon the results of the development of the teeth whitening
process, the Company will determine whether or not to proceed with the marketing
of this system. See "Risk Factors--Government Regulation" and
"Business--Government Regulation."
The Company is also negotiating a joint venture to develop digital x-ray
technology for the dental market. This technology, if successfully developed,
would provide a more user-friendly digital x-ray system comparable to
functionally competitive systems at a significantly lower price point. Digital
x-ray systems, including those currently on the market, reduce radiation
exposure compared to conventional x-ray systems and allow dentists to view x-ray
images in real-time without the time-consuming process of film development and
eliminate the need to use and dispose of chemicals required to develop
conventional x-ray film. This technology will allow database storage and recall
of images for comparison purposes. No assurance can be given that the Company
will be able to acquire the digital x-ray technology, or if the technology is
acquired, that the Company will be able to commercially exploit it.
MANUFACTURING AND COMPONENT PARTS
The Company assembles and tests the TeliCam System, as well as develops new
products, at its facility located in Irvine, California. With the exception of
the camera's CCU processor, the Company believes that there are multiple sources
from which it may purchase the components of the TeliCam System. The Company,
however, anticipates that it will obtain certain of the components of the
TeliCam System from a single, in the case of the CCU processor, or limited
number of sources of supply. Although the Company believes it will be able to
negotiate satisfactory alternative supply arrangements, failure to do so may
have a material adverse effect on the Company. Furthermore, there can be no
assurance that suppliers will dedicate sufficient production capacity to satisfy
the Company's requirements within scheduled delivery times or at all. Failure or
delay by the Company's suppliers in fulfilling its anticipated needs may
adversely affect the Company's ability to market the TeliCam System. See "Risk
Factors--Dependence on Third Party Suppliers."
Effective October 1, 1996, the Company amended its distribution agreement
("BMC Distribution Agreement") with Boston Marketing, a licensed distributor of
the Teli manufactured CCD chip which includes the Teli CCU processor. Pursuant
to the BMC Distribution Agreement, the Company has the exclusive right (i) to
market certain Teli manufactured CCD chip assemblies with CCU processors (model
numbers CS6110 S/B with Frame Grabber, CS6110 P S/B with Frame Grabber and the
CS6110 S/B without Frame Grabber (each a "Teli Unit" and collectively the "Teli
Units")) to the dental market, and (ii) to use the "TeliCam" trademark. The Teli
Units are key components of the Company's intraoral digital cameras. See "--The
TeliCam System." The BMC Distribution Agreement has a five-year initial term.
The Company has agreed to purchase a minimum of 2,500 Teli Units per year for
each of the five years, at an initial price of $750 per Teli Unit, subject to
increase after October 1, 1998. The Company has the option to cancel the BMC
Distribution Agreement if any price increase is unacceptable. The Boston Market
Distribution Agreement is terminable by Boston Marketing if the Company fails to
meet its annual minimum purchase obligation. The term of the BMC Distribution
Agreement may be extended by mutual agreement of the Company and Boston
Marketing for an additional five year term. Management believes that, if
necessary, other CCD chips, CCU processors and frame grabbers could be obtained
from third-party suppliers on comparable terms, although a disruption materially
in supplies of components could extend for up to six months, which would
materially adversely affect the Company's operating results. See "Risk
Factors--Dependence on Third Party Suppliers."
BACKLOG
The Company generally does not operate with significant order backlog and a
substantial portion of its revenues in any quarter is derived from orders booked
in that quarter.
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MARKETING AND SALES
U.S. SALES AND DISTRIBUTION. The Company's domestic sales are made by four
full-time employees who are based at corporate headquarters, and a national
field force of independent sales representatives under the supervision of 16
independent Regional Managers. The Company's full time sales employees are
generally experienced in the business of marketing and distribution of intraoral
cameras to the dental industry. The Company markets its products through direct
mail solicitations, professional publications advertising, and attendance at
dental conferences. During 1996, the Company ran advertisements in "Dental
Products Report" and attended in excess of 70 dental conferences and trade
shows. In addition, the Company has sold TeliCam Systems to five dental schools
including the University of Chicago, Tufts University and the University of
Louisville. The Company believes that these and anticipated future dental school
sales will generate additional interest in, as well as familiarity with, the
Company's products at the initial stages of a dental professional's career. In
the U.S. dental marketplace, the Company's marketing campaign has focused on the
advantages of the intra-office networking capabilities and the significantly
lower price of the TeliCam System.
INTERNATIONAL SALES AND DISTRIBUTION. In the international market, the
Company sells the TeliCam System through independent dealers and distributors.
Presently, the Company has six contracts with independent distributors, which
agreements cover key international markets including Northern and Western
Europe, the Middle East, the Far East, Russia, Australia, Canada and South
America. These distributors provide important support, including customer
support and product service, to customers in each of their respective countries.
The Company had an agreement with Hiroki Umezaki, a former officer, director and
principal stockholder of the Company, pursuant to which he was to receive a 15%
commission on all sales made by the Company in Asia, except Japan, in which his
commission was to be 12%. This agreement resulted in Mr. Umezaki earning $15,000
in commissions through December 31, 1996. This agreement has been orally amended
to provide that Mr. Umezaki shall receive a 12% commission on sales made in
Japan only. This oral agreement is currently being documented with these changed
terms and the Company believes that the new agreement will be signed with the
new terms as described above. See "Certain Transactions--Related Party
Transactions." Furthermore, Olympus Camera Company of Japan ("Olympus") has
commenced purchases and has recently signed a letter of intent with the Company
relating to Olympus becoming the exclusive distributor of the TeliCam System in
Japan; however, no assurance can be given that the parties will enter into a
distribution agreement. The Company's international sales, which commenced in
April 1996, aggregated approximately $2,200,000 through December 31, 1996. See
"Risk Factors--International Operations." Since printed copies of dental images
are not generally required by foreign insurance companies, the Company believes
that the TeliCam System Frame-grabber image capturing mechanism, which enables
dental professionals to avoid the costs of external capture devices, and their
requisite networking demands, makes the TeliCam System particularly attractive
in international markets. The Company does not intend to market the InTELInet
network outside the United States.
TRAINING, CUSTOMER SUPPORT AND PRODUCT SERVICE
Management believes that operating the TeliCam System requires very little
training. Nevertheless, as part of the Company's customer service program, the
sales representative or international distributor responsible for the sale of
the TeliCam System schedules an installation and training appointment when the
system is delivered. In addition, the Company provides a TeliCam System
operating manual to its customers which provides answers to frequently asked
questions about the product's operations. The Company's technical support
personnel, and internationally, the support personnel of the Company's
distributors, are also available to answer customers telephone inquiries during
normal business hours. All TeliCam Systems come with a one-year complete parts
and labor warranty and extended warranties are also available. InTELInet
installation and maintenance is provided through independent installers retained
by the Company.
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PATENTS AND PROPRIETARY RIGHTS
The patents pertaining to the various components of the TeliCam System are
all owned by third parties. Pursuant to the Boston Marketing Distribution
Agreement, the Company has exclusive rights to market products which incorporate
the Teli Units to the dental market. Also pursuant to this agreement, the
Company has the rights to use the "TeliCam" trademark. See "Management--Related
Party Transactions."
The Company's success and ability to compete is dependent in part upon its
proprietary technology. The Company's proprietary technology is not protected by
any patents. Consequently, the Company relies primarily on trademark, trade
secret and copyright laws to protect its technology. Also, the Company is
implementing a policy that all employees and third-party developers sign
nondisclosure agreements. However, there can be no assurance that such
precautions will provide meaningful protection from competition or that
competitors will not be able to develop similar or superior technology
independently. Also, the Company has no license agreements with the end users of
its products, so it may be possible for unauthorized third parties to copy the
Company's products or to reverse engineer or otherwise obtain and use
information that the Company regards as proprietary. If litigation is necessary
in the future to enforce the Company's intellectual property rights, to protect
the Company's trade secrets or to determine the validity and scope of the
proprietary rights of others, such litigation could result in substantial costs
and diversion of resources and could have a material adverse effect on the
Company's business, operating results and financial condition. Ultimately, the
Company may be unable, for financial or other reasons, to enforce its rights
under intellectual property laws. In addition, the laws of certain countries in
which the Company's products are or may be distributed may not protect the
Company's products and intellectual rights to the same extent as the laws of the
United States.
The Company believes that its products do not infringe any valid existing
proprietary rights of third parties. Although the Company has received no
communication from third parties alleging the infringement of proprietary rights
of such parties, there can be no assurance that third parties will not assert
infringement claims in the future. Any such third party claims, whether or not
meritorious, could result in costly litigation or require the Company to enter
into royalty or licensing agreements. There can be no assurance that the Company
would prevail in any such litigation or that any such licenses would be
available on acceptable terms, if at all. If the Company were found to have
infringed upon the proprietary rights of third parties, it could be required to
pay damages, cease sales of the infringing products and redesign or discontinue
such products, any of which alternatives, individually or collectively could
have a material adverse effect on the Company's business, operating results and
financial condition.
GOVERNMENT REGULATION
The products which the Company sells are considered to be medical devices
and the Company is considered to be a medical device manufacturer and is subject
to control by, among other governmental entities, the FDA and the corresponding
agencies of the states and foreign countries in which the Company sells its
products. These regulations govern the introduction of new medical devices, the
observance of certain standards with respect to the manufacture and labeling of
medical devices, the maintenance of certain records and the reporting of
potential product problems and other matters. A failure to comply with such
regulations could have material adverse effects on the Company. See "Risk
Factors--Extensive Government Regulation."
The Federal Food, Drug and Cosmetic Act ("FDC Act") regulates medical
devices in the United States by classifying them into one of three classes based
on the extent of regulation believed necessary to ensure safety and
effectiveness. Class I devices are those devices for which safety and
effectiveness can reasonably be ensured through general controls, such as device
listing, adequate labeling, premarket notification and adherence to good
manufacturing practices ("GMP") as well as medical device reporting ("MDR")
labeling and other regulatory requirements. Class II devices are those devices
for which safety
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and effectiveness can reasonably be ensured through the use of special controls,
such as performance standards, post-market surveillance and patient registries,
as well as adherence to the general controls provisions applicable to Class I
devices. Class III devices are devices which generally must receive premarket
approval by the FDA pursuant to a premarket approval ("PMA") application to
ensure their safety and effectiveness. Generally, Class III devices are limited
to life sustaining, life supporting or implantable devices; however, this
classification can also apply to novel technology or new intended uses or
applications for existing devices.
Before they can be marketed, most medical devices introduced to the United
States market are required by the FDA to secure either clearance of a pre-market
notification pursuant to Section 510(k) of the FDC Act (a "510(k) Notification")
or approval of a PMA. Obtaining approval of a PMA application can take several
years. In contrast, the process of obtaining 510(k) Notification clearance
generally requires a submission of substantially less data and generally
involves a shorter review period. Most Class I and Class II devices enter the
market via the 510(k) Notification procedure, while new Class III devices
ordinarily enter the market via the more rigorous PMA procedure. In general,
clearance of a 510(k) Notification may be obtained if a manufacturer or seller
of medical devices can establish that a new device is "substantially equivalent"
to a predicate device other than one that has an approved PMA. The claim for
substantial equivalence may have to be supported by various types of
information, including clinical data, indicating that the device is as safe and
effective for its intended use as its legally marketed equivalent device. The
510(k) Notification is required to be filed and cleared by the FDA prior to
introducing a device into commercial distribution. Market clearance for a 510(k)
Notification submission may take 3 to 12 months or longer. If the FDA finds that
the device is not substantially equivalent to a predicate device, the device is
deemed a Class III device, and a manufacturer or seller is required to file a
PMA application. Approval of a PMA application for a new medical device usually
requires, among other things, extensive clinical data on the safety and
effectiveness of the device. PMA applications may take years to be approved
after they are filed. In addition to requiring clearance or approval for new
medical devices, FDA rules also require a new filing and review period prior to
marketing a changed or modified version of an existing legally marketed device
if such changes or modifications could significantly affect the safety or
effectiveness of that device. The FDA also prohibits an approved device from
being promoted or marketed for unapproved applications.
Over time, the FDA has adopted classification regulations for certain
medical devices and has designated some of these devices as Class I, while
exempting certain of them from the 510(k) Notification requirements. The dental
burs currently sold by the Company's BDI subsidiary have been classified by the
FDA as Class I devices and are exempt from the 510(k) Premarket Notification
requirements. They are not exempt from GMP, medical device reporting, labeling
and other regulatory requirements. The FDA has not specifically classified
intraoral dental cameras. The FDA, however, has classified certain other
devices, including a surgical camera and a fiber-optic dental light, as Class I
devices exempt from 510(k) Notification and the Company believes that its
intraoral dental camera is likely to be treated in the same manner provided that
it continues to market this device only for use in assisting patient
communications and in providing a record in order to facilitate insurance
payment or reimbursement. While the Company believes its position is correct,
there can be no assurance that the FDA will agree with such position. If the FDA
disagrees, the Company will be required to file a 510(k) Notification and may be
required to suspend sales of the TeliCam System until FDA clearance is granted.
The Company does not promote the TeliCam System for diagnostic uses. If
intraoral dental cameras are marketed or promoted for diagnostic uses or for
treatment uses, the FDA generally takes the position that a 510(k) Notification
must be filed for clearance by the FDA.
The Company believes that it will be required to obtain FDA approval or
clearance prior to introduction of any teeth whitening and digital x-ray product
lines, if such product lines are, in fact, developed.
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Pursuant to FDA requirements, the Company has registered its manufacturing
facility with the FDA as a medical device manufacturer, and listed the medical
devices it manufactures. The Company also is subject to inspection on a routine
basis for compliance with FDA regulations. These regulations include those
covering GMP which require that the Company manufacture its products and
maintain its documents in a prescribed manner with respect to manufacturing,
testing and control activities. Further, the Company is required to comply with
other FDA requirements with respect to labeling, and the MDR regulations which
require that the Company provide Information to the FDA on deaths or serious
injuries alleged to have been associated with the use of its products, as well
as product malfunctions that are likely to cause or contribute to death or
serious injury if the malfunction were to recur. The Company believes that it is
currently in material compliance with all relevant GMP and MDR requirements.
In addition, the Company is required to be licensed as a medical device
manufacturer by the State of California. The Company has applied for such a
license to cover its manufacturing activities. In general, because of the
Company's belief that its products are Class I devices and exempt from 510(k)
Notification, the Company believes that the California Department of Health
Services, Food and Drug Branch ("California DHS") will permit the Company to
continue to manufacture and sell its products prior to the required prelicensing
inspection. Approval of the license generally requires that the Company comply
with the FDA's GMP labeling and MDR regulations, as well any other applicable
regulatory requirements. This State license is not transferable and must be
renewed annually.
Generally, if the Company is in compliance with FDA and California
regulations, it may market its devices in other states in the United States.
International sales of medical devices are also subject to the regulatory
requirements of each country, and in Europe, the regulations of the European
Union. The regulatory review process varies from country to country. The
Company, in general, will rely upon its distributors and sales representatives
in the foreign countries in which it markets its products to ensure that the
Company compiles with the regulatory laws of such countries. The Company
believes that its international sales to date have been in compliance with the
laws of the foreign countries in which it has made sales. Failure to comply with
the laws of such country could have a material adverse effect on the Company's
operations and, at the very least, could prevent the Company from continuing to
sell products in such countries. Exports of Class I and Class II medical devices
are also subject to certain limited FDA regulatory controls.
PRODUCT LIABILITY AND INSURANCE
The nature of the Company's present and planned products may expose the
Company to product liability risks. No product liability claims have been
brought against the Company to date. The Company maintains product liability
insurance with coverage limits of $1,000,000 per occurrence and $1,000,000 per
year. While the Company believes that it maintains adequate insurance coverage,
there can be no assurance that the amount of such insurance will be adequate to
satisfy claims made against the Company in the future or that the Company will
be able to obtain insurance in the future at satisfactory rates or in adequate
amounts. Product liability claims or product recalls could have a material
adverse effect on the business and financial condition of the Company. In
addition, the Company is required under certain of its licensing agreements to
indemnify its licensors against certain product liability claims by third
parties.
COMPETITION
The distribution and manufacture of dental supplies and equipment is
intensely competitive. For example, there are at least five companies offering
intraoral camera systems which are competitive with the TeliCam System. Many of
the Company's competitors have greater financial and other resources than the
Company, and, consequently, such entities may be able to develop, manufacture,
market and/or distribute systems which are functionally similar or superior to
the Company's products. Moreover, significant price reductions by the Company's
competitors could result in a similar reduction in the Company's prices. Any
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of these competitive pressures may have a material adverse effect on operating
results. See "Risk Factors--Competition."
In the United States, the Company competes with other companies that sell
dental products, distributors and several major manufacturers of dental
products, primarily on the basis of price, customer service and value-added
services and products. The Company's principal domestic competitors are
Patterson Dental Co., Henry Schein, Inc., New Image Industries, Inc. and Ultrak.
The Company also faces competition in its international markets, where the
Company competes on the basis of price and product quality against the same
dental product distributors and manufacturers.
EMPLOYEES
At February 14, 1997, the Company had 43 full-time employees. Of these
employees, 22 were involved in production, 5 were in customer service, 10 were
in administration, 4 were engaged in sales and marketing, and 2 were involved in
engineering and research and development. The Company believes it has a good
relationship with its employees and none of its employees are represented by a
collective bargaining agreement.
PROPERTIES
The corporate headquarters and principal offices of the Company are located
in Westlake Village, California, consisting of approximately 3,900 square feet
space under a lease that expires on November 14, 2000 ("Office Lease"). The
Office Lease provides for aggregate minimum monthly rental payments of
approximately $5,800. In addition, the Company, on behalf of BDI, leases an
additional 605 square feet in Westlake Village, California ("BDI Lease"), at a
rental rate of approximately $844 per month. The BDI Lease has been extended
through April 1997 and the Company has no present intention of renewing this
lease. Further, under a lease that expires on November 1, 1998 ("Plant Lease"),
the Company has approximately 5,700 square feet of space in a building in
Irvine, California, where it manufactures and distributes the TeliCam System and
conducts research and development activities. The rental payment under the Plant
Lease is approximately $5,310 per month. Both the Office Lease and the Plant
Lease require the Company to pay taxes, maintenance fees, insurance, and
periodic rent increases based on a published price index. The Company is
currently looking for additional facilities to replace or supplement the
property which is subject to the Plant Lease.
LEGAL PROCEEDINGS
There is no material litigation pending to which the Company is a party or
to which any of its property is subject.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------ --- ------------------------------------------------
<S> <C> <C>
Robert H. Gurevitch............................. 55 Chairman of the Board of Directors/Chief
Executive Officer/President/Secretary
Marvin H. Kleinberg............................. 68 Director
Ronald E. Wittman............................... 50 Chief Financial Officer, Director
Dewey Perrigo................................... 43 Vice President of Sales
Merle Roberts................................... 47 Vice President of Manufacturing
</TABLE>
MR. GUREVITCH has been Chairman of the Board, Chief Executive Officer and
President of the Company since March 1996 and was appointed Secretary of the
Company in February 1997. Mr. Gurevitch founded DMD in October 1995 and was its
Chief Executive Officer until it was acquired by the Company. From November 1994
until February 1995, Mr. Gurevitch served as Chief Executive Officer of Dycam,
Inc., a manufacturer and marketer of digital cameras. From 1987 until his
retirement in August 1993, Mr. Gurevitch served as Chief Executive Officer and
Chairman of the Board at New Image, a manufacturer and distributor of intraoral
cameras.
MR. KLEINBERG has been a director of the Company since March 1996. Mr.
Kleinberg is a founding partner of the law firm Arant, Kleinberg, Lener & Ram
LLP, and has been a member of that law firm and its various predecessors since
1980. Mr. Kleinberg has practiced in the area of intellectual property law since
1954. Mr. Kleinberg serves as an adjunct lecturer in Patent Law at the Franklin
Pierce Law Center and is on the advisory council of the PTC Foundation, which
publishes "IDEA."
MR. WITTMAN has been the Chief Financial Officer of the Company since
September 1996. Mr.Wittman was also elected director of the Company in February
1997. From September 1994 to September 1996, Mr. Wittman was the Vice President
of Finance and Administration and the Chief Financial Officer of FMS
Corporation, a manufacturer of defense related products which declared
bankruptcy in 1995. Mr. Wittman served as Corporate Controller of Whittaker
Corporation, an aerospace, defense electronics and manufacturing corporation
from May 1993 to September 1994. From 1987 to May 1993, Mr. Wittman served as
Corporate Controller at DAK Industries, a manufacturer and distributor of
consumer electronics, computers, and computer software.
MR. PERRIGO has served as the Company's Vice President of Sales since March
1996. Commencing in October 1995, he served in the same capacity at DMD. From
1988 through September 1995, Mr. Perrigo served as the Director of Sales of New
Image.
MR. ROBERTS joined the Company in February 1996 as Director of Operations.
On July 1, 1996, he was promoted to Vice President of Manufacturing. From 1988
until May 1994, Mr. Roberts served as Materials Manager for Advanced
Interventional Systems, a medical laser manufacturer. From June 1994 until
January 1996 Mr. Roberts was an independent consultant providing materials,
management and purchasing services to a variety of businesses. Mr. Roberts has
taught material management and related subjects at several Southern California
colleges and universities, and has served as a professional consultant on these
topics.
Directors are elected annually to serve until the next annual meeting of
stockholders and until their successors are elected and qualified. Officers
serve at the pleasure of the Board of Directors subject to other contractual
arrangements.
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COMMITTEES OF THE BOARD OF DIRECTORS
The Company previously maintained an Audit Committee consisting of Mr.
Kleinberg, Mr. Umezaki and Mr. Gerald Kitano. In February 1997, Messrs. Kitano
and Umezaki resigned. The Board is currently conducting a search of candidates
to serve as an independent director in addition to Mr. Kleinberg on the Audit
Committee. The Audit Committee reviews with the Company's independent
accountants, the scope and timing of their audit services, any other services
they are asked to perform, and the report of independent accountants on the
Company's financial statements following completion of their audit of the
Company's financial statements. In addition, the Audit Committee makes an annual
recommendation to the Board of Directors concerning the appointment of
independent accountants for the coming year.
The Board of Directors also intends to establish a Compensation Committee.
The Compensation Committee will be comprised of Messrs. Gurevitch and Kleinberg
and a second independent director, and shall be responsible for the review of
compensation and benefits paid to the Company's executive officers and the
review of general policy matters relating to compensation and benefits of all of
the Company's employees. Pursuant to the Underwriting Agreement, for a period of
three years from the date of this Prospectus, all compensation and other
arrangements between the Company and its executive officers, directors and
affiliates must be approved by the Compensation Committee, a majority of whose
members must be independent.
DIRECTOR COMPENSATION
The Company's directors receive no cash compensation for serving as
directors. During 1996, each member of the Board of Directors was granted a
fully vested option to purchase 5,120 Shares of the Common Stock at an exercise
price equal to the fair market value of the Common Stock on the date of grant.
On a going forward basis, the Company currently intends to compensate its
independent directors in the amount of $500 per meeting attended and to grant
options to its directors, for serving as directors.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid
by the Company during the year ended December 31, 1996 to Robert H. Gurevitch,
the principal executive officer of the Company, and each of the Company's most
highly compensated executive officers whose salary and bonus exceeded $100,000
during such year ("Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------
ANNUAL COMPENSATION NUMBER OF
YEAR ENDED SECURITIES
DECEMBER 31, --------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION 1996 SALARY BONUS OPTIONS(1) COMPENSATION
- --------------------------------------------- --------------- ---------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Robert H. Gurevitch ......................... 1996 $ 152,300 -- 5,120 $ 1,400
Chairman of the Board of Directors, Chief
Executive Officer, President, and Secretary
Dewey Perrigo ............................... 1996 103,800 -- 34,133 2,700
Vice President of Sales
</TABLE>
(1) Certain of the officers of the Company routinely receive other benefits from
the Company, including travel reimbursement, the amounts of which are
customary in the industry. The Company has concluded, after reasonable
inquiry, that the aggregate amounts of such benefits during fiscal 1996, did
not exceed the lesser of $50,000 or 10% of the compensation set forth above
as to any named individual.
36
<PAGE>
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
The Company and Mr. Gurevitch have entered into an agreement whereby Mr.
Gurevitch has agreed to serve as Chairman of the Board of Directors and Chief
Executive Officer of the Company until October 1, 1999. Mr. Gurevitch's
compensation will include salary at a minimum annual base compensation rate of
$180,000 prior to March 1, 1997 and $275,000 thereafter, plus a car allowance
and a standard benefits package. Pursuant to the terms of that agreement, Mr.
Gurevitch may not have any ownership interest, or participate in any way, in any
venture which competes with the Company for a period of three years after the
termination of that agreement; provided, however, that the Company must pay Mr.
Gurevitch a fee of $10,000 annually for each of the three years.
The Company has also entered into an agreement with Mr. Perrigo pursuant to
which Mr. Perrigo has agreed to serve as the Company's Director of Sales until
October 1, 1999. Mr. Perrigo's compensation will include salary at a minimum
annual base compensation rate of $100,000 prior to March 1, 1997 and $150,000
thereafter, plus a car allowance and a standard benefits package.
1997 STOCK INCENTIVE PLAN
INTRODUCTION. The Company adopted the DENTAL/MEDICAL DIAGNOSTIC SYSTEMS,
INC. 1997 Stock Incentive Plan ("1997 Plan") on February 11, 1997 and submitted
the Plan to the Company's shareholders at the annual meeting to be held on March
21, 1997, subject to the qualification of the 1997 Plan with the California
Department of Corporations. The 1997 Plan provides for the grant of stock awards
to directors, employees, officers and consultants of the Company. Subject to
adjustment for stock splits, stock dividends and other similar events, 350,000
shares of the Company's Common Stock are available for awards under the 1997
Plan.
The 1997 Plan will be administered by the Board of Directors or another
committee of two or more non-employee directors appointed by the Board
("Committee"), each of whom shall be an "outside director" for purposes of
162(m) of the Internal Revenue Code of 1986, as amended. The Committee shall
have power, subject to, and within the limitations of, the express provisions of
the 1997 Plan to select the persons to whom awards will be granted, and to
determine the terms and conditions of the awards.
AWARDS. The 1997 Plan authorizes the Committee to enter into any type of
arrangement with an eligible employee that, by its terms, involves or might
involve the issuance of shares of Common Stock or an option, stock appreciation
right or similar right with an exercise or conversion privilege at a price
related to the Common Stock. Awards under the plans may not be issued at less
than the fair market value of the underlying shares of Common Stock. Awards
under the 1997 Plan are not restricted to any specified form or structure and
may include arrangements such as sales, bonuses and other transfers of stock,
stock options, reload stock options and stock appreciation rights. An award may
consist of one such arrangement or two or more such arrangements in tandem or in
the alternative. An award may provide for the issuance of Common Stock for any
lawful consideration, including services rendered or, to the extent permitted by
applicable state law, to be rendered. Currently, Delaware law does not permit
the issuance of common stock for services to be rendered.
An award granted under the 1997 Plan may include a provision conditioning or
accelerating the receipt of benefits, either automatically or in the discretion
of the Committee, upon the occurrence of specified events, including a change of
control of the Company, an acquisition of a specified percentage of the voting
power of the Company or a dissolution, liquidation, merger, reclassification,
sale of substantially all of the property and assets of the Company or other
significant corporate transaction. Any stock option granted may be an incentive
stock option within the meaning Section 422 of the Code or a nonqualified stock
option.
An award under the 1997 Plan may permit the recipient to pay all or part of
the purchase price of the shares or other property issuable pursuant to the
award and/or to pay all or part of the recipient's tax
37
<PAGE>
withholding obligations with respect to such issuance, by delivering previously
owned shares of capital stock of the Company or other property, or by reducing
the amount of shares or other property otherwise issuable pursuant to the award.
AMENDMENTS. The Committee may amend or terminate the 1997 Plan at any time
and in any manner, subject to the following: (1) no recipient of any award may,
without his or her consent, be deprived thereof or of any of his or her rights
thereunder or with respect thereto as a result of such amendment or termination;
and (2) if any rule or regulation promulgated by the Commission, the Internal
Revenue Service or any national securities exchange or quotation system upon
which any of the Company's securities are listed requires that any such
amendment be approved by the Company's stockholders, then such amendment will
not be effective until it has been approved by the Company's stockholders.
FORM S-8 REGISTRATION. The Company intends to file a registration statement
under the Securities Act to register the 350,000 shares of Common Stock reserved
for issuance under the 1997 Plan. Pursuant to an agreement with the Underwriter,
such registration statement may not be filed until at least one year following
the Effective Date of this Prospectus and will become effective immediately upon
filing with the Commission.
The following table sets forth information concerning individual grants of
stock options made during the year ended December 31, 1996 to each of the Named
Executive Officers.
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS GRANTED
UNDERLYING TO EMPLOYEES IN
OPTIONS TEN-MONTH PERIOD EXERCISE OF BASE EXPIRATION
NAME GRANTED ENDED DECEMBER 31 PRICE ($/SH) DATE
- ---------------------------------------------------- ----------- ----------------- ----------------- -----------
<S> <C> <C> <C> <C>
Robert H. Gurevitch................................. 5,120 4% $ .88 03/04/01
Dewey Perrigo....................................... 34,133 24% 2.93 03/31/06
</TABLE>
FISCAL YEAR END OPTION VALUES
No options were exercised by the Named Executive Officers during the year
ended December 31, 1996. The following table shows the number of shares covered
by both exercisable and unexercisable employee stock options, as of December 31,
1996.
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED OPTIONS VALUE OF UNEXERCISED
AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1996 DECEMBER 31, 1996
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------------- ----------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C>
Robert H. Gurevitch.................................... 5,120 -- $ 21,760 --
Dewey Perrigo.......................................... 34,133 -- 75,092 --
</TABLE>
38
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of February 14, 1997 certain information
relating to the ownership of the Common Stock by (i) each person known by the
Company to be the beneficial owner of more than 5% of the outstanding shares of
the Common Stock, (ii) each of the Company's directors, (iii) each of the
Company's Named Executive Officers, and (iv) all of the Company's executive
officers and directors as a group. Except as may be indicated in the footnotes
to the table and subject to applicable community property laws, each of such
persons has the sole voting and investment power with respect to the shares
owned. Unless otherwise indicated, the address for each of the principal
stockholders is c/o Dental/Medical Diagnostic Systems, Inc., 200 N. Westlake
Boulevard, Suite 202, Westlake Village, California 91362.
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF SHARES ----------------------
BENEFICIALLY BEFORE AFTER
NAME OWNED(1) OFFERING OFFERING
- --------------------------------------------------------------------------- ----------------- ---------- ----------
<S> <C> <C> <C>
Robert H. Gurevitch(2)..................................................... 875,500 29.3% 19.5%
Marvin H. Kleinberg(2)..................................................... 5,120 -- --
Dewey Perrigo(3)........................................................... 119,464 4.0% 2.7%
Richard M. Bliss........................................................... 223,910 7.5% 5.0%
Paul D. Koether ........................................................... 244,958 8.2% 5.5%
211 Pennbrook Rd.
Fox Hill, NJ 07931
G. Tyler Runnels(4) ....................................................... 200,699 6.7% 4.5%
T.R. Winston & Co., Inc.
1999 Avenue of the Stars, Suite 1950
Los Angeles, California 90067
All Officers and Directors as a Group (5 Persons)(5)....................... 1,017,150 34.1% 22.7%
</TABLE>
- ------------------------
* Less than one percent.
(1) Beneficial ownership has been determined in accordance with Rule 13d-3 under
the Exchange Act. Pursuant to the rules of the Securities and Exchange
Commission, shares of Common Stock which an individual or group has a right
to acquire within 60 days pursuant to the exercise of options or warrants
are deemed to be outstanding for the purpose of computing the percentage
ownership of such individual or group, but are not deemed to be beneficially
owned and outstanding for the purpose of computing the percentage ownership
of any other person shown in the table.
(2) Includes 5,120 shares of Common Stock underlying options which were
exercisable on or which will become exercisable within 60 days of February
14, 1997.
(3) Includes 34,133 shares of Common Stock underlying options which were
exercisable on or which will become exercisable within 60 days of February
14, 1997.
(4) Includes 40,959 shares of Common Stock underlying options which were
exercisable on or which will become exercisable within 60 days of February
14, 1997.
(5) Includes 61,439 shares of Common Stock underlying options which were
exercisable on or which will become exercisable within 60 days of February
14, 1997.
39
<PAGE>
CERTAIN TRANSACTIONS
In October 1996, the Company entered into an agreement with Boston Marketing
pursuant to which the Company obtained worldwide marketing rights in the dental
market for the Teli Units as well as the right to use the "TeliCam" trademark.
See "Business--Manufacturing and Component Parts." At the time the Company
entered into this agreement, Hiroki Umezaki was an officer, director and
principal stockholder of the Company and is a substantial stockholder and the
President of Boston Marketing. At December 31, 1996, the Company owed Boston
Marketing approximately $247,500 in connection with Teli Units purchased by the
Company prior to that date. From March 3, 1996 to December 31, 1996, the Company
purchased 2,509 Teli Units at an aggregate cost of $1,881,750 from Boston
Marketing. In addition, the Company had an agreement with Mr. Umezaki pursuant
to which he was to receive a 15% commission on all sales made by the Company in
Asia, except Japan in which his commission was to be 12%. This agreement
resulted in Mr. Umezaki earning $15,000 in commissions through December 31,
1996. This agreement has been orally amended to provide that Mr. Umezaki shall
receive a 12% commission on sales made in Japan only. This oral agreement is
currently being documented with these changed terms and the Company believes
that the new agreement will be signed with the new terms as described above.
From December 1995 through February 1996, Robert H. Gurevitch, Chairman of
the Board and Chief Executive Officer of the Company, and Boston Marketing, an
affiliate of Mr. Umezaki, each loaned the Company $177,015 and $200,000,
respectively. The promissory notes evidencing such loans bear interest at 6% per
annum and were originally payable within six months. On February 26, 1996, the
Company repaid $50,000 to each of Mr. Gurevitch and Boston Marketing. No
interest has been paid on the remaining principal balance of these notes
although interest has been accrued on the Company's books. In November 1996, Mr.
Gurevitch and Boston Marketing each agreed to extend the term of their
respective notes until the earlier to occur of: (i) twenty-four months following
the closing of the Bridge Financing; (ii) at such time as the Company receives
proceeds from the sale of the Common Stock in connection with this Offering; and
(iii) the repayment of the Bridge Notes in full. A portion of the proceeds of
this Offering will be used to satisfy these obligations. See "Use of Proceeds."
In addition, on April 11, 1996, Boston Marketing loaned the Company an
additional $25,000 under similar terms ("April Loan"). The April Loan was repaid
in full on August 26, 1996.
Mr. Gurevitch and Mr. Umezaki have guaranteed the performance by the Company
under the Company's leases for its Irvine and Westlake premises, and Mr.
Gurevitch has also personally guaranteed the Company's credit card processing
agreement with the Checkfree Corporation. The Company intends to attempt to
obtain releases from the recipients of each of these guarantees and it is
possible that the elimination of the availability of these guarantees may
require the Company to post collateral or incur increased expense.
The Company has adopted a policy whereby all future transactions between the
Company and its officers, directors, principal stockholders or affiliates will
be approved by a committee of the Board of Directors, a majority of the members
of which shall be independent directors, or, if required by law, a majority of
disinterested directors, and will be on terms no less favorable to the Company
than could be obtained in arm's length transactions from unaffiliated third
parties.
40
<PAGE>
DESCRIPTION OF SECURITIES
AUTHORIZED STOCK
The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock, $0.01 par value per share, and 1,000,000 shares of Preferred
Stock, $0.01 par value per share ("Preferred Stock"). As of the date of this
Prospectus, 2,985,537 shares of Common Stock are outstanding. Upon completion of
this Offering, there will be 4,485,537 shares of Common Stock outstanding
(4,710,537 if the Underwriters over-allotment option is exercised in full).
COMMON STOCK
Subject to any preference that may be applicable to any outstanding shares
of Preferred Stock, holders of Common Stock are entitled to receive dividends
when and if declared by the Board of Directors out of funds of the Company
legally available therefor. Any such dividends may be paid in cash, property or
shares of the Company's Common Stock. The Company has no present intention to
pay dividends. See "Dividend Policy." Each holder of Common Stock is entitled to
cast one vote per share in all matters to be voted upon by stockholders.
Cumulative voting is not allowed in the election of directors or for any other
purpose. Therefore, the holders of more than 50% of the outstanding Common Stock
can elect all directors. The holders of a majority of the outstanding Common
Stock constitute a quorum at any meeting of stockholders and the vote by the
holders of a majority of the outstanding shares is required to effect certain
fundamental corporate changes, such as liquidation, merger or amendment of the
Amended and Restated Certificate of Incorporation. The shares of the Common
Stock have no preemptive or conversion rights, or redemption or sinking fund
provisions. In the event of any liquidation, dissolution or winding up of the
affairs of the Company, whether voluntary or otherwise, after payment or
provision for payment of the debts and other liabilities of the Company,
including the liquidation preference on the Preferred Stock of the Company, if
any, each holder of the Common Stock will be entitled to receive a pro rata
portion of the remaining net assets of the Company, if any.
All of the issued and outstanding shares of Common Stock have been duly
authorized and validly issued and are fully paid and non-assessable, and the
shares of Common Stock issued upon completion of this Offering have been duly
authorized and, when issued, will be fully paid and non-assessable.
PREFERRED STOCK
The Company's Board of Directors may without further action by the Company's
stockholders, from time to time, direct the issuance of shares of the Preferred
Stock in series and may, at the time of issuance, determine the rights,
preferences and limitations of each series. The holders of the Preferred Stock
normally would be entitled to receive a preference payment in the event of any
liquidation, dissolution or winding-up of the Company before any payment is made
to the holders of the Common Stock. At the present time, no shares of Preferred
Stock are outstanding and the Company does not presently intend to issue any
shares of Preferred Stock.
The overall effect of the ability of the Company's Board of Directors to
issue the Preferred Stock may be to render more difficult the accomplishment of
mergers or other takeover or change in control attempts. To the extent that this
ability has this effect, removal of the Company's incumbent Board of Directors
and management may be rendered more difficult. Further, this may have an adverse
impact on the ability of stockholders of the Company to participate in a tender
or exchange offer for the Common Stock and in so doing diminish the market value
of the Common Stock.
WARRANTS
The Warrants will be issued in registered form pursuant to the terms of a
Warrant Agreement dated as of , 1997 ("Warrant Agreement") between the
Company and American Stock Transfer and
41
<PAGE>
Trust Company, New York, New York, as Warrant Agent. Reference is made to said
Warrant Agreement (which has been filed as an Exhibit to the Registration
Statement of which this Prospectus is a part) for a complete description of the
terms and conditions thereof. The description herein is qualified in its
entirety by reference to the Warrant Agreement.
Unless previously redeemed, each Warrant (including the Warrants converted
from the Bridge Warrants) entitles the registered holder thereof to purchase one
share of Common Stock at any time during the four-year period commencing one
year from the date of this Prospectus, at a per share price equal to $5.00
subject to adjustment in certain circumstances.
Unless extended by the Company at its discretion, the Warrants will expire
at 5:00 p.m., New York time, on the fifth anniversary of the date of this
Prospectus. In the event a holder of the Warrants fails to exercise the Warrants
prior to their expiration, the Warrants will expire and the holder thereof will
have no further rights with respect to the Warrants.
The Company may, with the prior written consent of the Underwriter, redeem
the Warrants at any time once they become exercisable, for a redemption price of
$.01 per Warrant if notice of not less than 30 days is given and the last sale
price of the Common Stock has been at least 190% of the then current exercise
price of the Warrants on each of the 10 consecutive trading days ending on the
third day prior to the day on which notice is given. The Warrants will be
exercisable until the close of business on the date fixed for redemption. The
Company has agreed that it will not redeem Warrants held of record by investors
in the Bridge Financing at any time that such investors are subject to any
contractual restriction with the Underwriter which prevents their immediate
resale of the Common Stock issuable to such holders upon the exercise of such
Warrants.
The Company will be able to issue shares of its Common Stock upon exercise
of the Warrants only if there is then a current prospectus relating to such
Common Stock, and only if such Common Stock is qualified for sale or exempt from
qualification under applicable state securities laws of the jurisdictions in
which the various holders of the Warrants reside. Although the Company has
undertaken and intends to file and keep current a prospectus which will permit
the exercise of the Warrants and to qualify for sale the shares of Common Stock
underlying the Warrants in those states in which the Securities are to be
offered until the expiration of the Warrants, subject to the terms of the
Warrant Agreement, there can be no assurance that the Company will be able to do
so. See "Risk Factors -- Current Prospectus and State Blue Sky Registration
Required to Exercise Warrants."
The exercise prices and number of shares of Common Stock or other securities
issuable on exercise of the Warrants are also subject to adjustment in the event
of a stock dividend, stock split, recapitalization, reorganization, or merger or
consolidation of the Company or other similar event.
The Warrants may be exercised upon surrender of the Warrant certificate on
or prior to the expiration date at the offices of the Warrant Agent, with the
exercise form on the reverse side of the Warrant certificate completed and
executed as indicated, accompanied by full payment of the exercise price (by
certified check payable to the Company) to the Warrant Agent for the number of
warrants being exercised. The Company is required to keep available a sufficient
number of authorized shares of the Common Stock to permit exercise of the
Warrants. The Warrant holders do not have the rights or privileges of the
holders of Common Stock prior to exercise of the Warrants.
DELAWARE LAW
The Company is subject to Section 203 of the DGCL, which prevents an
"interested stockholder" (defined in Section 203, generally, as a person owing
15% or more of a corporation's outstanding voting stock) from engaging in a
"business combination" with a publicly held Delaware corporation for three years
following the date such person became an interested stockholder, unless: (i)
before such person became an interested stockholder, the board of directors of
the corporation approved the transaction in
42
<PAGE>
which the interested stockholder became an interested stockholder or approved
the business combination; (ii) upon consummation of the transaction that
resulted in the interested stockholder's becoming an interested stockholder, the
interested stockholder owns at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (subject to certain
exceptions); or (iii) following the transaction in which such person became an
interested stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders by the
affirmative vote of the holders of 66% of the outstanding voting stock of the
corporation not owned by the interested stockholder. A "business combination"
includes mergers, stock or asset sales and other transactions resulting in a
financial benefit to the interested stockholder.
The provisions of Section 203 of the DGCL could have the effect of delaying,
deferring or preventing a change in control of the Company.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Amended and Restated Certificate of Incorporation and Bylaws
provide for the indemnification by the Company of each director and officer of
the Company to the fullest extent permitted by the Delaware General Corporation
Law ("DGCL"), as the same exists or may hereafter be amended. Section 145 of the
DGCL provides in relevant part that a corporation may indemnify any person
against whom any pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) is threatened by reason of the fact that such person
is or was a director or officer of the corporation against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. In addition,
Section 145 provides that a corporation may indemnify any such person against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation and except that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court shall deem
proper. Delaware law further provides that nothing in the above-described
provisions shall be deemed exclusive of any other rights to indemnification or
advancement of expenses to which any person may be entitled under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise.
The Company's Amended and Restated Certificate of Incorporation also
provides that a director of the Company shall not be liable to the Company or
its stockholders for monetary damages for breach of fiduciary duty as a
director. Section 102(b)(7) of the Delaware General Corporation Law provides
that a provision so limiting the personal liability of a director shall not
eliminate or limit the liability of a director for, among other things: breach
of the duty of loyalty; acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law; unlawful payment of
dividends; and transactions from which the director derived an improper personal
benefit.
The Company has entered into separate but identical indemnity agreements
(the "Indemnity Agreements") with each director of the Company and certain of
its officers (the "Indemnitees"). Pursuant to the terms and conditions of the
Indemnity Agreements, the Company has agreed to indemnify each Indemnitee
against any amounts which he or she becomes legally obligated to pay in
connection with any claim against him or her based upon any action or inaction
which he or she may commit, omit or suffer while
43
<PAGE>
acting in his or her capacity as a director and/or officer of the Company or its
subsidiaries; provided, however, that Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company and, with respect to any criminal action, had no
reasonable cause to believe Indemnitee's conduct was unlawful.
At present there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding that may result in a claim of indemnification by any director or
officer. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission
("Commission") such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
The Company has purchased a Director and Officer and Corporate Reimbursement
("D&O") policy from an A or higher rated insurance Company admitted in
California. The D&O policy provides coverage for certain claims made against
directors and officers of the Company that are typically covered by standard D&O
policies. In addition, the D&O policy provides coverage for claims made against
the Company for certain "securities claims" as defined by the policy. The D&O
policy is a claims-made policy and has aggregate limits of $ .
TRANSFER AGENT, REGISTRAR AND WARRANT AGENT
American Stock Transfer and Trust Company, New York, New York, is the
transfer agent and registrar for the Common Stock and warrant agent for the
Warrants.
44
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
4,485,537 shares of Common Stock (4,710,537 shares if the Underwriter's
over-allotment option is exercised in full), not including shares of Common
Stock issuable upon exercise of outstanding options or warrants. For purposes of
determining dates upon which outstanding shares of Common Stock may first be
sold, it is assumed that the amendment to Rule 144 adopted by the Commission on
February 20, 1997 is currently in effect.
- Of these outstanding shares, 1,500,000 shares of Common Stock sold to the
public in this Offering may be freely traded without restriction or
further registration under the Securities Act, except that any shares that
may be held by an "affiliate" of the Company (as that term is defined in
the rules and regulations under the Securities Act) may be sold only
pursuant to a registration under the Securities Act or pursuant to an
exemption from registration under the Securities Act, including the
exemption provided by Rule 144 adopted under the Securities Act.
- Of the 2,985,537 shares of Common Stock which were outstanding prior to
the completion of this Offering, 1,054,316 may be freely traded without
restriction and without registration under the Securities Act. The
remaining 1,931,221 shares of Common Stock which were outstanding prior to
the completion of this Offering are restricted by contract or are
"restricted securities" as that term is defined in Rule 144 under the
Securities Act ("Restricted Shares") and may not be sold unless such sale
is registered under the Securities Act, or is made pursuant to an
exemption from registration under the Securities Act, including the
exemption provided by Rule 144. Of these restricted shares, 1,385,100
shares become eligible for resale under Rule 144 commencing in March 1997,
204,794 shares become eligible commencing in January 1998 and 341,327
shares become eligible commencing in February 1998. Of the 1,931,221
Restricted Shares, 68,265, 546,117 and 1,180,303 shares are subject to
contractual restrictions pursuant to which the holders have agreed not to
sell such shares without prior written consent of the Underwriter for a
period of 12 months, 13 months and 18 months, respectively from the date
of this Prospectus. The Company has agreed to file a registration
statement prior to December 31, 1997 relating to the offer and sale of
546,117 shares of Common Stock that would otherwise become eligible for
resale under Rule 144 in January and February of 1998, all of which
shares, however, will remain subject to contractual restrictions on resale
expiring 13 months from the date of this Prospectus.
In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned any
restricted securities for at least one year (including a stockholder who may be
deemed to be an affiliate of the Company), will be entitled to sell, within any
three-month period, that number of shares that does not exceed the greater of
(i) 1% of the then outstanding shares of Common Stock or (ii) the average weekly
treading volume of the Common Stock during the four calendar weeks preceding the
date on which notice of such sale is given to the Commission, provided certain
public information, manner of sale and notice requirements are satisfied. A
stockholder who is deemed to be an affiliate of the Company, including members
of the Board of Directors and senior management of the Company, will still need
to comply with the restrictions and requirements of Rule 144, other than the
one-year holding period requirement, in order to sell shares of Common Stock
that are not restricted securities, unless such sale is registered under the
Securities Act. A stockholder (or stockholders whose shares are aggregated) who
is deemed not to have be an affiliate of the Company at any time during the 90
days preceding a sale by such stockholder, and who has beneficially owned
restricted securities for at least two years, will be entitled to sell such
shares under Rule 144 without regard to the volume limitations described above.
No predictions can be made of the effect, if any, that future sales of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of the
Common Stock in the public market could adversely affect the then-prevailing
market price.
45
<PAGE>
SELLING SECURITYHOLDERS AND PLAN OF DISTRIBUTION
The Company has agreed to register for sale under the Securities Act
concurrently with this Offering the Warrants converted from the Bridge Warrants.
An aggregate of 1,600,000 Warrants may be offered and sold pursuant to this
Prospectus by the Selling Securityholders. The Warrants offered by the Selling
Securityholders are not part of the underwritten Offering. The Company will not
receive any of the proceeds from the sale of the Warrants by the Selling
Securityholders.
The Warrants registered for sale on behalf of the Selling Securityholders
under the Registration Statement of which this Prospectus forms a part may be
offered and sold from time to time in regular brokerage transactions (which may
include block transactions) on the Nasdaq SmallCap Market, in transactions
directly with market makers, in certain privately-negotiated transactions, or
through a combination of such methods of sale, at fixed prices which may be
changed, at market prices prevailing at the time of sale or at negotiated
prices. The Selling Securityholders may effect such transactions by selling
their Warrants directly to purchasers or to or through broker-dealers (including
the Underwriter), which may act as agents or principals. Such broker-dealers may
receive compensation in the form of discounts, concessions, or commissions from
the Selling Securityholders and/or the purchasers of the Warrants for whom such
broker-dealers may act as agents or to whom they sell as principal, or both. The
Selling Securityholders have advised the Company that they have not entered into
any agreements, understandings, or arrangements with any underwriters or
broker-dealers regarding the sale of their Warrants. The Selling Securityholders
and any broker-dealers that act in connection with the sale of the Warrants may
be deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act.
The following table sets forth the name of each Selling Securityholder and
the number of Warrants registered for resale on such party's behalf. All of such
Warrants are being registered for sale under the Registration Statement of which
this Prospectus forms a part, and the Company believes that all such Warrants
will be owned by the respective holders thereof following the completion of this
Offering and prior to resale. Notwithstanding that such Warrants are being
registered, the Selling Securityholders have agreed that none of such Warrants
may be sold prior to November 27, 1998 without the prior written consent of the
Underwriter. The Underwriter may, depending upon market conditions, release the
lock-up prior to November 27, 1998.
None of the Selling Securityholders has ever held any position or office
with the Company or had any other material relationship with the Company, nor do
any of the Selling Securityholders beneficially own any shares of Common Stock
of the Company at February 14, 1997.
<TABLE>
<CAPTION>
NUMBER OF
WARRANTS
REGISTERED
FOR RESALE
-----------
<S> <C>
Bear Stearns Securities Corp. ................................................... 25,000
as IRA Custodian FBO Paul Breslow
Bear Stearns Securities Corp. ................................................... 50,000
as IRA Custodian FBO David J. Carr
Bear Stearns Securities Corp. ................................................... 25,000
as IRA Custodian FBO Sharon Carr
Henry M. Cohn.................................................................... 50,000
William M. De Arman.............................................................. 50,000
Donehew Fund Limited Partnership................................................. 50,000
Bear Stearns Securities Corp. ................................................... 25,000
as Custodian FBO Empire Medical
Diagnostic PC Defined Contribution
Profit Sharing Plan
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
WARRANTS
REGISTERED
FOR RESALE
-----------
Ronald J. Frank.................................................................. 25,000
<S> <C>
Louis Gigante.................................................................... 25,000
Stephen Goldman.................................................................. 25,000
Stanley D. Goodman............................................................... 25,000
Janice Halle-Nesses.............................................................. 175,000
H&S Advisors, Inc................................................................ 20,000
IF Consulting Ltd................................................................ 50,000
Jo-Bar Enterprises, L.L.C........................................................ 50,000
KCID Industries, Bradley S. Cooper............................................... 25,000
Richard M. Kirshner.............................................................. 25,000
Jacqueline Knapp................................................................. 187,500
Larry Kupferberg................................................................. 152,500
Christina Litt................................................................... 25,000
Private Trust Corp. Ltd. ........................................................ 50,000
TTEE New Amsterdam Investment Trust
Joseph Reiss, M.D................................................................ 50,000
Marc Roberts..................................................................... 50,000
Claudia C. Rouhana............................................................... 25,000
William J. Rouhana, Jr........................................................... 25,000
William J. Rouhana, Sr. ......................................................... 25,000
Trustee for Rouhana
1990 GRIT dtd 7/30/90
William J. Rouhana, Sr. ......................................................... 25,000
Trustee for Rouhana
1995 GRAT dtd 3/2/95
Richard Semble, M.D.............................................................. 25,000
Dr. Larry Sheer.................................................................. 50,000
Stanley Snyder................................................................... 140,000
Jeffrey M. Spiegel............................................................... 25,000
Gibbs A. Williams ............................................................... 25,000
Keough Trust
</TABLE>
47
<PAGE>
UNDERWRITING
M.H. Meyerson & Co., Inc. ("Underwriter") has agreed, subject to the terms
and conditions of the Underwriting Agreement, to purchase from the Company a
total of 1,500,000 shares of the Common Stock and 1,500,000 Warrants. The
obligations of the Underwriter under the Underwriting Agreement are subject to
approval of certain legal matters by counsel and various other conditions
precedent, and the Underwriter is obligated to purchase all of the Securities
offered by this Prospectus (other than the Securities covered by the
over-allotment option described below and those being offered on behalf of the
Selling Securityholders) if any are purchased.
The Underwriter has advised the Company that it proposes to offer the
Securities to the public at the initial offering price set forth on the cover
page of this Prospectus and to certain dealers at that price less a concession
not in excess of $5.00 per share of the Common Stock and $.75 per Warrant. The
Underwriter may allow, and such dealers may reallow, a concession not in excess
of $ per share of Common Stock and $ per Warrant to certain
other dealers. After this Offering, the offering price and other selling terms
may be changed by the Underwriter.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act. The Company has
also agreed to pay to the Underwriter an expense allowance on a nonaccountable
basis equal to 3% of the gross proceeds derived from the sale of the Securities
offered by this Prospectus (including the sale of any Securities subject to the
Underwriter's over-allotment option but excluding the Warrants being sold by the
Selling Securityholders), $50,000 of which has been paid to date. The Company
also has agreed to pay all expenses in connection with qualifying the shares of
Common Stock offered hereby for sale under the laws of such states as the
Underwriter may designate and registering this Offering with the National
Association of Securities Dealers, Inc., including fees and expenses of counsel
retained for such purposes by the Underwriter.
The Company has granted to the Underwriter an option, exercisable during the
45-day period after the date of this Prospectus, to purchase from the Company at
the offering price, less underwriting discounts and the nonaccountable expense
allowance, up to an aggregate of 225,000 additional shares of Common Stock
and/or 225,000 additional Warrants for the sole purpose of covering
over-allotments, if any.
In connection with this Offering, the Company has agreed to sell to the
Underwriter for an aggregate of $100, the Underwriter's Purchase Option,
consisting of the right to purchase up to an aggregate of 150,000 shares of the
Common Stock and/or an aggregate of 150,000 Warrants. The Underwriter's Purchase
Option is exercisable initially at a price of $ for a period of four
years commencing one year from the date hereof. The Underwriter's Purchase
Option may not be transferred, sold, assigned or hypothecated during the one
year period following the date of this Prospectus except to officers of the
Underwriter and the selected dealers and their officers or partners. The
Underwriter's Purchase Option grants to the holders thereof certain "piggyback"
and demand rights for periods of five and seven years, respectively, from the
date of this Prospectus with respect to the registration under the Securities
Act of the securities directly and indirectly issuable upon exercise of the
Underwriter's Purchase Option.
Pursuant to the Underwriting Agreement, all of the directors, executive
officers, and certain of existing stockholders of the Company as of the date of
this Prospectus (who hold in the aggregate 1,794,685 outstanding shares of
Common Stock) have agreed not to sell any of their shares of Common Stock for
periods ranging between 12 and 18 months from the date of this Prospectus.
During the five-year period following the date of this Prospectus, the
Underwriter shall have the right to purchase for the Underwriter's account or to
sell for the account of the directors, officers and certain stockholders of the
Company, any securities sold by any of such persons in the open market. In
addition, the Underwriting Agreement provides that, for a period of three years
from the date of this Prospectus, the Company will recommend and use its best
efforts to elect a designee of the Underwriter as a member of the Board of
48
<PAGE>
Directors. Alternatively, the Underwriter will have the right to send a
representative to observe each meeting of the Board of Directors. The
Underwriter has not yet selected such designee or representative.
The Company has engaged the Underwriter, on a nonexclusive basis, as its
agent for the solicitation of the exercise of the Warrants. Additionally, other
NASD members may be engaged by the Underwriter in its solicitation efforts. To
the extent not inconsistent with the guidelines of the NASD and the rules and
regulations of the Commission, the Company has agreed to pay the Underwriter for
bona fide services rendered a commission equal to 4% of the exercise price for
each Warrant exercised if the exercise was solicited by the Underwriter. In
addition to soliciting, either orally or in writing, the exercise of the
Warrants, such services may also include disseminating information, either
orally or in writing, to warrantholders about the Company or the market for the
Company's securities, and assisting in the processing of the exercise of the
Warrants. No compensation will be paid to the Underwriter in connection with the
exercise of the Warrants if the market price of the underlying shares of Common
Stock is lower than the exercise price, the Warrants are held in a discretionary
account, the Warrants are exercised in an unsolicited transaction, the
warrantholder has not confirmed in writing that the Underwriter solicited such
exercise of the arrangement to pay the commission is not disclosed in the
prospectus provided to warrant holders at the time of exercise. In addition,
unless granted an exemption by the Commission from Regulation M under the
Exchange Act, while it is soliciting exercise of the Warrants, the Underwriter
will be prohibited from engaging in any market activities or solicited brokerage
activities with regard to the Company's securities unless the Underwriter has
waived its right to receive a fee for the exercise of the Warrants.
Prior to this Offering, there has been only a limited public market for any
of the Common Stock. Accordingly, the Offering Price of the Securities and the
terms of the Warrants have been determined by negotiation between the Company
and the Underwriter and do not necessarily bear any relation to established
valuation criteria. Factors considered in determining such prices and terms, in
addition to prevailing market conditions, included an assessment of the prospect
for the industry in which the Company will compete, the Company's management and
the Company's capital structure.
In November 1996, the Underwriter acted as placement agent in the Bridge
Financing and was paid commissions of $160,000 (10%) and a nonaccountable
expense allowance of $48,000 (3%).
LEGAL MATTERS
The legality of the securities offered hereby are being passed upon for the
Company by Troop Meisinger Steuber & Pasich, LLP, Los Angeles, California.
Graubard Mollen & Miller, New York, New York, has served as counsel to the
Underwriter in connection with this Offering.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1996 and
March 2, 1996 and the consolidated statements of operations, stockholders'
equity and cash flows for the ten-month period ended December 31, 1996 and for
the period from inception (October 23, 1995) to March 2, 1996 have been included
herein and in the Registration Statement of which this Prospectus is a part, in
reliance on the report of Coopers & Lybrand, L.L.P., independent accountants,
given on their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the Commission's
following Regional Offices: Chicago Regional Office,
49
<PAGE>
500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and New York
Regional Office, 7 World Trade Center, 13th Floor, 75 Park Place, New York, New
York 10048. Copies of such material can also be obtained at prescribed rates
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549. Additionally, the Commission maintains
a Web Site (http://www.sec.gov) that contains certain reports, proxy and
information statements and other information relating to the Company.
A Registration Statement on Form SB-2, including amendments thereto,
relating to the Securities offered hereby has been filed by the Company with the
Commission, Washington, D.C. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereof. For further information with respect to the Company and the
Securities offered hereby, reference is made to such Registration Statement,
exhibits and schedules. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. A copy of the
Registration Statement may be inspected without charge at the Commission's
public reference facilities at the offices described above and copies of all or
any part thereof may be obtained from the Commission upon the payment of certain
fees prescribed by the Commission.
50
<PAGE>
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and March 2, 1996...................................... F-3
Consolidated Statements of Operations for the Ten-month period ended December 31, 1996 and for the Period
from Inception (October 23, 1995) to March 2, 1996....................................................... F-4
Consolidated Statements of Stockholders' Equity for the Ten-month period ended December 31, 1996 and for
the Period from Inception (October 23, 1995) to March 2, 1996............................................ F-5
Consolidated Statements of Cash Flows for the Ten-month period ended December 31, 1996 and for the Period
from Inception (October 23, 1995) to March 2, 1996....................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
The accompanying consolidated financial statements reflect the reverse stock
split of one share for 1.33333333 shares of Common Stock, which is to be
effected on or before the effective date contemplated by this Prospectus. The
following Report of Independent Accountants is in the form that will be signed
by Coopers & Lybrand L.L.P. upon consummation of the one-for-1.33333333 reverse
stock split as described in Note 2 of Notes to Consolidated Financial Statements
assuming, that from the date thereon to the date of such split, no other events
shall have occurred that would affect the accompanying consolidated financial
statements and notes thereto.
Coopers & Lybrand L.L.P.
Los Angeles, California
February 25, 1997
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders of
Dental/Medical Diagnostic Systems, Inc.
We have audited the accompanying consolidated financial statements of
Dental/Medical Diagnostic Systems, Inc. and Subsidiaries ("the Company") listed
in the index on page F-1 of this Registration Statement on Form SB-2. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Dental/Medical
Diagnostic Systems, Inc. and Subsidiaries as of December 31, 1996 and March 2,
1996 and the consolidated results of their operations and their cash flows for
the ten-month period ended December 31, 1996 and for the period from inception
(October 23, 1995) to March 2, 1996 in conformity with generally accepted
accounting principles.
Los Angeles, California
January 31, 1997, except for the effects of the stock split
described in Note 2, as to which the date is .
F-2
<PAGE>
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND MARCH 2, 1996
<TABLE>
<CAPTION>
DECEMBER 31,
1996 MARCH 2, 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents......................................................... $ 1,058,836 $ 666,611
Accounts receivable, less allowance for returns and doubtful accounts of $146,699
and $28,280 at December 31, 1996 and March 2, 1996.............................. 1,158,444 49,023
Inventories....................................................................... 1,513,075 1,072,085
Deferred tax asset................................................................ 90,000 --
Prepaid expenses and other current assets......................................... 208,552 152,985
------------- -------------
Total current assets............................................................ 4,028,907 1,940,704
Property and equipment, net of accumulated depreciation........................... 393,578 249,000
Debt issuance costs, net of accumulated amortization.............................. 253,686 --
Other assets...................................................................... 42,270 36,040
------------- -------------
Total assets.................................................................... $ 4,718,441 $ 2,225,744
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Book overdraft.................................................................... $ -- $ 49,906
Current portion of capital lease obligations...................................... 18,468 15,505
Notes payable to related parties.................................................. -- 277,015
Accounts payable.................................................................. 1,089,332 1,616,866
Accrued liabilities............................................................... 462,456 189,974
Income taxes payable.............................................................. 168,570 --
Customer deposits................................................................. 33,607 249,345
------------- -------------
Total current liabilities....................................................... 1,772,433 2,398,611
Notes payable..................................................................... 1,355,291 --
Notes payable to related parties.................................................. 272,966 --
Capital lease obligations......................................................... 66,028 74,836
Other long term liabilities....................................................... 14,098 12,629
------------- -------------
Total liabilities............................................................... 3,480,816 2,486,076
------------- -------------
Commitments and contingencies
Stockholders' equity (deficit)
Preferred stock, par value $.01 per share; 1,000,000 shares authorized; none
issued and outstanding........................................................ -- --
Common stock, par value $.01 per share; 20,000,000 shares authorized; 2,985,537
and 2,563,318 shares issued and outstanding at December 31, 1996 and March 2,
1996.......................................................................... 29,855 25,633
Additional paid in capital...................................................... 2,695,832 1,339,248
Accumulated deficit............................................................. (1,488,062) (1,625,213)
------------- -------------
Total stockholders' equity (deficit)............................................ 1,237,625 (260,332)
------------- -------------
Total liabilities and stockholders' equity (deficit)............................ $ 4,718,441 $ 2,225,744
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE TEN-MONTH PERIOD ENDED DECEMBER 31, 1996
AND FOR THE PERIOD FROM INCEPTION (OCTOBER 23, 1995) TO MARCH 2, 1996
<TABLE>
<CAPTION>
TEN MONTHS ENDED INCEPTION TO
DECEMBER 31, 1996 MARCH 2, 1996
----------------- -------------
<S> <C> <C>
Net sales....................................................................... $ 11,673,102 $ 220,623
Cost of sales................................................................... 6,685,464 202,115
----------------- -------------
Gross profit.................................................................. 4,987,638 18,508
Selling, general and administrative expense..................................... 4,360,736 1,111,391
Research and development expense................................................ 322,467 528,426
----------------- -------------
Operating income (loss)....................................................... 304,435 (1,621,309)
Interest expense................................................................ 57,166 3,904
Amortization of debt issuance costs............................................. 31,548 --
----------------- -------------
Income (loss) before income taxes............................................. 215,721 (1,625,213)
Provision for income taxes...................................................... 78,570 --
----------------- -------------
Net income (loss)............................................................. $ 137,151 $ (1,625,213)
----------------- -------------
----------------- -------------
Net income (loss) per share..................................................... $ .05 $ (1.57)
----------------- -------------
----------------- -------------
Number of shares used in computing per share amounts............................ 3,019,213 1,035,778
----------------- -------------
----------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE TEN-MONTH PERIOD ENDED DECEMBER 31, 1996
AND FOR THE PERIOD FROM INCEPTION (OCTOBER 23, 1995) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------- PAID IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- --------- ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, October 23, 1995 (date of
inception)............................. -- $ -- $ -- $ -- $ --
Issuance of common stock for cash........ 1,416,500 14,165 617,070 -- 631,235
Issuance of common stock for services.... 290,126 2,901 125,216 -- 128,117
Issuance of common stock for cash, net of
issuance costs......................... 856,692 8,567 596,962 -- 605,529
Net loss................................. -- -- -- (1,625,213) (1,625,213)
---------- --------- ----------------- ------------- -------------
Balance, March 2, 1996................... 2,563,318 25,633 1,339,248 (1,625,213) (260,332)
Issuance of common stock for cash, net of
issuance costs......................... 422,219 4,222 1,050,281 -- 1,054,503
Issuance of warrants for cash............ -- -- 259,103 -- 259,103
Issuance of stock options to
nonemployees........................... -- -- 47,200 -- 47,200
Net income............................... -- -- -- 137,151 137,151
---------- --------- ----------------- ------------- -------------
Balance, December 31, 1996............... 2,985,537 $ 29,855 $ 2,695,832 $ (1,488,062) $ 1,237,625
---------- --------- ----------------- ------------- -------------
---------- --------- ----------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TEN-MONTH PERIOD ENDED DECEMBER 31, 1996
AND FOR THE PERIOD FROM INCEPTION (OCTOBER 23, 1995) TO MARCH 2, 1996
<TABLE>
<CAPTION>
TEN MONTHS ENDED INCEPTION TO
DECEMBER 31, 1996 MARCH 2, 1996
----------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................................. $ 137,151 $ (1,625,213)
Adjustments to reconcile net income (loss) to net cash used by operating
activities:
Depreciation and amortization............................................... 108,047 9,219
Allowance for returns and doubtful accounts................................. 79,123 28,280
Inventory write down........................................................ 20,822 91,556
Deferred taxes.............................................................. (90,000) --
Deferred rent............................................................... 1,469 12,629
Common stock and stock options issued for services.......................... 47,200 128,117
Changes in operating assets and liabilities:
Accounts receivable....................................................... (1,188,544) (77,303)
Inventories............................................................... (461,812) (1,163,641)
Prepaid expenses and other current assets................................. (55,567) (152,985)
Other assets.............................................................. (6,230) (36,040)
Accounts payable.......................................................... (448,316) 1,524,470
Accrued liabilities....................................................... 272,482 131,991
Income taxes payable...................................................... 168,570 --
Customer deposits......................................................... (215,738) 249,345
----------------- --------------
Net cash used by operating activities................................... (1,631,343) (879,575)
----------------- --------------
Cash flows from investing activities:
Purchase of property and equipment.......................................... (200,686) (144,537)
----------------- --------------
Net cash used in investing activities................................... (200,686) (144,537)
----------------- --------------
Cash flows from financing activities:
(Decrease) increase in book overdraft....................................... (49,906) 49,906
Accounts payable to related party in excess of terms........................ (79,218) 79,218
Net proceeds from issuance of common stock.................................. 1,054,503 1,291,113
Net proceeds from issuance of notes payable................................. 1,314,766 --
Proceeds from borrowings from related parties............................... 25,000 377,015
Payments on borrowings from related parties................................. (29,049) (100,000)
Principal payments on capital lease obligations............................. (11,842) (6,529)
----------------- --------------
Net cash provided by financing activities............................... 2,224,254 1,690,723
----------------- --------------
Net increase in cash and cash equivalents............................... 392,225 666,611
Cash and cash equivalents, beginning of period................................ 666,611 --
----------------- --------------
Cash and cash equivalents, end of period...................................... $ 1,058,836 $ 666,611
----------------- --------------
----------------- --------------
Supplemental cash flow information:
Capital lease obligations incurred............................................ $ 5,997 $ 96,870
Property and equipment not paid for at period end............................. -- 16,812
Common stock issuance costs not paid for at period end........................ -- 54,349
Interest paid................................................................. 8,219 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The Company was organized in New York in 1981 under the name Edudata
Corporation and reincorporated in Delaware in 1983 by Sun Equities Corporation
("Sun") which owned approximately 81 percent of the Company's outstanding common
stock until August 11, 1995. At that time, Sun distributed the shares of the
Company that it owned to its stockholders in the form of a dividend.
The Company was initially organized to provide education in the use of
personal computers, to market software programs developed by others, and to
provide a broad range of advisory services to businesses in conjunction with
both computer and non-computer related management issues. The Company's original
concept was modified, however, and until 1987, the Company was engaged in the
ownership and operation of technical schools through its subsidiaries, Betty
Owen Secretarial Systems, Inc. and Taylor Business Institute, Inc., and in the
development, construction and sale of single-family homes and commercial
buildings through its majority-owned subsidiary, Lytton & Tolly, Inc. In 1988
the Company disposed of its subsidiaries and their operations and determined to
use the proceeds to acquire another business. From 1988 to early 1996, the
Company's operations were limited to exploring opportunities to acquire or to
become an operating business.
On March 1, 1996, the Company acquired all the outstanding securities of
Dental/Medical Diagnostic Systems LLC, a California limited liability company
("DMD"), and Bavarian Dental Instruments, Inc., a California close corporation
("BDI"), in exchange for the issuance by the Company of a total of 1,706,626
restricted shares of its Common Stock. As a result of these transactions, the
former members of DMD and former stockholders of BDI gained a majority of the
Company's voting securities and management control of the Company was
transferred to the former management of DMD and BDI. For accounting purposes
these transactions were treated as a recapitalization of DMD and BDI, with DMD
and BDI combined as the acquiror (reverse acquisition). As a result, the
combined historical financial statements of DMD and BDI became the financial
statements of the Company.
On January 28, 1997 the Company changed its name to Dental/Medical
Diagnostic Systems, Inc. ("DMDS") from Edudata Corporation. Collectively, DMDS
and its wholly owned subsidiaries are referred to as the Company.
The Company designs, develops, manufactures and sells high technology dental
equipment. Currently, the Company's primary emphasis is on the manufacture and
sale of an intraoral camera system known as the TeliCam System and a dental
office networking system, known as InTELInet, for use in connection with the
TeliCam System. The Company commenced shipments of TeliCam Systems to customers
in February 1996 and, in November 1996, introduced the InTELInet networking
system for the TeliCam System.
BDI was initially formed in November 1995 to import from Russia, distribute
and market dental burs in the United States and elsewhere. The first sales of
the burs commenced in early March 1996. On July 9, 1996, the Company decided to
discontinue the dental bur product line.
2. BASIS OF PRESENTATION
On October 23, 1996, the Company authorized an increase in the authorized
number of shares of Common Stock from 10,000,000 shares to 20,000,000 shares.
The Board of Directors also authorized a new class of 1,000,000 shares of
Preferred Stock with a par value of $.01 per share.
F-7
<PAGE>
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. BASIS OF PRESENTATION (CONTINUED)
On January 13, 1997, the Company effected a reverse stock split of 1 share
for 2.197317574 shares of its issued and outstanding Common Stock. In addition,
on February 11, 1997 the Company's Board of directors approved, subject to
stockholder approval, a reverse stock split of 1 share for 1.33333333 shares of
its issued and outstanding Common Stock. All share and per share amounts have
been retroactively restated to reflect these reverse splits.
On February 5, 1997 the Company changed its fiscal year-end from a fiscal
year ending on the nearest Saturday to February 28th to a December 31 fiscal
year-end. The accompanying consolidated financial statements reflect the
operating results of the Company for the ten-month period from March 3, 1996
through December 31, 1996 and for the period from inception (October 23, 1995)
through March 2, 1996.
3. ACQUISITION OF DMD AND BDI
On March 1, 1996, DMDS (formerly Edudata) completed the acquisition of BDI
and DMD. The acquisition was affected pursuant to the terms of the two
Contribution Agreements dated February 29, 1996 ("Contribution Agreements")
between DMDS and BDI and between DMDS and DMD. Pursuant to the Contribution
Agreements the former shareholders of BDI and members of DMD received a total of
1,706,626 shares of newly issued DMDS restricted common stock, then constituting
approximately 66.6% of DMDS' outstanding common stock, taking into consideration
the newly issued shares. As part of the transaction, DMDS' prior Board of
Directors resigned and were replaced by Robert H. Gurevitch, Chief Executive
Officer, director and member/shareholder of DMD and BDI, Hiroki Umezaki,
President of DMD's International Operations, director and member of DMD and two
outside directors. In addition, existing management and security holders of both
DMD and BDI assumed management control of DMDS.
Accordingly, for accounting purposes the acquisition was treated as a
recapitalization of DMD and BDI with DMD and BDI combined as the acquiror
(reverse acquisition). As a result, the combined historical financial statements
of DMD and BDI became the financial statements of DMDS.
Further, since DMDS' assets consisted solely of approximately $660,000 in
cash and cash equivalents and had no operations in the seven years prior to the
acquisition, for accounting purposes this transaction was recorded by the
Company as the issuance of common stock for cash held by DMDS. Therefore no
proforma information has been presented.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of DMDS and its
wholly owned subsidiaries as of December 31, 1996 and March 2, 1996 and for the
ten-month period ended December 31, 1996 and for the period from inception
(October 23, 1995) to March 2, 1996. All intercompany balances and transactions
have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and
F-8
<PAGE>
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the reported amounts of revenues and expenses during the reporting period. The
significant estimates made in the preparation of the consolidated financial
statements relate to the assessment of the carrying value of accounts
receivable, inventories, and estimated provision for warranty costs. Actual
results could differ from those estimates.
RISKS AND UNCERTAINTIES
The Company buys certain key components from one supplier or from a limited
number of suppliers. Although there are a limited number of suppliers of the key
components, management believes that other suppliers could provide similar
components on comparable terms. Changes in key suppliers could cause delays in
manufacturing and distribution of products and a possible loss in sales, which
could adversely affect operating results.
The Company has derived substantially all of its revenues from the sale of
one product family. The Company believes that the inability to attract new
customers, the loss of one or more of its major customers, a significant
reduction in business from such customers, or the uncollectibility of amounts
due from any of its larger customers, could have a material adverse affect on
the Company.
REVENUE RECOGNITION
The Company recognizes revenue from the sales of systems and supplies at the
time of shipment and satisfaction of significant vendor obligations, if any, net
of an allowance for estimated sales returns. The Company generally warrants its
systems for one year. A provision for estimated future costs relating to
warranty is recorded when systems are shipped.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three months or
less to be cash equivalents.
INVENTORIES
Inventories are carried at standard costs which approximate the lower of
actual cost (first-in; first-out) or market. Such amounts include the cost of
materials and, when applicable, labor and overhead.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Capitalized leases are recorded at the lower of fair market value or the present
value of future minimum lease payments, less accumulated amortization.
Maintenance and repairs are expensed as incurred. The cost and related
accumulated depreciation and amortization of property and equipment sold or
retired are removed from the accounts and the resulting gains or losses are
included in current operations. Depreciation and amortization are provided on a
straight line basis over the estimated useful lives of the related asset, or
F-9
<PAGE>
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
with respect to leasehold improvements and capital leases by the primary term of
the lease, whichever is less, as follows:
<TABLE>
<S> <C>
Equipment and software, including capitalized leases............... 5 years
Furniture and fixtures............................................. 7 years
Leasehold improvements............................................. 3 years
</TABLE>
ADVERTISING AND PROMOTION COSTS
Production costs of future media advertising and costs of dental industry
trade shows are deferred until the advertising or trade show occurs. All other
advertising and promotion costs are expensed as incurred. Total advertising and
promotion expenses incurred for the ten-month period ended December 31, 1996
were $1,008,879 and for the period from inception (October 23, 1995) through
March 2, 1996 were $437,590.
RESEARCH AND DEVELOPMENT COSTS
Costs related to research and development are expensed as incurred.
INCOME TAXES
The Company accounts for income taxes under the liability method. Under this
method, deferred tax assets and liabilities are determined based on the
differences between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
STOCK-BASED EMPLOYEE COMPENSATION AWARDS
Statement of Financial Accounting Standards No. 123, "Accounting for the
Awards of Stock-Based Compensation to Employees" ("SFAS No. 123") encourages,
but does not require companies to record compensation cost for stock-based
compensation plans at fair value. The Company has adopted the disclosure
requirements of SFAS No. 123, which involves proforma disclosure of net income
under SFAS No. 123, detailed descriptions of plan terms and assumptions used in
valuing stock option grants. The Company has chosen to continue to account for
stock-based employee compensation awards in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees".
CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash deposits and trade
accounts receivable. The Company's cash deposits are placed with various
financial institutions and, from time to time, may exceed the Federal Deposit
Insurance Corporation limit.
For the ten month period ended December 31, 1996, five of the Company's
customers accounted for approximately 21% of sales and as of December 31, 1996,
six of the Company's customers, primarily international distributors, accounted
for approximately 75% of trade accounts receivable. Export sales
F-10
<PAGE>
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
represented approximately 20% of total sales for the ten-month period ended
December 31, 1996. No customer accounted for more than 10% of revenues and there
were no export sales in the period ended March 2, 1996.
The Company extends credit based on an ongoing credit evaluation of its
customers' financial condition and generally does not require collateral.
Estimated credit losses and returns have been provided for in the financial
statements and, to date, have been within management's expectations.
The majority of the Company's current customers consist of dental
professionals. Certain of the dental professionals lease the Company's products
through third party leasing companies. Under the terms of the sales, the leasing
companies have no recourse against the Company.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure About Fair
Value of Financial Instruments", requires disclosure of fair value information
about all financial instruments held by a company except for certain excluded
instruments and instruments for which it is not practical to estimate fair
value. The carrying value of the Company's financial instruments approximates
their fair value.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is computed based on the weighted average number
of common and common equivalent shares outstanding during the periods presented,
using the treasury stock method. Common stock equivalents related to warrants
and stock options are excluded from the computation when their effect is
antidilutive.
5. RELATED PARTY TRANSACTIONS
In October 1996, the Company entered into an agreement with Boston Marketing
pursuant to which the Company obtained worldwide marketing rights in the dental
market for the Teli Units as well as the right to use the "TeliCam" trademark.
At the time the Company entered into this agreement, Hiroki Umezaki was an
officer, director and principal shareholder of the Company and is a substantial
shareholder and the President of Boston Marketing. At December 31, 1996 and
March 2, 1996 the Company owed Boston Marketing approximately $247,500 and
$674,218, respectively, in connection with Teli Units purchased by the Company.
For the ten-month period ended December 31, 1996, the Company purchased 2,509
Teli Units at an aggregate cost of $1,881,750 and from inception (October 23,
1995) through March 2, 1996, the Company purhased 905 Teli Units at an aggregate
cost of $674,218 from Boston Marketing. In addition, the Company had an
agreement with Mr. Umezaki pursuant to which he was to receive a 15% commission
on all sales made by the Company in Asia, except Japan for which his commission
was to be 12%. This agreement resulted in Mr. Umezaki earning $15,000 in
commissions for the ten-month period ended December 31, 1996.
From December 1995 through February 1996, Robert H. Gurevitch, Chairman of
the Board and Chief Executive Officer of the Company, and Boston Marketing, an
affiliate of Mr. Umezaki, loaned the Company an aggregate of $377,015. The
promissory notes evidencing such loans bear interest at 6% per annum and were
originally payable within six months. On February 26, 1996, the Company repaid
$50,000 to each of Mr. Gurevitch and Boston Marketing. No interest has been paid
on the remaining principal balance of these notes although interest has been
accrued in the Company's financial statements. In
F-11
<PAGE>
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. RELATED PARTY TRANSACTIONS (CONTINUED)
November 1996, Mr. Gurevitch and Boston Marketing each agreed to extend the term
of their respective notes until the earlier to occur of: (i) twenty-four months
following the closing of the Bridge Financing (see Note 11); (ii) at such time
as the Company receives proceeds from the sale of the Common Stock in connection
with a public offering; and (iii) the repayment of the Bridge Notes in full. In
addition, on April 11, 1996, Boston Marketing loaned the Company an additional
$25,000 under similar terms ("April Loan"). The April Loan was repaid in full on
August 26, 1996.
Mr. Gurevitch and Mr. Umezaki have guaranteed the performance by the Company
under the Company's leases for its Irvine and Westlake premises, and Mr.
Gurevitch has also personally guaranteed the Company's credit card processing
agreement with the Checkfree Corporation.
6. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 2,
1996 1996
------------ ------------
<S> <C> <C>
Raw materials.................................................... $ 789,464 $ 754,946
Work in process.................................................. 136,786 49,164
Finished goods................................................... 586,825 267,975
------------ ------------
$1,513,075 $ 1,072,085
------------ ------------
------------ ------------
</TABLE>
7. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 2,
1996 1996
------------ ------------
<S> <C> <C>
Prepaid advertising and industry trade show fees................. $ 178,281 $ 117,495
Other............................................................ 30,271 35,490
------------ ------------
$ 208,552 $ 152,985
------------ ------------
------------ ------------
</TABLE>
F-12
<PAGE>
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 2,
1996 1996
------------ ----------
<S> <C> <C>
Equipment and software, including $102,867 and $96,870 of
capitalized leases at December 31, 1996 and March 2, 1996........ $ 342,989 $ 191,705
Furniture and fixtures............................................. 116,152 61,352
Leasehold improvements............................................. 5,761 5,162
------------ ----------
464,902 258,219
Less accumulated depreciation and amortization, including $20,341
and $3,368 relating to capitalized leases at December 31, 1996
and at March 2, 1996............................................. (71,324) (9,219)
------------ ----------
$ 393,578 $ 249,000
------------ ----------
------------ ----------
</TABLE>
9. ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 2,
1996 1996
------------ ----------
<S> <C> <C>
Accrued commissions................................................ $ 257,341 $ 32,516
Accrued warranty................................................... 56,515 38,444
Accrued salaries and wages......................................... 42,159 45,432
Accrued interest................................................... 34,552 1,822
Other.............................................................. 71,889 71,760
------------ ----------
$ 462,456 $ 189,974
------------ ----------
------------ ----------
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases two facilities under various operating leases which
expire in 1998 and 2000. The leases require the Company to pay taxes,
maintenance fees, and insurance and provide for periodic fixed rent increases
based on a published price index. The Company also leases certain equipment
under capital leases which expire in 2000 and has the right to purchase the
underlying equipment at the termination of the leases for its fair market value.
Rent expense for all operating leases was approximately $102,000 and $38,000 for
the ten-month period ended December 31, 1996 and for the period from inception
(October 23, 1995) to March 2, 1996, respectively. All non-cancelable leases are
guaranteed by Robert H. Gurevitch, Chief Executive Officer and Chairman of the
Board of the Company. The other facility lease is co-guaranteed by Hiroki
Umezaki, former Executive Vice President, director, Secretary, and stockholder
of the Company.
F-13
<PAGE>
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The aggregate liability for future rentals under these lease agreements as
of December 31, 1996, is summarized as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDED DECEMBER 31 LEASES LEASES
- ---------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
1997.................................................................. $ 29,795 $ 116,359
1998.................................................................. 28,077 109,026
1999.................................................................. 25,672 70,008
2000.................................................................. 22,539 61,257
---------- ----------
106,083 $ 356,650
----------
----------
Less amounts representing:
Interest............................................................ 21,587
Current portion..................................................... 18,468
----------
Long term portion..................................................... $ 66,028
----------
----------
</TABLE>
11. CAPITAL TRANSACTIONS
As previously described in Note 3, for accounting purposes, the acquisition
of DMD and BDI was treated as a recapitalization of DMD and BDI, whereby the
previously outstanding shares and interests of DMD and BDI were exchanged for
1,706,626 shares of DMDS (formerly Edudata) restricted common stock and 856,692
shares of common stock were issued for the approximately $660,000 in cash and
cash equivalents held by DMDS ($606,000 net of issuance costs of approximately
$54,000). Accordingly, DMD's and BDI's historical shareholder's equity and
members' interest activity prior to the acquisition has been retroactively
restated for the equivalent number of DMDS' common shares received in the
transaction.
The capital transactions of DMD and BDI prior to the acquisition of DMD and
BDI by the Company have been restated as if (i) the Company issued 870,379
shares of its common stock to Robert Gurevitch, Chief Executive Officer and
Chairman of the Board for cash payments totaling approximately $388,235 or $.44
per share; (ii) the Company issued 546,121 shares of its common stock to Hiroki
Umezaki, Executive Vice-president, director, and Secretary of the Company for
cash payments totaling approximately $243,000, or $.44 per share; and (iii) in
exchange for services, 290,126 shares of the Company's common stock were issued
to three employees and valued at approximately $128,000, or $.44 per share for
which compensation expense was included in the consolidated statements of
operations.
On May 30, 1996, the Company completed the sale of a total of 422,219 shares
of its common stock to six foreign investors. Each share was sold at a price of
$2.58 per share and, consequently, the Company raised approximately $1,055,000
from the sale, net of related expenses of approximately $34,000.
On November 27, 1996, the Company raised $1,314,766, net of issuance costs
of $285,234, through a private placement of 32 Units to certain accredited
investors. Each Unit consisted of a secured promissory note in the principal
amount of $50,000 ("Note") and a warrant ("Bridge Warrant") to purchase 18,750
shares of Common Stock at a purchase price of $2.67 per share. The Notes bear
interest at a rate of 10% per annum and the principal and all accrued interest
are payable upon the earliest to occur of: (a) May 27, 1998; (b) certain change
in control events effecting the Company; (c) a public offering of the Company's
F-14
<PAGE>
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. CAPITAL TRANSACTIONS (CONTINUED)
securities; or (d) the sale by the Company's Chief Executive Officer of all or
substantially all of his holdings of Common Stock. Upon the happening of certain
events the holders of the Notes will have the right to convert the outstanding
balances of their Notes into shares of Common Stock at a rate of $2.67 per
share. The Warrants are first exercisable on November 27, 1997 and expire on
November 27, 2002. As a result of the warrant issuance, these Notes have been
discounted by $259,103, which amount is being amortized over the term of the
Notes.
12. STOCK OPTIONS
During the ten-month period ended December 31, 1996, the Company granted
stock options to certain executives, key employees and directors. The options
were granted with an exercise price equal to the fair value of the common stock
at the date of grant, are fully vested and are exercisable over a period of five
years.
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions (i)
risk-free interest rate of 6.85%, (ii) expected option life of 5 years, (iii)
forfeiture rate of 0, (iv) expected volatility of 143% and (v) no expected
dividends.
A summary of stock option activity with executives, key employees and
directors is as follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED AVERAGE
NUMBER OF AVERAGE OPTION GRANT DATE FAIR
SHARES EXERCISE PRICE VALUE
----------- --------------- -----------------
<S> <C> <C> <C>
Options outstanding at March 2, 1996............................... -- $ -- $ --
Granted............................................................ 139,943 2.63 2.11
Exercised.......................................................... -- -- --
----------- ----- -----
Options outstanding at December 31, 1996........................... 139,943 $ 2.63 $ 2.11
----------- ----- -----
----------- ----- -----
Options exercisable at December 31, 1996........................... 139,943 $ 2.63
----------- -----
----------- -----
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<S> <C>
Range of exercise prices........................................ $.88-2.93
Weighted average remaining contractual life..................... 51 months
</TABLE>
The Company has adopted the disclosure only provisions of SFAS No. 123 and
accordingly, no compensation expense has been recognized for stock options
granted to executives, key employees, and directors. Had compensation expense
for such grants been determined based on the fair value of the award at the
grant date, consistent with the provisions of SFAS No. 123, the Company's net
income and income per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<S> <C>
Net income--as reported.......................................... $ 137,151
---------
---------
Net loss--pro forma.............................................. $(158,129)
---------
---------
Income per share--as reported.................................... $ 0.05
---------
---------
Loss per share--pro forma........................................ $ (0.06)
---------
---------
</TABLE>
F-15
<PAGE>
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCK OPTIONS (CONTINUED)
In addition to the stock options granted to executives, key employees and
directors, the Company also issued stock options to various non-employees for
past or future services. As of December 31, 1996 options to purchase 80,211
shares of common stock were held by non-employees with an exercise price of
$.88-$2.93 per share, exercisable over five to ten years. Certain of these
options vest 20% per year over five years. Compensation expense of $47,200 was
recognized during the ten-month period ended December 31, 1996 in connection
with the issuance of these options.
13. INCOME TAXES
The income tax expense (benefit) for the ten-month period ended December 31,
1996 is as follows:
<TABLE>
<S> <C>
Current:
Federal......................................................... $ 132,570
State........................................................... 36,000
---------
168,570
---------
Deferred:
Federal......................................................... (67,000)
State........................................................... (23,000)
---------
(90,000)
---------
Total............................................................. $ 78,570
---------
---------
</TABLE>
The Company's effective tax rate for the ten-month period ended December 31,
1996 differs from the statutory federal income tax rate as follows:
<TABLE>
<S> <C>
Tax provision at the statutory rate................................. 34%
Nondeductible expenses.............................................. 10
State taxes, net of federal benefit................................. 14
Reduction in deferred asset valuation allowance..................... (27)
Other............................................................... 5
--
36%
--
--
</TABLE>
There was no tax expense for the period from inception (October 23, 1995)
through March 2, 1996 due principally to DMD being formed as a limited liability
company and, prior to the acquisition by DMDS, having elected to be taxed as a
partnership. Due to the net operating loss incurred, however, treatment as a C
corporation would not have resulted in tax expense for the period from inception
through March 2, 1996.
F-16
<PAGE>
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. INCOME TAXES (CONTINUED)
The components of the net deferred taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 2,
1996 1996
------------ ----------
<S> <C> <C>
Deferred Tax Assets:
Inventory reserves................................................ $ 28,300 $ 26,900
Warranty accrual.................................................. 22,600 15,400
Allowance for returns and doubtful accounts....................... 37,900 11,000
Other............................................................. 1,200 4,300
Valuation allowance............................................... -- (57,600)
------------ ----------
$ 90,000 $ --
------------ ----------
------------ ----------
</TABLE>
Based on the level of taxable income generated by the Company in the current
period, management believes it is more likely than not that the Company will
realize the benefit of its recorded net deferred tax asset.
14. SUBSEQUENT EVENTS (UNAUDITED)
Effective February 11, 1997 the Company's Board of Directors approved the
adoption of the 1997 Stock Incentive Plan ("Plan"). The Plan provides for the
grant of stock awards to directors, employees, officers and consultants of the
Company. A maximum of 350,000 shares of Common Stock are authorized and reserved
for issuance under the Plan.
On February 13, 1997, the Company received a commitment letter from a bank
to provide a $2,000,000 line of credit, to be secured by a first priority
security interest in the Company's assets and by an assignment of the Company's
rights under the Boston Marketing Distribution Agreement. The credit facility
will bear interest monthly at the bank's prime rate, plus one-quarter of one
percent, through June 1, 1998. All borrowings under the facility will be subject
to a formula based, generally, on the levels of accounts receivable and
inventory.
F-17
<PAGE>
[Back Inside Cover:Photograph and diagram depicting the InTELInet system.]
Captions include:
[IT'S THE DIFFERENCE]
- - Exclusive Microporocessor Technology.
- - Printer is an option, not a requirement.
- - Printer breakdown does not mean system shutdown.
- - Direct communication with front office system and radiography.
- - Less wiring means lower costs.
- - Simultaneous use of multiple cameras without printer or external capture
device.
- - Lowest cost, highest quality, cleanest networking solution, installed by DMD
trained professionals.
- - Sturdy, fully adjustable wall mounted bracket holds 20" monitor securely.
- - Adjustable wall mounting system operates TellCom convenience. Pole mount also
available.
- - Built-in VCR for patient education & entertainment.
- - TelCom is designed for ease of use and efficiency.
- - Convenient shelf for CDI player, etc.
INTELINET-REGISTERED TRADEMARK- -- One cable is routed from each operatory to
the printer hub. Monitor and foot pedal connect directly to TeliCam. All cameras
in the system can be used simultaneously.
TYPICAL NETWORK . . . only one camera can be used at a time. Additional cameras
require additional printers.
<PAGE>
- -------------------------------------------
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- -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR BY THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
SECURITIES OFFERED BY THIS PROSPECTUS, OR AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES BY ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IS UNLAWFUL. THE DELIVERY OF THIS
PROSPECTUS SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS
PROSPECTUS.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
The Company.................................... 7
Risk Factors................................... 8
Use of Proceeds................................ 16
Dilution....................................... 18
Capitalization................................. 19
Price Range of the Common Stock................ 20
Dividend Policy................................ 20
Selected Consolidated Financial Data...........
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 21
Business....................................... 25
Management..................................... 35
Principal Stockholders......................... 39
Certain Transactions........................... 40
Description of Securities...................... 41
Shares Eligible For Future Sale................ 45
Selling Securityholders and Plan of
Distribution................................. 47
Underwriting................................... 49
Legal Matters.................................. 50
Experts........................................ 50
Available Information.......................... 50
Index to Financial Statement................... F-1
</TABLE>
DENTAL/MEDICAL
DIAGNOSTIC SYSTEMS, INC.
[LOGO]
1,500,000 SHARES OF COMMON STOCK
AND
1,500,000 REDEEMABLE
COMMON STOCK PURCHASE WARRANTS
---------------------
PROSPECTUS
---------------------
M. H. MEYERSON & CO., INC.
FOUNDED 1960
525 WASHINGTON BOULEVARD
JERSEY CITY, NEW JERSEY 07310
<TABLE>
<S> <C> <C>
TRADING
RETAIL SALES & SYNDICATE INSTITUTIONAL
DEPARTMENT DEPARTMENT DEPARTMENT
201-459-9500 201-459-9600 201-332-3513
800-888-8118 800-333-3113 800-422-4114
</TABLE>
INVESTMENT BANKING
201-459-9459
800-444-4114
, 1997
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24. INDEMNIFICATION.
As permitted by the Delaware General Corporation Law ("DGCL"), the Company's
Amended and Restated Certificate of Incorporation limits the personal liability
of directors to the Company for monetary damages for certain breaches of
fiduciary duty. Liability is not eliminated for (i) any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) unlawful payment of dividends or stock purchases or redemptions
pursuant to Section 174 of the DGCL, or (iv) any transaction from which the
director derived an improper personal benefit.
The Company has also entered into indemnification agreements with each of
its directors and executive officers. The indemnification agreements provide
that the directors and executive officers will be indemnified to the fullest
extent permitted by applicable law against all expenses (including attorneys'
fees), judgments, fines and amounts reasonably paid or incurred by them for
settlement in any threatened, pending or completed action, suit or proceeding,
including any derivative action, on account of their services as a director or
officer of the Company or of any subsidiary of the Company or of any other
company or enterprise in which they are serving at the request of the Company.
No indemnification will be provided under the indemnification agreements,
however, to any director or executive officer in certain limited circumstances,
including on account of knowingly fraudulent, deliberately dishonest or willful
misconduct. To the extent the provisions of the indemnification agreements
exceed the indemnification permitted by applicable law, such provisions may be
unenforceable or may be limited to the extent they are found by a court of
competent jurisdiction to be contrary to public policy.
The Company is currently seeking estimates on obtaining a directors and
officers liability insurance policy. The Company intends to obtain such a policy
provided the costs of obtaining the policy are not prohibitively expensive as
compared to the amount of coverage which may be obtained.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission ("Commission")
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses payable by the Company in
connection with the issuance and distribution of the securities being registered
(other than underwriting discounts and selling commissions payable by the
Registrant), in connection with the offering described in the Registration
Statement. All of the amounts shown are estimates except the registration fee
and the NASD filing fees.
<TABLE>
<S> <C>
SEC registration fee...................................................... $ 8,885
NASD filing fee........................................................... 3,444
Nasdaq listing fee........................................................ 10,000
Accounting fees and expenses.............................................. 50,000
Legal fees and expenses................................................... 255,000
Blue sky legal fees and expenses (including attorneys fees)............... 50,000
Printing, delivery expenses............................................... 85,000
Transfer agent fees and expenses.......................................... 10,000
Directors' and Officers' Liability Insurance.............................. 50,000
Miscellaneous expenses.................................................... 2,671
---------
Total................................................................. $ 525,000
---------
---------
</TABLE>
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Except as hereinafter set forth, there have been no sales of unregistered
securities by the Registrant during the past three years.
On March 1, 1996, the Company completed the acquisition of BDI and DMD which
was treated, for accounting purposes, as a recapitalization of BDI and DMD,
respectively. Previously outstanding shares and interests of BDI and DMD,
respectively, were exchanged for 1,706,626 shares of the Company's restricted
Common Stock and 856,692 shares of Common Stock were issued for the
approximately $660,000 in cash and cash equivalents held by the Company. The
Company relied upon Section 4(2) of the Securities Act of 1933, as amended (the
"Act") for an exemption from the registration requirements of the Act, and upon
Section 25102(f) of the California Corporate Securities Law of 1968 (the "CCSL")
for an exemption from the qualification requirements of the CCSL.
On May 30, 1996, the Company completed the sale of a total of 422,219 shares
of its Common Stock to six foreign investors for which the Company received
approximately $1,055,000. The Company relied on Regulation S for an exemption
from the registration requirements of the Act.
During the ten-month period ended December 31, 1996 the Company issued
options to certain key employees, directors and consultants or other
non-employees to purchase 220,154 shares of its Common Stock, of which all such
options remain issued and outstanding. The Company relied upon Section 4(2) of
the Act for an exemption from the registration requirements of such Act, and
upon Section 25102(f) of the CCSL for an exemption from the qualification
requirements of the CCSL.
On November 27, 1996, the Company effected a private placement of 32 Units
to certain accredited investors. Each Unit consisted of a $50,000 convertible
promissory note and a warrant to purchase 18,750 shares of the Common Stock,
thereby raising $1,314,766. The Company relied upon Section 4(2) of the Act and
Rule 506 of Regulation D for an exemption from the registration requirements of
the Act and upon Section 25102(f) and other available state limited offering
exemptions from the qualification provisions of the CCSL and blue sky laws of
other states.
ITEM 27. EXHIBITS.
The following exhibits to this Registration Statement are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT DOCUMENT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<S> <C>
1.1. Form of Underwriting Agreement.*
1.2. Form of Underwriter's Purchase Option granted to M.H. Meyerson & Co., Inc.*
2.l. Contribution Agreement, dated February 29, 1996, by and among the Registrant and Robert H. Gurevitch,
Hiroki Umezaki, Fred Kinley and Dewey Perrigo, as Members of United Medical Diagnostic Systems, LLC.
2.2. Contribution Agreement, dated February 29, 1996, by and among the Registrant and Robert H. Gurevitch,
Anatoly Borodyansky and Dewey Perrigo, as stockholders of Bavarian Dental Instruments, Inc.
2.3. Dental\Medical Diagnostic Systems, Inc. 1997 Stock Incentive Plan.
3.1. Amended and Restated Certificate of Incorporation of the Registrant.
3.2. Bylaws of the Registrant.
4.1. Specimen Stock Certificate of the Registrant.*
4.2. Form of Warrant Agreement between American Stock Transfer & Trust Company and the Registrant.*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DOCUMENT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<S> <C>
5.1. Opinion and Consent of Troop Meisinger Steuber & Pasich.*
10.1. Agency Agreement dated as of October 23, 1996, by and between the Registrant and M.H. Meyerson & Co.,
Inc. (2)
10.2. Form of Subscription Agreement. (2)
10.3. Supplement No. 1 to Confidential Term Sheet, dated November 14, 1996 (2)
10.4. Form of Amendment to Warrant, dated as of March , 1997. Issued by the Registrant.*
10.5. Form of Secured Convertible Promissory Note, dated as of November 25, 1996. Issued by the Registrant and
a Schedule of Warrant Holders. (2)
10.6. Form of Warrant for the Purchase of Shares of Common Stock, dated as of November 25, 1996. Issued by the
Registrant and a Schedule of Warrant holders. (2)
10.7. Form of Lock-Up Agreement Letter, dated January 31, 1997, addressed to M.H. Meyerson & Co., Inc. from
certain purchasers of the Registrant's Common Stock.
10.8. Form of Registration Rights Agreement Letter, dated January 31, 1997, from Registrant to those certain
Purchasers of Registrant's Common Stock listed on the Schedule thereto.
10.9. Commitment Letter, dated February 13, 1997, from Comerica Bank confirming extension of secured line of
credit for Registrant.
10.10. Security Agreement, dated as of November 25, 1996. Entered into by the Registrant. (2)
10.11. Employment Agreement, dated as of October 1, 1996, between the Registrant and Robert H. Gurevitch. (2)
10.12. Employment Agreement, dated as of October 1, 1996, between the Registrant and Dewey Perrigo. (2)
10.13. Letter of Intent, dated August 23, 1997, between the Registrant and Olympus Japan Co., Ltd.
10.14. Distribution Agreement, dated as of October 1, 1996, between the Registrant and Boston Marketing Company,
Ltd., as amended.
10.15. Distributor Agreement, dated August 29, 1996, between the Registrant and 479671 BC Ltd. d/ b/a/ National
Dental Direct.
10.16. Distributor Agreement, dated June 1, 1996, between the Registrant and Michel Van Gerven, Imaging Concepts
N.V.
10.17. Distributor Agreement, dated May 23, 1996, between the Registrant and New Image Industries Pty Ltd NII.
10.18. Distributor Agreement, dated September 19, 1996, between the Registrant and Macana, Inc. d/b/a Florida
Dental and Medical Supply.
10.19. Form of Distributor Agreement, dated May 30, 1996, between the Registrant and David Lok.
10.20. Sales Representative Agreement, dated October 28, 1996, between the Registrant and Boston Marketing
Company, Ltd.
10.21. Exclusive Purchase Agreement, dated October 28, 1996, between the Registrant and Fujimi Optics Corp.
10.22. 1996 Systems Integrator/Value Added Integrator Agreement, dated April 1, 1996, between the Registrant and
Sony Business & Professional Products Group, Sony Electronics, Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DOCUMENT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<S> <C>
10.23. Letter of Authorization, dated December 25, 1995, from JV Dentomal in favor of BDI; and Declaration of
Exclusive Rights, dated December 25, 1995, made by JV Dentomal in favor of BDI. (1)
10.24. Letter of Authorization, dated January 3, 1996, from NPO Altech in favor of BDI; and Declaration of
Exclusive Rights, dated December 24, 1995, made by NPO Altech in favor of BDI.*
10.25. Promissory Note, dated February 1, 1996, made by the Registrant in favor of Boston Marketing Company,
Ltd.
10.26. Promissory Note, dated February 15, 1996, made by the Registrant in favor of Boston Marketing Company,
Ltd.
10.27. Promissory Note, dated April 11, 1996, made by the Registrant in favor of Boston Marketing Company, Ltd.
10.28. Extension of Promissory Note, dated November 5, 1996, between the Registrant and Boston Marketing
Company, Ltd. (2)
10.29. Promissory Note, dated February 1, 1996, between the Registrant and Robert H. Gurevitch.
10.30. Promissory Note, dated February 15, 1996, made by the Registrant in favor of Robert H. Gurevitch.
10.31. Extension of Promissory Note, dated November 5, 1996, between the Registrant and Robert H. Gurevitch. (2)
10.32. Standard Office Lease, dated October 30, 1995, between John Hancock Mutual Life Insurance Company ("John
Hancock") and the Registrant, for Suite 202 at 200 North Westlake Boulevard Office; and Guaranty of
Lease, dated November 6, 1995, made by Robert H. Gurevitch in favor of John Hancock.
10.33. Office Lease, dated November 1, 1992, between Pacifica Corporation and Jacqueline Julien d/ b/a North
Ranch Commercial Realty ("North Ranch") for Suite 207 at 200 North Westlake Boulevard Office; First
Amendment to Lease, dated October 26, 1996, between John Hancock and North Ranch whereby John Hancock
renews Suite 207 Office Lease, dated November 1, 1992, with North Ranch as Tenant, and assumes role of
Registrant from Pacifica Corporation; Standard Sublease, dated April 19, 1996, between Registrant as
Sublessee, and North Ranch, as Sublessor, for portion of Suite 207 at 200 North Westlake Blvd Office; and
Consent to Sublease, dated April 19, 1996, made by John Hancock.*
10.34. Industrial Lease, dated October 23, 1995, between Registrant and The Irvine Company, for One Technology
Park Office.
10.35. Equipment Lease, dated February 12, 1996, between the Registrant and Copelco Capital, Inc.*
10.36. Equipment Lease, dated November 29, 1995, between the Registrant and Copelco Capital, Inc.*
10.37. Equipment Lease, dated January 2, 1996, between the Registrant and Copelco Capital, Inc.*
10.38. Commercial Security Agreement, dated April 15, 1996, between the Registrant and Hitachi Home Electronics
(America), Inc.*
10.39. Form of Indemnification Agreement and Schedule of Indemnified Parties.
10.40. Form of Notice of Vested Stock Option Letter and Schedule of Recipients.
11.1. Statement Re: Computation of per share earnings.
21.1. Subsidiaries of the Registrant.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DOCUMENT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<S> <C>
23.1. Consent of Coopers & Lybrand, L.L.P.
23.2. Consent of Troop Meisinger Steuber & Pasich, LLP (included in Exhibit 5.1)*
24.1. Power of Attorney (included in Part II, Page 6).
27.1. Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
(1) Incorporated by reference form the Registrant's Report on Form 8-K , dated
March 1, 1996.
(2) Incorporated by reference form the Registrant's Report on Form 10-QSB, dated
November 30, 1996
ITEM 28. UNDERTAKINGS.
(a) The undersigned small business issuer hereby undertakes that it will:
(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) For determining liability under the Securities Act of 1933 ("Act"),
treat each post-effective amendment as a new Registration Statement of
securities offered, and the offering of the securities at the time to be the
initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(b) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriter to permit prompt delivery to each purchaser.
(c) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the Certificate of Incorporation or Bylaws of the Registrant and the
Delaware General Corporation Law or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event a claim for indemnification against such
liabilities (other than payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel the matter
has already been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and shall be governed by the final
adjudication of such issue.
II-5
<PAGE>
(d) (1) For determining any liability under the Act, treat the information
omitted from the form of prospectus filed as part of this Registration Statement
in reliance upon Rule 430A and contained in the form of prospectus filed by the
Registrant under Rule 424(b)(1) or (4) or 497(h) under the Act as part of this
Registration Statement as of the time the Commission declared it effective; and
(2) For determining any liability under the Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement of the securities offered in the Registration
Statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Westlake Village, California on the 28th day of February
1997.
DENTAL/MEDICAL DIAGNOSTICS SYSTEMS,
INC.
By: /s/ ROBERT H. GUREVITCH
--------------------------------------
Robert H. Gurevitch,
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert H. Gurevitch and Ronald E. Wittman, or any
one of them, his attorney-in-fact and agent, with full power of substitution,
for him or her in any and all capacities, to sign any amendments to this
Registration Statement on Form SB-2, and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact, or
their substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement on Form SB-2 has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------------- ------------------------------------ --------------------
<S> <C> <C>
/s/ ROBERT H. GUREVITCH Chairman of the Board, Chief February 28, 1997
--------------------------------------- Executive Officer, President and
Robert H. Gurevitch Secretary
/s/ RONALD E. WITTMAN Chief Financial Officer (Principal February 28, 1997
--------------------------------------- Financial and Accounting Officer),
Ronald E. Wittman Director
/s/ MARVIN H. KLEINBERG Director February 28, 1997
---------------------------------------
Marvin H. Kleinberg
</TABLE>
II-7
<PAGE>
EXHIBIT 2.1
CONTRIBUTION AGREEMENT
The undersigned Robert H. Gurevitch, Hiroki Umezaki, Fred Kinley and
Dewey Perrigo (hereinafter jointly and severally referred to as "Members")
hereby tender a total of one hundred percent (100%) of the membership interests
of Dental/Medical Diagnostic Systems LLC, a California limited liability company
("DMD") to Edudata Corporation, a Delaware corporation ("Edudata") under the
following terms and conditions:
1. Edudata shall deliver forthwith to the Members, in exchange for their
one hundred percent (100%) of the membership interests of DMD, a total of four
million (4,000,000) shares of common stock of Edudata. Said shares of Edudata
shall be allocated among the Members in proportion to their membership interests
in DMD.
2. This transaction is expressly conditioned upon the concurrent
issuance by Edudata of a total of one million (1,000,000) shares of common stock
of Edudata to the shareholders of Bavarian Dental Instruments, Inc., a
California close corporation ("Bavarian").
3. The Members represent and warrant as follows:
a. The Members are the sole members of DMD. Robert Gurevitch owns
50%, Hiroki Umezaki owns 40%, Fred Kinley owns 5% and Dewey Perrigo owns 5%. The
Members contributed approximately Five Hundred Forty Three Thousand Dollars
($543,000) to DMD for their membership interests or as paid-in-capital.
b. DMD is a limited liability company duly organized, validly
existing, and in good standing under the laws of the State of California, has
all requisite power and authority to own, lease, and operate its properties and
to carry on its business as it is now conducted, and has authority to enter into
this agreement.
c. All issued and outstanding membership interests of DMD have been
duly authorized and validly issued and are fully paid and nonassessable. There
are no outstanding rights, options, warrants, subscriptions, calls, convertible
securities, or agreements of any character or nature under which DMD is or may
become obligated to issue or to transfer any membership interests or other
securities of any kind.
d. Each Member is acquiring his shares of common stock of Edudata
solely for his own account for investment and does not intend to divide his
shares with others or to resell or otherwise dispose of all or any part of said
shares.
e. Each Members acknowledges that, unless the acquired shares are
registered or the transaction is qualified
-1-
<PAGE>
under the appropriate state and federal securities laws, he may not resell,
hypothecate, transfer or assign, or make other disposition of the Edudata
shares, except in transaction excepted or exempted from the registration or
qualification requirements of such laws.
f. Each Member acknowledges that the acquired shares of Edudata will
be "restricted shares" as said term is defined in the Rules and Regulations
promulgated by the Securities and Exchange Commission under the Securities Act
of 1993, as amended. Each Member acknowledges that the acquired shares shall
have a legend upon them stating that the shares are restricted shares, which
legend shall be in such form as is ordinary and usual for this type of
transaction.
g. Each Member: (1) has reviewed this transaction with a
professional advisor (who is unaffiliated with and who is not compensated by
Edudata, or any affiliate or selling agent of Edudata, directly or indirectly)
who by reason of his or her business or professional experience has the capacity
to protect the Member's interests in connection with this transaction, and/or
(2) had during each of the preceding three (3) years: individual annual income
in excess of Two Hundred Thousand Dollars ($200,000); or joint annual income
(together with his spouse) in excess of Three Hundred Thousand Dollars
($300,000); or net worth (individually or jointly with his spouse) in excess of
One Million Dollars ($1,000,000).
h. Each Member has received a copy of the latest available financial
statements of Edudata and has been afforded (with his attorneys and investment
advisors, if any) to obtain any information related to the business and
financial condition of Edudata or necessary to verify the accuracy of the
financial statements of Edudata.
i. Each Member acknowledges that Edudata is relying on exemptions
from state and federal securities laws for the issuance of the Edudata shares
and is basing its reliance in part upon the foregoing representations and
warranties.
j. To the best of each Member's actual present knowledge all of the
following are true and correct:
i. DMD owes Robert H. Gurevitch $132,000 and owes Hiroki Umezaki
$150,000, which amounts are due and payable on or before March 31, 1998, bear
interest at the rate of six percent (6%) per annum, any may be prepaid at
anytime without penalty. Repayment of these loans is subject to the provisions
of paragraph 5(a) of this Agreement.
ii. There are no contracts or other transactions between DMD, on
the one hand, and any Member, on the other hand, except that the Members are
employees of DMD. The annual salary
-2-
<PAGE>
paid to Robert H. Gurevitch by DMD and Bavarian together was less than $240,000.
k. Each Member, separately from the other Members, believes that the
following statements are true and correct and has no actual present knowledge
that they are untrue or not correct:
i. The financial statements of DMD as of December 31, 1995,
delivered to Edudata are true and correct as of their date (except for the loans
described in paragraph j(i) which were not included in said financial
statements), there have been no material negative changes or events to DMD since
the time of the financial statements, and the Member does not know of any event
which with the passage of time will cause a material negative change.
ii. Returns of products sold by DMD have not exceeded three
percent (3%) of sales.
iii. DMD has no uncollectible receivables.
iv. The budget dated February 2, 1996, fairly depicts the
anticipated results of DMD and Bavarian for the year 1996. Edudata acknowledges
that said budget is an estimate and that the Members are not warranting that the
projections shall be obtained.
v. In the event DMD merges into a C Corporation that is wholly
owned by Edudata in accordance with applicable State law following normal
procedures for a tax-exempt merger, Edudata will not incur any tax liability as
a result of said merger.
vi. DMD has no tax liability other than such liabilities as
arise from the ordinary course of its business operations. There are no
liabilities, contingent or absolute, that are not disclosed in the financial
statements referred to in (i) above.
vii. DMD has all agreements, licenses, consents and regulatory
approval necessary to conduct its business as it is now conducted, and is in
compliance with all material laws, rules or regulations known to be applicable
to such business as it is now conducted.
1. Each Member acknowledges that this agreement was prepared by the
law firm of Gilchrist & Rutter, a Professional Corporation, who are counsel for
DMD and who do not represent the undersigned Members or Edudata. Each Member
further acknowledges that the law firm is relying upon the above representations
of the Members, has not rendered any tax advice with respect to this transaction
and did urge the Members to
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<PAGE>
obtain independent advice about this transaction from independent attorneys, tax
specialists and financial advisers.
4. Edudata represents and warrants as follows:
a. Edudata is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Delaware, and has all requisite
corporate power and authority (1) to own, lease, and operate its properties and
to carry on its business as it is now conducted; and (2) to enter into, perform,
and carry out the terms of this Agreement; and (3) to issue and sell the four
million (4,000,000) shares of common stock of Edudata.
b. The four million (4,000,000) shares of common stock of Edudata to
be issued to the Members shall, when issued, have been duly authorized and
validly issued and be fully paid and nonassessable.
c. Edudata has two million five hundred nine thousand nine hundred
(2,509,900) shares of common stock presently outstanding. All of said shares
have been duly authorized and validly issued and are fully-paid and
nonassessable. There are no outstanding rights, options, warrants,
subscriptions, calls, convertible securities, or agreements of any character or
nature under which Edudata is or may become obligated to issue or to transfer
any shares of its securities of any kind.
d. Edudata has cash and cash equivalents on hand of Six Hundred
Fifty Thousand Dollars ($650,000), net of all liabilities.
e. Edudata acknowledges that this agreement was prepared by the law
firm of Gilchrist & Rutter, a Professional Corporation, who are counsel for DMD
and who do not represent the undersigned Members or Edudata, and further
acknowledges that the law firm is relying upon the above representations of
Edudata, has not rendered any tax advise with respect to this transaction, and
has urged Edudata to obtain independent advice about this transaction from
independent attorneys, tax specialists and financial advisers.
5. All parties agree on the following provisions that are to govern
Edudata after the issuance of the four million (4,000,000) shares of Edudata
common stock to the Members.
a. Any loan obligation of Edudata payable to any shareholder or
member of DMD, Edudata or Bavarian or to any affiliate of such shareholder or
member, shall be paid solely from, and to the extent of, positive cash flow of
the combined businesses.
-4-
<PAGE>
b. Edudata shall not issue options to acquire more than seven
hundred fifty thousand (750,000) shares of common stock of Edudata at any time
prior to March 1, 1997.
c. No later than March 1, 1996, all three present members of the
Board of Directors of Edudata shall resign or be removed, and the following four
persons shall be elected in their stead: Robert H. Gurevitch, Hiroki Umezaki,
Marvin H. Kleinberg, and Gerald K. Kitano.
d. Robert H. Gurevitch shall not receive a salary from Edudata for
the twelve-month period ending March 1, 1997, in excess of Two Hundred Forty
Thousand Dollars ($240,000).
e. After the consummation of the purchase contemplated by this
Agreement and until March 1, 1997, Edudata shall not, without the prior written
consent of Sun Equities Corporation or its designee:
i. Make any payment or distribution to a related party (other
than compensation to employees or the repayment of loans as permitted by
paragraph 5 a above) except in a distribution to all shareholders of Edudata;
ii. Enter into any contract or other transaction with any
related party (other than agreeing to employ such a person);
iii. Pay a salary or any fee to Robert H. Gurevitch or to any
affiliate or associate of Robert H. Gurevitch, other than the Members,
Shareholders of Bavarian and Ms. Andrea Niemiec, in excess of $240,000 per
annum;
iv. Pay salaries or fees to Robert H. Gurevitch, Hiroki Umezaki,
Fred Kinley, Dewey Perrigo and Ms. Andrea Niemiec in the aggregate in excess of
$700,000; and
*//
*//
*//
* //
*//
*//
*//
*//
-5-
<PAGE>
v. Issue any securities other than options to acquire no more
than 750,000 share of Edudata common stock.
6. As soon as practicable after the Closing, Edudata will send to its
shareholders the information statement required by Section 14f of the Securities
Exchange Act of 1934 and make such other filings required under Federal
securities law. This agreement may be executed in counterparts, all of which
taken together shall constitute a single agreement.
Dated: February ___, 1996 -----------------------------------
ROBERT H. GUREVITCH
Dated: February ___, 1996 -----------------------------------
HIROKI UMEZAKI
Dated: February ___, 1996 -----------------------------------
FRED KINLEY
Dated: February ___, 1996 -----------------------------------
DEWEY PERRIGO
Dated: February 29, 1996 EDUDATA CORPORATION
By: /s/ JOHN GALUCHIE, JR.
--------------------------------
Name: John Galuchie, Jr.
---------------------------
Its: Treasurer
---------------------------
-6-
<PAGE>
v. Issue any securities other than options to acquire no more than
750,000 share of Edudata common stock.
6. As soon as practicable after the Closing, Edudata will send to its
shareholders the information statement required by Section 14f of the Securities
Exchange Act of 1934 and make such other filings required under Federal
securities law. This agreement may be executed in counterparts, all of which
taken together shall constitute a single agreement.
ROBERT H. GUREVITCH
Dated: February 29, 1996 -----------------------------------
ROBERT H. GUREVITCH
HIROKI UMEZAKI
Dated: February 29, 1996 -----------------------------------
HIROKI UMEZAKI
FRED KINLEY
Dated: February 29, 1996 -----------------------------------
FRED KINLEY
DEWEY PERRIGO
Dated: February 29, 1996 -----------------------------------
DEWEY PERRIGO
Dated: February ___, 1996 EDUDATA CORPORATION
By:
--------------------------------
Name:
---------------------------
Its:
---------------------------
-6-
<PAGE>
EXHIBIT 2.2
CONTRIBUTION AGREEMENT
The undersigned Robert H. Gurevitch, Anatoly Borodyansky and Dewey
Perrigo (hereinafter jointly and severally referred to as "Shareholders") hereby
tender a total of three thousand (3,000) shares of the capital stock of Bavarian
Dental Instruments, Inc., a California close corporation ("Bavarian"), to
Edudata Corporation, a Delaware corporation ("Edudata") under the following
terms and conditions:
1. Edudata shall deliver forthwith to the Shareholders, in exchange for
their three thousand (3,000) shares of capital stock of Bavarian, a total of one
million (1,000,000) shares of common stock of Edudata. Said shares of Edudata
shall be allocated among the Shareholders in proportion to their shareholdings
in Bavarian.
2. This transaction is expressly conditioned upon the concurrent
issuance by Edudata of a total of four million (4,000,000) shares of common
stock of Edudata to the members of Dental/Medical Diagnostic Systems LLC
("DMD").
3. The Shareholders represent and warrant as follows:
a. The Shareholders are the sole shareholders of Bavarian and are
the owners of three thousand (3,000) shares of the capital stock of Bavarian,
which constitutes all of the issued and outstanding shares of stock at Bavarian.
Robert H. Gurevitch owns one thousand six hundred fifty (1,650) shares, Anatoly
Borodyansky owns one thousand two hundred (1,200) shares, and Dewey Perrigo owns
one hundred fifty (150) shares. The Shareholders contributed approximately
Eighty-Two Thousand Dollars ($82,000) to Bavarian for their shares of capital
stock or as paid-in-capital.
b. Bavarian is a corporation duly organized, validly existing, and
in good standing under the laws of the State of California, has all requisite
corporate power and authority to own, lease, and operate its properties and to
carry on its business as it is now conducted, and has authority to enter into
this agreement.
c. All issued and outstanding shares of capital stock of Bavarian
have been duly authorized and validly issued and are fully paid and
nonassessable. There are no outstanding rights, options, warrants,
subscriptions, calls, convertible securities, or agreements of any character or
nature under which Bavarian is or may become obligated to issue or to transfer
any shares of its capital stock of any kind.
d. Each Shareholder is acquiring his shares of common stock of
Edudata solely for his own account for investment
-1-
<PAGE>
and does not intend to divide his shares with others or to resell or otherwise
dispose of all or any part of said shares.
e. Each Shareholder acknowledges that, unless the acquired shares
are registered or the transaction is qualified under the appropriate state and
federal securities laws, he may not resell, hypothecate, transfer or assign, or
make other disposition of the Edudata shares, except in transaction excepted or
exempted from the registration or qualification requirements of such laws.
f. Each Shareholder acknowledges that the acquired shares of Edudata
will be "restricted shares" as said term is defined in the Rules and Regulations
promulgated by the Securities and Exchange Commission under the Securities Act
of 1993, as amended. Each Shareholder acknowledges that the acquired shares
shall have a legend upon them stating that the shares are restricted shares,
which legend shall be in such form as is ordinary and usual for this type of
transaction.
g. Each Shareholder: (1) has reviewed this transaction with a
professional advisor (who is unaffiliated with and who is not compensated by
Edudata, or any affiliate or selling agent of Edudata, directly or indirectly)
who by reason of his or her business or professional experience has the capacity
to protect the Shareholder's interests in connection with this transaction,
and/or (2) had during each of the preceding three (3) years: individual annual
income in excess of Two Hundred Thousand Dollars ($200,000); or joint annual
income (together with his spouse) in excess of Three Hundred Thousand Dollars
($300,000); or net worth (individually or jointly with his spouse) in excess of
One Million Dollars ($1,000,000).
h. Each Shareholder has received a copy of the latest available
financial statements of Edudata and has been afforded (with his attorneys and
investment advisors, if any) to obtain any information related to the business
and financial condition of Edudata or necessary to verify the accuracy of the
financial statements of Edudata.
i. Each Shareholder acknowledges that Edudata is relying on
exemptions from state and federal securities laws for the issuance of the
Edudata shares and is basing its reliance in part upon the foregoing
representations and warranties.
j. To the best of each Shareholder's actual present knowledge the
following is true and correct: There are no contracts or other transactions
between Bavarian, on the one hand, and any Shareholder, on the other hand,
except that Shareholders are employees of Bavarian. The annual salary paid to
Robert H. Gurevitch by DMD and Bavarian together was less than $240,000.
-2-
<PAGE>
k. Each Shareholder, separately from the other Shareholders,
believes that the following statements are true and correct and has no actual
present knowledge that they are untrue or not correct:
i. Although no financial statements of Bavarian have been
delivered to Edudata, there have been no material negative changes or events to
Bavarian since December 31, 1995, and the Shareholder does not know of any event
which with the passage of time will cause a material negative change.
ii. Returns of products sold by Bavarian have not exceeded three
percent (3%) of sales.
iii. Bavarian has no uncollectible receivables.
iv. The budget dated February 2, 1996, fairly depicts the
anticipated results of DMD and Bavarian for the year 1996. Edudata acknowledges
that said budget is an estimate and that the Shareholders are not warranting
that the projections shall be obtained.
v. In the event Bavarian merges into a C Corporation that is
wholly owned by Edudata in accordance with applicable State law following normal
procedures for a tax-exempt merger, Edudata will not incur any tax liability as
a result of said merger.
vi. Bavarian has no tax liability other than such liabilities as
arise from the ordinary course of its business operations. There are no
liabilities, contingent or absolute, that are not disclosed in the financial
statements referred to in (i) above.
vii. Bavarian has all agreements, licenses, consents and
regulatory approval necessary to conduct its business as it is now conducted,
and is in compliance with all material laws, rules or regulations known to be
applicable to such business as it is now conducted.
l. Each Shareholder acknowledges that this agreement was prepared by
the law firm of Gilchrist & Rutter, a Professional Corporation, who are counsel
for Bavarian and who do not represent the undersigned Shareholders or Edudata.
Each Shareholder further acknowledges that the law firm is relying upon the
above representations of the Shareholders, has not rendered any tax advice with
respect to this transaction and did urge the Shareholders to obtain independent
advice about this transaction from independent attorneys, tax specialists and
financial advisers.
4. Edudata represents and warrants as follows:
-3-
<PAGE>
a. Edudata is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Delaware, and has all requisite
corporate power and authority (1) to own, lease, and operate its properties and
to carry on its business as it is now conducted; and (2) to enter into, perform,
and carry out the terms of this Agreement; and (3) to issue and sell the one
million (1,000,000) shares of common stock of Edudata.
b. The one million (1,000,000) shares of common stock of Edudata to
be issued to the Shareholders shall, when issued, have been duly authorized and
validly issued and be fully paid and nonassessable.
c. Edudata has two million five hundred nine thousand nine hundred
(2,509,900) shares of common stock presently outstanding. All of said shares
have been duly authorized and validly issued and are fully-paid and
nonassessable. There are no outstanding rights, options, warrants,
subscriptions, calls, convertible securities, or agreements of any character or
nature under which Edudata is or may become obligated to issue or to transfer
any shares of its securities of any kind.
d. Edudata has cash and cash equivalents on hand of Six Hundred
Fifty Thousand Dollars ($650,000), net of all liabilities.
e. Edudata acknowledges that this agreement was prepared by the law
firm of Gilchrist & Rutter, a Professional Corporation, who are counsel for
Bavarian and who do not represent the undersigned Shareholders or Edudata, and
further acknowledges that the law firm is relying upon the above representations
of Edudata, has not rendered any tax advise with respect to this transaction and
has urged Edudata to obtain independent advice about this transaction from
independent attorneys, tax specialists and financial advisers.
5. All parties agree on the following provisions that are to govern
Edudata after the issuance of the one million (1,000,000) shares of Edudata
common stock to the Shareholders:
a. Any loan obligation of Edudata payable to any shareholder or
member of Bavarian, Edudata or DMD, or to any affiliate of such shareholder or
member, shall be paid solely from, and to the extent of, positive cash flow of
the combined businesses.
b. Edudata shall not issue options to acquire more than seven
hundred fifty thousand (750,000) shares of common stock of Edudata at any time
prior to March 1, 1997.
-4-
<PAGE>
c. No later than March 1, 1996, all three present members of the
Board of Directors of Edudata shall resign or be removed, and the following four
persons shall be elected in their stead: Robert H. Gurevitch, Hiroki Umezaki,
Marvin H. Kleinberg, and Gerald K. Kitano.
d. Robert H. Gurevitch shall not receive a salary from Edudata for
the twelve-month period ending March 1, 1997, in excess of Two Hundred Forty
Thousand Dollars ($240,000).
e. After the consummation of the purchase contemplated by this
Agreement and until March 1, 1997, Edudata shall not, without the prior written
consent of Sun Equities Corporation or its designee:
i. Make any payment or distribution to a related party (other
than compensation to employees or the repayment of loans as permitted by
paragraph 5 a above) except in a distribution to all shareholders of Edudata;
ii. Enter into any contract or other transaction with any
related party (other than agreeing to employ such a person);
iii. Pay a salary or any fee to Robert H. Gurevitch or to any
affiliate or associate of Robert H. Gurevitch, other than the Shareholders,
Members of DMD and Ms. Andrea Niemiec, in excess of $240,000 per annum;
iv. Pay salaries or fees to Robert H. Gurevitch, Hiroki Umezaki,
Fred Kinley, Dewey Perrigo and Ms. Andrea Niemiec in the aggregate in excess of
$700,000; and
-5-
<PAGE>
v. Issue any securities other than options to acquire no more
than 750,000 shares of Edudata common stock.
6. As soon as practicable after the Closing, Edudata will send to its
shareholders the information statement required by Section 14f of the Securities
Exchange Act of 1934 and make such other filings required under Federal
securities law. This agreement may be executed in counterparts, all of which
taken together shall constitute a single agreement.
Dated: February ___, 1996 -----------------------------------
ROBERT H. GUREVITCH
Dated: February ___, 1996 -----------------------------------
ANATOLY BORODYANSKY
Dated: February ___, 1996 -----------------------------------
DEWEY PERRIGO
Dated: February 29, 1996 EDUDATA CORPORATION
By: [SIG]
--------------------------------
Name: [SIG]
---------------------------
Its: TREASURER
---------------------------
-6-
<PAGE>
v. Issue any securities other than options to acquire no more than
750,000 shares of Edudata common stock.
6. As soon as practicable after the Closing, Edudata will send to its
shareholders the information statement required by Section 14f of the Securities
Exchange Act of 1934 and make such other filings required under Federal
securities law. This agreement may be executed in counterparts, all of which
taken together shall constitute a single agreement.
ROBERT H. GUREVITCH
Dated: February 29, 1996 -----------------------------------
ROBERT H. GUREVITCH
ANATOLY BORODYANSKY
Dated: February 29, 1996 -----------------------------------
ANATOLY BORODYANSKY
DEWEY PERRIGO
Dated: February 29, 1996 -----------------------------------
DEWEY PERRIGO
Dated: February ___, 1996 EDUDATA CORPORATION
By:
--------------------------------
Name:
---------------------------
Its:
---------------------------
-7-
<PAGE>
EXHIBIT 2.3
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
1997 STOCK INCENTIVE PLAN
1. PURPOSES.
(a) The purpose of the 1997 Stock Incentive Plan (the "Plan") is to
provide a means by which Employees or Directors of or Consultants to
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. (the "Company"), and its Affiliates,
may be given an opportunity to benefit from increases in value of the Common
Stock of the Company through the granting of Stock Awards.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company,
to secure and retain the services of new Employees, Directors and
Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company.
(c) The Company intends that the Stock Awards issued under the Plan
shall, in the discretion of the Board or any Committee to which
responsibility for administration of the Plan has been delegated pursuant to
Section 3(c), be either (1) Options granted pursuant to Section 6 hereof,
including Incentive Stock Options and Nonstatutory Stock Options, (2) Stock
Bonuses or Rights to Purchase Restricted Stock granted pursuant to Section 7
hereof, or (3) Stock Appreciation Rights granted pursuant to Section 8
hereof. All Options shall be separately designated Incentive Stock Options
or Nonstatutory Stock Options at the time of grant and a separate certificate
or certificates will be issued for shares purchased upon exercise of each
type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections
424(e) and (f), respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CCSL" means the California Corporate Securities Law of 1968, as
amended.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a Committee appointed by the Board in accordance
with Section 3(c) of the Plan.
<PAGE>
(f) "COMMON STOCK" means the common stock, par value $.01 per share, of
the Company.
(g) "COMPANY" means DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC., a Delaware
corporation.
(h) "CONCURRENT STOCK APPRECIATION RIGHT" or "CONCURRENT RIGHT" means a
right granted pursuant to subsection 8(b)(ii) of the Plan.
(i) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render bona fide consulting services and who is
compensated for such services, provided that the term "Consultant" shall not
include Directors who are paid only a director's fee by the Company or who
are not compensated by the Company for their services as Directors.
(j) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means the
employment or relationship as a Director or Consultant is not interrupted or
terminated by the Company or any Affiliate. The Board, in its sole
discretion, may determine whether Continuous Status as an Employee, Director
or Consultant shall be considered interrupted in the case of: (1) any leave
of absence approved by the Board, including sick leave, military leave, or
any other personal leave; PROVIDED, HOWEVER, that for purposes of Incentive
Stock Options and Stock Appreciation Rights appurtenant thereto, any such
leave may not exceed ninety days, unless reemployment upon the expiration of
such leave is guaranteed by contract (including certain Company policies) or
statute; (2) transfers between locations of the Company or between the
Company, Affiliates or its successor; or (3) a change in the status of the
relationship from Employee to Director or Consultant, from Director to
Employee or Consultant, or from Consultant to Employee or Director.
(k) "DIRECTOR" means a member of the Board.
(l) "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(m) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(n) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(o) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market, the Fair
<PAGE>
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
system or exchange (or the exchange with the greatest volume of trading in
the Common Stock) on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq System (but
not on the Nasdaq National Market) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value
of a share of Common Stock shall be the mean between the bid and asked prices
for the Common Stock on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable;
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value shall be determined in good faith by the
Board.
(p) "INCENTIVE STOCK OPTION" means an Option intended by the Board at
the time of grant to qualify as an incentive stock option within the meaning
of Section 422 of the Code and the regulations promulgated thereunder.
(q) "INDEPENDENT STOCK APPRECIATION RIGHT" or "INDEPENDENT RIGHT" means
a right granted under subsection 8(b)(iii) of the Plan.
(r) "NON-EMPLOYEE DIRECTOR" means a director (1) who is not currently an
officer of the Company or any of its Affiliates or otherwise currently
employed by the Company or any of its Affiliates; (2) does not receive
compensation, either directly or indirectly from the Company or any of its
Affiliates for services rendered as a consultant or in any capacity other
than as a director, except for an amount that does not exceed the dollar
amount for which disclosure would be required pursuant to Item 404(a) of
Regulation S-K; (3) does not possess an interest in any other transaction for
which disclosure would be required pursuant to Item 404(a) of Regulation S-K;
or (4) is not engaged in a business relationship for which disclosure would
be required pursuant to Item 404(b) of Regulation S-K.
(s) "NONSTATUTORY STOCK OPTION" means an Option not intended by the Board
at the time of grant to qualify as an Incentive Stock Option.
(t) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(u) "OPTION" means a stock option granted pursuant to the Plan.
<PAGE>
(v) "OPTIONEE" means an Employee, Director or Consultant who holds an
outstanding Option.
(w) "PLAN" means this 1997 Stock Incentive Plan.
(x) "RULE 16b-3" means Rule 16b-3 under the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(y) "REGULATION S-K" means Regulation S-K of the Securities and Exchange
Commission.
(z) "RIGHT TO PURCHASE RESTRICTED STOCK" means an award of an
entitlement to purchase shares of Common Stock under the Plan which are
subject to certain voting limitations and restrictions at a price which is
lower than the fair market value of the Common Stock on the date of grant.
(aa) "SECURITIES ACT" means the Securities Act of 1933.
(bb) "STOCK APPRECIATION RIGHT" means any of the various types of rights
which may be granted under Section 8 of the Plan.
(cc) "STOCK AWARD" means any right granted under the Plan, including any
Option, any Stock Bonus, any Right to Purchase Restricted Stock and any Stock
Appreciation Right.
(dd) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of
an individual Stock Award grant. Each Stock Award Agreement shall be subject
to the terms and conditions of the Plan.
(ee) "STOCK BONUS" means a grant of Common Stock under the Plan which
does not involve the payment of a purchase price to the Company by the
recipient thereof.
(ff) "TANDEM STOCK APPRECIATION RIGHT" or "TANDEM RIGHT" means a right
granted under subsection 8(b)(i) of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in Section 3(c).
<PAGE>
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how Stock Awards shall
be granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option, a Stock Bonus, a Right to Purchase Restricted
Stock, a Stock Appreciation Right, or a combination of the foregoing; the
provisions of each Stock Award granted (which need not be identical),
including, without limitation, the time or times when a person shall be
permitted to receive stock pursuant to a Stock Award; whether a person shall
be permitted to receive stock upon exercise of an Independent Stock
Appreciation Right; and the number of shares with respect to which Stock
Awards shall be granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement
and, subject to Section 14 hereof, otherwise amend the Plan in a manner and
to the extent it shall deem necessary.
(iii) Generally, to exercise such powers and to perform such
acts as the Board deems necessary or expedient to promote the best interests
of the Company and which are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two members (the "Committee"), and at least two of
the members of the Committee shall be Non-Employee Directors. If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore
possessed by the Board (and references in this Plan to the Board shall
thereafter be to the Committee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board. The Board may abolish the Committee at any time and
revest in the Board the administration of the Plan.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 13 relating to adjustments upon
changes in the Common Stock, the number of shares of Common Stock that may be
issued pursuant to Stock Awards under the Plan shall not exceed in the
aggregate 3,500,000 shares. If any Stock Award or option granted under the
terms of the Plan shall for any reason expire or otherwise terminate without
having been exercised in full, the Common Stock not purchased shall again
become available for issuance under the Plan. Shares subject to Stock
Appreciation Rights exercised in accordance with Section 8 of the Plan and
Shares withheld by the Company to
<PAGE>
satisfy a federal, state and/or local tax withholding obligation of a
participant relating to the exercise of a Stock Award shall not be available
for subsequent issuance under the Plan.
5. ELIGIBILITY.
(a) Incentive Stock Options and Stock Appreciation Rights appurtenant
thereto may be granted only to Employees. Stock Awards other than Incentive
Stock Options and Stock Appreciation Rights appurtenant thereto may be
granted only to Employees, Directors or Consultants.
(b) No person shall be eligible for the grant of an Incentive Stock
Option if, at the time of grant, such person owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of
the Company or of any of its Affiliates unless the exercise price of such
Incentive Stock Option is at least one hundred ten percent (110%) of the Fair
Market Value of the Common Stock at the date of grant and such Incentive
Stock Option is not exercisable after the expiration of five years from the
date of its grant.
6. OPTION PROVISIONS.
Each Option shall be approved by the Board and be in such form and shall
contain such terms and conditions as the Board shall deem appropriate. The
provisions of separate options need not be identical, but each Option shall
include (through incorporation of provisions hereof by reference in the
Option or otherwise) the substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten
years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock option shall be
not less than one hundred percent (100%) of the Fair Market Value of the
Common Stock subject to the Option on the date the Option is granted. The
exercise price of each Nonstatutory Stock Option shall be not less than one
hundred percent (100%) of the Fair Market Value of the Common Stock subject
to the Option on the date the Option is granted. Notwithstanding the
foregoing, the exercise price of an Option for which an exemption from the
qualification requirements of the CCSL is unavailable, and which is granted
to a person who owns stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of any
of its Affiliates, shall be at least one hundred ten percent (110%) of the
Fair Market Value of the Common Stock at the date of grant.
<PAGE>
(c) CONSIDERATION. The exercise price of Common Stock acquired pursuant
to the exercise of an Option shall be paid, to the extent permitted by
applicable statutes and regulations, either (1) in cash at the time the
Option is exercised, or (2) at the discretion of the Board, either at the
time of the grant or exercise of the Option, (A) by delivery to the Company
of other shares of Common Stock, (B) according to a deferred payment or other
arrangement (which may include, without limiting the generality of the
foregoing, the use of other shares of Common Stock) with the person to whom
the Option is granted or to whom the Option is transferred pursuant to
Section 6(d), or (C) in any other form of legal consideration that may be
acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be payable at the minimum rate of
interest necessary to avoid the imputation of interest, under the applicable
provisions of the Code and Treasury Regulations.
(d) TRANSFERABILITY. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Incentive
Stock Option is granted only by such person, or in the case of such person's
disability by such person's legal representative or guardian. A Nonstatutory
Stock Option shall not be transferable except by will or by the laws of
descent and distribution or pursuant to a qualified domestic relations order
satisfying the requirements of Rule 16b-3 and any administrative
interpretations or pronouncements thereunder (a "QDRO"), and shall be
exercisable during the lifetime of the person to whom the Option is granted
only by such person or any transferee pursuant to a QDRO.
(e) VESTING. The total number of shares of Common Stock subject to an
Option may, but need not, be allotted in periodic installments (which may,
but need not, be equal). The Option may provide that from time to time
during each of such installment periods, the Option may become exercisable
("vest") with respect to some or all of the shares allotted to that period,
and may be exercised with respect to some or all of the shares allotted to
such period and/or any prior period as to which the Option became vested but
was not fully exercised. The Option may be subject to such other terms and
conditions on the time or times when it may be exercised (which may be based
on performance or other criteria) as the Board may deem appropriate. The
vesting provisions of individual Options may vary; however, in the case of an
Option for which an exemption from the qualification requirements of the CCSL
is unavailable, the vesting provisions must provide for vesting of at least
twenty percent (20%) per year of the total number of shares subject to the
Option from the date the Option was granted; PROVIDED, HOWEVER, that Options
granted to Officers, Directors or Consultants of the Company may vest at a
rate of less than twenty percent (20%) per year. During the remainder of the
term of the Option (if its term extends beyond the end of the installment
periods), the option may be exercised from time to time with respect to any
shares then remaining subject to
<PAGE>
the Option. The provisions of this Section 6(e) are subject to any Option
provisions governing the minimum number of shares as to which an Option may
be exercised.
(f) SECURITIES LAW COMPLIANCE. The Company may require any Optionee, or
any person to whom an Option is transferred pursuant to Section 6(d), as a
condition of exercising any such Option, (1) to give written assurances
satisfactory to the Company as to the Optionee's knowledge and experience in
financial and business matters and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable and experienced
in financial and business matters, and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits
and risks of exercising the option; and (2) to give written assurances
satisfactory to the Company stating that such person is acquiring the Common
Stock subject to the Option for such person's own account and not with any
present intention of selling or otherwise distributing the Common Stock.
These requirements, and any assurances given pursuant to such requirements,
shall be inoperative if (x) the issuance of the shares upon the exercise of
the Option has been registered under a then currently effective registration
statement under the Securities Act, or (y) as to any particular requirement,
a determination is made by counsel for the Company that such requirement need
not be met in the circumstances under the then applicable securities laws.
(g) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
Disability) (a "Termination"), the Optionee may exercise his or her Option
(to the extent that the Optionee is entitled to exercise it at the date of
Termination), but only within such period of time as is determined by the
Board, which period shall not be longer than ninety days from the date of
Termination for an Incentive Stock Option nor less than thirty days from the
date of Termination for an Option for which an exemption from the
qualification requirements of the CCSL is unavailable; PROVIDED, HOWEVER,
that if an Optionee is terminated for cause, as defined by the Board, the
Option may provide for an exercise period shorter than thirty days, or may
provide for expiration concurrent with such Termination. In no event shall
an Option be exercised later than the expiration of the term of such Option
as set forth in the Option. If, at the date of Termination, the Optionee is
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to the Plan. If, after
Termination, the Optionee does not exercise his or her Option within the time
specified in the Option, the Option shall terminate, and the shares covered
by such Option, to the extent unexercised, shall revert to the Plan.
(h) DISABILITY OF OPTIONEE. If an Optionee's Continuous Status as an
Employee, Director or Consultant terminates as a result of the Optionee's
Disability, the Optionee may exercise his or her Option, but only within six
months from the date of such Termination (or such longer period, not
exceeding twelve months for Incentive Stock Options, as specified in
<PAGE>
the Option), and only to the extent that the Optionee was entitled to
exercise the Option at the date of such Termination (but in no event later
than the expiration of the term of such Option as set forth in the Option).
If, at the date of Termination, the Optionee is not entitled to exercise his
or her entire Option, the shares covered by the unexercisable portion of the
Option shall revert to the Plan. If, after Termination, the Optionee does not
exercise his or her Option within the time specified therein, the Option
shall terminate, and the shares covered by such Option, to the extent
unexercised, shall revert to the Plan.
(i) DEATH OF OPTIONEE. In the event of the death of an Optionee, the
Option may be exercised at any time within six months following the date of
death (or such longer period not exceeding twelve months, for Incentive Stock
Options, as specified in the Option), but in no event later than the
expiration of the term of such Option as set forth in the Option, by the
Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent the Optionee was
entitled to exercise the Option at the date of death. If, at the time of
death, the Optionee was not entitled to exercise his or her entire Option,
the shares covered by the unexercisable portion of the Option shall revert to
the Plan. If, after death, the Optionee's estate or a person who acquired
the right to exercise the Option by bequest or inheritance does not exercise
the Option within the time specified herein, the Option shall terminate, and
the shares covered by such Option, to the extent unexercised, shall revert to
the Plan.
(j) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject
to the Option prior to the full vesting of the Option. Any unvested shares
so purchased shall be subject to a right to repurchase in favor of the
Company upon Termination of the Optionee, at a repurchase price equal to the
exercise price of the Option, payable in cash or cancellation of purchase
money indebtedness for the shares; PROVIDED, HOWEVER, that for any Option for
which an exemption from the qualification requirements of the CCSL is
unavailable, the Company's right to repurchase at the exercise price of the
Option shall lapse at a minimum rate of twenty percent (20%) per year over
five years from the date the Option was granted and such right shall
terminate to the extent not exercised within ninety days following
Termination of the Optionee.
(k) WITHHOLDING. To the extent provided by the terms of an Option, the
Optionee may satisfy any federal, state or local tax withholding obligation
relating to the exercise of such Option by any of the following means or by a
combination of such means: (1) tendering a cash payment; (2) authorizing the
Company to withhold shares from the shares of the Common Stock otherwise
issuable to the Optionee as a result of the exercise of the Option; or (3)
delivering to the Company owned and unencumbered shares of Common Stock.
<PAGE>
(l) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board to make or not to make grants of Options hereunder, the Board shall
have the authority (but not an obligation) to include as part of any Option a
provision entitling the Optionee to a further Option (a "Re-Load Option") in
the event the Optionee exercises the Option, in whole or in part, by
surrendering other shares of Common Stock in accordance with this Plan and
the terms and conditions of the Option. Any such Re-Load Option (1) shall be
for a number of shares equal to the number of shares surrendered as part or
all of the exercise price of such Option; (2) shall have an expiration date
which is the same as the expiration date of the Option the exercise of which
gave rise to such Re-Load Option; and (3) in the case of a Re-Load Option
which is an Incentive Stock Option or an Option for which an exemption from
the qualification requirements of the CCSL is unavailable, and which is
granted to a 10% shareholder (as described in Section 5(c)), shall have an
exercise price which is equal to one hundred ten percent (110%) of the Fair
Market Value of the Common Stock subject to the Re-Load Option on the date of
exercise of the original Option and, with respect to Incentive Stock Options,
shall have a term which is no longer than five years.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonqualified Stock Option, as the Board may designate at the time of the
grant of the original Option; PROVIDED, HOWEVER, that the designation of any
Re-Load Option as an Incentive Stock Option shall be subject to the one
hundred thousand dollar ($100,000) annual limitation on exercisability of
Incentive Stock Options described in Section 12(d) of the Plan and in Section
422(d) of the Code. There shall be no Re-Load Options on a Re-Load Option.
Any such Re-Load Option shall be subject to the availability of sufficient
shares under Section 4(a) and shall be subject to such other terms and
conditions as the Board may determine which are not inconsistent with the
express provisions of the Plan regarding the terms of the Options.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be approved
by the Board and be in such form and shall contain such terms and conditions
as the Board shall deem appropriate. The terms and conditions of stock bonus
or restricted stock purchase agreements may change from time to time, and the
terms and conditions of separate agreements need not be identical, but each
stock bonus or restricted stock purchase agreement shall include (through
incorporation of provisions hereof by reference in the agreement or
otherwise) the substance of each of the following provisions, as appropriate:
(a) PURCHASE PRICE. The purchase price under each stock purchase
agreement shall be such amount as the Board shall determine and designate in
such agreement. Additionally, the Board may determine that eligible
participants in the Plan may be awarded stock pursuant to a stock bonus
agreement in consideration for past services actually rendered to the Company
or for its benefit. Notwithstanding the foregoing, the purchase price of
shares of Common
<PAGE>
Stock for which an exemption from the qualification requirements of the CCSL
is unavailable shall be at least one hundred percent (100%) of the Fair
Market Value of the Common Stock at the date of the grant or the sale;
provided, if such shares of Common Stock are granted or sold to a person who
owns stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or of any of its
Affiliates, the purchase price shall be at least one hundred ten percent
(110%) of the Fair Market Value of the Common Stock at the date of grant or
sale. [MMM - 100% HERE?]
(b) TRANSFERABILITY. No rights under a stock bonus or restricted stock
purchase agreement shall be assignable by any participant under the Plan,
either voluntarily or by operation of law, except by will or by the laws of
descent and distribution, and shall be exercisable during the lifetime of the
person to whom the rights are granted only by such person. The person to
whom such rights are granted may, be delivering written notice to the
Company, in a form satisfactory to the Company, designate a third party who,
in the event of the death of such person, shall thereafter be entitled to
exercise the rights held by such person under the stock bonus or restricted
stock purchase agreement.
(c) CONSIDERATION. The purchase price of Common Stock acquired pursuant
to a stock purchase agreement shall be paid either: (1) in cash at the time
of purchase; (2) at the discretion of the Board, according to a deferred
payment or other arrangement with the person to whom the Common Stock is
sold; or (3) in any other form of legal consideration that may be acceptable
to the Board in its discretion. Notwithstanding the foregoing, the Board may
award stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company or for its benefit.
(d) VESTING. Shares of Common Stock sold or awarded under the Plan may,
but need not, be subject a right to repurchase in favor of the Company upon
Termination of the person to whom such shares have been sold or awarded at a
repurchase price equal to the original purchase price (or such higher price
as the Board may determine to be appropriate) payable in cash or cancellation
of purchase money indebtedness. The Board shall provided that such rights to
repurchase lapse with respect to such purchased shares (or that such
purchased shares vest) pursuant to a schedule determined by the Board;
PROVIDED, HOWEVER, that for any stock bonus or restricted stock purchase
right for which an exemption from the qualification requirements of the CCSL
is unavailable, the Company's right to repurchase at the original purchase
price shall lapse (or the purchased shares shall vest) at a minimum rate of
twenty percent (20%) per year over five years from the date the stock bonus
or restricted stock purchase right was granted and such right shall terminate
to the extent not exercised within ninety days following Termination of the
purchaser.
8. STOCK APPRECIATION RIGHTS.
<PAGE>
(a) The Board shall have full power and authority, exercisable in its
sole discretion, to grant Stock Appreciation Rights to Employees or Directors
of, or Consultants to, the Company or its Affiliates under the Plan. Each
such right shall entitle the holder to a distribution based on the
appreciation in the Fair Market Value per share of a designated amount of
Common Stock.
(b) Three types of Stock Appreciation Rights shall be authorized for
issuance under the Plan, Tandem Rights, Concurrent Rights and Independent
Rights, and the terms and conditions applicable to each shall be as follows:
(i) TANDEM STOCK APPRECIATION RIGHTS. Tandem Rights will be
granted appurtenant to an Option and will require the holder to elect between
the exercise of such Option for shares of Common Stock and the surrender, in
whole or in part, of such Option for an appreciation distribution payable in
cash in an amount equal to (A) the aggregate Fair Market Value (on the date
of Option surrender) of the number of vested shares of Common Stock under the
Option (or portion thereof) being surrendered on such date, less (B) the
aggregate exercise price of such vested shares of Common Stock. Tandem
Rights may be tied to either Incentive Stock Options or Nonstatutory Stock
Options. Each such right shall, except as specifically set forth below, be
subject to the same terms and conditions applicable to the particular Option
to which it pertains.
(ii) CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent Rights will
be granted appurtenant to an Option and may apply to all or any portion of
the shares of Common Stock subject to such Option and will be automatically
exercised at the same time such Option is exercised with respect to the
particular shares of Common Stock to which the Concurrent Right pertains.
The appreciation distribution, payable in cash, to which the holder of such
Concurrent Rights shall be entitled upon exercise of the related Option shall
be an amount equal to (A) the aggregate Fair Market Value (on the date of
Option exercise) of the number of vested shares of Common Stock under the
Option (or portion thereof) being exercised on such date and with respect to
which such Concurrent Rights apply, less (B) the aggregate exercise price
paid for such vested shares of Common Stock. Concurrent Rights may be tied
to any or all of the shares of Common Stock under any Incentive Stock Option
or Nonstatutory Stock Option. A Concurrent Right shall, except as
specifically set forth below, be subject to the same terms and conditions
applicable to the particular Option grant to which it pertains.
(iii) INDEPENDENT STOCK APPRECIATION RIGHTS. Independent Rights
shall be granted independently of any Option and will entitle the holder upon
exercise thereof to an appreciation distribution payable in cash in an amount
equal to (A) the aggregate Fair Market Value (on the date of the exercise of
the Independent Right) of a number of shares of Common Stock equal to the
number of vested share equivalents with respect to which
<PAGE>
the holder is exercising the Independent Right on such date, less (B) the
aggregate Fair Market Value (on the date of the grant of the Independent
Right) of such number of shares of Common Stock. Independent Rights shall,
except as specifically set forth below, be subject to the same terms and
conditions applicable to Nonstatutory Stock Options as set forth in Section
6. They shall be denominated in share equivalents.
(iv) TERMS APPLICABLE TO STOCK APPRECIATION RIGHTS GENERALLY.
(A) To exercise any outstanding Stock Appreciation Right, the
holder must provide written notice of exercise to the Company in compliance
with the provisions of the instrument evidencing such right.
(B) If a Stock Appreciation Right is granted to an individual
who is at the time subject to Section 16(b) of the Exchange Act, the
instrument of grant shall incorporate all the terms and conditions at the
time necessary to assure that the subsequent exercise of such right shall
qualify for the safe-harbor exemption from short-swing profit liability
provided by Rule 16b-3 promulgated under the Exchange Act (or any successor
role or regulation).
(C) No limitation shall exist on the aggregate amount of cash
payments the Company may make under the Plan in connection with the exercise
of Stock Appreciation Rights.
9. CANCELLATION AND REGRANT OF OPTIONS. The Board shall have the authority
to effect, at any time and from time to time, with the consent of the
affected holders of Options and/or Stock Appreciation Rights, (a) the
repricing of any outstanding Options and/or any Stock Appreciation Rights
under the Plan and/or (b) the cancellation of any outstanding Options and/or
any Stock Appreciation Rights under the Plan and the grant in substitution
therefor of new Options and/or Stock Appreciation Rights under the Plan
covering the same or different numbers of shares of Common Stock, but having
an exercise price per share not less than eighty-five percent (85%) of the
Fair Market Value (one hundred percent (100%) of the Fair Market Value in the
case of an Incentive Stock Option or, in the case of an Incentive Stock
Option granted to a 10% shareholder as described in Section 5(c), not less
than one hundred ten percent (110%) of the Fair Market Value) per share of
Common Stock on the new grant date. Notwithstanding the forgoing, the Board
may grant an Option and/or Stock Appreciation Right with an exercise price
lower than that set forth above if such Option and/or Stock Appreciation
Right is granted as part of a transaction to which Section 424(a) of the Code
applies.
10. COVENANTS OF THE COMPANY.
<PAGE>
(a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of Common Stock required to
satisfy such Stock Awards up to the number of shares of Common Stock
authorized under the Plan.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
effect any Stock Award, and to issue and sell shares of Common Stock under
the Stock Awards; PROVIDED, HOWEVER, that this undertaking shall not require
the Company to register under the Securities Act either the Plan, any Stock
Award or any stock issued or issuable pursuant to any such Stock Award. If,
after reasonable efforts, the Company is unable to obtain from any such
regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of Common Stock under the
Plan, the Company shall be relieved from any liability for failure to issue
and sell stock under such Stock Awards unless and until such authority is
obtained.
11. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.
12. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which a
Stock Award may first be exercised or the time during which a Stock Award or
any part thereof will vest, notwithstanding the provisions in the Stock Award
stating the time at which it may first be exercised or the time during which
it will vest.
(b) Neither an Optionee nor any person to whom an Option is transferred
under Section 6(d) shall be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares of Common Stock subject to
such Option unless and until such person has satisfied all requirements for
exercise of the Option pursuant to its terms.
(c) Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall confer upon any Employee, Director,
Consultant, Optionee, or other holder of Stock Awards any right to continue
in the employ of the Company or any Affiliate (or to continue acting as a
Director or Consultant) or shall affect the right of the Company or any
Affiliate to terminate the employment or relationship as a Director or
Consultant of any Employee, Director, Consultant or Optionee, with or without
cause.
(d) To the extent that the aggregate Fair Market Value (determined at
the time of grant) of Common Stock with respect to which Incentive Stock
Options are exercisable for the
<PAGE>
first time by any Optionee during any calendar year under all plans of the
Company and its affiliates exceeds one hundred thousand dollars ($100,000),
the Options or portions thereof which exceed such limit (according to the
order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(e) The Company shall deliver to the holders of Stock Awards, not later
than one hundred twenty days after the close of each of the Company's fiscal
years, a balance sheet and an income statement. This Section shall not apply
when the issuance of Stock Awards is limited to key employees whose duties in
connection with the Company assure them access to equivalent information.
13. ADJUSTMENTS UPON CHANGES IN THE COMMON STOCK.
(a) Subject to the provisions of Section 13(b), if any change is made in
the Common Stock subject to the Plan, or subject to any Stock Award, without
receipt of consideration by the Company (through merger, consolidation,
reorganization, recapitalization, reincorporation, stock dividend, dividend
in property other than cash, stock split, liquidating dividend, combination
of shares, exchange of shares, change in corporate structure or other
transaction not involving the receipt of consideration by the Company) the
Plan will be appropriately adjusted in the class(es) and maximum number of
shares subject to the Plan pursuant to Section 4(a) and the maximum number of
shares subject to Options and Stock Appreciation Rights pursuant to Section
5(d), and the outstanding Stock Awards will be appropriately adjusted in the
class(es) and number of shares and price per share of stock subject to such
outstanding Stock Awards. Such adjustments shall be made by the Board, the
determination of which shall be final, binding and conclusive. (The
conversion of any convertible securities of the Company shall not be treated
as a "transaction of not involving the receipt of consideration by the
Company".)
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation
in which the Company is not the surviving corporation; or (3) a reverse
merger in which the Company is the surviving corporation but the shares of
the Common Stock outstanding immediately preceding the merger are converted
by virtue of the merger into other property, whether in the form of
securities, cash or otherwise, then, at the sole discretion of the Board and
to the extent permitted by applicable law, such Stock Awards shall (i)
terminate upon such event and may be exercised prior thereto to the extent
such Stock Awards are then exercisable or (ii) continue in full force and
effect and, if applicable, the surviving corporation or an Affiliate of such
surviving corporation shall assume any Stock Awards outstanding under the
Plan and/or shall substitute similar Stock Awards for those outstanding under
the Plan.
14. AMENDMENT OF THE PLAN AND STOCK AWARDS.
<PAGE>
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 13 relating to adjustments upon
changes in the Common Stock, no amendment shall be effective unless approved
by the shareholders of the Company within twelve months before or after the
adoption of the amendment, where the amendment will:
(i) Increase the number of shares of Common Stock
reserved for Stock Awards under the Plan;
(ii) Modify the requirements as to eligibility for
participation in the Plan to the extent such modification requires
shareholder approval in order for the Plan to satisfy the requirements of
Section 422 of the Code; or
(iii) Modify the Plan in any other way if such
modification requires shareholder approval in order for the Plan to satisfy
the requirements of Section 422 of the Code or to comply with the
requirements of Rule 16b-3. Rights and obligations under any Stock Award
granted before amendment of the Plan shall not be altered or impaired by any
amendment of the Plan unless (1) the Company requests the consent of the
person to whom the Stock Award was granted and (2) such person consents
thereto in writing.
(b) The Board at any time, and from time to time, may amend the terms of
any one or more Stock Award; PROVIDED, HOWEVER, that the rights and
obligations under any Stock Award shall not be impaired by any such amendment
unless (1) the Company requests the consent of the person to whom the Stock
Award was granted and (2) such person consents thereto in writing.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on March 21, 2007. No Stock
Awards may be granted under the Plan while the Plan is suspended or after it
is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan
is in effect shall not be altered or impaired by suspension or termination of
the Plan, except with the written consent of the person to whom the Stock
Award was granted.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock
Awards granted under the Plan shall be exercisable unless and until the Plan
has been approved by the shareholders of the Company (and such approval by
the shareholders must be obtained within twelve months of the Plan being
adopted by the Board), and, for Stock Awards for which an
<PAGE>
exemption from the qualification requirements of the CCSL is unavailable, an
appropriate permit has been issued by the Commissioner of Corporations of the
State of California.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
A DELAWARE CORPORATION
Robert H. Gurevitch and Ronald E. Wittman each certify that:
1. Robert H. Gurevitch is the duly elected and acting Chairman of the
Board, Chief Executive Officer, President, and Secretary, and Ronald E.
Wittman is the duly elected and acting Chief Financial Officer, of the
corporation named above.
2. The Certificate of Incorporation of the corporation, filed with the
Secretary of State of the State of Delaware, on February 23, 1983, and as
previously amended on July 22, 1987, and further amended and restated on
January 13, 1997, shall be further amended and restated to read in full as
follows:
FIRST: The name of this corporation is DENTAL/MEDICAL DIAGNOSTIC
SYSTEMS, INC. (the "Corporation").
SECOND: The address of the registered office of the Corporation in
the State of Delaware is 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at that address is
The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful
act or activity for which a corporation may now or hereafter be organized
under the General Corporation Law of the State of Delaware as set forth in
Title 8 to the Delaware Code (the "GCL").
FOURTH: (a) The total number of shares which the Corporation
shall have authority to issue is 20,000,000 shares of common stock, par value
$0.01 per share (the "Common Stock") and 1,000,000 shares of Preferred Stock,
par value $0.01 per share (the "Preferred Stock").
(b) The holders of the issued and outstanding shares of
Common Stock shall be entitled to one vote per share of Common Stock held by
them on all matters voted upon by stockholders of the Corporation, including,
but not limited to, the election of directors.
(c) The Preferred Stock may be divided into such number
of series as the Board of Directors of this Corporation may determine. The
Board of Directors of this Corporation is authorized to determine and alter
the rights, preferences, privileges and
<PAGE>
restrictions granted to and imposed upon the Preferred Stock or any series
thereof with respect to any wholly unissued class or series of Preferred
Stock, and to fix the number of shares of any series of Preferred Stock and
the designation of any such series of Preferred Stock. The Board of
Directors of this Corporation, within the limits and restrictions stated in
any resolution or resolutions of the Board of Directors of this Corporation
originally fixing the number of shares constituting any series, may increase
or decrease (but not below the number of shares of such series then
outstanding) the number of shares of any series subsequent to the issue of
that series.
FIFTH: Effective March 21, 1997, every 1.33333333 issued and
outstanding shares of Common Stock are reconstituted and converted into one
(1) share of Common Stock and every issued and outstanding option or other
right to purchase 1.33333333 shares of Common Stock is reconstituted and
converted into an option or other right to purchase one (1) share of Common
Stock.
SIXTH: Election of directors at an annual or special meeting of
stockholders need not be by written ballot unless the Bylaws of the
Corporation shall otherwise provide.
SEVENTH: In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized to
adopt, repeal, alter, amend or rescind the Bylaws of the Corporation.
EIGHTH: (a) The Corporation shall indemnify to the fullest extent
authorized or permitted by law (as now or hereafter in effect) any person
made, or threatened to be made, a defendant or witness to any action, suit or
proceeding (whether civil or criminal or otherwise) by reason of the fact
that he, his testator or intestate, is or was a director or officer of the
Corporation or by reason of the fact that such director or officer at the
request of the Corporation, is or was serving any other corporation,
partnership, joint venture, trust, employee benefit plan or enterprise, in
any capacity. Nothing contained herein shall affect any rights to
indemnification to which employees other than directors and officers may be
entitled by law. No amendment or repeal of this Section (a) of Article
EIGHTH shall apply to or have any effect on any right to indemnification
provided hereunder with respect to any acts or omissions occurring prior to
such amendment or repeal.
(b) No director of the Corporation shall be personally
liable to the Corporation or its stockholders for monetary damages for any
breach of fiduciary duty by such a director as a director. Notwithstanding
the foregoing sentence, a director shall be liable to the extent provided by
applicable law (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the GCL, or (iv) for any transaction from which
such director derived an improper personal benefit. No amendment to or
repeal of this Section (b) of Article EIGHTH shall apply to or have any
effect on the liability or alleged liability of any director of the
<PAGE>
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal.
(c) In furtherance and not in limitation of the powers
conferred by statute:
(i) the Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the Corporation, or is serving at the request of the Corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify against such liability under
the provisions of law; and
(ii) the Corporation may create a trust fund, grant a
security interest and/or use other means (including, without limitation,
letters of credit, surety bonds and/or other similar arrangements), as well
as enter into contracts providing indemnification to the fullest extent
authorized or permitted by law and including as part thereof provisions with
respect to any or all of the foregoing to ensure the payment of such amounts
as may become necessary to effect indemnification as provided therein, or
elsewhere.
NINTH: Whenever a compromise or arrangement is proposed between
this Corporation and its creditors or any class of them and/or between this
Corporation and its Stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a
summary way of this Corporation or of any creditor or Stockholder thereof, or
on the application of any receiver or receivers appointed for this
Corporation under the provisions of Section 291 of Title 8 of the Delaware
Code or on the application of trustees in dissolution or of any receiver or
receivers appointed for this Corporation under the provisions of Section 279
of Title 8 of the Delaware Code, order a meeting of the creditors or class of
creditors, and/or of the Stockholders or class of Stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and
to any reorganization of this Corporation as a consequence of such compromise
or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the creditors or class of
creditors, and/or on all the Stockholders or class of Stockholders, of this
Corporation, as the case may be, and also in this Corporation.
3. The foregoing Amended and Restated Certificate of Incorporation has
been duly approved by the Board of Directors of the Corporation in accordance
with Section 245 of the GCL.
4. The foregoing Amended and Restated Certificate of Incorporation has
been duly approved, pursuant to resolutions of the Board of Directors of the
Corporation, and by a majority vote of the holders of the shares of Common
Stock outstanding.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amended and
Restated Certificate of Incorporation this ___ day of March 1997.
By:_______________________________________
Robert H. Gurevitch
President and Secretary
By:_______________________________________
Ronald E. Wittman
Chief Financial Officer
<PAGE>
EXHIBIT 3.2
BY-LAWS
of
EDUDATA CORPORATION
As adopted February 23, 1983
<PAGE>
EDUDATA CORPORATION
A Delaware Corporation
BY-LAWS
------------------------
ARTICLE I
STOCKHOLDERS
Section 1.1 Annual Meeting. An annual meeting of stockholders for the
purpose of electing directors and of transacting such other business as may come
before it shall be held each year at such date, time and place, either within or
without the State of Delaware, as may be specified by the Board of Directors.
Section 1.2 Special Meetings. Special meetings of stockholders for any
purpose or purposes may be held at any time upon call of the Chairman of the
Board, if any, the President, the Secretary, or a majority of the Board of
Directors, at such time and place either within or without the State of Delaware
as may be stated in the call and notice. A special meeting of stockholders shall
be called by the President or the Secretary upon the written request, stating
time, place and the purpose or purposes of the meeting, of stockholders who
together own of record a majority of the outstanding stock of any class entitled
to vote at such meeting.
Section 1.3 Notice of Meetings. Notice of stockholders meetings,
stating the place, date and hour thereof, and, in the case of a special meeting,
the purpose or purposes for which
<PAGE>
the meeting is called, shall be given by the Chairman of the Board, if any, the
President, any Vice President, the Secretary or an Assistant Secretary, to each
stockholder of record entitled to vote thereat at least ten days but not more
than sixty days before the date of the meeting, unless a different period is
prescribed by law.
Section 1.4 Quorum. Except as otherwise provided by law or the
certificate of incorporation or these By-Laws, at any meeting of stockholders,
the holders of a majority of the outstanding shares of each class of stock
entitled to vote at the meeting shall be present or represented by proxy in
order to constitute a quorum for the transaction of any business. In the absence
of a quorum, a majority in interest of the stockholders present or the chairman
of the meeting may adjourn the meeting from time to time in the manner provided
in Section 1.5 of these By-Laws until a quorum shall attend.
Section 1.5 Adjournment. Any meeting of stockholders, annual or
special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting, the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, of if after the adjournment a new record date is fixed
for the adjourned
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<PAGE>
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
Section 1.6 Organization. The Chairman of the Board, if any, or in his
absence the President, or in their absence any Vice President, shall call to
order meetings of stockholders and shall act as chairman of such meetings. The
Board of Directors or, if the Board fails to act, the stockholders may appoint
any stockholder or any director or officer of the Corporation to act as chairman
of any meeting in the absence of the Chairman of the Board, the President and a
Vice President.
The Secretary of the Corporation shall act as secretary of all meetings
of stockholders, but in the absence of the Secretary, the chairman of the
meeting may appoint any other person to act as secretary of the meeting.
Section 1.7 Voting. Except as otherwise provided by law, the
certificate of incorporation or these By-Laws and except for the election of
directors, at any meeting duly called and held at which a quorum is present, a
majority of the votes cast at such meeting upon a given question by the holders
of outstanding shares of stock of all classes of stock of the Corporation
entitled to vote thereon who are present in person or by proxy shall decide such
question. At any election of directors at which a quorum is present, the
directors shall be elected by a plurality of the votes cast at such election.
-3-
<PAGE>
ARTICLE II
BOARD OF DIRECTORS
Section 2.1 Number and Term of Office. The business, property and
affairs of the Corporation shall be managed and controlled by a Board of three
directors; provided, however, that the Board, by resolution adopted by vote of a
majority of the then authorized number of directors, may increase or decrease
the number of directors. The directors shall be elected at the annual meeting of
stockholders, and serve (subject to the provisions of Article IV) until the next
succeeding annual meeting of stockholders and until the election and
qualification of their respective successors.
Section 2.2 Chairman of the Board. The directors may elect one of their
members to be Chairman of the Board of Directors. The Chairman shall be subject
to the control of and may be removed by the Board of Directors. He shall perform
such duties as may from time to time be assigned to him by the Board.
Section 2.3 Meetings. The annual meeting of the Board of Directors, for
the election of officers and the transaction of such other business as may come
before the meeting, shall be held without notice at the same place as, and
immediately following, the annual meeting of the stockholders.
-4-
<PAGE>
Regular meetings of the Board of Directors may be held without notice
at such time and place as shall from time to time be determined by the Board.
Special meetings of the Board of Directors shall be held at such time
and place as shall be designated in the notice of the meeting whenever called by
the Chairman of the Board, if any, the President or by one of the directors then
in office.
Section 2.4 Notice of Special Meetings. The Secretary, or in his
absence any other officer of the Corporation, shall give each director notice of
the time and place of holding of special meetings of the Board of Directors by
mail at least three days before the meeting, or by telegram, cable or radiogram
or personal service at least one day before the meeting. Unless otherwise stated
in the notice thereof, any and all business may be transacted at any meeting
without specification of such business in the notice.
Section 2.5 Quorum and Organization of Meetings. A majority of the
total number of members of the Board of Directors as constituted from time to
time shall constitute a quorum for the transaction of business, but if at any
meeting of the Board of Directors there shall be less than a quorum present, a
majority of those present may adjourn the meeting from time to time, and the
meeting may be held as adjourned without further notice or waiver. Except as
otherwise provided by law or by these ByLaws, a majority of the directors
present at any meeting at
-5-
<PAGE>
which a quorum is present may decide any question brought before such meeting.
Meetings shall be presided over by the Chairman of the Board, if any, or in his
absence by the President, or in the absence of both by such other persons as may
be selected by the directors. The Secretary of the Corporation shall act as
secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
Section 2.6 Committees. The Board of Directors may, by resolution passed by
a majority of the whole Board, designate one or more committees, each committee
to consist of one or more of the directors of the Corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which
-6-
<PAGE>
may require it, but no such committee shall have power or authority in reference
to amending the certificate of incorporation of the Corporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the Corporation's property and
assets, recommending to the stockholders a dissolution of the Corporation or a
revocation of dissolution, or amending these By-Laws; and, unless the resolution
expressly so provided, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock. Each committee which
may be established by the Board of Directors or these By-Laws may fix its own
rules and procedures. Notice of meetings of committees, other than of regular
meetings provided for by the rules, shall be given to committee members. All
action taken by committees shall be recorded in minutes of the meetings.
Section 2.7 Action Without Meeting. Nothing contained in these By-Laws shall
be deemed to restrict the power of the directors or members of any committee to
take any action, required or permitted to be taken by them, without a meeting,
in accordance with applicable provisions of law.
Section 2.8 Telephone Meetings. Members of the Board of Directors, or any
committee designated by the Board, may participate in a meeting of the Board, or
committee, by means
-7-
<PAGE>
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and participation
in a meeting pursuant to this Section shall constitute presence in person at
such meeting.
ARTICLE III
OFFICERS
Section 3.1 Executive Officers. The executive officers of the Corporation
shall be a President, a Treasurer and a Secretary, each of whom shall be elected
by the Board of Directors. The Board of Directors may elect or appoint such
other officers (including one or more Vice Presidents, a Controller and one or
more Assistant Treasurers and Assistant Secretaries) as it may deem necessary or
desirable, each of whom shall have such authority, shall perform such duties and
shall hold office for such term as may be prescribed by the Board of Directors
from time to time. Any person may hold at one time two or more offices.
Section 3.2 Powers and Duties. The Chairman of the Board, if any, or, in his
absence, the President, shall preside at all meetings of the stockholders and of
the Board of Directors. The President shall be the chief executive officer of
the Corporation. In the absence of the President, a Vice President appointed by
the President or the Board shall perform all the duties of the President. The
officers and agents of the
-8-
<PAGE>
Corporation shall each have such powers and perform such duties in the
management of the business affairs of the Corporation as generally pertain to
their respective offices, as well as such powers and duties as from time to time
may be prescribed by the Board of Directors.
ARTICLE IV
RESIGNATIONS, REMOVALS AND VACANCIES
Section 4.1 Resignations. Any director or officer of the Corporation, or
any member of any committee, may resign at any time by giving written notice to
the Board of Directors, the President or the Secretary of the Corporation. Any
such resignation shall take effect at the time specified therein or, if the time
be not specified therein, then upon receipt thereof. The acceptance of such
resignation shall not be necessary to make it effective.
Section 4.2 Removals. The Board of Directors, at any meeting thereof, or
by written consent, may, to the extent permitted by law, at any time, remove
with or without cause from office or terminate the employment of any officer or
member of any committee.
Any director or the entire Board of Directors may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of directors.
Section 4.3 Vacancies. Any vacancy in the office of any director or
officer through death, resignation, removal,
-9-
<PAGE>
disqualification or other cause, and any additional directorship resulting from
increase in the number of directors, may be filled at any time by a majority of
the directors then in office (even though less than a quorum remains) or by the
stockholders, and, subject to the provisions of this Article, the person so
chosen shall hold office until his successor shall have been chosen and shall
have qualified; or if the person so chosen is a director elected to fill a
vacancy, he shall hold office for the unexpired term of his predecessor.
ARTICLE V
CAPITAL STOCK
Section 5.1 Stock Certificates. The certificates for shares of the capital
stock of the Corporation shall be in such form as shall be prescribed by law and
approved, from time to time, by the Board of Directors.
Section 5.2 Transfer of Shares. Shares of the capital stock of the
Corporation may be transferred on the books of the Corporation only by the
holder of such shares or by his duly authorized attorney, upon the surrender to
the Corporation or its transfer agent of the certificate for such shares
properly endorsed.
Section 5.3 Fixing Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment
-10-
<PAGE>
thereof, or to express consent to corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than sixty nor less than ten days before the date of such meeting,
nor more than sixty days prior to any other action.
Section 5.4 Regulations. The Board of Directors shall have power and
authority to make all such rules and regulations as it may deem expedient
concerning the issue, transfer, registration, cancellation and replacement of
certificates for shares of stock of the Corporation.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Corporate Seal. The corporate seal shall have inscribed thereto
the name of the Corporation, the year of its organization and the words
"Corporate Seal" and "Delaware".
Section 6.2 Fiscal Year. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
Section 6.3 Notices and Waivers Thereof. Whenever any notice whatever is
required by these By-Laws or by the certificate of incorporation, or by any
law to be given to any stock-
-11-
<PAGE>
holder, director, or officer, such notice, except as otherwise provided by law,
may be given personally or by mail, or, in the case of directors or officers, by
telegram, cable or radiogram, addressed to such address as appears on the books
of the Corporation. Any notice given by telegram, cable or radiogram shall be
deemed to have been given when it shall have been delivered for transmission and
any notice given by mail shall be deemed to have been given when it shall have
been deposited in the United States mail with postage thereon prepaid.
Whenever a notice is required to be given by any statute, the certificate of
incorporation, or these By-Laws, a waiver thereof in writing, signed by the
person or persons entitled to such notice, whether before or after the meeting
or at the time stated therein, shall be deemed equivalent in all respects to
such notice.
Section 6.4 Stock of Other Corporations or Other Interests. Unless otherwise
directed by the Board of Directors, the President, the Secretary and such
attorneys or agents of the Corporation as may be from time to time authorized by
the Board of Directors or the President, shall have full power and authority on
behalf of this Corporation to attend and to act and vote in person or by proxy
at any meeting of the holders of securities of any corporation or other entity
in which this Corporation may own or hold shares or other
-12-
<PAGE>
securities, and at such meetings shall possess and may exercise all the rights
and powers incident to the ownership of such shares or other securities which
this Corporation, as the owner or holder thereof, might have possessed and
exercised if present. The President or Secretary, or such attorneys or agents,
may also execute and deliver on behalf of the Corporation powers of attorney,
proxies, consents, waivers, and other instruments relating to the shares or
securities owned or held by this Corporation.
ARTICLE VII
AMENDMENTS
The holders of shares entitled at the time to vote for the election of
directors shall have power to adopt, alter, amend or repeal the By-Laws of the
Corporation by vote of not less than a majority of such shares, and the Board of
Directors shall have power equal in all respects to that of the stockholders to
adopt, alter, amend or repeal the By-Laws by vote of not less than a majority of
the entire Board. However, any By-Law adopted by the Board may be amended or
repealed by vote of the holders of a majority of the shares entitled at the time
to vote for the election of directors.
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<PAGE>
EXHIBIT 10.7
January 31, 1997
M.H. Meyerson & Co., Inc.
525 Washington Boulevard
Jersey City, New Jersey 07310
Ladies and Gentlemen:
The undersigned officer, director and/or stockholder of DENTAL/MEDICAL
DIAGNOSTIC SYSTEMS, INC. (formerly Edudata Corporation) ("Company"), in
consideration of the underwriting of a public offering (the "Offering") of
securities of the Company by M.H. Meyerson & Co., Inc. ("M.H. Meyerson"),
hereby agrees that, without the prior written consent of M.H. Meyerson for a
period of 13 months from the effective date ("Effective Date") of the
Company's Registration Statement on Form SB-2 which relates to the Offering
(the "Registration Statement"), the undersigned will not offer, sell,
transfer or otherwise dispose of any shares of Common Stock of the Company
acquired from Hiroki Umezaki by the undersigned (collectively, the "Shares").
Notwithstanding the foregoing, with the exceptions of the Shares and any
securities of the Company held by the undersigned and subject to resale
restrictions imposed pursuant to any separate written agreement between the
undersigned and M.H. Meyerson, the undersigned shall have the right to sell
all securities of the Company previously owned by the undersigned or
purchased by the undersigned in the Offering or in the aftermarket at any
time without the consent of the Underwriter.
The undersigned also acknowledges and agrees that, during the five-year
period following the Effective Date, M.H. Meyerson shall have the right, but
not the obligation, to purchase for its account or to sell for the account of
the undersigned, any Shares offered for sale by the undersigned on the open
market. The undersigned agrees to consult with M.H. Meyerson with regard to
any such sales and will offer M.H. Meyerson the exclusive opportunity to
purchase or sell such Shares on terms at least as favorable to the
undersigned as the undersigned can secure elsewhere. If M.H. Meyerson fails
to accept such proposal for sale by the undersigned within two days after
receipt of a written notice containing such proposal, then M.H. Meyerson
shall have no claim or right with respect to any such offers contained in any
such notice. If, thereafter, such proposal is modified in any material
respect, the undersigned shall follow the same procedure as with respect to
the original proposal.
The undersigned also acknowledges and agrees, and by copy of this letter
instructs the Company and its counsel, that the certificates evidencing the
Shares being purchased by the
<PAGE>
undersigned shall be held by the Company until delivery to M.H. Meyerson of
the original executed copy of this letter.
The undersigned acknowledges that a manually signed copy of this
Agreement will be filed with the Pennsylvania Securities Commission as part
of the Company's registration filing and, further, that the undersigned will
cause:
1. A copy of this Agreement to be available from the Company or
the Company's transfer agent upon request and without charge;
2. A notice to be placed on the face of each stock certificate for
Shares stating that the transfer of the Shares is restricted in
accordance with the conditions set forth on the reverse side of
the certificate; and
3. A typed legend to be placed on the reverse side of each stock
certificate representing Shares which states that the sale or
transfer of the Shares is subject to certain restrictions
pursuant to an Agreement between the stockholder and M.H.
Meyerson, which Agreement is on file with the Company and the
stock transfer agent from which a copy is available upon request
and without charge.
This Agreement shall become null and void and of no further force and
effect if the Registration Statement is not declared effective by June 30,
1997.
The terms and conditions contained in this Agreement can only be
modified (including premature termination of this Agreement) with the prior
written consent of M.H. Meyerson.
Very truly yours,
_____________________________________
2
<PAGE>
EXHIBIT 10.8
January 31, 1997
VIA FACSIMILE
To the Parties on Schedule A
Attached Hereto
c/o Mr. G. Tyler Runnels
1999 Avenue of the Stars, Suite 1950
Los Angeles, CA 90067
Re: Agreement to Register Securities
Ladies and Gentlemen
This will confirm our verbal agreement that DENTAL/MEDICAL DIAGNOSTIC
SYSTEMS, INC. (formerly Edudata Corporation) (the "Company") will file a
Registration Statement on Form S-3 (or, if the Company is ineligible to use
such form, a Registration Statement on Form SB-2) with the United States
Securities and Exchange Commission relating to the offer and sale of the
455,100 shares of the Company's Common Stock that you are acquiring from Mr.
Hiroki Umezaki on or around January 31, 1997. The Company will use its
reasonable best efforts to have such Registration Statement declared effective
prior to December 31, 1997.
If I can be of any further assistance in this matter, please do not
hesitate to contact me.
Very truly yours,
Robert H. Gurevitch
<PAGE>
SCHEDULE A
NAME AND ADDRESS SSN/TAX I.D. NUMBER
- ---------------- -------------------
North American Trust Co. TTEE ###-##-####
FBO J. Steven Emerson IRA
525 B Street, 16th Floor
San Diego, CA 92101
Contact: Ms. Pat Schmidt
800-356-0576
JMG Capital Partners L.P. 68-0271088
1999 Avenue of the Stars #1950
Los Angeles, CA 90067
Contact: Jonathan Glaser
(310) 201-2619
Dorchester Offshore Fund None
c/o Goldman, Sachs & Co.
One New York Plaza, 48th Floor
New York, New York 10004
Contacts: Michael Halpern
(310) 201-7795
Shivani Mody
(212) 902-1203
Dorchester Partners, L.P. 95-4341963
1999 Avenue of the Stars #1950
Los Angeles, CA 90067
Contact: Michael Halpern
(310) 201-7795
Steven B. Dunn, Cust. ###-##-####
Brittany B. Dunn UTMA/CA
2069 Coldwater Canyon Drive
Beverly Hills, CA 90210
Contact: Steven B. Dunn
(818) 893-5000
Charles B. Runnels, Jr. ###-##-####
556 Catalonia
Pacific Palisades, CA 90272
Phone: (310) 456-4443
Philip E. Muhl ###-##-####
3614 Camino De La Cumbre
Sherman Oaks, CA 91423
Phone: (818) 560-4680
<PAGE>
EXHIBIT 10.9
[COMERICA BANK LETTERHEAD]
February 13, 1997
Mr. Ronald E. Wittman
Dental/Medical Diagnostic Systems, Inc.
200 North Westlake Boulevard
Suite 202
Westlake Village, California 91362
Dear Ron:
It is my pleasure to confirm the commitment of Comercia Bank - California
(herein "Comerica") to extend up to a $2,000,000 line of credit (herein
"Facility") to Dental/Medical Diagnostic Systems, Inc. (herein "Borrower"),
which is described in the attached commitment letter (herein "Commitment
Letter"), incorporated herein by this reference, pursuant to the terms and
conditions contained in this letter and the Commitment Letter.
The Commitment Letter is not meant to be, nor shall it be construed as, an
attempt to define all of the terms, conditions, covenants, representations,
warranties and other provisions which will be contained in the definitive
legal documentation for this transactions. Rather, it is intended only to
outline certain of the basis points of our understanding around which the
final terms and documentation are to be structured. Further negotiations
adding to or modifying the general scope of these major terms shall not be
precluded by the issuance of this Commitment Letter and its acceptance by
Borrower. The commitment of Comerica to extend the Facility to Borrower is
contingent upon the execution and delivery on or prior to the closing date of
the Facility of a definitive credit agreement (herein "Loan Agreement") which
shall be in form and substance satisfactory to Comerica and its counsel. The
commitment of Comerica contained herein is also contingent upon the
Borrower's compliance with such other conditions, requirements and actions as
are set forth in this Commitment Letter.
Whether or not loan documentation is agreed to and whether or not any loan
thereunder is made, the Borrower agrees to pay all reasonable out-of-pocket
costs and expenses of Comerica incurred in connection with the negotiation
and documentation of this Commitment Letter, the Loan Agreement and the
Facility, (including all fees, expenses and allocated expenses of Comerica's
in-house or outside counsel). The Borrower has previously provided the Bank
with a $2,500.00 expense deposit which will be applied according to the
terms of that certain proposal letter between the Bank and the Borrower dated
December 30, 1996.
Borrower agrees to indemnify and hold harmless Comerica and its affiliates,
directors, officers, agents and employees (each a "Released Party") from and
against all losses, claims, damages, liabilities and expenses (including,
without limitation, attorneys' fees and expenses of litigation or
preparation therefor) in any way related to or arising out of any dispute
concerning the subject
1
<PAGE>
matter of this commitment, whether or not such Released Party is a party to
such dispute, except those resulting from the gross negligence or wilful
misconduct or the Released Party. Borrowers' obligation under this paragraph
shall continue (subject to any applicable statute of limitations), and are,
and shall remain, absolute and unconditional and enforceable against
Borrower, unless and until superseded by the indemnity provision of the Loan
Agreement.
Comerica reserves the right in its sole discretion to cancel its commitment
to extend the Facility to Borrower and to terminate its obligations hereunder
if: (A) any material adverse change shall occur in the business or condition
(financial or otherwise) of Borrower, or (B) the Borrower fails to comply with
any of the terms and conditions hereof.
Upon cancellation of the commitment, all amounts due hereunder shall be
payable within ten (10) days of cancellation.
This Commitment Letter is provided to you solely for the purpose described
herein and may not be disclosed to or relied upon by any other party without
Comerica's prior written consent.
If the foregoing provisions are satisfactory, please your acceptance of this
Commitment Letter in the spaces indicated on the next page and return an
executed copy of this letter to Comerica at the following address:
Comerica Bank - California
611 Anton Blvd. Ste 100
Costa Mesa, CA 92626
714-435-3972 (Voice)
714-754-7947 (Fax)
Attention:
Gregory M. Cote
Vice President/Assistant Group Manager
High Technology Banking Division
This Commitment Letter will expire if not accepted and returned to Comerica by
the close of business on Friday, February 28, 1997. Notwithstanding timely
acceptance of this Commitment Letter, the commitment of Comerica contained
herein shall automatically terminate unless the Loan Agreement is executed by
Borrower and Comerica on or before Friday, March 28, 1997.
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We appreciate the opportunity to present this commitment to you, and hope
that it lays the foundation for a long and mutually satisfactory relationship.
Very truly yours,
Gregory M. Cote
Vice President/Assistant Group Manager
Attachments
Agreed and Accepted to this ____ of February, 1997.
"Borrower" -Dental/Medical Diagnostic Systems, Inc.
By:________________________________________________
Its:_______________________________________________
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February 13, 1997
COMMITMENT LETTER PERTAINING TO
THE CREDIT FACILITY FOR
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
BORROWER: Dental/Medical Diagnostic Systems, Inc.
BANK: Comerica Bank--California
FACILITY: A secured line of credit facility in the amount of Two
Million Dollars ($2,000,000) (herein "Commitment Amount").
The Commitment Amount will be sub-divided into a Five
Hundred Thousand Dollar ($500,000) credit facility to
finance domestic and Canadian accounts receivables
(herein "Sublimit A") and a One Million Five Hundred
Thousand Dollar ($1,500,000) credit facility to finance
accounts receivable and inventory created by export sales
(herein "Sublimit B").
All borrowings and advances under Sub-limit A will be
subject to a formula of Seventy Five Percent (75%) of
eligible export accounts receivable and Seventy-Five (75%)
of eligible export inventory.
Eligible receivables and export inventory are subject to
definitions and standards required by the Export-Import
Bank of the United States (herein "Exim") and may change
all terms listed in this Commitment Letter to comply with
any and all present or future requirements of Exim
necessary to preserve the their guarantee of the
Commitment Amount.
Eligible receivables will be further defined in the loan
documents, but will not include:
A. Receivables under Sub-limit A over 90 days from
invoice date or with terms of payment longer than
net 30, unless approved in advance by the Bank;
B. Receivables under Sub-limit B over 180 days from
invoice date or with terms of payment longer than
net 90;
C. Receivables under Sub-limit A from a company where
more than 25% of the total monies owing is over 90
from invoice date;
D. Receivables under Sub-limit B from a company where
more than 25% of the total monies owing is over 180
from invoice date;
E. The portion of the total accounts receivable under
Sub-limit A from a
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single company or individual that exceeds 20% of the
total accounts receivable of the Borrower, unless
approved in advance by the Bank. An exception will be
granted for the Borrower's Canadian distributor up to
a maximum of Three Hundred Thousand Dollars ($300,000)
outstanding at any one time; and
F. Under Sub-limit A, all foreign receivables, except
for Canadian receivables;
G. Under Sub-limit B, all foreign receivables excluded
per Exim's requirements, including all receivables
owing from the Borrower's Australian distributor
until a six month payment history satisfactory to
the Bank can be demonstrated.
Eligible export inventory will be further defined in the
loan documents, but will not include inventory in transit,
not warehoused in California, or not specifically
designated for export by the Borrower.
PURPOSE: The Facillity will be used for working capital and general
corporate purposes.
MATURITY: June 1, 1998 or immediately upon an Event of Default.
REPAYMENT: Interest will be due monthly; all principal will be due at
maturity.
SECURITY: Comerica will take a first perfected security interest in
all corporate assets, including at the Bank's option,
intangibles, patents, copyrights and other intellectual
property the Bank deems essential to the liquidation and
and sale of its collateral, covering the current
outstanding balance and future borrowings. The Bank's
security interest will include an assignment of that
certain BMC Distribution Agreement by and between the
Borrower and Boston Marketing dated October 1, 1996
and UCC filings in the United States and Canada.
GUARANTEE: The Bank will receive a guarantee under its delegated
authority from Exim for Ninety Percent (90%) of all
amounts owing under Sublimit B.
SUBORDINATION: As yet unnamed owners will subordinate to the Bank the
repayment rights of those certain Thirty Two (32) Fifty
Thousand Dollar ($50,000) secured convertible promissory
notes in the aggregate amount of One Million Six Hundred
Thousand Dollars ($1,600,000) as described in that
certain Confidential Term Sheet dated October 23, 1996
(herein "Subordinated Private Placement Notes").
Robert H. Gurevitch and Boston Marketing will subordinate
to the Bank their repayment rights of the Two Hundred
Seventy Thousand Fifteen Dollars ($277,015) in loans
owing by the Borrower. Interest payments will be allowed
on a monthly basis as long as no Event of Default exists.
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INTEREST RATE: Comerica Bank Prime, floating, plus One Quarter Percent
(0.25%) as it may change from time to time.
PREPAYMENT AND
CANCELLATION FEES: None.
LOAN FEE: A loan fee equal to One Half of One Percent (0.50%), on
an annual basis, of the unused balance of Sublimit A will
be calculated arrears and will be due quarterly. An
additional loan fee equal to One and One Half of One
Percent (1.50%) of the facility amount of Sublimit B will
be due at signing and annually thereafter.
COMPENSATING
BALANCES: None.
It is understood that the company will maintain its
primary operating accounts with Comerica.
CONDITIONS PRECEDENT TO
INITIAL ADVANCE:
Standard terms and conditions, including, but not limited
to:
1) Completion of documentation satisfactory to Comerica
and its counsel, including but not limited to a
review and acceptance by the Bank of the
subordination language contained in the Subordinated
Private Placement Notes; and
2) The receipt and review of an aging of accounts
payable report of the Borrower for the month ended
December 31, 1996; and
3) Completion of an accounts receivable and inventory
audit of the Borrower's records performed by Bank
personnel producing results satisfactory to the Bank.
REPRESENTATIONS AND WARRANTIES:
Standard representations and warranties including, but
not limited to:
1) Corporate existence and power;
2) Authorization and approval to execute documents;
3) No material undisclosed lawsuits are pending;
4) No material adverse change in the business,
properties or condition (financial or otherwise)
of Borrower, since the date of the latest financial
statements;
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5) Standard representations and warranties relating to
valid and binding agreement, liens, accounting
principles, financial condition, taxes, compliance
with laws, indebtedness, material agreements,
margin stock, pension funding, misrepresentation
and no conflicting agreements.
AFFIRMATIVE
COVENANTS: Standard affirmative covenants, including, but not
limited to the receipt by the Bank of:
1) Financial statements with an unqualified opinion
within 90 days after year end:
2) Company prepared financial statements within 15
days of month end including a financial covenant
compliance report;
3) Company prepared agings of monthly accounts
receivable and payable within 15 days of month end;
4) Company prepared borrowing base report within 15 days
of month end;
5) Other information which Bank or Exim may reasonably
request; and
6) Semi-annual accounts receivable and inventory audits
of the Borrower's records performed by Bank
personnel producing results satisfactory to the
Bank. The Bank retains the right to increase the
frequency of the audits at its sole discretion.
FINANCIAL COVENANTS:
Covenants will be contained in the Loan Agreement, are to
be calculated monthly unless stated otherwise, and
include, but are not limited to, the following:
1) Net Profit After Tax and After Bonus of:
A minimum of One Dollar calculated on a rolling
two quarter basis from loan closing and
thereafter. Notwithstanding the foregoing,
no one quarter loss shall exceed Two Hundred Fifty
Thousand Dollars ($250,000);
2) Minimum effective tangible net worth:
Two Million Four Hundred Thousand Dollars
($2,400,000) from loan closing and thereafter.
Notwithstanding the foregoing, the minimum
effective tangible net worth will increase by
Seventy Five Percent (75%) of quarterly profits
(not to include a quarterly loss) and One Hundred
Percent (100%) of new equity or subordinated debt
raised after loan closing;
3) Maximum debt to effective tangible net worth:
1.00:1 from loan closing and thereafter;
4) Minimum quick ratio as follows:
1.00:1 from loan closing through June 29, 1997;
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1.25:1 from June 30, 1997 and thereafter; and
5) Borrower shall not expend, in each fiscal year, more
than Two Hundred Fifty Thousand Dollars ($250,000)
for the purchase of capital equipment.
NEGATIVE COVENANTS:
Standard negative covenants, including, but not limited
to, the following:
1) Restrictions on liens, encumbrances, loans, advances,
guarantees, dividends and investments;
2) Restrictions on asset dispositions, property
transfers and lease-backs (except inventory in the
normal course of business);
3) Restrictions on mergers and consolidations with
others;
4) Standard covenants relating to pension funding,
misrepresentation and margin stock.
EVENTS OF DEFAULT: Standard events of default, including, but not limited to:
1) Failure to pay monies due under the Loan Agreement;
2) Non-compliance with the Loan Agreement;
3) Misrepresentation;
4) Existence of a Default (whether or not resulting in
acceleration) under any other agreement governing
indebtedness.
5) Certain events of bankruptcy, insolvency or
dissolution;
6) Entry of certain judgements;
7) Occurrence of a "Reportable Event" under ERISA;
8) Change of Control.
EXPENSES: All out-of-pocket expenses and costs incurred by Comerica
in connection with the Facility will be paid by the
Borrower, including, but not limited to, the fees and
related disbursements of any legal counsel to Comerica.
The Borrower will also be responsible for the semi-annual
accounts receivable and inventory audit fee of five
hundred dollars ($500) per day. The audit is estimated to
be two and one half (2.5) days in duration.
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GOVERNING LAW: State of California.
OTHER: This Commitment Letter is intended as an outline only and
does not purport to summarize all of the conditions,
covenants and provisions which will be contained in the
definitive Loan Agreement. The commitment of Comerica is
subject to the negotiation and execution of a loan
agreement which must be satisfactory to Comerica and its
counsel.
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LETTER OF INTENT
This Letter of Intent made and entered into as of August 23, 1996
("Effective Date") between DENTAL MEDICAL DIAGNOSTIC SYSTEM, LLC. a U.S.
corporation, having its principal place of business at 200 N. Westlake Blvd.
Suite 202 Westlake Village CA 91362, U.S.A. ("DMD") and OLYMPUS JAPAN CO., LTD.,
a Japanese corporation, having its principal place of business at Ryumeikan-
building, 4-banchi, Kandasurugadai 3-chome, Chiyoda-ku, Tokyo, Japan ("OLJ").
WITNESSETH THAT:
WHEREAS, DMD is engaged in the business of development and manufacture of
intraoral cameras; and
WHEREAS, OLJ desires to purchase intraoral cameras from DMD for
distribution and resale under its name and on its own account;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
ARTICLE 1. PRELIMINARIES
DMD and OLJ hereby state their intent and desire to enter into a binding
OEM Purchase Agreement (the "Final Agreement") with respect to supply and
purchase of intraoral cameras (TeliCam 1000/100 and its equivalents) and their
improvements (collectively the "Products") which satisfy the specifications
agreed upon by both parties (the "Specifications"). This Letter of Intent
summarizes the principal terms which have been discussed. The parties
acknowledge that these proposed terms are subject to changes, additions or
deletions by mutual agreement prior to execution of the Final Agreement.
ARTICLE 2. OEM PRODUCTS
DMD shall manufacture, sell and ship to OLJ the Products. DMD shall attach
trademarks, logos and/or trade names as designated by OLJ (collectively "OLJ
Trademarks" ) to the Products in accordance with OLJ's instructions. DMD agrees
that OLJ may have its affiliated companies distribute the Products.
ARTICLE 3. PURCHASE OF THE PRODUCTS
3.1 DMD shall sell and ship to OLJ, on the exclusive basis in Japan, the
Products pursuant to purchase orders issued by OLJ in accordance with the
pricing schedules as agreed upon by both parties, and OLJ shall purchase and
accept shipment of such Products and shall have the exclusive right to market
the Products in Japan.
3.2 Additional countries in which the Products may be distributed or
otherwise marketed by OLJ shall be added upon mutual agreement.
<PAGE>
ARTICLE 4. SHIPMENT
Shipment for the Products shall be made on the basis of F. 0. B. or F. C.
A. Los Angeles in accordance with OLJ's shipping instructions. The trade terms
used in this Letter of Intent or any other communications between both parties
in connection with the Products shall be governed and interpreted by the
provisions of INCOTERMS, 1990 edition, as amended, unless otherwise specifically
stated.
ARTICLE 5. PAYMENT
DMD shall, at the shipment of the Products, issue to OLJ the invoice for
such Products by facsimile and OLJ shall make payments against such invoices
within thirty (30) days after the issuance of such invoice. The payment shall be
made in U. S. Dollars by transmitting the invoice amount to the bank account
designated by DMD.
ARTICLE 6. TARGET PURCHASES
OLJ shall use commercially reasonable efforts to purchase at least 3,000
units of the Products from DMD for three (3) years commencing upon the first
commercial shipment date of the Products (the "First Shipping Date"), but shall,
in no event, be obligated to do so, nor be liable to DMD for failure to do so.
The target purchase volume of the Products for each of years commencing upon the
First Shipment Date and the first and second anniversary dates thereof shall be
described in Exhibit A.
ARTICLE 7. SALES TO CUSTOMERS
7.1 No later than three (3) months before the end of each twelve months
from the execution date of the Final Agreement, the parties shall discuss, in
good faith, sales prospects of the Products by OLJ to its customers over the
next subsequent twelve (12) months based on the actual sales over the past
twelve (12) months.
7.2 Both parties shall exchange any information regarding sales to their
respective customers at any reasonable time as agreed upon by both parties.
ARTICLE 8. SALES BY DMD
8.1 DMD shall not sell or ship any Products, with or without OLJ
Trademark(s), and any products similar to the Products (the "Similar Products"),
directly or indirectly, to any person or company in Japan other than OLJ.
Subject to Article 8.2 below, DMD reserves the right to sell the Products
without OLJ Trademark(s) and the Similar Products to any person or company ("DMD
Customers") outside Japan.
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8.2 DMD shall not sell the Products and the Similar Products to DMD
Customers outside Japan which DMD knows or has reason to believe intends to
resell or reexport the Products to any person or company in Japan.
ARTICLE 9. REPAIR SERVICE
OLJ shall provide OLJ's customers with the repair service on the
Products sold by OLJ; provided that DMD shall provide OLJ with repair and
maintenance training, repair parts, jigs and tools necessary for OLJ to provide
after-sale service on the Products for seven (7) years after the discontinuance
of production of each type of the Products.
ARTICLE 10. WARRANTY
DMD shall warrant to OLJ and its customers that all the Products
purchased by OLJ meet the Specifications. The warranty period shall be for a
period of one (1) year after the date the Products pass OLJ's receiving
inspection.
ARTICLE 11. PATENT INDEMNIFICATION
DMD shall indemnify and hold OLJ harmless from any liabilities, costs,
damages and claims for any infringement of any patent or other intellectual
property right owned or controlled by a third party, arising from the sales or
use of the Products.
ARTICLE 12. PRODUCT LIABILITY
DMD shall indemnify and hold OLJ harmless from any liabilities, costs,
damages and claims which may arise or to be asserted upon personal injury or
property damage resulting from any actual or alleged defect of the Products.
ARTICLE 13. TERM
The Final Agreement shall be in effect for three (3) years commencing
the effective date thereof and may be extended by a period as agreed upon by
both parties in writing if both parties agree to the extension of the Final
Agreement at least three (3) months before expiration of the initial term.
ARTICLE 14. CONFIDENTIAL INFORMATION
Each party shall keep in confidence and not disclose to any third party
any and all sales, marketing, technical, maintenance or any other information
disclosed by or acquired from the other party under this Letter of Intent and
marked or identified as confidential or proprietary; provided, however, that
said obligation shall not apply to the information which:
(a) is known to the public at the time of disclosure,
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(b) becomes known to the public through no fault of the receiving party
after the time of disclosure,
(c) is in the possession of the receiving party at the time of disclosure,
or
(d) is lawfully received by the receiving party from a third party after
the time of disclosure.
ARTICLE 15. OLJ TRADEMARKS
DMD shall not use OLJ Trademarks for the purpose other than supply of
the Products to OLJ.
ARTICLE 16. GOVERNING LAW
This Letter of Intent shall be governed by, performed under and
construed in accordance with the laws of Japan, without giving effect to the
conflict of law principles thereof.
ARTICLE 17. FINAL AGREEMENT
17.1 The Final Agreement shall contain such additional terms and conditions
as are customary in agreements of this type.
17.2 Either party shall have a right to terminate the Final Agreement if
there is a material breach by the other party.
17.3 This Letter of Intent represents the intent of the parties but is not
binding on the parties. Notwithstanding the foregoings in this Paragraph 17.3,
both parties shall not be released from the confidentiality obligation provided
in Article 14 hereof for three (3) years after execution of this Letter of
Intent. Only the Final Agreement, as executed by the parties, is binding on the
parties. Upon execution of the Final Agreement, this Letter of Intent shall be
terminated and superseded by the Final Agreement.
17.4 Both parties desire to conclude the Final Agreement after execution of
this Letter of Intent. However, in the case that the Final Agreement is not
concluded, then, each party shall have no obligation to the other thereafter
except for the confidentiality obligation provided in Article 14 hereof.
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IN WITNESS WHEREOF, the parties have caused this Letter of Intent to be
executed as of the day and year first above written by their duly authorized
representatives.
(DMD)
DENTAL MEDICAL DIAGNOSTIC SYSTEM, LLC.
- --------------------------------------
NAME: Robert Gurevitch
- --------------------------------------
TITLE: President/CEO
- --------------------------------------
SIGNATURE:
[SIG]
- --------------------------------------
DATE: August 26, 1996
(OLJ)
OLYMPUS JAPAN CO., LTD.
- --------------------------------------
NAME: Takashi Nozumi
- --------------------------------------
TITLE: Director/Division Manager of
the New Business Division
- --------------------------------------
SIGNATURE:
[SIG]
- --------------------------------------
DATE: 8/6/96
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EXHIBIT A
TARGET PURCHASE VOLUME OF THE PRODUCTS FOR EACH YEAR
Term Volume
---- ------
1. For the first year (commencing upon the
First Shipment Date) 500 units
2. For the second year 1,000 units
3. For the third year 1,500 units
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<PAGE>
EXHIBIT 10.14
DISTRIBUTION AGREEMENT
This DISTRIBUTION AGREEMENT (this "AGREEMENT") is made and entered into as
of October 1, 1996 (the "EFFECTIVE DATE"), by and between EDUDATA CORPORATION, a
Delaware corporation ("EDUDATA"), and BOSTON MARKETING COMPANY, LTD., a Japanese
corporation ("BMC").
SECTION 1. DEFINITIONS.
1.1. Definitions. For the purposes of this Agreement, the following terms
shall have the following meanings:
"DENTAL MARKET" means persons engaged in (i) the business of selling
dental and/or orthodontic products and/or services, (ii) the practice of dental
or orthodontic medicine, and (iii) the administration of educational
institutions authorized to confer degrees for the study of dentistry and
orthodontics.
"SALE PERIOD" means the period commencing on the Effective Date and
ending on the first anniversary thereof, and every consecutive twelve-month
period thereafter throughout the term of this Agreement.
"SYSTEM DEVICE" means Model No. CS6110 S/B with frame grabber, CS
6110P S/B with frame grabber and CS6110 S/B without frame grabber, or any
successor devices thereto, which shall be identical to the CCDs and the CCUs
shipped to EDUDATA by BMC since December 1995.
"TELICAM MARK" shall mean the trademark more particularly identified
on ANNEX A hereto.
"TERRITORY" means the entire world.
SECTION 2. APPOINTMENT AND ACCEPTANCE.
2.1. EXCLUSIVE APPOINTMENT. BMC hereby appoints EDUDATA, and EDUDATA
hereby accepts such appointment, as BMC's exclusive distributor of the System
Devices to the Dental Market throughout the Territory. EDUDATA, without the
consent of BMC, shall have the right to appoint subdistributors and sales
representatives to sell the System Devices under the
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provisions of this Agreement. BMC shall not sell or otherwise distribute, or
appoint any person to sell or otherwise distribute, the System Devices to the
Dental Market in the Territory without the prior written consent of EDUDATA,
which consent may be withheld in EDUDATA's sole and absolute discretion.
EDUDATA shall also have a right-of-first-refusal to be appointed the
exclusive distributor within the Territory of any additional products,
accessories or equipment reasonably associated with the System Devices,
having applications to the Dental Market (collectively, "ADDITIONAL
DEVICES"), developed, marketed or sold by BMC following the Effective Date of
this Agreement, and BMC agrees to notify EDUDATA of the development,
marketing and/or sale of any such Additional Devices as soon as practicable
after the commencement of such development, marketing and/or sales efforts by
BMC. The terms and conditions of EDUDATA's appointment with respect to any
Additional Devices shall be agreed to pursuant to good faith negotiations
between the parties.
2.2. TERM AND TERMINATION OF AGREEMENT. The term of this Agreement shall
commence on the Effective Date and shall continue for a period of five (5) years
thereafter, unless sooner terminated as provided in this section (the "INITIAL
TERM"). If at the end of the period ending 180 days prior to the expiry of the
Initial Term, this Agreement has not been terminated, the parties, by mutual
written agreement, may renew this Agreement on the same terms and conditions as
set forth herein for one (1) additional five (5) year term (the "ADDITIONAL
TERM"). During the Initial Term and the Additional Term, if any, BMC shall only
have the right to terminate this Agreement if (a) EDUDATA fails to purchase an
aggregate of 2,500 System Devices during any Sale Period, (b) EDUDATA purchases
CCDs or CCUs for use in its intraoral camera systems from third parties
(PROVIDED, HOWEVER, that BMC shall have no right to terminate this Agreement if
EDUDATA orders System Devices from BMC and BMC fails to fill such orders on a
timely basis) or (c) EDUDATA fails to pay in full for any System Device within
30 days of such System Device's delivery to EDUDATA.
SECTION 3. PURCHASE PRICE AND PAYMENT TERMS.
3.1. PRICE. During the first two Sale Periods under this Agreement, the
price for each System Device shall be $750 (f.o.b. Japan); PROVIDED, HOWEVER,
that BMC shall have the right at any time following six months written notice
to EDUDATA to increase such price. In the event such price increase is not
acceptable to EDUDATA, EDUDATA shall have the right to terminate this
Agreement. The purchase price for each System Device shall be paid by wire
transfer to BMC's Japan office. All prices will be determined and paid in
U.S. Dollars. EDUDATA shall have the right, in its sole and absolute
discretion, to establish the prices, charges and terms governing its sale of
the System Devices to third parties.
3.2. TAXES AND OTHER CHARGES. The purchase price for the System Devices
does not include taxes and other charges. All shipping, handling, insurance,
brokerage and other charges
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and all import duties, sales, use or privilege taxes, value-added taxes,
excise or similar taxes, duties or assessments, and other related charges
levied by any jurisdiction pertaining to the System Devices, other than taxes
computed on the basis of the income of BMC, shall be paid by EDUDATA.
SECTION 4. WARRANTY; LIMITATION OF LIABILITY
4.1. PRODUCT WARRANTY. BMC warrants to EDUDATA that the System Devices
purchased by EDUDATA pursuant to this Agreement shall be free from defects in
design, materials and workmanship, and that it shall function in accordance with
the specifications provided to EDUDATA by BMC (the "PRODUCT WARRANTY"). With
respect to each System Device, the Product Warranty shall remain in effect until
the earlier to occur of (a) 12 months following the delivery of such device to
EDUDATA and (b) the incorporation of such System Device into an EDUDATA
intraoral camera system. BMC agrees to repair or replace any defect in design,
materials and\or workmanship on any System Device during the term of the Product
Warranty. Any warranty service hereunder shall include only parts, but shall
not include the cost of repairing or replacing those parts and equipment damaged
or rendered inoperable by the customer's neglect or abuse. The foregoing
warranty shall not apply to any System Devices or parts thereof which have been
(a) improperly repaired or altered, (b) subjected to misuse, misapplication,
negligence or accident or (c) used in a manner contrary to BMC's directions.
This warranty does not apply to defects in materials or designs provided or
stipulated by EDUDATA which are not standard parts provided by BMC in the
manufacture of the System Devices.
SECTION 5. TRADEMARKS, TRADE NAMES AND COPYRIGHTS.
5.1. USE OF TELICAM MARK. During the term of this Agreement, BMC hereby
grants an unconditional and irrevocable license to EDUDATA to use the TELICAM
Mark in connection with marketing the System Device in the Territory.
5.2 IDENTIFICATION AS AUTHORIZED DISTRIBUTOR. EDUDATA shall have the
right to represent itself as the exclusive authorized distributor of the System
Devices.
5.3 EDUDATA'S MARKS. BMC shall permit EDUDATA to place EDUDATA's, or any
of its subsidiaries' or affiliates' name, trademark, or logo on each System
Device to be distributed by EDUDATA.
5.4 USE OF INTELLECTUAL PROPERTY. Nothing contained herein shall be
construed to allow BMC to use, in any fashion, any patent, copyright, trade name
or other item of intellectual
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property owned or otherwise held by EDUDATA. Except as expressly provided
herein, nothing contained herein shall be construed to allow EDUDATA to use,
in any fashion, any patent, copyright, trade name or other item of
intellectual property owned or otherwise held by BMC.
SECTION 6. REPRESENTATIONS AND WARRANTIES.
6.1. REPRESENTATIONS AND WARRANTIES OF BMC. BMC represents, warrants and
covenants to EDUDATA that:
6.1.1.DISTRIBUTION RIGHTS. BMC has (a) BMC has the exclusive right to
sell and distribute the System Devices throughout the world, including without
limitation, the right to sublicense the right to sell and distribute the System
Devices in the Territory; (b) BMC has not granted any rights to any third party
operating within the Territory relating to the System Devices; (c) BMC has not
entered into any agreements providing for the sale and/or distribution of the
System Devices to any third party within the Territory; and that (d) this
Agreement is a valid, binding and enforceable obligation of BMC, has been
authorized by all necessary corporate action, and will not violate any other
agreement or relationship to which BMC is a party.
6.1.2. OWNERSHIP OF INTELLECTUAL PROPERTY. BMC has the
unrestricted right to use the TELICAM Mark within the territory, including
without limitation the right to grant the license to use the TELICAM Mark to
EDUDATA set forth in Section 5 of this Agreement; and BMC has not entered into
any agreements with any third party operating within the Territory granting a
right to use of the TELICAM Mark.
6.1.3. KNOWLEDGE OF VIOLATIONS. To the best of BMC's knowledge,
neither the manufacture, distribution and sale in the Territory of the System
Devices nor the use by EDUDATA of the TELICAM Mark will violate or infringe
upon any patent, trademark, service mark, trade name, copyright, trade secret,
proprietary right, process or other intellectual property right of any other
person; and further, the transactions contemplated by this Agreement will not
result in any such violation; and
6.1.4. LICENSES AND PERMITS. BMC possesses from the appropriate
regulatory agencies, commissions, boards and governmental authorities, whether
national, regional or local state, all licenses, permits, the authorizations,
approvals, franchises and rights which are necessary for BMC to distribute and
sell the System Devices; and all such certificates, licenses, permits,
authorizations and rights have been lawfully and validly issued, are in full
force and effect and to the best of BMC's knowledge will not be revoked,
canceled, withdrawn, terminated or suspended.
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6.2. REPRESENTATIONS AND WARRANTIES OF EDUDATA. EDUDATA represents,
warrants and covenants to BMC that:
6.2.1. NO CONFLICT. This Agreement is a valid, binding and
enforceable obligation of EDUDATA, has been authorized by all necessary
corporate action, and will not violate any other agreement or relationship to
which EDUDATA is a party; and
6.2.2. LICENSES AND PERMITS. EDUDATA possesses from the
appropriate regulatory agencies, commissions, boards and governmental bodies and
authorities, whether national, regional or local, all licenses, permits,
authorizations, approvals, franchises and rights which are necessary for EDUDATA
to distribute and sell the System Devices (other than licenses, permits,
authorizations, approvals, franchises and rights which are necessary for the
design, manufacture, distribution and/or sale of medical and/or dental devices
as to which EDUDATA makes no representation, warranty or covenant); and all such
certificates, licenses, permits, authorizations and rights have been lawfully
and validly issued, are in full force and effect and to the best of EDUDATA's
knowledge will not be revoked, canceled, withdrawn, terminated or suspended.
SECTION 7. TERM AND TERMINATION
7.1. REASONS. Notwithstanding anything to the contrary contained in
Section 2 hereof, and subject to EDUDATA's rights contained in Section 3.1
hereof, this Agreement, including without limitation the license granted
pursuant to Section 5 hereof, shall terminate prior to its scheduled expiration
as follows:
(a) At any time by mutual written consent;
(b) Immediately upon notice by the adversely affected party, if (i) a
party materially breaches any of the terms and conditions of or representations
contained in this Agreement or (ii) fails to cure any such breach within thirty
(30) days of receipt by the breaching party of notice of such breach except for
breaches relating to the non-payment of undisputed outstanding invoices which
shall be cured within three (3) business days; and
(c) Immediately upon notice of the nonaffected party, if a court
having jurisdiction shall (i) enter a decree or order for relief in respect of a
party hereto in an involuntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, (ii) appoint a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar official) of
a party hereto or of any substantial part of the property of a party hereto
(including, without limitation, such party's subsidiaries, if any, and their
property), or (iii) order the winding up or liquidation of such party's affairs,
where any such decree or order for relief or
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any such other decree or order remains unstayed and in effect for a period of
sixty (60) consecutive days.
7.2. CONSEQUENCES OF EXPIRATION OR TERMINATION. Upon expiration or prior
termination of this Agreement:
(a) UNFILLED ORDERS. Any orders received by BMC that are unfilled on
the effective date of expiration or termination of this Agreement shall not be
affected by such termination or expiration, and shall be timely filled by BMC
except where termination is due to EDUDATA's breach; PROVIDED, HOWEVER, that
EDUDATA's termination of this Agreement pursuant to Section 3.1 shall not be
deemed to constitute a breach;
(b) SETTLING OF ACCOUNTS; ETC. EDUDATA shall (i) pay to BMC all
amounts owing to BMC under any binding order for System Devices as such payments
become due; (ii) cease to engage in advertising or promotional activities
concerning the System Device and the use of the TELICAM Mark or any other
trademark authorized by BMC pursuant to this Agreement; (iii) cease to
represent, in any manner, that EDUDATA has been designated by BMC to sell the
System Device; and (iv) deliver to BMC, at EDUDATA's expense, all documents
concerning the System Devices which are then in EDUDATA's possession and which
contain confidential information of BMC (PROVIDED, HOWEVER that EDUDATA shall
not be required to return order or shipping documents containing information).
BMC shall within thirty (30) days from the date of expiration or termination of
this Agreement (i) refrain from using EDUDATA's trade names, trademarks, and
logos in connection with any of BMC's activities; (ii) cease to represent, in
any manner, that EDUDATA is responsible for the distribution of the System
Devices, and (iii) deliver to EDUDATA, at BMC's expense, all of the EDUDATA
confidential information then in the possession of BMC, its Subsidiaries or its
Affiliates;
(c) CONTINUED RIGHT TO USE "TELI" NAME. For a period of six (6)
months following the termination of this Agreement, EDUDATA shall have the right
to use the name "Telicam" in connection with its distribution and sale of
intraoral cameras;
(d) CONTINUED RIGHT TO SELL SYSTEM DEVICES. For a period ending on
the earlier to occur of (i) six (6) months following the termination of this
Agreement and (ii) the sale of the last System Device held by EDUDATA, EDUDATA
and its subdistributors and sales representatives, shall continue to have the
right to sell the System Device;
(e) CLAIMS FOR INDEMNITY. NEITHER PARTY SHALL, IN CONNECTION WITH
THE EXPIRATION OR TERMINATION OF THIS AGREEMENT, HAVE THE RIGHT TO CLAIM ANY
INDEMNITY, REIMBURSEMENT OR COMPENSATION FOR ALLEGED LOSS OF CLIENTELE,
GOODWILL, OR THE LIKE OR HAVE ANY OTHER RIGHT TO COMPENSATION FOR LOSSES OR
DAMAGES RESULTING FROM THE
6
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EXPIRATION OR TERMINATION, EACH PARTY ACKNOWLEDGING THAT IT HAS DECIDED AND
WILL DECIDE ON ALL INVESTMENTS, EXPENDITURES AND COMMITMENTS IN FULL
AWARENESS OF THE POSSIBILITY OF ITS LOSSES OR DAMAGES RESULTING FROM SUCH
EXPIRATION OR TERMINATION AND IS WILLING TO BEAR THE RISK THEREOF;
(f) LOSS OF PROFITS ON ANTICIPATED SALES. Notwithstanding anything
herein to the contrary, any claim of BMC under this Agreement for loss of
profits on anticipated sales as a consequence of a breach by EDUDATA shall be
limited to (i) $750 multiplied by 12,500 LESS (ii) $750 multiplied by the number
of System Devices purchased by EDUDATA pursuant to this Agreement. The parties
agree that in the event of EDUDATA's breach of this Agreement, BMC shall be
obligated to use its best efforts to mitigate its damages; and that the
foregoing measure of damages shall not be deemed to be a provision for
liquidated damages; and
(g) SURVIVAL. Notwithstanding anything to the contrary herein
contained, the provisions of Sections 7.2, 8.1, 8.5 and 8.6 and EDUDATA's
obligation to pay for all operable System Devices which are delivered to EDUDATA
shall survive the expiration or other termination, for any reason whatsoever of
this Agreement.
7
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SECTION 8. MISCELLANEOUS.
8.1. INDEMNIFICATION. Each party agrees, if promptly notified by the
other, to indemnify and hold harmless the other from and against all claims or
liabilities resulting directly or indirectly from any breach by the indemnifying
party of any obligation under this Agreement, from any violation by the
indemnifying party of applicable law or regulation, from any misrepresentation
of the indemnifying party, or from any claim arising out of any breach of any
representation or warranty contained herein. In addition, BMC shall indemnify
and hold harmless EDUDATA from and against all claims or liabilities which
EDUDATA may suffer as a direct or indirect result of the "Teli" name or the
System Device infringing upon any patent, trade secret, trademark or copyright
or any other proprietary right held by a third party when the "Teli" name and/or
the System Device are used by EDUDATA in the manner agreed upon by BMC and
EDUDATA. Such indemnification shall include the payment of reasonable
attorneys' fees and other costs incurred by the indemnified party in defending
against such claims except that the indemnifying party must have the right to
control the defense and must approve any settlements.
8.2. FORCE MAJEURE. No party shall be liable for failure to perform or
delay in performing any obligation under this Agreement or any individual
contract of sale hereunder if such failure or delay is due to fire, flood,
earthquake, strike, labor trouble or other industrial disturbance, war (declared
or undeclared), embargo, blockade, shortage of labor, materials or equipment,
legal prohibition, governmental action, riot, insurrection, damage, destruction
or any other cause beyond the control of such defaulting party preventing or
delaying the performance.
8.3. SCOPE OF AUTHORITY. The relationship of the parties under this
Agreement shall be and at all times shall remain one of independent contractor.
For the purposes of this Agreement, neither EDUDATA nor BMC is a partner, agent,
employee or legal representative of the other party.
8.4. ASSIGNMENT. No party may transfer the rights or delegate the duties
provided for under the terms of this Agreement without the prior written consent
of the other party. Notwithstanding the foregoing sentence, no consent shall be
necessary for an assignment made by EDUDATA to any Subsidiary of EDUDATA, to a
purchaser of all or substantially all of the assets of EDUDATA, or to any
corporation into which EDUDATA may merge, providing that EDUDATA is the
surviving corporation subsequent to any such merger.
8.5. GOVERNING LAW. This Agreement and any contract of sale concluded in
accordance with this Agreement shall be interpreted and their effects shall be
determined in accordance with the laws of the State of California, applicable to
contracts made within and to be performed solely within the State of California.
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8.6. ATTORNEYS' FEES. If any action, suit, arbitration or other proceeding
is instituted concerning or arising out of this Agreement, the prevailing party
shall recover all of such party's costs and attorneys' fees incurred in each and
every such action, suit or other proceeding, including any and all appeals or
petitions therefrom. As used herein, "attorneys' fees" shall mean the full and
actual costs of any legal services actually rendered in connection with the
matters involved, calculated on the basis of the usual fee charged by the
attorneys performing such services, and shall not be limited to "reasonable
attorneys' fees" as defined by any statute or rule of court.
8.7. SEVERABILITY. If any provision of this Agreement is held to be
invalid, illegal or unenforceable for any reason or in any respect whatsoever,
such invalidity, illegality or unenforceability shall not affect any other
provisions of this Agreement, and this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
8.8. WAIVER AND AMENDMENTS. No failure or delay on the part of either
party hereto in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single waiver or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available. No amendment or waiver of any provision of this Agreement
nor consent to any departure therefrom, shall in any event be effective unless
the same shall be in writing and signed by both of the parties hereto, and with
respect to such waivers or consents shall be effective only in the specific
instance and for the specific purpose for which given.
8.9. COUNTERPARTS. This Agreement may be executed in one or more
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
8.10. ENTIRE AGREEMENT. This Agreement and the annexes hereto, when
signed by the authorized representatives of all parties hereto, shall constitute
the only agreement among them with respect to the distribution of the System
Devices and shall supersede all prior agreements.
8.11. Consent to Service of Process; Jurisdiction.
8.11.1 Except as provided in Section 8.1.2 below, the parties
hereto agree that any dispute arising out of this Agreement, whether arising in
contract, tort, equity, or otherwise, may be resolved by state or federal courts
located in California. Each of the parties
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hereto waives in any such dispute any objection that it may have to such
California courts considering the dispute including, without limitation, any
objection to the laying of venue or based on the ground of forum non
conveniens.
8.11.2 Each of the parties hereto agrees that the other party to
this Agreement shall have the right, to the extent permitted by applicable law,
to proceed against it or its property in a court in any location reasonably
selected in good faith to enable such other party to realize on such property,
or to enforce a judgment or other court order entered in favor of any such other
party. Both of the parties hereto waive any objection that either may have to
the location of the court in which the other party to this Agreement has
commenced a proceeding described in this paragraph including, without
limitation, any objection to the laying of venue or based on the ground of forum
non conveniens.
8.11.3 The parties hereto waive any right to have a jury
participate in resolving any dispute, whether sounding in contract, tort, or
otherwise arising out of this Agreement. Instead, any disputes resolved in
court will be resolved in a bench trial without a jury.
8.11.4 Both parties hereby irrevocably designate CT Corporation
System as its designee, appointee and agent to receive, for and on behalf of it,
service of process in any legal action or proceeding with respect to this
Agreement. It is understood that a copy of such process serviced on such agent
will be promptly forwarded by mail to it at its address set forth below the
signatures of the parties below, but the failure to receive such copy shall not
affect in any way the service of such process. Each of the parties hereto
further irrevocably consents to the service of process of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by registered or certified mail, postage prepaid, to it at the address
given in this Agreement, such service to become effective four days after such
mailing.
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8.11.5 Nothing herein shall affect the right of any party to this
Agreement to serve process in any other manner permitted by law or to commence
legal proceedings or otherwise proceed against any other party in any other
jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first above written.
BOSTON MARKETING COMPANY, LTD.,
a Japanese corporation,
By: ______________________________
Its:______________________________
Notice Address:
Boston Marketing Company, Ltd.
12-1, 4-Chome Higashi-Nippon
Arakawa-KU, Tokyo, Japan
Attn:_____________________________
Telephone: (813) 3803 0155
Fax: (813) 3803 6807
EDUDATA CORPORATION,
a Delaware corporation,
By: ______________________________
Its:______________________________
Notice Address:
EDUDATA CORPORATION
200 North Westlake Boulevard, Suite 202
Westlake Village, CA 91362
Attn: Robert H. Gurevitch
Telephone: (805) 381-2700
Fax: (805) 374-2137
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ANNEX A
DESCRIPTION OF TELICAM MARK
12
<PAGE>
<PAGE>
EXHIBIT 10.15
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, LLC
AND EDUDATA CORPORATION (D&M)
and
479671 BC Ltd.
DBA NATIONAL DENTAL DIRECT
- --------------------------------------------------------------------------------
DISTRIBUTOR AGREEMENT
- --------------------------------------------------------------------------------
<PAGE>
THIS AGREEMENT is made and entered into the 29th day of Aug. 1996.
BETWEEN:
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, L.L.C.
AND EDUDATA CORPORATION
202-200 North Westlake Boulevard
Westlake Village, California
United States of America
91362
hereinafter called "D&M"
OF THE FIRST PART,
AND:
479671 BC LTD.
DBA NATIONAL DENTAL DIRECT
143 Riverpark Court
Bolton, Ontario
Canada
L7E 2P3
hereinafter called "NDD"
OF THE SECOND PART.
1.0 INTRODUCTION
1.1 D&M manufactures, and markets a range of hardware and associated
software having applications in dentistry and other areas.
1.2 D&M is desirous of having NDD as exclusive distributor of its Products
in the Territory described herein and to contract with any
sub-distributors in the Territory herein described and under the Terms
and conditions herein described; and NDD is desirous of marketing,
selling, and supporting the sale of D&M's Products in the Territory and
represents that it possesses the structural facility and the ability to
promote and sell the Products.
<PAGE>
2.0 DEFINITIONS
2.1 PRODUCTS. As used herein, the word "Products" shall mean those set out
in Appendix "A", particularly the TeliCam IntraOral Camera and D&M's
full range of software.
2.2 NEW PRODUCT(S). As used herein, the word(s) "New Product(s)" shall mean
a Product which may later be manufactured, developed, or distributed by
D&M, but not included in the current Appendix "A".
2.3 D&M's TRADEMARKS. As used herein, D&M's Trademarks shall mean (a) the
marks set forth in Appendix "D"; (b) all designs related to those marks,
and (c) all other marks that D&M adds from time to time and authorizes
NDD to use these marks.
As of the commencing date and until further notice the Trademrks so
designated are: DMD and TeliCam.
2.4 COMMENCEMENT. This Agreement shall commence on the 29th day of
Aug. 1996.
2.5 TERM. This Agreement shall commence on the commencement date and shall
continue for a Term of 5 years and shall be automatically renewed for
the like Terms unless one party notifies the other not less than 90 days
prior to the end of any Term of its intention to terminate this
Agreement. This Agreement can be terminated by D&M if NDD does not
purchase 60 TeliCam Cameras on a quarterly basis; if NDD does not pay
for purchases of TeliCam Cameras on a Net 30 basis; or by any other
provisions of this Agreement.
2.6 TERRITORY. The Territory shall mean the countries and areas listed in
Appendix "B".
3.0 APPOINTMENT
D&M hereby appoints NDD as its exclusive distributor of the Products in
the Territory. NDD may designate their affiliated subsidiaries and
successors in interest to receive the benefits of and to carry out the
rights of NDD under this Agreement.
<PAGE>
4.0 TERMINATION
4.1 Immediate Termination. In addition to all other rights or remedies,
either D&M or NDD may Terminate this Agreement upon 10 days prior
written notice if:
(a) the other party (1) makes an assignment for the benefit of
creditors; (2) files a voluntary petition in bankruptcy or is
adjudicated as bankrupt or insolvent; or (3) files any petition or
answer seeking reorganization, liquidation or similar relief;
(b) within 90 days after the commencement of any proceeding against the
other party seeking reorganization, liquidation, or similar relief, the
proceeding; has not been dismissed;
(c) any court, tribunal, or government agency modifies any Terms of this
Agreement to the substantial detriment of the party seeking Termination;
(d) the other party dissolves or ceases to do business; or
(e) the other party appoints a receiver or trustee for all or a part of
its assets, business, or property.
4.2 NDD and D&M each agrees to advise the other immediately in writing of
the occurrence of any event specified in Section 4.1.
4.3 Parts and Components Following Termination. D&M agrees to supply NDD
parts and components, priced on the same basis as during the Term of
this Agreement, for Products for a period of 12 full calendar months
following the Termination of this Agreement.
5.0 NATIONAL DENTAL DIRECT'S OBLIGATIONS
5.1 NDD shall promote and develop sales of the Products in the Territory
upon such Terms and conditions as it shall determine from time to time.
5.2 NDD shall maintain sales of the Products in the Territory at the
following volumes: 240 TeliCam Cameras per year to be purchased at 60
units per quarter, net 30 days.
In the event that NDD's purchases are less than the minimum quota set
forth above for any quarter, D&M shall have the right to terminate this
Agreement, if after giving notice of its intent in writing to NDD, NDD
fails to rectify any shortfall within ninety (90) days from the time
that such notice is given. If the minimum quota is met, D&M cannot
terminate this Agreement.
Reasonable minimum quotas for future products offered for sale by D&M to
NDD will be established on a product by product basis. In no event will
the minimum quotas exceed 10% of the sales volume experienced in the
United States.
5.3 NDD shall maintain in the Territory, adequate facilities and sales
personnel to undertake its obligations under this Agreement, as shall
its sub-distributors.
<PAGE>
5.4 NDD shall maintain a place of business, display rooms, installation and
training department which shall, subject to reasonable prior notice, be
available for inspection by D&M.
6.0 D&M'S OBLIGATIONS
6.1 D&M shall sell to NDD during the Term of this Agreement the Products
described in Appendix "A"
6.2 Should D&M or any associated companies develop or distribute New
Products not listed in Appendix "A", NDD will be given a right of first
refusal to become the exclusive distributor of such Products in the
Territory.
6.3 Promotional Materials. D&M shall provide to NDD, at its cost, such
films, video tapes, brochures, marketing material, samples, etc., as it
shall have available from time to time and which may assist NDD in the
promotion and sales of the Products.
6.4 Direct Mail Advertising. D&M shall provide, at no cost to NDD, 13,000
copies of every direct mail piece produced for D&M. All direct mail
pieces produced for D&M shall be printed with the words "In Canada Call
National Dental Direct at 1(800) 392-1171".
6.5 Trade Journal Advertising. D&M will include the words "In Canada Call
National Dental Direct at 1(800) 392-1171" in all trade journal
advertising placed by D&M.
6.6 Trade Show Booth Space. D&M will pay for a minimum of one ten foot
booth space for all Canadian dental meetings attended by National Dental
Direct. For large dental meetings, D&M will pay for one half of the
total booth space required by National Dental Direct to a maximum of two
booth spaces. In no event will D&M pay for more than two booth spaces
for any given trade show.
6.7 Trade Show Displays. D&M will provide, at no cost to NDD, trade show
displays for use during dental meetings attended by NDD. NDD will pay
the transportation costs for the trade show displays.
6.8 Shipment of Orders. D&M shall fill and ship all Products ordered on NDD
purchase orders in a prompt and timely manner. D&M will provide NDD with
prompt notification of any delays in filling purchase orders.
6.9 Trademarks. Subject to the provisions of this Agreement, D&M grants to
NDD the exclusive right to use the Trademarks and Trade Names in
connection with the marketing and distribution of the Products in the
Territory during the Term of this Agreement.
<PAGE>
7.0 Demonstration Equipment. D&M shall provide NDD with up to fifteen
demonstration systems for use in promoting the Products in the Territory
during the Term of this Agreement. There shall be no cost to NDD for the
use of the demonstration equipment, and ownership of all demonstration
equipment will remain with D&M.
7.1 Product Warranty. D&M warrants to NDD that the Products sold to NDD (a)
are fit for, and safe to use for the purpose of which they are designed
and promoted, and (b) shall be free from defects in materials and
workmanship for a period of one year from the date the Products are
received by the actual end user of the Products; provided however, that
this warranty shall in no event extend beyond the close of the fifteenth
full calendar month following the date of shipment by D&M.
If NDD or its customers are made parties to any claim or action
involving the Products, including claims relating to the manufacturer or
use of the Products, NDD will immediately notify D&M in writing. D&M
shall warrant and indemnify NDD pursuant to any such claims and hold NDD
harmless and defend NDD against any such claims.
7.2 Standards. All Products supplied by D&M must meet the standards,
specifications and requirements of the country of the Territory
described herein. D&M will incur the cost of modifying or changing
Products in order to comply will all Products requirements and
specifications.
8.0 PRICING
8.1 International Price List. NDD shall order and purchase the Products
from D&M and D&M shall sell the Products to NDD at the price set forth
in the then current price list for export to the Territory, the current
version of which is attached as part of Appendix "C". D&M may from time
to time during the Term of this Agreement change any or all of the
prices set forth in the then current list upon sixty days written notice
to NDD, provided that any change will not affect any existing orders
placed by NDD.
8.2 Pricing Terms. The prices for Products are quoted FOB Westlake Village,
California, United States of America or Irvine, California, United
States of America. All orders are to be in writing and shall be subject
to prompt written acceptance by D&M.
8.3 Payment Terms. Payment for orders for Products placed by NDD shall be
on open account with payment due within thirty days of the shipment date
or such other Terms as may be agreed upon from time to time.
<PAGE>
8.4 Prices offered to NDD shall be no greater than the price offered to
other parties by D&M related companies.
8.5 All prices quoted and payments made shall be in the currency of the
United States of America.
8.6 WARRANTY FULFILLMENT
8.7 Products are to be received by NDD and put through a quality control
check within 15 days of receiving goods at NDD.
8.8 Products are either accepted or rejected by NDD.
8.9 If NDD REJECTS PRODUCTS:
Products are sent back to D&M from NDD and re-shipped by D&M to NDD. D&M
pays freight both ways.
9.0 If a Product malfunctions WITHIN 30 DAYS of being sold to the end user:
- RMA number is issued by D&M.
- NDD ships customer a loaner from NDD loaner inventory, at D&M's
expense.
- NDD has customer send defective unit to NDD at D&M's expense.
- NDD completes customs paperwork to avoid paying additional tax and
duty, and ships to D&M for repair or replacement at D&M's expense.
- D&M prepays shipping charges back to NDD. No tax or duty charges
incurred.
- Warranty period starts over on the day D&M ships replacement unit.
- NDD sends repaired unit to customer at D&M's expense.
- NDD has customer send back loaner to NDD at D&M's expense.
9.1 If a Product malfunctions AFTER 30 DAYS of being sold to the end user:
(during one year warrantee period)
- RMA number is issued by D&M.
- NDD ships customer a loaner from NDD loaner inventory, at NDD's
expense.
- NDD has customer send defective unit to NDD at NDD's expense.
- NDD completes customs paperwork to avoid paying additional tax and
duty, and ships to D&M for repair or replacement at NDD's expense.
- D&M prepays shipping charges back to NDD. No tax or duty charges
incurred.
- NDD sends repaired unit to customer at NDD's expense.
- NDD has customer send back loaner to NDD at NDD's expense.
<PAGE>
9.2 If a Product malfunctions AFTER WARRANTEE period:
- RMA number is issued by D&M.
- NDD ships customer a loaner from NDD loaner inventory, at NDD's
expense.
- NDD has customer send defective unit to NDD at NDD's expense.
- NDD completes customs paperwork to avoid paying additional tax and
duty, and ships to D&M for repair or replacement at NDD's expense.
- D&M bills NDD a reasonable fee for parts and labor.
- D&M ships back to NDD at NDD's expense. No tax or duty charges
incurred.
- NDD sends repaired unit to customer at NDD's expense.
- NDD has customer send back loaner to NDD at NDD's expense.
10.0 MISCELLANEOUS
10.1 Patents. NDD acknowledges that certain Products subject to this
Agreement are extremely proprietary to D&M, and D&M expressly retains
all right, title, or interest in the Products, patents, patent
applications, copyrights, or trade secrets related to the Products. D&M
warrants that it is the owner of and has the right to grant NDD use of
the Trademarks in the Territory.
10.2 Independent Contractor. The relationship of NDD to D&M is that of
independent contractor and neither party is in any way the legal
representative or agent of the other for any purpose whatsoever. Neither
party has any right or authority to assume or create, in writing or
otherwise, any obligation of any kind, express or implied, in the name
of or on the behalf of the other.
10.3 Entire Agreement. This Agreement and its appendixes constitute the
entire and only Agreement between the parties hereto relating to this
subject matter. This Agreement supersedes all previous Agreements,
commitments, and presentations in respect thereto and may not be changed
or modified in any manner except by an instrument of subsequent date
signed by both parties.
10.4 Headings. The headings of this Agreement are inserted only as a matter
of convenience and for reference and in no way define the scope or
content of this Agreement or the construction of any provision hereof or
of any instrument or document referred to herein.
<PAGE>
10.5 Severability. Whenever possible, each provision of this Agreement and
all related documents shall be interpreted in such a manner as to be
valid under applicable law, but if any such provision is invalid or
prohibited under said applicable law, such provision shall be in effect
up to the extent of such invalidity or prohibition without invalidating
the remainder of such provision or the remaining provisions of this
Agreement.
10.6 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California, U.S.A.
10.7 Arbitration. Any and every dispute or difference between the parties
concerning the validity, meaning or effect of this Agreement shall be
finally settled under the Rules of Conciliation and Arbitration of the
International Chamber of Commerce by a single arbitrator appointed in
accordance with such Rules, and the place of Arbitration shall be
Vancouver, BC, Canada.
10.8 Notices. All notices or other communications required or given in
connection with this Agreement shall be deemed to have been properly
made when telecopied or deposited in the mail, postage pre-paid
addressed as follows:
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, L.L.C. ATTN: PRESIDENT
202-200 North Westlake Boulevard, Tel: 800 399-0999
Westlake Village, California 91362 Fax: 800 256-8628
U.S.A.
NATIONAL DENTAL DIRECT ATTN: PRESIDENT
143 Riverpark Court Tel: 905 857-7816
Bolton, ON L7E 2P3 Fax: 905 857-7698
CANADA
10.9 Compliance With Law. D&M will cooperate with NDD in seeking to have all
Products comply in all material respects with all applicable laws in the
Territory.
11.0 Force Majeure. Except for obligations relating to the payment of money,
neither party will be liable for failure to perform its obligations
under this Agreement when the failure is due to causes beyond the
control of that party.
11.1 This Agreement shall be binding upon and applicable to any and all
subsidiaries or related or controlled affiliates of D&M, its successors
and assigns.
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement as the day
and year first above written.
Attest: Dental/Medical Diagnostic Systems, LLC and
Edudata Corporation
- --------------------- -------------------------------------
By: Robert H. Gurevitch
Attest: 479671 BC LTD
DBA NATIONAL DENTAL DIRECT
September 23, 1996 /s/ Neil E. Magneson
- --------------------- -------------------------------------
By: Neil E. Magneson
<PAGE>
APPENDIX A
PRODUCTS
Telicam intraoral camera.
<PAGE>
APPENDIX B
TERRITORY
Canada
<PAGE>
APPENDIX C
PRICING
Telicam Intraoral Camera - $2,750 USD
<PAGE>
APPENDIX D
TRADEMARKS
TeliCam
DMD
<PAGE>
EXHIBIT 10.16
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, LLC
AND EDUDATA CORPORATION (D&M)
AND
IMAGING CONCEPTS N.V. (IC)
- -------------------------------------------------------------------------------
DISTRIBUTOR AGREEMENT
- -------------------------------------------------------------------------------
1
<PAGE>
THIS AGREEMENT is made this 1st day of June, 1996
BETWEEN
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, L.L.C.
AND EDUDATA CORPORATION (D&M)
200 N. Westlake Boulevard
Suite 202
Westlake Village, California 91362
U.S.A.
AND
MICHEL VAN GERVEN
IMAGING CONCEPTS N.V.
Xavier DeCocklaan 68/4
B-9831 Deurie
Belgium
INTRODUCTION
A. D&M manufactures and markets a range of hardware and associated software
having applications in dentistry and other areas.
B. D&M is desirous of having IC as a distributor of its products in a
territory described herein and to contract with any sub-distributors
that IC so desires for the territories herein described and under the
terms and conditions herein described.
C. IC is desirous of marketing, selling, and supporting the sale of D&M's
products in the territory and represents that it possesses the
structural facility and the ability to promote and sell the product.
1. PRELIMINARY
1.1 DEFINITIONS
"D&M" means Dental/Medical Diagnostic Systems, L.L.C. and
Edudata Corporation.
"The Distributor" means Michel Van Gerven.
"Products" means the products listed by D&M in Appendix "A",
particularly the TeliCam IntraOral Camera and D&M's full range
of software.
"Territory" shall mean the countries and areas listed in
Appendix "B".
2
<PAGE>
1.2 COMMENCEMENT
This Agreement shall commence on the 1st day of June 1996.
1.3 TERM
This agreement shall continue for a term of five (5) years and for such
further term or terms as the parties shall agree.
2. APPOINTMENT
D&M hereby appoints the Distributor as its exclusive distributor of the
products in the Territory. The Distributor may designate their
affiliated subsidiaries and successors in interest to receive the
benefits of and to carry out the rights of the Distributor under this
Agreement.
3. DISTRIBUTOR'S OBLIGATIONS
3.1 The Distributor shall promote and develop sales of the products
in the Territory upon such terms and conditions as it shall
determine from time to time.
3.2 The Distributor shall maintain sales of the product in the
Territory at the following volumes: 750 TeliCam IntraOral
Cameras in Year One to be purchased at 175 units per quarter for
the first two quarters and 200 units per quarter for the second
two quarters. 1250 TeliCam IntraOral Cameras in Year Two to be
purchased at 300 units per quarter for the first two quarters
and 325 units per quarter for the second two quarters. 1750
TeliCam IntraOral Cameras in Year Three to be purchased at 400
units per quarter for the first two quarters and 475 units per
quarter for the second two quarters.
In the event that the Distributor's sales are less than the
minimum quota set forth above for any year, D&M shall have the
right to terminate this Agreement, if after giving notice of its
intent in writing to the Distributor, the Distributor fails to
rectify any shortfall within ninety (90) days from the time that
such notice is given. If the minimum quota is met, D&M cannot
terminate this agreement.
No minimum quotas are established under this Agreement for
software or any other items.
3.3 The Distributor shall maintain in the Territory, adequate
facilities and sales personnel to undertake its obligations
under this Agreement, as shall its sub-distributors.
3
<PAGE>
3.4 The Distributor shall maintain a place of business, display
rooms, installation and training department which shall, subject
to reasonable prior notice, be available for inspection by D&M.
4. D&M'S OBLIGATIONS
4.1 D&M shall sell to the Distributor during the term of this
Agreement the products described in Appendix "A".
4.2 D&M shall make available, at its cost, to the Distributor such
films, video tapes, brochures, marketing material, samples,
etc., as it shall have available from time to time and which may
assist the Distributor in the promotion and sales of the
products.
4.3 D&M shall fill and ship all the Distributor's purchase orders
in a timely manner.
4.4 D&M shall warrant and indemnify the Distributor against any
patent copyright or trademark violation or alleged violation and
hold the Distributor harmless and defend the Distributor against
any such claims.
4.5 All products supplied by D&M must meet the standards and
requirements of the country into which the products will be
ultimately sold to by the Distributor.
5. PRICE AND PAYMENT
5.1 The Distributor shall pay to D&M the sum of two thousand and
three hundred dollars ($2,300 U.S.) net 30 days per TeliCam
IntraOral Camera purchased pursuant to this Agreement.
5.2 D&M shall provide current price lists to the Distributors but
may change the prices for any of its products upon sixty (60)
days prior written notice, provided that any change will not
affect any existing orders placed by the Distributor.
5.3 The Distributor shall pay for products (other than software) by
letter of credit or telegraphic transfer of the purchase money
at the time of the order, or other method acceptable to D&M.
5.4 All prices quoted and payments made shall be in the currency of
the United States of America.
5.5 Should D&M or any associated companies develop new products not
listed in Appendix "A", Distributor will be given a right of
first refusal to become the exclusive Distributor of such
products in the Territory.
4
<PAGE>
5.6 Prices offered to the Distributor shall be no greater than the
price offered to others by D&M related companies.
6.0 MISCELLANEOUS
6.1 The Distributor shall be entitled to appoint sub-distributors
and agents to assist with the promotion and sales of the product
in the Territory.
6.2 Any notice or communication required or permitted hereunder
shall be deemed to be properly given when forwarded by prepaid
ordinary mail or by facsimile to the other party at the address
shown herein.
6.3 This Agreement does not constitute the Distributor as an agent
or legal representative of D&M.
6.4 This Agreement shall be binding upon and applicable to any and
all subsidiaries or related or controlled affiliates of D&M, its
successors and assigns.
6.5 In the event of termination of this Agreement, D&M agrees not to
contact for the purpose of soliciting sales and shall not
directly utilize the services of any sub-distributors to
distribute the products which the Distributor has advised its
utilized.
6.6 This Agreement shall be governed by and subject to the laws of
the State of California.
IN WITNESS WHEREOF the parties hereto have executed this Agreement the
day and year first herein above written.
Attest: Dental/Medical Diagnostic Systems,
LLC and Edudata Corporation
/s/ ROBERT H. GUREVITCH
- ---------- -----------------------
By: Robert H. Gurevitch
Attest: Imaging Concepts, N.V.
/s/ MICHEL VAN GERVEN
- ---------- ---------------------
By: Michel Van Gerven
5
<PAGE>
APPENDIX "A"
"Products"
TeliCam IntraOral Camera System consisting of camera, handpiece, illumination
system and lens.
6
<PAGE>
APPENDIX "B"
"Territory"
Iceland; Norway; Sweden; Finland; Denmark; The Netherlands; U.K., which includes
Ireland, Scotland and Great Britain; Belgium/Luxembourg; France; Spain;
Portugal; Germany; Austria; Switzerland; Italy; Greece; Cyprus.
7
<PAGE>
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, LLC
AND EDUDATA CORPORATION (D&M)
AND
- -------------------------------------------------------------------------------
NEW IMAGE INDUSTRIES PTY LTD (NII)
- -------------------------------------------------------------------------------
DISTRIBUTOR AGREEMENT
<PAGE>
THIS AGREEMENT is made this 23rd day of May, 1996
BETWEEN
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, L.L.C.
AND EDUDATA CORPORATION (D&M)
200 N. Westlake Boulevard
Suite 202
Westlake Village, California 91362
U.S.A.
AND
NEW IMAGE INDUSTRIES PTY LTD NII)
76 Kooyong Road
Caulfield, Victoria 3162
AUSTRALIA
INTRODUCTION
A. D&M manufactures and markets a range of hardware and associated
software having applications in dentistry and other areas.
B. D&M is desirous of having NII as a distributor of its products in a
territory described herein and to contract with any sub-distributors
that NIL so desires for the territories herein described and under the
terms and conditions herein described.
C. NII is desirous of marketing, selling, and supporting the sale of
D&M'S products in the territory and represents that it possesses the
structural facility and the ability to promote and sell the product.
1. PRELIMINARY
1.1 DEFINITIONS
"D&M" means Dental/Medical Diagnostic Systems, L.L.C. and Edudata
Corporation.
"The Distributor" means New Image Industries Pty Ltd. (NII).
"Products" means the products listed by D&M in Appendix "A",
particularly the TeliCam IntraOral Camera and D&M's full range of
software. "Territory" shall mean the countries and areas listed in
Appendix "B".
2
<PAGE>
1.2 COMMENCEMENT
This Agreement shall commence on the 23rd day of May 1996.
1.3 TERM
This agreement shall continue for an initial term of three (3) years
with a 10-year option and for such further term or terms as the
parties shall agree.
2. APPOINTMENT
D&M hereby appoints the Distributor as its exclusive distributor of the
products in the Territory. The Distributor may designate their affiliated
subsidiaries and successors in interest to receive the benefits of and to
carry out the rights of the Distributor under this Agreement.
3. DISTRIBUTOR'S OBLIGATIONS
3.1 The Distributor shall promote and develop sales of the products in the
Territory upon such terms and conditions as it shall determine from
time to time.
3.2 The Distributor shall maintain sales of the product in the Territory
at the following volumes: 200 TeliCam IntraOral Cameras in Year One
and for each succeeding year, the minimum quota shall equal 115% of
the quota for the previous year.
In the event the minimum quotas set for above are met, then the term
of this Agreement will be extended for a 10-year period with minimum
quotas of 250 TeliCam IntraOral Cameras per year.
In the event that the Distributor's sales are less than the minimum
quota set forth above for any year, D&M shall have the right to
terminate this Agreement, if after giving notice of its intent in
writing to the Distributor, the Distributor fails to rectify any
shortfall within ninety (90) days from the time that such notice is
given. If the minimum quota is met, D&M cannot terminate this
agreement.
No minimum quotas are established under this Agreement for software or
any other items.
3.3 The Distributor shall maintain in the Territory, adequate facilities
and sales personnel to undertake its obligations under this Agreement,
as shall its sub-distributors.
3
<PAGE>
3.4 The Distributor shall maintain a place of business, display rooms,
installation and training department which shall, subject to
reasonable prior notice, be available for inspection by D&M.
4. D&M'S OBLIGATIONS
4.1 D&M shall sell to the Distributor during the term of this Agreement
the products described in Appendix "A."
4.2 D&M shall make available, at its cost, to the Distributor such films,
video, tapes, brochures, marketing material, samples, etc., as it
shall have available from time to time and which may assist the
Distributor in the promotion and sales of the products.
4.3 D&M shall fill and ship all the Distributor's purchase orders in a
timely manner.
4.4 D&M shall warrant and indemnify the Distributor against any patent
copyright or trademark violation or alleged violation and hold the
Distributor harmless and defend the Distributor against any such
claims.
4.5 All products supplied by D&M must meet the standards and requirements
of the country into which the products will be ultimately sold to by
the Distributor.
5. PRICE AND PAYMENT
5.1 The Distributor shall pay to D&M the sum of two thousand and five
hundred dollars ($2,500 U.S.) per TeliCam Intra0ral Camera purchased
pursuant to this Agreement and thirty five cents U.S. (U.S. $0.35) for
the Bavarian Dental Instruments Diamond Burs.
5.2 D&M shall provide current price lists to the Distributors but may
change the prices for any of its products upon sixty (60) days prior
written notice, provided that any change will not affect any existing
orders placed by the Distributor.
5.3 The Distributor shall pay for products (other than software) by letter
of credit or telegraphic transfer of the purchase money at the time of
the order, or other method acceptable to D&M.
5.4 All prices quoted and payments made shall be in the currency of the
United States of America.
4
<PAGE>
5.5 Should D&M or any associated companies develop new products not listed
in Appendix "A", Distributor will be given a right of first refusal to
become the exclusive Distributor of such products in the Territory.
5.6 Prices offered to the Distributor shall be no greater than the price
offered to others by D&M related companies.
6.0 MISCELLANEOUS
6.1 The Distributor shall be entitled to appoint sub-distributors and
agents to assist with the promotion and sales of the product in the
Territory.
6.2 Any notice or communication required or permitted hereunder shall be
deemed to be property given when forwarded by prepaid ordinary mail or
by facsimile to the other party at the address shown herein.
6.3 This Agreement does not constitute the Distributor as an agent or
legal representative of D&M.
6.4 This Agreement shall be binding upon and applicable to any and all
subsidiaries or related or controlled affiliates of D&M , its
successors and assigns.
6.5 In the event of termination of this Agreement, D&M agrees not to
contact for the purpose of soliciting sales and shall not directly
utilize the services of any sub-distributors to distribute the
products which the Distributor has advised its utilized.
6.6 This Agreement shall be governed by and subject to the laws of the
State of California.
5
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement the day
and year first herein above written.
Attest: DENTAL / MEDICAL DIAGNOSTIC SYSTEMS,
LLC AND EDUDATA CORPORATION
/s/ BETTE J. SMITH /s/ ROBERT H. GUREVITCH
- --------------------------- --------------------------------------------
By: Robert H. Gurevitch
Attest: NEW IMAGE INDUSTRIES PTY. LTD.
/s/ BETTE J. SMITH /s/ PETER KING
- --------------------------- --------------------------------------------
By: Peter King
6
<PAGE>
APPENDIX "A"
"PRODUCTS"
o TELICAM INTRAORAL CAMERA SYSTEM consisting of camera, handpiece,
illumination system and lens.
o BAVARIAN DENTAL INSTRUMENTS DIAMOND BURS.
7
<PAGE>
APPENDIX "B"
"TERRITORY"
South Africa
Middle East
Israel, Iraq, Iran, Egypt, Oman, Syria, Bahrain, Jordan, Yemen, Turkey, Libya,
Quatar
Asia/Pacific
Philippines, Thailand, Cambodia, Korea, Australia, Melaya, Indochina, Laos, New
Zealand, Singapore, South Vietnam, China, India, Indonesia, North Vietnam,
Pakistan
8
<PAGE>
EXHIBIT 10.18
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, LLC
AND EDUDATA CORPORATION (D&M)
AND
MACANA, INC. D/B/A
FLORIDA DENTAL AND MEDICAL SUPPLY
- --------------------------------------------------------------------------------
DISTRIBUTOR AGREEMENT
- --------------------------------------------------------------------------------
<PAGE>
THIS AGREEMENT is made this 19 day of September 1996
BETWEEN
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, L.L.C.
AND EDUDATA CORPORATION (D&M)
200 N.Westlake Boulevard
Suite 202
Westlake Village, California 91362
U.S.A.
AND
MACANA, INC. D/B/A
FLORIDA DENTAL AND MEDICAL SUPPLY ("DISTRIBUTOR")
300 Biscayne Boulevard Way
Miami, Florida 33131
INTRODUCTION
A. D&M manufactures and markets a range of hardware and associated software
having applications in dentistry and other areas.
B. D&M is desirous of (i) having Distributor as a distributor of its products
in the territory described herein, and (ii) authorizing Distributor to
contract with any sub-distributors and dealers that Distributor so desires
for the territories herein described and under the terms and conditions
herein described.
C. Distributor is desirous of marketing, selling, and supporting the sale of
D&M'S products in the territory and represents that it possesses the
ability to promote and sell the product.
1. Preliminary
1.1 DEFINITIONS
"D&M" means Dental/Medical Diagnostic Systems, L.L.C. and Edudata
Corporation.
"The Distributor" means Macana, Inc. d/b/a Florida Dental and Medical
Supply.
"Products" means the products listed by D&M in Appendix "A",
particularly the TeliCam Intraoral Camera and D&M's full range of
software.
<PAGE>
"Territory" shall mean the countries and areas listed in Appendix "B".
1.2 COMMENCEMENT
This Agreement shall commence on the 19th day of September 1996.
1.3 TERM
(a) This Agreement shall continue for a term of five (5) years and
shall be automatically renewed for an unlimited number of
additional one (1) year terms unless either party provides
written notice ("Termination Notice") to the other, not less than
sixty (60) days prior to the expiration of any term, that such
party does not desire the automatic renewal thereof.
(b) If D&M fails to renew this Agreement at any time pursuant to
Section 1.3(a), for any reason other than Distributor's failure
to meet the minimum quota (as required by Section 3.2), D&M
shall: (i) purchase all of the Distributor's inventory of
Products then held by Distributor at a price equal to the
Distributor's cost thereof (including shipping and handling
costs); and (ii) pay Distributor, in consideration for the
goodwill developed by Distributor in the Territory for the
Products, an amount equal to: 30% of the annual gross sales of
Products by Distributor in the Territory during the one year
period ending on the date of D&M's Termination Notice, multiplied
by the number of years (or portions thereof) that Distributor has
served as a distributor hereunder. The aforesaid purchase and
payment shall be made at Distributor's offices on a date (the
"Closing") to be mutually selected by the parties, but which
shall in no event be more than sixty (60) days after the date of
D&M's Termination Notice. The sums due Distributor hereunder
shall be payable in U.S. Dollars, by cashier's checks or wire
transfer on the date of Closing. In the event D&M pays the
aforesaid sums to Distributor as provided herein, D&M shall be
free to produce, sell or distribute the Products in the Territory
after the Closing, or grant exclusive licenses to others to
conduct the foregoing, notwithstanding the restrictions contained
in this Agreement.
2. APPOINTMENT
2.1 D&M hereby appoints the Distributor as its exclusive distributor of
the Products in the Territory.
-2-
<PAGE>
2.2 In addition, Distributor shall have the non-exclusive right to
distribute the Products in all other areas in South and Central
America, and the Caribbean, where D&M has not awarded an exclusive
distributorship to others. As of the date hereof, D&M has awarded
exclusive distributorships, to persons other than the Distributor, in
the areas listed on Appendix "C" hereto. As and when other exclusive
distributorships are awarded after the date hereof, D&M shall provide
written notice thereof to Distributor and Distributor's non-exclusive
rights shall cease as to such areas.
2.3 Distributor may sell Products to persons or entities residing or based
in the Territory, or in any area where Distributor may sell Products
pursuant to Section 2.2, while such persons or entities, or their
representatives, are in the United States.
2.4 D&M hereby licenses and authorizes Distributor to use D&M'S
trademarks, trade names and other proprietary rights in connection
with the sale of the Products.
3. DISTRIBUTOR'S OBLIGATIONS
3.1 The Distributor shall promote and develop sales of the Products in the
Territory upon such terms and conditions as it shall determine from
time to time.
3.2 (a) The Distributor shall sell the number of TeliCam Intra0ral Cameras
(the "Cameras") in the Territory set forth in Appendix "D" hereto.
During any renewal term, the minimum quota shall remain fixed at
the minimum amount in effect during the fifth year of the original
term hereof. If Distributor exceeds the minimum quota in any
quarter or year, the excess can be carried forward to meet the
minimum quota in future periods.
(b) In the event that the Distributor fails to satisfy the minimum
quota set forth above for any year, and such failure is not caused
by any breach or default by D&M hereunder, D&M shall have the
right to terminate this Agreement, if after giving notice of its
intent in writing to the Distributor, the Distributor fails to
rectify any shortfall within ninety (90) days from the time that
such notice is given. If the minimum quota is met D&M cannot
terminate this Agreement.
(c) No minimum quotas are established under this Agreement for
software or any other items.
(d) If D&M introduces any updated, improved or enhanced version of the
Camera, or any equipment designed or intended to perform the same
function (the "New Camera"), Distributor shall be entitled to meet
the
-3-
<PAGE>
minimum quota through combined sales of the Cameras and any New
Cameras.
3.3 The Distributor shall maintain in the Territory, adequate facilities
and sales personnel to undertake its obligations under this Agreement,
as shall its sub-distributors. In addition, Distributor shall
maintain, in Brazil, a showroom, a customer service telephone number,
and the facilities and personnel necessary to perform minor repairs to
the Product, and install Products and train customers in the Product's
use. Such facilities shall, subject to reasonable prior notice, be
available for inspection by D&M.
4. D&M'S OBLIGATIONS
4.1 D&M shall sell to the Distributor during the term of this Agreement
the Products described in Appendix "A".
4.2 D&M shall make available, at its cost, to the Distributor such films,
video tapes, brochures, marketing, use and training material, samples,
etc., as it shall have available from time to time and which may
assist the Distributor in the promotion, sales, maintenance, service
and repair of the Products.
4.3 D&M shall fill and ship all the Distributor's purchase orders within
30 days after receipt of same. Promptly after receipt of any order,
D&M shall telecopy to Distributor a confirmation thereof together with
a delivery date for the Product (which delivery shall in all events be
within the 30 days required by this Section).
4.4 D&M shall defend and indemnify the Distributor against any patent,
copyright or trademark, trade secret, or similar violation or alleged
violation and hold the Distributor harmless and defend the Distributor
against any associated claims, liabilities and costs, including but
not limited to attorney's fees.
4.5 All products supplied by D&M must meet the standards and requirements
of the country into which the Products will be ultimately sold by the
Distributor.
4.6 D&M will repair or replace, at its expense, any Product or Covered
Component thereof (defined below) which is defective or which
malfunctions or fails to perform in accordance with product
specifications, under normal use and maintenance, at any time within
fifteen (15) months after delivery of the Product to Distributor's
customer (but in no event more than 18 months after D&M'S delivery of
the product to Distributor). This warranty extends to Distributor and
its customers. The "Covered Components" which are subject to the
warranty are: the hand piece and chip (CCD) and software (CCU)
contained therein, the light box, and the fiber optic cable.
-4-
<PAGE>
4.7 D&M will indemnify, defend and hold Distributor harmless from and
against any loss, liability or expense, including without limitation
attorney's fees, arising or resulting from any defect in or
malfunction of the Products. D&M shall cause Distributor to be added
as a co-insured party in D&M'S products liability insurance policy and
shall provide evidence of such coverage to Distributor upon reasonable
request therefor. D&M'S obligations under this Section 4.7, and
Sections 4.4 and 4.6, shall remain in effect after any termination of
this Agreement.
4.8 D&M will not, directly or indirectly, sell any Products to any person
or in any area when D&M has reason to believe that the Products are
being sold or resold, directly or indirectly, into the Territory. If
D&M learns of any sale into the Territory by a distributor or dealer
other than Distributor, D&M shall exercise all rights and remedies it
may have against such distributor or dealer, or its suppliers, under
applicable contracts or law, to prevent such sale and/or recover
damages therefor.
5. PRICE AND PAYMENT.
5.1 The Distributor shall pay to D&M the sum of two thousand and five
hundred dollars ($2,500 U.S.) per TeliCam. IntraOral Camera purchased
pursuant to this Agreement
5.2 D&M shall provide current price lists to the Distributor but may
change the prices for any of its Products upon sixty (60) days prior
written notice, provided that any change will not affect any orders
placed by the Distributor during such 60-day period.
5.3 The Distributor shall pay for Products (other than software) by letter
of credit, telegraphic transfer of the purchase money at the time of
the order, credit card or other method acceptable to D&M.
5.4 All prices quoted and payments made shall be in the currency of the
United States of America.
5.5 Should D&M or any associated companies develop new products not listed
in Appendix "A", or any enhanced or improved versions of such Product,
Distributor will have a right of first refusal to become the exclusive
Distributor of such products in the Territory, on substantially the
same terms as are set forth herein for the Products.
5.6 Prices offered to the Distributor shall be no greater than the price
offered by D&M and its related companies to others selling similar
volumes of Product.
-5-
<PAGE>
Without limiting the generality of the foregoing, D&M shall provide
Distributor discounts, rebates and other incentives which are no less
favorable to Distributor than those provided by D&M and its affiliated
companies to others selling similar volumes of Product.
6. MISCELLANEOUS
6.1 The Distributor shall be entitled to assign this Agreement and appoint
sub-distributors, and agents to assist with the promotion and sales of
the Products in the Territory, subject to D&M'S approval (such
approval not to be unreasonably withheld).
6.2 Any notice or communication required or permitted hereunder shall be
deemed to be properly given when forwarded by prepaid certified mail
(return receipt requested), or by overnight courier service, to the
other party at the address shown herein.
6.3 This Agreement does not constitute the Distributor as an agent or
legal representative of D&M.
6.4 This Agreement shall be binding upon and applicable to D&M and any and
all subsidiaries or related or controlled affiliates of D&M, and their
successors and assigns.
6.5 D&M shall not contact for the purpose of soliciting sales, and shall
not directly or indirectly utilize the services of, any
sub-distributors, dealers, employees or customers of Distributor. This
covenant shall remain in effect during the term of this Agreement and,
subject to Section 13(b) hereof, for one year after any termination.
6.6 This Agreement shall be governed by and subject to the laws of the
State of California. In the event of any litigation between the
parties to enforce or interpret the terms of this Agreement, the
prevailing party shall be entitled to recover its reasonable
attorney's fees and costs from the other party.
6.7 If any covenant contained in this Agreement, or any part thereof, is
hereafter construed to be invalid or unenforceable, the same shall not
affect the remainder of the covenants, which shall be given full
effect, without regard to the invalid portions, and any court having
jurisdiction shall have the power to reduce the duration and/or area
of such covenant and, in its reduced form, said covenant shall then be
enforceable.
-6-
<PAGE>
6.8 The rights and obligations of the parties arising out of this
Agreement will be strictly observed by each of them except to the
extent that they or any of them is actually prevented from fulfilling
its obligations hereunder by events of force majeure (confirmed to the
parties' reasonable satisfaction) which, without limiting the
generality of that term, shall include acts of God, strikes, tempest,
flood, storm, or acts of war or terrorism which prevent sales,
delivery, transportation, shipment, or loading or unloading of the
Products or any consignment thereof.
IN WITNESS WHEREOF the parties hereto have executed this Agreement the day
and year first herein above written.
Attest: Dental/Medical Diagnostic Systems, LLC
and Edudata Corporation
- ------------------------------- ---------------------------------------
By Robert H. Gurevitch
Title:
---------------------------------
Attest: MACANA, INC.
????????????????? /s/ James Babbi
- ------------------------------- ---------------------------------------
By James Babbi
Title: Vice President
-7-
<PAGE>
APPENDIX "A"
"Products"
TeliCam IntraOral Camera System consisting of camera, handpiece,
illumination system and lens.
-8-
<PAGE>
APPENDIX "B"
"Territory"
Brazil
and
Paraguay
-9-
<PAGE>
APPENDIX "D"
Minimum Sales Volume
<TABLE>
<CAPTION>
1st year 2nd year 3-5th year
-------- -------- ----------
<S> <C> <C> <C>
First Quarter 25 40 50
Second Quarter 25 45 50
Third Quarter 30 50 50
Fourth Quarter 35 50 50
</TABLE>
-10-
<PAGE>
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, LLC
AND EDUDATA CORPORATION (D&M)
and
DAVID LOK (DL)
- --------------------------------------------------------------------------------
DISTRIBUTOR AGREEMENT
- --------------------------------------------------------------------------------
1
<PAGE>
THIS AGREEMENT is made this 30th day of May, 1996
BETWEEN
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, L.L.C.
AND EDUDATA CORPORATION (D&M)
200 N. Westlake Boulevard
Suite 202
Westlake Village, California 91362
U.S.A.
AND
DAVID LOK
ROOM 812,8F LIPPO SUN PLAZA
29 CANTON ROAD
T.S.T. KOWLOON
HONG KONG
INTRODUCTION
A. D&M manufactures and markets a range of hardware and associated software
having applications in dentistry and other areas.
B. D&M is desirous of having DL as a distributor of its products in a
territory described herein and to contract with any sub-distributors that
DL so desires for the territories herein described and under the terms and
conditions herein described.
C. DL is desirous of marketing, selling, and supporting the sale of D&M'S
products in the territory and represents that it possesses the structural
facility and the ability to promote and sell the product.
1. PRELIMINARY
1.1 DEFINITIONS
"D&M" means Dental/Medical Diagnostic Systems, L.L.C.
and Edudata Corporation.
"The Distributor" means David Lok.
"Products" means the products listed by D&M in Appendix "A",
particularly the TeliCam Intra0ral Camera and
D&M'S full range of software.
"Territory" shall mean the countries and areas listed in Appendix "B".
2
<PAGE>
1.2 COMMENCEMENT
This Agreement shall commence on the 1st day of September 1996.
1.3 TERM
This agreement shall continue for a term of five (5) years and for
such further term or terms as the parties shall agree.
2. APPOINTMENT
D&M hereby appoints the Distributor as its exclusive distributor of the
products in the Territory. The Distributor may designate their affiliated
subsidiaries and successors in interest to receive the benefits of and to
carry out the rights of the Distributor under this Agreement
3. DISTRIBUTOR'S OBLIGATIONS
3.1 The Distributor shall promote and develop sales of the products in the
Territory upon such terms and conditions as it shall determine from
time to time.
3.2 The Distributor shall maintain sales of the product in the Territory
at the following volumes: 48 TeliCam IntraOral Cameras in Year One to
be purchased at 12 units per quarter and for each succeeding year,
the minimum quota shall equal 115% of the quota for the previous year.
In the event that the Distributor's sales are less than the minimum
quota set forth above for any year, D&M shall have the right to
terminate this Agreement if after giving notice of its intent in
writing to the Distributor, the Distributor fails to rectify any
shortfall within ninety (90) days from the time that such notice is
given. If the minimum quota is met, D&M cannot terminate this
agreement.
No minimum quotas are established under this Agreement for software or
any other items.
3.3 The Distributor shall maintain in the Territory, adequate facilities
and sales personnel to undertake its obligations under this Agreement,
as shall its sub-distributors.
3.4 The Distributor shall maintain a place of business, display rooms,
installation and training department which shall, subject to
reasonable prior notice, be available for inspection by D&M.
3
<PAGE>
4. D&M'S OBLIGATIONS
4.1 D&M shall sell to the Distributor during the term of this Agreement
the products described in Appendix "A".
4.2 D&M shall make available, at its cost, to the Distributor such films,
video tapes, brochures, marketing material, samples, etc., as it shall
have available from time to time and which may assist the Distributor
in the promotion and sales of the products.
4.3 D&M shall fill and ship all the Distributor's purchase orders in a
timely manner.
4.4 D&M shall warrant and indemnify the Distributor against any patent
copyright or trademark violation or alleged violation and hold the
Distributor harmless and defend the Distributor against any such
claims.
4.5 All products supplied by D&M must meet the standards and requirements
of the country into which the products will be ultimately sold to by
the Distributor.
5. PRICE AND PAYMENT
5.1 The Distributor shall pay to D&M the sum of two thousand and seven
hundred fifty dollars ($2,750 U.S.) per TeliCam Intra0ral Camera
purchased pursuant to this Agreement
5.2 D&M shall provide current price lists to the Distributors but may
change the prices for any of its products upon sixty (60) days prior
written notice, provided that any change will not affect any existing
orders placed by the Distributor.
5.3 The Distributor shall pay for products (other than software) by letter
of credit or telegraphic transfer of the purchase money at the time of
the order, or other method acceptable to D&M.
5.4 All prices quoted and payments made shall be in the currency of the
United States of America.
5.5 Should D&M or any associated companies develop new products not listed
in Appendix "A", Distributor will be given a right of first refusal to
become the exclusive Distributor of such products in the Territory.
4
<PAGE>
5.6 Prices offered to the Distributor shall be no greater than the price
offered to others by D&M related companies.
6.0 Miscellaneous
6.1 The Distributor shall be entitled to appoint sub-distributors and
agents to assist with the promotion and sales of the product in the
Territory.
6.2 Any notice or communication required or permitted hereunder shall be
deemed to be properly given when forwarded by prepaid ordinary mail or
by facsimile to the other party at the address shown herein.
6.3 This Agreement does not constitute the Distributor as an agent or
legal representative of D&M.
6.4 This Agreement shall be binding upon and applicable to any and all
subsidiaries or related or controlled affiliates of D&M, its
successors and assigns.
6.5 In the event of termination of this Agreement, D&M agrees not to
contact for the purpose of soliciting sales and shall not directly
utilize the services of any sub-distributors to distribute the
products which the Distributor has advised its utilized.
6.6 This Agreement shall be governed by and subject to the laws of the
State of California.
IN WITNESS WHEREOF the parties hereto have executed this Agreement the day
and year first herein above written.
Attest: Dental/Medical Diagnostic Systems, LLC
and Edudata Corporation
- ------------------------------- ---------------------------------------
By: Robert H. Gurevitch
Attest: David Lok
????????????????? /s/ David Lok
- ------------------------------- ---------------------------------------
By David Lok
5
<PAGE>
APPENDIX "B"
"Territory"
Taiwan
6
<PAGE>
APPENDIX "A"
"Products"
TeliCam IntraOral Camera System consisting of camera, handpiece, illumination
system and lens.
7
<PAGE>
EXHIBIT 10.20
BOSTON MARKETING CO.
SALES REPRESENTATIVE AGREEMENT
AGREEMENT, entered into as of the 28th day of October, 1996, by and between
Edudata Corporation, a Delaware corporation, having an office at 200 North
Westlake Boulevard, Suite 202, Westlake Village, CA 91362 ("Edudata") and
Boston Marketing Company, Ltd., a Japanese corporation located at 12-1, 4-Chome
Higashi-Nippori, Arakawa-ku, Tokyo, Japan 116 ("BMC"):
RECITALS
WHEREAS, Edudata is engaged in, among other things, the business of
manufacturing and selling intraoral cameras and processing units ("Products")
and desires to engage the services of BMC to promote the sales of and solicit
and obtain orders for the Products upon the terms and conditions as
hereinafter set forth; and
WHEREAS, BMC is willing to provide its talent, knowledge and services to
Edudata for said purposes, subject to the terms and conditions hereof.
NOW, THEREFORE, in consideration of the mutual agreements and understandings
stated herein, the parties agree as follows:
1. APPOINTMENT AS SALES REPRESENTATIVE
a. Edudata hereby appoints BMC as its exclusive sales representative in
the countries of Japan and the People's Republic of China to solicit orders in
the name of Edudata for the sale of Products.
b. Other countries within the Far East may be added to BMC's sales
territory upon the written agreement of the parties. Such additions may be
exclusive or non-exclusive as the parties may agree. Should Edudata obtain any
inquiries from Japan or the People's Republic of China, it shall immediately
forward such inquiries to BMC for handling. If Edudata obtains any substantive
inquiry from any other country within the Far East requesting that any
exclusive rights be granted, it shall first provide written notice of such
inquiry to BMC and BMC shall have a reasonable time thereafter, not to be less
than 10 business days and not to be more than 25 business days, within which to
agree to match all material terms of such inquiry. Should BMC match all such
terms, it shall be granted the rights requested by the inquiring entity; should
it fail to match all such terms, Edudata is free to grant the requested rights
to the inquiring entity.
c. In all agreements with a customer within the Far East, Edudata shall
impose, as a requirement of sale and continuing sales, that such customer agree
that any transshipment of the Products outside of the country of destination is
prohibited and that Edudata shall immediately suspend all further shipments to
such customer upon
Sales Representative Agreement Page 1 of 7 Pages
<PAGE>
violation of such agreement. In addition, and as a condition of sale and
continuing sales, Edudata shall require that such customer agree not to
disclose, disseminate or expose any confidential or proprietary information
belonging to Edudata for any use or purpose except solely in connection with
the sale of Products and then only within the country of destination.
d. In addition to the above rights, Edudata authorizes BMC to separately
sell monitors, cabinets and other accessories or peripheral items to customers
obtained by BMC. All income and expenses associated with such sales shall be
borne by BMC. BMC shall advise Edudata upon receipt of each order from its
customers as to whether the sale includes or excludes such items.
2. TERM
a. This Agreement shall be effective from the date indicated above and
shall continue for five years thereafter unless terminated by either party
pursuant to the provisions of paragraph 11 hereof.
b. Unless terminated sooner, this Agreement shall automatically extend for
an additional five year term upon mutual agreement, negotiated in good faith.
Any agreement of renewal shall be negotiated no later than 90 days before the
expiration of the term.
3. PRODUCTS
a. Changes to the Products may be made provided that 90 days prior written
notice is given by Edudata to BMC and further provided that any such changes
will be uniformly applied to all of Edudata's Products so affected.
b. Should Edudata develop or offer for sale any other product, it shall
grant the exclusive rights to such products to BMC for Japan and the People's
Republic of China and the right of first refusal as described in paragraph 1b
above to other countries within the Far East.
4. PRICES
a. In making any written quotations, BMC shall only use such forms and
shall quote only such prices as have been approved by Edudata and are effective
as of the date of quote. Copies of all such quotations shall be delivered to
Edudata at the same time that such quotations are delivered to the customer.
b. BMC is not permitted to offer any discount to a customer without
Edudata's prior written approval.
c. All price lists shall become effective as described therein, and shall
be deemed to be received by BMC 48 hours after delivery
Sales Representative Agreement Page 2 of 7 Pages
<PAGE>
thereof by facsimile. Any quotations which are submitted to a customer prior to
the effective date of any price modification shall be honored by Edudata.
d. All prices are subject to change or modification from time to time at
Edudata's sole option and upon 90 days prior written notice to BMC.
5. PAYMENT AND COLLECTION
a. All Products sold by BMC shall be billed by Edudata with a copy of such
billing to BMC. All payments shall be made directly to Edudata, BMC having no
authority to collect any payments from its customers unless directed to do so
by Edudata in writing.
b. BMC shall also receive all orders from customers that it obtains and is
authorized to direct its customers to deliver such orders directly to BMC.
c. BMC shall either directly receive all communications from its customers
(and is authorized to so direct its customers) or shall be copied with all such
communications if received directly by Edudata.
6. ORDERS PROCESSING
a. All orders obtained by BMC are subject to the written acceptance of
Edudata and its credit department after mutual discussions and negotiation.
Edudata shall accept any order unless good cause exists for its non-acceptance.
b. Edudata will notify the customer of its acceptance or rejection of an
order, and copies thereof shall be sent to BMC.
c. BMC shall not accept orders in Edudata's name or upon terms varying
from those established by Edudata without Edudata's prior written approval.
7. COMMISSIONS
a. The commissions payable to BMC by Edudata for all sales to Japanese
customers shall be 12% and 15% of all sales to customers within the People's
Republic of China. All commissions will be based upon the net invoice price,
which is defined to mean the price at which an order is invoiced to the
customer, including any increases or decreases in the total amount of the order,
but excluding shipping and mailing costs, taxes, insurance and any credits,
refunds, returns, allowances or discounts granted to the customer by Edudata.
Payment of all commissions due and owing to BMC shall be made by Edudata on or
before the 10th day following the date of Edudata's receipt of payment.
Sales Representative Agreement Page 3 of 7 Pages
<PAGE>
b. If any customer refuses to pay the purchase price or is otherwise
withholding part or all of the purchase price based on any valid or reasonable
claim that the Edudata has not met specifications, has misrepresented its
ability to perform or the capabilities of the Product, or because Edudata is
otherwise in default under or in breach of any agreement or of any provision of
any contract with the customer, then BMC's commission on the sale shall be due
and payable whether or not the full purchase price is ever received by Edudata.
c. The commissions provided above shall constitute BMC's total and
complete remuneration for all of its services hereunder. BMC shall not be
entitled to reimbursement for any expenses incurred in its performance under
this Agreement unless otherwise agreed in writing in advance.
d. With each payment made by Edudata to BMC, Edudata shall enclose a
statement setting forth all sales which are covered by the payment, the amount
of commission due BMC, and other pertinent data showing the calculation of the
amount of commissions due BMC.
e. No commission is due on repairs and sales of spare parts, on any
tooling or "set-up" charges including engineering charges or fees, on any fees
or costs incurred in installation or compliance with local codes, ordinances or
regulations, and qualification test charges, provided that the foregoing
charges are billed or itemized separately from the Product cost.
f. BMC shall have the right, upon reasonable advance written notice, to
examine only such books and records of Edudata as are needed to determine the
accuracy of commission payments made to BMC.
g. All commission payments shall be "gross" to BMC and BMC shall be solely
and separately liable for the payment of all income and other related
self-employment taxes due to any governmental authority by virtue of the
payment of such amounts.
h. BMC shall be entitled to its commission on all sales to all customers
obtained by BMC regardless of the length of the time involved before such
customer ceases ordering Product from Edudata, even if the sale occurs after
the termination, expiration or cancellation of this Agreement.
8. EDUDATA'S DUTIES
a. Edudata shall, promptly upon receipt, forward to BMC copies of all
inquiries, quotations, correspondence and notations of important phone calls
pertaining to potential or existing customers in Japan or the People's Republic
of China.
b. Edudata will supply BMC with a reasonable supply of brochures,
Sales Representative Agreement Page 4 of 7 Pages
<PAGE>
circulars and other sales literature and data.
c. Edudata will use reasonable efforts to arrange for Product
demonstrations with potential customers when requested to do so by BMC.
9. BMC'S DUTIES
a. BMC is an independent contractor and is not an employee of Edudata and
is not authorized to accept orders on behalf of Edudata. BMC shall have no
right or authority to incur, assume, or create, in writing or otherwise, any
warranty, liability or obligation of any kind, express or implied, in the name
of or on behalf of, or which may obligate Edudata, except such which are
authorized by Edudata or contained in literature delivered to BMC by Edudata.
b. BMC shall use its best efforts and devote such time as may be
reasonably necessary to sell and promote the sale of the Products.
c. BMC will conduct all of its business in its own name and in such manner
as it may see fit, paying for all of its expenses and activities and being
responsible for the acts and expenses of its agents and employees.
d. BMC is authorized to advertise or disclose its relationship with
Edudata as its authorized sales representative.
10. INDEMNITY BY EACH PARTY TO THE OTHER
Each party shall defend, indemnify and hold the other harmless, and each and
all of its officers, agents and employees, from and against all claims,
demands, causes of action, injury, losses, liability or damages, including
reasonable attorneys fees, arising out of a party's default or breach of any
obligation, representation or warranty contained in this Agreement or in any
agreements entered into by Edudata and its customer, or from any
misrepresentation, fraud, negligence or other improper or illegal activity or
conduct engaged in by such indemnifying party.
11. TERMINATION
a. Either party shall have the right to terminate this Agreement
immediately upon delivery of written notice for cause. "Cause" is the
occurrence of any of the following events:
(1) Upon the dissolution or liquidation of the other party or the
cessation of its business;
(2) In the event the other party becomes insolvent, makes an
assignment for the benefit of creditors, or is adjudged a bankrupt;
Sales Representative Agreement Page 5 of 7 Pages
<PAGE>
(3) If the other party breaches any of the material terms, covenants,
conditions or provisions of this Agreement and fails to cure such breach within
30 days after delivery of written notice to the defaulting party. However, the
time for cure of non-payment of commissions is three days from the date of
Edudata's receipt of payment from the customer involved.
12. NOTICES
a. Any notice to be given hereunder shall be in writing and either
delivered personally or sent by facsimile, or certified or registered mail,
return receipt requested, addressed at its principal office address.
b. Notice properly sent will be deemed to have been duly given as of
forty-eight hours following the deposit of such notice with the United States
postal authorities, or if given personally or by facsimile, then Notice shall be
deemed given on the date of transmittal.
14. ASSIGNMENT
The benefits of this Agreement may not be assigned nor the duties delegated by
either party to another without the prior written consent of the other party and
subject to the foregoing provision shall be binding upon the successors,
assigns, and legal representatives of the parties hereto.
15. MERGER
This Agreement constitutes the entire understanding between the parties and
supersedes all prior oral or written agreements between the parties concerning
the subject matter hereof. This Agreement may not be altered, modified or
changed except in a writing executed by both parties.
16. CONSTRUCTION AND VENUE
This Agreement shall be deemed to have been entered into and governed in all
respects by the laws of the State of California, and the venue for any action or
dispute arising out of or relating to this Agreement or the performance by
either party hereunder shall be Los Angeles County, California, to which venue
and jurisdiction the parties do hereby attorn and consent. In the event that any
provision hereof contravenes any applicable law, said provisions shall be deemed
to be deleted herefrom, and such deletion shall not affect other provisions of
this Agreement.
17. TRADE NAME
BMC is not authorized to list in telephone directories or indicate on
stationery, personal calling cards or other sales literature
Sales Representative Agreement Page 6 of 7 Pages
<PAGE>
used in BMC, any designation which might imply that Edudata is responsible for
BMC's acts. The name, trademark, logos, brand names or trade names (hereinafter
collectively "trademarks") of Edudata shall at all times be within the strict
control of the Edudata, inasmuch as Edudata is the owner or licensee thereof.
However, BMC is licensed to use Edudata's trademarks strictly and solely in
connection with the solicitation of orders for the Products. This license shall
terminate immediately upon termination of this Agreement and BMC shall
thereupon immediately remove any reference to Edudata from any ad or business
card or other document belonging to BMC and BMC shall cease and desist from
using such trademarks in the future.
18. WAIVER OF JURY TRIAL
The parties waive their respective right to trial by jury of any cause of
action, claim, counter claim or cross complaint in any action, proceeding,
arbitration and/or hearing brought by either party against the other on any
matter whatsoever arising out of or relating to this Agreement, the
relationship of the parties created by this Agreement, or associated with said
relationship, the performance of either party under this Agreement or any
claim of injury or damage, or the infringement of any remedy under any law,
statute or regulation, now or hereafter in effect.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as
of the date first above written.
"Edudata"
/s/ ROBERT GUREVITCH
------------------------------
Edudata Corporation
By: Robert Gurevitch
Its: President
"BMC"
/s/ HIROKI UMEZAKI
------------------------------
Boston Marketing Company, Ltd.
By: Hiroki Umezaki
Its: President
Sales Representative Agreement Page 7 of 7 Pages
<PAGE>
EXHIBIT 10.21
FUJIMI OPTICS
EXCLUSIVE PURCHASE AGREEMENT
Agreement made and entered into this 28th day of October, 1996, by and between
Edudata Corporation, a Delaware corporation having its principal place of
business at 200 North Westlake Boulevard, Suite 202, Westlake Village, CA 91362
("Edudata") and Fujimi Optics Corp., a Japanese corporation having its
principal place of business at 4-22-6 Higashi-cho, Koganei-shi, Tokyo, Japan,
hereinafter referred to as "Fujimi".
RECITALS
WHEREAS, Edudata is engaged in the manufacture and sale of intraoral cameras
and desires to appoint Fujimi as its exclusive source for certain camera lens
per the terms and conditions set forth herein below; and
WHEREAS, Fujimi is desirous of acting as Edudata's exclusive source for such
lens.
NOW, THEREFORE, in consideration of the premises and covenants as contained
herein, the parties hereto agree as follows:
1. APPOINTMENT AND ACCEPTANCE:
Subject to the terms and conditions set forth in this Agreement, Edudata agrees
to exclusively purchase lens for its intraoral cameras from Fujimi subject to
Fujimi's compliance with all of the terms and conditions set forth in this
Agreement.
2. TERM:
The term of this Agreement shall be three years from the date hereof. Provided
that this Agreement is not terminated sooner as per paragraph 5 hereof, the
parties may agree to extend the original term of this Agreement for an
additional three years.
3. PRICING:
During the first two years of the term of this Agreement, pricing for Fujimi's
lens shall be fixed at $88.80 per set of lens (a "set" includes one filter, one
prism and eight lens) with multi-coating (FOB Tokyo) and $18.00 (per tube) for
assembly of one set into a tube (FOB Tokyo). For the third year of the term of
this Agreement, pricing shall be determined by mutual negotiations. Should the
product specifications change, the parties shall mutually agree to new pricing.
4. ORDERING AND PAYMENT:
a. All orders for lens shall be evidenced by written purchase orders from
Edudatas to Fujimi. Fujimi shall provide written acceptance, rejection or
changes to such orders within ten business days after receipt. Should Fujimi
fail to provide such written notice, such silence shall be deemed to be
acceptance of the purchase order.
Page 1/3 Pages
<PAGE>
b. Prices may be changed only upon thirty days prior written notice to
Edudata.
c. All purchase orders shall be paid net fifteen days from date of
Edudata's receipt thereof.
5. PRODUCT WARRANTIES:
a. Fujimi warrants that the lens will be free from defects in workmanship
and materials and in conformity with all agreed upon specifications. Defective
lens will be repaired or replaced by Fujimi without charge. This warranty shall
end upon Edudata's installation of the lens into its intraoral cameras. This
warranty is void if the lens are mishandled, damaged, improperly stored or
damaged by Edudata.
b. Should there be any dispute about which party is responsible for the
defect, the problem will be referred to an independent laboratory for testing.
The decision of this laboratory will be final and the costs of such testing
shall be borne by the non-prevailing party.
6. TERMINATION AND DEFAULT:
a. Either party shall have the right to terminate this Agreement
immediately upon delivery of written notice for cause. "Cause" is the occurrence
of any of the following events:
(1) Upon the dissolution or liquidation of the other party or the
cessation of its business;
(2) In the event the other party becomes insolvent, makes an
assignment for the benefit of creditors, or is adjudged a bankrupt;
(3) If the other party breaches any of the material terms,
covenants, conditions or provisions of this Agreement and fails to cure such
breach within 30 days after delivery of written notice to the defaulting party.
b. Edudata shall have the right to terminate this Agreement if the quality
of the lens is not in compliance with agreed upon specifications and Fujimi
fails to remedy the problem, or if the agreed upon delivery times are
consistently ten or more days later.
5. MISCELLANEOUS:
a. Nothing in this Agreement shall be interpreted to constitute either
party as the partner, or agent of the other, nor shall either party have any
authority bind the other in any respect, it being intended that each shall
remain an independent contractor responsible only for its own actions.
b. Any dispute or controversy among any of the parties arising out of or
relating to (i) this Agreement or any amendment or (ii) any alleged breach
hereof shall be finally and conclusively determined
Page 2/3 Pages
<PAGE>
and settled by arbitration in the City of Los Angeles in accordance with the
Rules governing Commercial Disputes of the American Arbitration Association
("AAA") and this Agreement. This arbitration clause shall survive termination of
this Agreement. There shall be no arbitration of any claim, dispute or other
matter after the date when institution of legal or equitable proceedings based
on such claim, dispute or other matter in question would be barred by the
applicable statute of limitations. Any award in arbitration shall be final and
binding upon the parties. The parties expressly consent to the jurisdiction of
the courts (Federal and State) in Los Angeles City, California for the purposes
of entering and enforcing any such judgment or award. The expenses of conducting
any arbitration shall be paid by the party against whom the award is entered, or
as awarded in the discretion of the Arbitrator except that each party shall pay
its own attorney's fees in the arbitration. The fees of the Arbitrator shall be
borne by the losing party as determined by the Arbitrator.
c. This Agreement constitutes the sole and entire agreement of the parties
hereto, and all prior oral or written understanding exchanges by, between and
among the parties shall be deemed to have been superseded by reason of this
Agreement. This Agreement or its terms and conditions may not be altered,
modified or changes without the written agreement of all parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
and year first above written.
"Edudata"
/s/ ROBERT GUREVITCH
----------------------
Edudata Corporation
By: Robert Gurevitch
Its: President
"Fujimi"
/s/ MICHIO ISHIKAWA
-----------------------
Fujimi Optics Corp.
By: Michio Ishikawa
Its: Executive Director
Page 3/3 Pages
<PAGE>
EXHIBIT 10.22
SI/VAI Agreement
Page 1 of 8
_______________________________________________________
1996 SYSTEMS INTEGRATOR/VALUE ADDED INTEGRATOR AGREEMENT
SONY BUSINESS AND PROFESSIONAL PRODUCTS GROUP
SONY ELECTRONICS INC.
ARTICLE I PARTIES TO THIS AGREEMENT
This Agreement is entered into and is effective as of the first day of
April, 1996 ("Effective Date") by and between:
Sony Business & Dental Medical Diagnostic
Professional Products Group and DBA:
Sony Electronics Inc. 200 N Westlake Village
3 Paragon Drive Suite 202
Montvale, NJ 07645-1735 Westlake Village, CA 91362
(hereinafter referred to as (hereinafter referred to as
the "Division") the "Buyer")
ARTICLE II PREMISES OF THIS AGREEMENT
WHEREAS, the Division is engaged in the sale and distribution (or, in the case
of software, license) of various kinds of electronics products and accessories;
and,
WHEREAS, the Buyer desires to purchase and/or license certain of such products
and accessories as parts of systems manufactured and/or assembled by the Buyer
for resale.
NOW, THEREFORE, by reason of the foregoing premises, and in consideration of the
mutual covenants set forth in this Agreement, the parties agree as follows:
ARTICLE III TERM AND DEFINITIONS
(A) TERM: This Agreement shall commence as of the Effective Date and expire on
March 31, 1998 (the "Term") unless earlier terminated in accordance with Section
11.0.
(B) PRODUCTS: The term "Product(s)" refer(s) to those products, accessories and
software of the Division which the Buyer is authorized to purchase and resell
(or, in the case of software, license) in a System (as defined in (d) below)
described in the Product and Market Schedule attached to this Agreement and made
a part hereof.
(C) PRODUCT MARKET SCHEDULE: The term "Product and Market Schedule" refers to
the Schedule attached to this Agreement and made a part hereof which identifies
those Products which the Buyer is authorized to purchase and resell (or, in the
case of software, license), and contains terms and conditions regarding those
Products which may be in addition to or different from the General Terms and
Conditions set forth in Article IV.
(D) SYSTEMS: The term "System(s)" shall mean those integrated systems generally
described in the Product and Market Schedule attached to this Agreement and made
a part hereof, that are manufactured and/or assembled by the Buyer and contain
the Products or that add significant value to the Products by the Buyer's
combination of same with products or accessories manufactured and/or assembled
by or for the Buyer for resale or lease.
(E) GENERAL DEFINITIONS:
The term "Customer(s)" refer(s) to those third parties to whom the Buyer is
authorized to resell Products in the Systems pursuant to the Customer definition
set forth in the Product and Market Schedule.
The term "Sale" or "Resale" (in any tense or form) whenever used in this
Agreement shall mean license in the case of software Products. The term "Resale"
(in any tense or form) shall also mean lease.
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ARTICLE IV GENERAL TERMS AND CONDITIONS
SECTION 1.0 SCOPE OF THIS AGREEMENT
1.1 GENERAL: The Division agrees to sell, and the Buyer agrees to purchase,
the Products from the Division for the Buyer's incorporation thereof into the
Systems for resale to Customers as part of the Systems upon the terms and
conditions set forth in this Agreement.
1.2 LIMITATIONS: The Buyer acknowledges that its right to resell the
Products under this Agreement is non-exclusive, and that the Division reserves
the right to sell and distribute any of its products to any customers in the
world, and to appoint any third party to do so, without giving the Buyer notice
thereof and without incurring any liability to the Buyer therefor.
1.3 STATUS AS INDEPENDENT CONTRACTOR: The relationship established between
the Division and the Buyer by this Agreement is that of a vendor to its vendee
and nothing herein contained shall be deemed to establish or otherwise create a
relationship of principal and agent between the Division and the Buyer. The
Buyer represents that it is an independent contractor who will not be deemed an
agent of the Division for any purpose whatsoever and neither the Buyer nor any
of its agents or employees will have any right or authority to assume or create
any obligation of any kind, whether express or implied, on behalf of the
Division. This Agreement is not a franchise agreement and does not create a
franchise relationship between the parties and if any provision of this
Agreement is deemed to create a franchise between the parties, then this
Agreement will be deemed null and void and will automatically terminate as if
such provision had been deemed unenforceable by a court as provided in Section
13.7.
SECTION 2.0 ACCESS AND AUDIT
In order to verify the Buyer's compliance with this Agreement, the Buyer shall
give the Division reasonable access to the Buyer's facilities during normal
business hours to make inspections of the Buyer's premises and to audit the
books and records of the Buyer relating to the Products purchased by the Buyer,
including the right to make copies of or abstracts from such books and records.
SECTION 3.0 SALE OF THE PRODUCTS
3.1 TERMS: The Division shall sell the Products to the Buyer upon the terms
and conditions set forth in this Agreement.
3.2 PRICES: The Division shall sell the Products to the Buyer at the prices
and/or fees set forth on the Products and Market Schedule attached to the
Agreement and made a part hereof subject to adjustment as provided for in
Section 3.3. The Division may increase the price of the Products by giving the
Buyer notice and such new pricing will apply to all of the Buyer's orders
received by the Division after the effective date set forth in such notice. The
Buyer may terminate this Agreement by giving the Division notice within thirty
(30) days after the issuance of any such price increase to the extent of any
orders not yet shipped by the Division.
3.3 PRICE ADJUSTMENTS: If the prices at which the Products are sold
hereunder represent a price which has been reduced based on a representation by
the Buyer that the Buyer would make certain volume purchases, and the Buyer
fails to make purchases in the volumes represented, the Division may in its sole
discretion adjust prices to the otherwise prevailing prices for the number of
items actually purchased, and the Buyer will pay the Division the difference
promptly upon receipt of the Division's invoice therefor. If the Buyer resells
any of the Products to any party other than the Customers or to any party on a
stand-alone basis (i.e., not within a System or as an addition to or
substitution in an existing system sold by the Buyer) the Buyer shall pay the
Division an adjustment charge equal to the difference between the price charged
the Buyer for such Products and the then-current single lot list price of the
Division for such Products.
3.4 ALLOCATIONS: The Division may, in its sole discretion, allocate its
inventory of the Products.
3.5 DISCONTINUATION/CHANGES TO PRODUCTS: The Division may, in its sole
discretion, discontinue the sale of any of the Products and any
parts/accessories thereto (except where continued availability is required by
law) and make such changes affecting their form, fit or function as it, in its
sole discretion, determines, by giving the Buyer prior notice thereof but
without incurring any liability to the Buyer therefor. If, because of any
discontinuance or change to the Products affecting their form, fit or function,
the Buyer does not wish to purchase same or any of the other Products covered by
this Agreement, then the Buyer may terminate this Agreement or cancel any order
not then previously fulfilled by giving the Division notice thereof within ten
(10) days of the Division's notice to it.
3.6 TAXES: The Buyer shall bear the cost of any taxes (exclusive of taxes
based on Sony Electronics Inc.'s. net income), levies, duties and fees of any
kind, nature or description whatsoever applicable to any of the Products
supplied by the Division to the Buyer. The Buyer will pay the Division all such
sums upon demand unless the Buyer provides the Division, at the time of the
submission of its purchase orders, tax exemption certificates or licenses
acceptable to the appropriate taxing authorities.
3.7 SOFTWARE OWNERSHIP: The Buyer acknowledges that the Division or, in
applicable instances, the Buyer's licensors, retains the entire right, title and
interest to the intellectual property (including, without limitation, all
copyrights) related to any item of software and related documentation which the
Division provides to the Buyer. The Division shall permit the Buyer to use such
software and documentation internally or to distribute such software and
documentation to the Customers for the Products, and the Buyer will use such
software and documentation or distribute such software and documentation only to
the Customers on such terms and conditions as the Division may, from time to
time, impose. The Buyer shall not itself, or permit others to, decompile,
disassemble, reverse engineer or otherwise attempt to derive to source code of
any such software, and the Buyer shall not itself, or permit others to, remove,
obscure, or alter any copyright, trade secret, trademark, patent or other
proprietary rights notice affixed to or displayed on any such software or
documentation or affixed to or printed on any of its factory packaging. Nothing
contained herein shall; (a) prohibit the Buyer from setting a price to its
Customers for software and documentation where copies of the software and
documentation are licensed to the Buyer as one of the Products; or (b) allow the
Buyer to make copies of the software or documentation.
SECTION 4.0 THE SYSTEMS
4.1 GENERAL: The Buyer certifies that it shall not resell the Products to
any third party on a stand alone basis and shall only resell the Products as an
integrated part of the System or as an addition to or substitution in an
existing System sold by the Buyer. The Buyer further certifies that except for a
minimal number of development and/or demonstration Systems for its own use, all
Systems will be resold in the regular course of its business, and that the Buyer
will
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resell the Systems only to unaffiliated Customers and not to any third party
having an equity interest in the Buyer.
4.2 SPECIFIC USES: (a) General: The Buyer shall not sell the systems
for use in medical life support or aircraft instrumentation. (b) Medical Systems
Products: If the Buyer's System is sold for any medical purpose or application,
the Buyer will, at its own cost and expense, obtain and maintain all approvals
and permits required by the United States Food, Drug and Cosmetic Act of 1938,
as then in effect or thereafter amended, and will not resell any of the Products
in any way that will make them be adulterated or misbranded within the meaning
of that Act or be an article which may not be introduced into interstate
commerce pursuant to the requirements of Sections 404, 515, 510, 513, or 515
thereof, or be in violation of any similar law of any other jurisdiction having
authority over the manufacture, processing and distribution of same.
4.3 TRADEMARKS: The Buyer acknowledges the validity of the Division's trade
names and trademarks and that it shall have no right to or interest in any trade
names or trademarks owned, used or claimed now or in the future by Sony
Electronics Inc., Sony Corporation of America, Sony Corporation (Japan) or the
subsidiary or affiliate companies of said corporations.
SECTION 5.0 SHIPMENTS
5.1 SHIPMENTS: The Buyer shall bear all costs and expenses incident to the
Division's shipment of the Products to it, except in the case of any shipment
which qualifies for prepaid freight under the Division's program then in effect.
The Division shall select the method of shipment and the carrier. The Division
will ship the Products only to locations in the continental United States,
including Alaska.
5.2 TITLE AND RISK OF LOSS: Subject to Article IV, Section 3.7 above, title
to all of the Products sold by the Division to the Buyer shall pass upon the
Division's delivery thereof to the carrier. Risk of loss or damage to any of the
Products in transit without regard to whether the Division paid the shipping
charges therefor or whether any third party is designated as consignee thereof,
is the Buyer's, whose responsibility it will be to file claims with the carrier.
5.3 TIME OF DELIVERY: Delivery dates set forth in any Buyer order or other
purchasing documents, or any confirmation thereof by the Division, shall be
deemed to be estimated only and subject to the Division's then current lead
times for the Products. The Buyer will not be excused from payment of any
amounts it owes to the Division or from the performance of any of its other
obligations under the terms and conditions hereof as a result of, and the
Division will not be liable to the Buyer for damages resulting from, the
Division's failure to meet any of those dates. However, if the Division's delay
in shipment or delivery of any ordered Products exceeds by ninety (90) days such
first estimated date, then either party may cancel any Buyer order or part
thereof not previously fulfilled by giving the other notice thereof and without
incurring any liability to the other therefor.
5.4 SEPARATE TRANSACTION: Each Buyer order for the Products under this
Agreement shall be deemed a separate transaction and each shipment of the
Products by the Division will constitute a separate sale, obligating the Buyer
to pay therefor, whether such shipment be in whole or only in partial
fulfillment of such order.
5.5 STOP SHIPMENTS: The Division may, in its sole discretion, cancel any
Buyer orders previously accepted by the Division or delay the delivery of any of
the Products covered thereby if the Buyer defaults in any of its obligations
under this Agreement or if the Division reasonably believes that the Buyer may
do so for or with respect to any past or pending Buyer order.
SECTION 6.0 CREDIT; PAYMENT AND INDEBTEDNESS
6.1 MAINTENANCE OF CREDIT LINE: The Buyer shall maintain a credit line
sufficient to support its purchases of the Products and to pay any indebtedness
to the Division when due. The Division may, in its sole discretion, either
generally or with respect to any specific Buyer order, vary, change or limit the
amount or duration of credit allowed to the Buyer. The Buyer will make available
to the Division such statements of its financial condition as the Division may,
from time to time, reasonably request.
6.2 PAYMENT TERM: Unless otherwise provided in the Product and Market
Schedule, payment terms are net sixty (60) days from the date of the Division's
invoice; invoices are issued only on the date of shipment.
6.3 UNAUTHORIZED DEDUCTIONS: The Buyer shall not make deductions of any kind
from any monies it owes to the Division unless the Buyer has received an
official credit memorandum from the Division authorizing such deduction.
6.4 DEFAULT; ACCELERATION OF OBLIGATIONS AND CHARGE FOR LATE PAYMENT: The
Buyer's payment for the Products shall be considered past due if it is not
received by the Division by the due date shown on the Division's invoice. If any
payment is past due, then in addition to any other remedy available to the
Division under this Agreement or at law therefor, the Division may declare, by
giving the Buyer notice thereof, that: (a) all of the liabilities and
obligations of the Buyer to the Division, whether then due or not, to be
immediately due unless the past due payment is received by the time specified in
the notice; and/or, (b) impose a monthly finance charge on all amounts past due
or declared due by (a) above equal to the lesser of one and one half percent
(1-1/2%) or the maximum allowed by law and charge the Reseller for the
Division's reasonable expenses of collection therefor, including but not limited
to, attorneys' and experts' fees and court costs.
SECTION 7.0 PATENT, TRADEMARK AND COPYRIGHT INFRINGEMENT
7.1 CLAIMS OF DIRECT INFRINGEMENT: Subject to the terms and conditions of
this Section 7.0, the Division warrants to the Buyer that, to the best of the
Division's knowledge, the Products when and as manufactured and sold by the
Division to the Buyer shall be free of any rightful third party claim of direct
infringement of any United States patent, trademark or copyright by the Products
per se.
7.2 INDEMNIFICATION BY THE DIVISION: The Division shall, at its own cost and
expense, defend any claim or suit alleging direct patent trademark or copyright
infringement instituted against the Buyer (and/or its officers, directors,
employees and agents) and indemnify the Buyer against any award of damages and
costs for direct infringement made against the Buyer (and/or its officers,
directors, employees and agents) by a court of last resort, insofar as such
award of damages is based on a final determination that the Products as and when
furnished by the Division to the Buyer under this Agreement directly infringed
any patent, trademark or copyright of the United States. Indemnification of
costs hereunder will extend only to actual costs assessed. This indemnity will
not apply to the Products made by or for, or modified by or for, the Division in
accordance with the Buyer's specifications or requests.
7.3 CONDITIONS UNDER WHICH INDEMNIFICATION APPLIES: The Division's
obligation under Section 72 shall be conditioned on the following: (a) the Buyer
gives the Division prompt notice of such claim or suit, but in no event later
than twenty (20) days after its receipt of such a claim or ten (10) days after
the Buyer is served with such suit; (b) the Division, in its sole discretion, is
given sole control of the defense of any such claim or suit and all negotiations
for its settlement or compromise; (c) the Buyer fully cooperates with the
Division in the defense and all related settlement negotiations; and, (d) if the
Products become, or in the Division's opinion are likely to become, the subject
of such a claim or suit, then the Buyer permits the Division, at the Division's
own cost and expense but in its sole discretion: (1) to procure for the Buyer
the right to continue using the affected Products; (2) to replace or to modify
the affected Products so that they become non-infringing; or, (3) to remove the
affected Products and refund to the Buyer the purchase price the Buyer paid
therefor.
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7.4 EXCLUSIONS: Notwithstanding the terms and conditions of Sections 7.1,
7.2 and 7.3, the Division shall have no liability to the Buyer if any such
claim or suit is based upon or arises out of: (a) alterations of the Products by
the Buyer or any third party, (b) failure of the Buyer to use updated Products
provided by the Division for avoiding such infringement; (c) use of the Products
in combination with apparatus or software not furnished by the Division except
for those expressly approved in writing by the Division; (d) processes or
methods allegedly performed by the Products; (e) use of the Products in the
manner for which the same were neither designed nor contemplated; or, (f) a
patent trademark or copyright in which the Buyer or an affiliate or subsidiary
of the Buyer has a direct or indirect interest by license or otherwise.
7.5 DISCLAIMER OF WARRANTY AGAINST INFRINGEMENT: The warranty set forth in
Section 7.1 is in lieu of all other warranties, express or implied, with regard
to any claim of infringement by the products. The Division hereby disclaims and
excludes all warranties against infringement concerning the products that may be
provided in Section 2-312(3) of the Uniform Commercial Code and/or in any other
comparable state statute.
7.6 LIMITATION OF LIABILITY FOR INFRINGEMENT CLAIMS: The terms and
conditions of this Section and Section 10.0 state the entire liability of the
Division to the Buyer for any claim arising from or based upon, patent,
trademark or copyright infringement respecting the Products.
7.7 INDEMNIFICATION BY THE BUYER: The Buyer shall, at its own cost and
expense, defend, indemnify and hold harmless the Division (and/or its officers,
directors, employees and agents) in the same manner and to the same extent
described in Section 7.2 from any claim or suit against the Division (and/or its
officers, directors, employees and agents) in which the alleged direct patent,
trademark or copyright infringement arises from: (a) any of the Products made by
or for, or modified by or for, the Division in accordance with the Buyer's
specifications or requests; (b) alteration of the Products by the Buyer; or, (c)
from the combination of the Products with equipment, software or products not
furnished by the Division.
SECTION 8.0 INSPECTIONS; RETURNS; LIMITED WARRANTIES
8.1 INSPECTIONS: Within twenty (20) days of the Buyer's receipt of any of
the Products under this Agreement the Buyer shall inspect same and furnish the
Division with any claim it may have for shortages, incorrect materials,
invoicing mistakes, or defects in material, workmanship or failure to meet
specifications. The Buyer's failure to make such a claim within that period will
be deemed to constitute the Buyer's acceptance of the Products and leave the
Buyer with only those warranty-related remedies otherwise provided in Section
8.2. In the case of any claim involving shortages or invoicing errors, the
Division will, upon confirmation of the claim, promptly furnish the Buyer with a
credit memorandum. In the case of any claim involving incorrect materials,
defects in material or workmanship or failure to meet specifications, the Buyer
must return the affected Products to the Division and the Division will, upon
confirmation of the claim, promptly furnish the Buyer with a credit memorandum
for the Products returned and, subject to availability, ship the Buyer
replacement Products with an invoice therefor.
8.2 LIMITED WARRANTY: The Division's warranty for the Products shall be as
set forth in the Product and Market Schedule.
8.3 COMPATIBILITY: The Division hereby disclaims and excludes any
representations or warranties that the products are compatible with any
combination of products not furnished by the Division which the Buyer or any end
user may choose to connect to the product except for those expressly approved in
writing by the Division.
8.4 REPAIRS AND REPLACEMENTS: The Division shall not be required to install,
de-install, and/or remove any of the Products from or into the Buyer's or the
Customer's or any end users facilities, product(s), or system(s) for the purpose
of repair or replacement. No repair or replacement by the Division of any
Product or part thereof shall extend the warranty period as to the entire
Product. The specific warranty on the repaired part only shall be in effect for
a period of ninety (90) days following the repair or replacement of that part or
for the unexpired portion of the Limited Warranty provided in Section 8.2 above,
whichever is longer.
8.5 WARRANTIES TO CUSTOMERS OR END USERS: The Buyer shall make no warranties
or representations on behalf of the Division to the Customers, any end users or
to the trade with respect to any of the Products. The Buyer will provide its own
warranty for the System and be responsible for any such warranty which the Buyer
extends or allows to be extended, whether express or implied, to the Customers,
any end users, or other third parties. The Buyer shall at all times comply with
applicable federal and state laws relating to the delivery of warranties to
consumers.
8.6 RESPONSIBILITY FOR REMOVAL OF DATA: The Buyer shall remove any data,
software or programs or keep backup copies thereof prior to returning any of the
Products to the Division for repair or other reason. The Division will not be
liable for the loss of data contained in any returned Product.
SECTION 9.0 INDEMNITY BY THE BUYER
THE BUYER SHALL INDEMNIFY AND HOLD HARMLESS THE DIVISION, SONY ELECTRONICS INC.,
ITS PARENT COMPANY, SONY CORPORATION OF AMERICA, AND THE SUBSIDIARY AND
AFFILIATED COMPANIES OF EACH AND THEIR RESPECTIVE OFFICERS, DIRECTORS AND
EMPLOYEES FROM AND AGAINST ANY CLAIMS, SUITS, LIABILITIES, LOSSES, FINES,
PENALTIES, DAMAGES AND EXPENSES (INCLUDING REASONABLE ATTORNEYS' AND EXPERTS'
FEES AND COSTS) ARISING FROM OR INCIDENT TO THE BUYER'S BREACH OF ITS
OBLIGATIONS OR RESPONSIBILITIES UNDER SECTIONS 1.3, 4.2 OR 8.5 HEREOF.
SECTION 10.0 LIMITATION ON LIABILITY
EXCEPT FOR THE BUYER'S RIGHT TO INDEMNIFICATION UNDER SECTION 7.0, THE LIABILITY
OF THE DIVISION, IF ANY, AND THE BUYER'S SOLE AND EXCLUSIVE REMEDY FOR DAMAGES
FOR ANY CLAIM OF ANY KIND WHATSOEVER WITH RESPECT TO ANY BUYER ORDER FOR THE
PRODUCTS OR WITH RESPECT TO ANY OF THE PRODUCTS COVERED THEREBY, AND REGARDLESS
OF THE LEGAL THEORY OR THE DELIVERY OR NON-DELIVERY OF THE PRODUCTS, SHALL NOT
BE GREATER THAN THE ACTUAL PURCHASE PRICE OF THE PRODUCTS WITH RESPECT TO WHICH
SUCH CLAIM IS MADE. UNDER NO CIRCUMSTANCES WILL THE DIVISION BE LIABLE TO THE
BUYER FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY
KIND, INCLUDING, BUT NOT LIMITED TO, COMPENSATION, REIMBURSEMENT OR DAMAGES ON
ACCOUNT OF THE LOSS OF PRESENT OR PROSPECTIVE PROFITS, EXPENDITURES, INVESTMENTS
OR COMMITMENTS, WHETHER MADE IN THE ESTABLISHMENT, DEVELOPMENT OR MAINTENANCE OF
BUSINESS REPUTATION OR GOODWILL, FOR LOSS OF DATA, COST OF SUBSTITUTE PRODUCTS,
COST OF CAPITAL, AND THE CLAIMS OF ANY THIRD PARTY, OR FOR ANY OTHER REASON
WHATSOEVER.
SECTION 11.0 TERMINATION
11.1 TERMINATION FOR CAUSE: The Division may immediately terminate this
Agreement by giving the Buyer notice if the Buyer:
(a) defaults in the payment of any monies it owes to the Division when due
and such default continues for a period of ten (10) days after the
Division gives the Buyer notice thereof; or,
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(b) defaults in the performance of any of its obligations under any of the
terms or conditions of this Agreement other than as provided in subsection
(a) above, which default is not remedied by the Buyer to the Division's
satisfaction within thirty (30) days after the Division gives the Buyer
notice thereof or,
(c) defaults in the performance of any of its obligations under the terms and
conditions of this Agreement, which default by its nature, cannot be
remedied by the Buyer; or,
(d) engages directly or indirectly in any attempt to defraud the Division; or,
(e) issues any press release, advertising, brochure or other release of
information to any of the Customers, the trade or the general public
concerning or in any way referring to this Agreement or any other
agreement or relationship with the Division and/or Sony Electronics Inc.
without the prior written approval of this Division, which approval or
rejection shall be given in the Division's sole discretion; or,
(f) is unable to pay any and/or all of its debts as they become due or becomes
insolvent or ceases to pay any and/or all of its debts as they mature in
the ordinary course of business, or makes an assignment for the benefit of
its creditors; or,
(g) is liquidated or dissolved or if any proceedings are commenced by, for or
against it under any bankruptcy, insolvency, reorganization of debts or
debtors relief law, or law providing for the appointment of a receiver or
trustee in bankruptcy.
The Division may also immediately terminate this Agreement by notice: 1)
pursuant to Section 11.3; or 2) upon the occurrence of, or the Buyer's failure
to give notice of, any of the events referenced in Section 12.1 (a) - (c).
11.2 REMEDIES FOR BREACH: If the Buyer defaults in its obligations under the
terms and conditions of this Agreement, then the Division may, in addition to
any other remedy available to it hereunder or at law therefor, suspend or cease
further shipments of the Products to the Buyer for a period of time specified in
a notice to the Buyer.
11.3 SET-OFF: If the Buyer defaults with respect to this Agreement or any
other agreement(s) with the Division or any other division of Sony Electronics
Inc. including, but not limited to, the Buyer's failure to pay any monies when
due either pursuant to this Agreement or any other such agreement, then the
Division may, in its sole discretion, set off against any monies due and owing
the Buyer such sum or sums of money due and owing from the Buyer to the Division
and/or Sony Electronics Inc. pursuant to this Agreement or such other
agreements, and/or to terminate this Agreement.
11.4 EFFECT ON OTHER AGREEMENTS: Upon the termination of this Agreement,
Sony Electronics Inc. may, in its sole discretion, upon notice to the Buyer,
immediately terminate any other agreements which may then be in effect between
the Division and/or Sony Electronics Inc. and the Buyer. Such right of
termination shall be in addition to and, to the extent necessary, supersede any
right of termination which may be provided for in such other agreements.
11.5 SURVIVING OBLIGATIONS AND LIMITATIONS: Neither the termination nor
expiration of this Agreement nor the termination of any of the agreements
referred to in this Section shall release either party from the obligation to
pay any monies that may be owing to the other party or operate to discharge any
liability that had been incurred by either party prior to any such termination
or expiration.
11.6 ORDER PROCEDURE AFTER NOTICE OF TERMINATION: During the period between
the Division giving the Buyer notice of this Agreement's termination and the
effective date of such termination, all Buyer orders not then fulfilled and all
new Buyer orders for the Products that are accepted by the Division will be
shipped to the Buyer only on a cash in advance basis.
SECTION 12.0 NOTICES
12.1 CHANGE IN STATUS: The Buyer shall give the Division immediate notice in
writing of: (a) any transaction affecting the ownership of ten percent (10%) or
more of the Buyer's capital stock, or any significant portion of the Buyer's
assets, if the Buyer is a corporation; or, (b) any change in the respective
interests of the partners, if the Buyer is a partnership; or, (c) any
transaction affecting the ownership of any part of the business, if the Buyer is
an individual proprietorship.
12.2 CHANGE IN NAME OR ADDRESS OF THE BUYER: The Buyer shall give the
Division immediate notice in writing of any change in the: (a) name of the
Buyer; or, (b) address of the Buyer's principal office from that first set forth
above.
12.3 METHOD OF TRANSMISSION: Any notices given under this Agreement shall be
in writing and will be deemed to have been sufficiently given when delivered by
hand or sent by facsimile transmission (which is acknowledged by the recipient),
overnight courier service or by certified or registered mail, postage and other
charges prepaid, to the parties at the addresses first above written or as
subsequently changed by notice duly given. The date of mailing or other
transmission of any written notice will be deemed the date on which such notice
is given unless otherwise specified in the notice.
SECTION 13.0 GENERAL
13.1 EXPORT: The Buyer shall not export the Products covered by this
Agreement in violation of U.S. export laws and regulations. The Buyer will be
solely responsible for compliance with and the obtaining of any required export
licenses.
13.2 ASSIGNMENT: The Buyer shall not assign or otherwise transfer this
Agreement or any interest or right hereunder or delegate the performance of any
of its obligations hereunder to any third party without the prior written
consent of the Division, which consent may be withheld in the Division's sole
discretion. Any such attempted assignment, transfer or delegation without the
prior written consent of the Division, will be deemed null and void and result
in the immediate termination of this Agreement without necessity of any notice.
13.3 WAIVERS: Waiver by either party of any default, or either party's
failure to enforce any of the terms and conditions of this Agreement shall not
in any way affect, limit or waive such party's right thereafter to enforce and
compel strict performance of every term and condition hereof.
13.4 NON-EXCLUSIVENESS; REMEDIES: Any specific right or remedy provided
in this Agreement shall not be exclusive but will be cumulative of all other
rights and remedies set forth herein and allowed at law.
13.5 LITIGATION: In the event of any litigation between the parties with
respect to this Agreement, the prevailing party (the party entitled to recover
costs of suit at such time as all appeals have been exhausted or the time for
taking such appeals has expired) shall be entitled to recover reasonable
attorneys' and experts' fees, and costs in addition to such other relief as the
court may award.
13.6 HEADINGS: The headings of Articles and Sections in this Agreement are
for convenience and reference only, and they shall in no way define, limit, or
describe the scope of the provisions or be considered in the interpretation,
construction or enforcement hereof.
13.7 INVALIDITY: If and to the extent that any term or condition of this
Agreement is specifically determined by any court to be in whole or in part
invalid or unenforceable, then this Agreement shall be immediately terminated
upon such determination. However, such termination will not operate to discharge
either party from the
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obligation to pay the other party any sum due such other party or discharge any
liability that had been incurred prior thereto.
13.8 SURVIVAL: Article IV Sections 1.2, 1.3, 3.3, 3.6, 4.1, 4.2, 4.3, 6.3,
6.4, 7.0, 8.0, 9.0, 10.0, 11.3, 11.4, 11.5, 12.3, 13.1, 13.2, 13.3, 13.4, 13.5,
13.7, 13.8, 14.0, 15.0 and 16.0 as well as any term or condition in the Product
and Market Schedule where such survival is indicated or intended by the terms of
such provision, shall survive the termination or expiration of this Agreement.
13.9 GOVERNMENT CONTRACTS: No provision required in any United States
government contract or subcontract related thereto shall be deemed a part of
this Agreement, or be imposed upon or binding upon the Division, and this
Agreement will not be deemed an acceptance of any government provisions that may
be included or referred to in any Buyer order or other purchasing document.
SECTION 14.0 FORCE MAJEURE
NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY DELAY IN THE PERFORMANCE OF
ANY OF ITS OBLIGATIONS HEREUNDER DUE TO ANY CAUSE BEYOND SUCH PARTY'S REASONABLE
CONTROL OR DUE TO ACTS OF GOD, ACTS OF CIVIL OR MILITARY AUTHORITIES, FIRES,
LABOR DISTURBANCES, FLOODS, EPIDEMICS, GOVERNMENTAL RULES OR REGULATIONS, WAR,
RIOT, DELAYS IN TRANSPORTATION OR SHORTAGES IN RAW MATERIALS OR OTHER PRODUCTS.
THIS SECTION SHALL NOT RELIEVE OR RELEASE EITHER PARTY FROM ITS OBLIGATION TO
MAKE PAYMENT WHEN DUE OF ANY MONIES WHICH EITHER PARTY MAY OWE TO THE OTHER.
SECTION 15.0 GOVERNING LAW AND VENUE
THIS AGREEMENT SHALL BE INTERPRETED, CONSTRUED AND ENFORCED IN ACCORDANCE WITH
THE LOCAL LAW OF THE STATE OF NEW JERSEY. THE PARTIES HEREBY CONSENT TO AND
SUBMIT TO THE JURISDICTION OF THE FEDERAL AND STATE COURTS LOCATED IN THE STATE
OF NEW JERSEY, AND ANY ACTION OR SUIT HEREUNDER WILL ONLY BE BROUGHT BY THE
PARTIES IN THE FEDERAL OR STATE COURT WITH APPROPRIATE JURISDICTION OVER THE
SUBJECT MATTER ESTABLISHED OR SITTING IN THAT STATE. THE PARTIES SHALL NOT RAISE
IN CONNECTION THEREWITH, AND HEREBY WAIVE ANY DEFENSES BASED UPON THE VENUE, THE
INCONVENIENCE OF THE FORUM, THE LACK OF PERSONAL JURISDICTION, THE SUFFICIENCY
OF SERVICE OF PROCESS OR THE LIKE IN ANY SUCH ACTION OR SUIT BROUGHT IN THE
STATE OF NEW JERSEY.
SECTION 16.0 WAIVER OF TRIAL BY JURY
IN THE EVENT OF ANY LITIGATION BETWEEN THE PARTIES RELATING TO OR ARISING IN ANY
WAY OUT OF THIS AGREEMENT, THE PARTIES HEREBY WAIVE THEIR RESPECTIVE RIGHT TO
TRIAL BY JURY.
ARTICLE V PRODUCT MARKET SCHEDULE
THIS SPACE IS INTENTIONALLY LEFT BLANK
<PAGE>
SI/VAI Agreement
page 7 of 8
THIS SPACE INTENTIONALLY LEFT BLANK.
<PAGE>
SI/VAI Agreement
Page 8 of 8
ARTICLE VI INCORPORATION/ENTIRETY OF AGREEMENT
This Agreement supersedes, terminates and otherwise renders null and void any
and all prior written and/or oral agreements between the Buyer and the Division
with respect to the matters herein expressly set forth, except that nothing
herein contained shall be construed as intended to relieve or release either
party from its obligation to make payment of any monies which either party may
owe to the other party. This Agreement represents and incorporates the entire
understanding of the parties hereto with respect to the matters herein expressly
set forth and each party acknowledges that there are no warranties,
representations, covenants or understandings of any kind, nature or description
whatsoever made by either party to the other, except as are herein expressly set
forth. This Agreement may be modified only by a written instrument signed by the
parties to this Agreement, which instrument makes specific reference to this
Agreement and the changes to be made hereto.
The Buyer hereby warrants and represents that the individual executing this
Agreement is duly authorized and empowered to bind the Buyer. This Agreement
shall be subject to acceptance by the Division through its execution in the
space provided below by an authorized representative only.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the date
first above written.
Dental Medical Diagnostic SONY BUSINESS AND PROFESSIONAL
- ------------------------------------- PRODUCTS GROUP
(Name of Buyer) A DIVISION OF
SONY ELECTRONICS INC.
By: /s/ Robert H. Gurevitch By: /s/ Robert Ellis
---------------------------------- --------------------------------
(Authorized Signature) (Authorized Signature)
Print Name: Robert H. Gurevitch Print Name: Robert Ellis
------------------------- ------------------------
Title: CEO/Chairman of the Board Title: Director of Sales
------------------------------ -----------------------------
Date of Acceptance: March 20, 1996
-----------------
EXECUTION OF THIS AGREEMENT: If the Buyer is a corporation, indicate the office
of the person signing the Agreement on behalf of the corporation. If the Buyer
is a partnership, the same should be signed by a general partner, who should so
indicate by use of the word "General Partner". If the Buyer is an individual
proprietorship, the same should be indicated by use of the title "Sole
Proprietor."
<PAGE>
Dental Medical Diagnostic SI Schedule
Westlake Village, CA 91362 Page 1 of 2
________________________________________________________
ARTICLE V PRODUCT MARKET SCHEDULE
FOR
MEDICAL SYSTEMS PRODUCTS
SYSTEMS INTEGRATORS
1. SYSTEM PRODUCTS
PRODUCT DESCRIPTION
- --------------------------------------------------------------------------------
MEDICAL SYSTEMS PRODUCTS as identified in the Division's current Medical Systems
Price List for Systems Integrators
The prices for the above Products are the Systems Integrator prices for same as
set forth in the Division's then current Price List for said Products. All
pricing is subject to increase and/or adjustment in accordance with Sections 3.2
and 3.3 of this Agreement and is F.O.B. at the Division's warehouse.
2. U.S.F.D. & C. ACT COMPLIANCE: Unless the Division gives the Buyer
notice or has otherwise labeled same, any of the Products listed above which are
included within the Division's Medical Systems Products Price List will comply
with the applicable provisions of the United States Federal Food, Drug &
Cosmetics Act of 1938, as then in effect. If the Buyer is uncertain as to which
Products are included in the Division's Medical Systems Products Price List, the
Buyer shall contact the Division to obtain a current copy of such List.
3. ACCESS AND AUDIT: In addition to Article IV, Section 2.0 of this
Agreement the Reseller shall maintain a record of all sales of the Medical
Systems Products, and keep same for a period of two (2) years following the
expiration or termination hereof. During the term of this Agreement and for such
additional period, the Buyer shall make this record available, upon reasonable
notice, to the Division.
4. DESCRIPTION OF THE SYSTEM: (Attach separate sheet if necessary)
In addition, and notwithstanding anything contained in the definition of the
Systems set forth in Article III, Section (d). the other components of the
System must significantly exceed in value the Products incorporated therein;
such other components must be manufactured by the Buyer or by other to
specifications provided by the Buyer; and, the System itself must be sold to end
users, bearing the Buyer's name or logo and be advertised as the Buyer's System.
<PAGE>
Dental Medical Diagnostic SI Schedule
Westlake Village, CA 91362 Page 2 of 2
5. WARRANTY
A. BUYER'S SYSTEM AND DIVISION'S LIMITED WARRANTY: If the Buyer's
System requires either modification of the Products and/or their
incorporation into the Buyer's System to such an extent that the
Products are not readily visible to the end-user and/or are not
easily disconnected or removed by the end-user, then the Buyer will
not deliver to the Customers the Sony Limited Warranty Card enclosed
with or accompanying the Product. The Division's warranty to the
Buyer shall be as set forth in the Division's Limited Warranty Card
enclosed with or accompanying the Products. If any Products are not
accompanied by warranty cards, the Division's then current warranty
applicable to those Products will apply.
B. PRODUCT MODIFICATION: If the Buyer modifies the Products, then the
limited warranty provided in 4.A above will be void and the Buyer
shall remove and retain or destroy the Division's Limited Warranty
Card accompanying the Products and remove the Sony trademarks from
such Products as well as all labels containing the serial number,
model number and FCC, DHHS and U.L. Registration and Certification
stickers.
C. PROOF OF PURCHASE: The Buyer's dated invoice must be retained as
evidence of the date of purchase and to establish warranty
eligibility.
D. DISCLAIMER OF WARRANTY: EXCEPT FOR THE FOREGOING WARRANTIES, THE
DIVISION HEREBY DISCLAIMS AND EXCLUDES ALL OTHER WARRANTIES, EXPRESS
OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY AND/OR ALL IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
THE DIVISION HEREBY DISCLAIMS ANY REPRESENTATIONS OR WARRANTY THAT
THE PRODUCTS ARE COMPATIBLE WITH ANY COMBINATION OF NON-SONY
PRODUCTS THE BUYER MAY CHOOSE TO CONNECT TO THE PRODUCTS.
6. CUSTOMERS: Buyer may resell the Products in the Systems to all
classes of unaffiliated purchasers. If applicable, the Customer may be further
described by the following Market Segment:
Bona fide end users in the medical field or bona fide buying groups
purchasing the Products for or on behalf of their members who are
themselves such bona fide end users.
7. MINIMUM PURCHASE REQUIREMENT (MPR): The Buyer's MPR for the
Medical Systems Products is $40,000 per year of Medical Systems Products.
8. ADVERTISING: The Buyer shall only advertise the Product as part of a
System and shall not advertise the Products as stand-alone models.
<PAGE>
EXHIBIT 10.25
PROMISSORY NOTE
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, LLC, acknowledges indebtedness to
BOSTON MARKETING COMPANY, LTD., in the amount of $95,000 and $30,000 in U.S.
dollars. The undersigned promises to pay to the order of the holder the
principal amount, together with interest thereon from the date of this Note at
the rate of six percent (6%) per year due and payable in 180 days.
This agreement shall be governed, interpreted and enforced in accordance
with and subject to the laws of the State of California.
\s\ Robert H. Gurevitch
- --------------------------------------------------------------------------
Robert H. Gurevitch Date
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, LLC
- --------------------------------------------------------------------------
Hiroki Umezaki Date
BOSTON MARKETING COMPANY, LTD
<PAGE>
EXHIBIT 10.26
PROMISSORY NOTE
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, LLC, acknowledges indebtedness to BOSTON
MARKETING COMPANY, LTD., in the amount of $75,000 in U.S. dollars. The
undersigned promises to pay to the order of the holder the principal amount,
together with interest thereon from the date of this Note at the rate of six
percent (6%) per year due and payable in 180 days.
This agreement shall be governed, interpreted and enforced in accordance
with and subject to the laws of the State of California.
\s\ Robert H. Gurevitch 2-15-96
- --------------------------------------------------------------------------
Robert H. Gurevitch Date
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, LLC
\s\ Hiroki Umezaki 2-15-96
- --------------------------------------------------------------------------
Hiroki Umezaki Date
BOSTON MARKETING COMPANY, LTD.
<PAGE>
EXHIBIT 10.27
PROMISSORY NOTE
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, LLC, acknowledges indebtedness to
BOSTON MARKETING COMPANY, LTD., in the amount of $25,000 in U.S. dollars. The
undersigned promises to pay to the order of the holder the principal amount,
together with interest thereon from the date of this Note at the rate of six
percent (6%) per year due and payable in 180 days.
This agreement shall be governed, interpreted and enforced in accordance
with and subject to the laws of the State of California.
\s\ Robert H. Gurevitch 4-11-96
- --------------------------------------------------------------------------
Robert H. Gurevitch Date
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, LLC
\s\ Hiroki Umezaki 4-11-96
- --------------------------------------------------------------------------
Hiroki Umezaki Date
BOSTON MARKETING COMPANY, LTD.
<PAGE>
EXHIBIT 10.28
EXTENSION OF PROMISSORY NOTES
This EXTENSION OF PROMISSORY NOTES (this "NOTES EXTENSION") is made and
entered into as of November 25, 1996 by and between EDUDATA CORPORATION, a
Delaware corporation ("EDUDATA"), and BOSTON MARKETING COMPANY, LTD., a Japanese
corporation ("LENDER").
RECITALS
WHEREAS, EDUDATA has acquired all assets and liabilities of Dental/
Medical Diagnostic Systems, LLC, a California limited liability company ("DMD"),
including (i) that certain Promissory Note, dated as of February 1, 1996 (the
"FEBRUARY 1ST NOTE"), (ii) that certain Promissory Note, dated as of February
15, 1996 (the "FEBRUARY 15TH NOTE") and (iii) that certain Promissory Note,
dated as of April 11, 1996 (the "APRIL NOTE"), each of which are by and between
DMD and the Lender, in an aggregate principal amount totalling US$225,000 (the
February 1st Note, the February 15th Note and the April Note, collectively, are
the "PROMISSORY NOTES") which Promissory Notes had original maturity dates, for
the payment by DMD of principal and interest respectively due Lender thereunder,
of August 1, 1996 for the February 1st Note, August 15, 1996 for the February
15th Note, and October 11, 1996 for the April Note (collectively, the "ORIGINAL
PAYMENT DATES"); and
WHEREAS, DMD and Lender have previously agreed to extend the respective
Original Payment Dates until the date hereof (the "PAYMENT DATE"); and
WHEREAS, EDUDATA and Lender each now wish to provide for an extension
the Payment Date as hereinafter provided;
NOW THEREFORE, in consideration of the foregoing premises and the mutual
agreements contained herein, and for other good and valuable consideration the
sufficiency of which is hereby acknowledged by the parties hereto, and subject
to the conditions contained herein, EDUDATA and Lender agree as follows:
1. Extension of the Payment Date of Promissory Notes. The Payment
Date shall be extended, until the earlier to occur of the following:
(a) twenty-four (24) months following the closing of that certain
$1.6 Million bridge loan transaction currently being negotiated by EDUDATA and
M.H. Meyerson & Company, as placement agent (the "BRIDGE LOAN"); or
<PAGE>
(b) the repayment in full of the entire principal amount of and all
interest due under those certain Secured Convertible Promissory Notes in the
original principal amount of $1.6 Million which are to be issued in connection
with the Bridge Loan; or
(c) at such time as EDUDATA receives the proceeds from an
underwritten public offering of its Common Stock.
2. Full Force and Effect of Promissory Notes. Other than the
changes mandated in Paragraph 1 of this Notes Extension, all of the terms and
conditions of the respective Promissory Notes shall remain in full force and
effect.
3. Miscellaneous.
(a) Notices. All notices, requests and other communications
(collectively, "NOTICES") given pursuant to this Notes Extension shall be in
writing, and shall be delivered by personal service or by United States first
class, registered or certified mail (return receipt requested), postage prepaid,
addressed to the party at the address set forth below:
If to EDUDATA:
EDUDATA CORPORATION
200 North Westlake Boulevard, Suite 202
Westlake Village, California 91362
Attn: Chief Financial Officer
Telephone: (805) 381-2700
Fax: (805) 374-1966
If to Lender:
BOSTON MARKETING COMPANY, LTD.
1545 Wilshire Boulevard, #504
Los Angeles, CA 90017
Telephone: ( )
Fax: (213) 413-6052
Any Notice shall be deemed duly given when received by the addressee thereof,
provided that any Notice sent by registered or certified mail shall be deemed to
have been duly given three days from date of deposit in the United States mails,
unless sooner received. Either party may from time to time change its address
for further Notices hereunder by giving notice to the other party in the manner
prescribed in this section.
<PAGE>
(b) Governing Law. THIS NOTES EXTENSION SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD
TO CONFLICTS OF LAW PRINCIPLES THEREOF.
(c) Captions. The various captions of this Notes Extension are for
reference only and shall not be considered or referred to in resolving questions
of interpretation of this Notes Extension.
(d) Successors and Assigns. This Notes Extension, and all obligations
and benefits of Lender and EDUDATA hereunder, shall bind and inure to the
benefit of Lender and EDUDATA, their respective affiliates, and their respective
successors and assigns. Conversely, no assignment of this Notes Extension, of
any of the rights and/or duties hereunder by any party hereto shall be valid
without the prior written consent of the other party.
(e) Amendments and Waivers. No amendment or waiver of any term or
provision of this Notes Extension shall be effective unless made in writing. Any
written amendment or waiver shall be effective only in the instance given and
then only with respect to the specific term or provision (or portion thereof) of
this Notes Extension to which it expressly relates, and shall not be deemed or
construed to constitute a waiver of any other term or provision (or portion
thereof) waived in any other instance.
(f) Counterparts. This Notes Extension may be executed in one or more
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
(g) Entire Agreement. This Notes Extension, when signed by the
authorized representatives of all parties hereto, shall constitute the only
agreement among them with respect to the Promissory Notes and shall supersede
all prior agreements.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Notes Extension as of
the date and year first above written.
EDUDATA:
EDUDATA CORPORATION,
a Delaware corporation
By: [SIG]
----------------------------------------
Its:
----------------------------------------
LENDER:
BOSTON MARKETING COMPANY, LTD., a
Japanese corporation
By:
----------------------------------------
Its:
----------------------------------------
<PAGE>
EXHIBIT 10.29
PROMISSORY NOTE
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, LLC., acknowledges indebtedness to
ROBERT H. GUREVITCH, in the amount of $75,000 and $50,000 in U.S. dollars. The
undersigned promises to pay to the order of the holder the principal amount,
together with interest thereon from the date of this Note at the rate of six
percent (6%) per year due and payable in 180 days.
This agreement shall be governed, interpreted and enforced in accordance
with and subject to the laws of the State of California.
/s/ Robert H. Gurevitch
- ----------------------------------------------------------------------
ROBERT H. GUREVITCH Date
- ----------------------------------------------------------------------
HIROKI UMEZAKI Date
<PAGE>
EXHIBIT 10.30
PROMISSORY NOTE
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, LLC., acknowledges indebtedness to
ROBERT H. GUREVITCH, in the amount of $75,000 in U.S. dollars. The undersigned
promises to pay to the order of the holder the principal amount, together with
interest thereon from the date of this Note at the rate of six percent (6%) per
year due and payable in 180 days.
This agreement shall be governed, interpreted and enforced in accordance
with and subject to the laws of the State of California.
/s/ Robert H. Gurevitch 2-15-96
- ----------------------------------------------------------------------
ROBERT H. GUREVITCH Date
/s/ Hiroki Umezaki 2-15-96
- ----------------------------------------------------------------------
HIROKI UMEZAKI Date
<PAGE>
EXHIBIT 10.31
EXTENSION OF PROMISSORY NOTES
This EXTENSION OF PROMISSORY NOTES (this "NOTES EXTENSION") is made and
entered into as of November 25, 1996 by and between EDUDATA CORPORATION, a
Delaware corporation ("EDUDATA"), and Robert H. Gurevitch ("LENDER").
RECITALS
WHEREAS, EDUDATA has acquired all assets and liabilities of Dental/
Medical Diagnostic Systems, LLC, a California limited liability company ("DMD"),
including (i) that certain Promissory Note, dated as of February 1, 1996 (the
"FEBRUARY 1ST NOTE") and (ii) that certain Promissory Note, dated as of February
15, 1996 (the "FEBRUARY 15TH NOTE") each of which are by and between DMD and the
Lender, in an aggregate principal amount totalling US$200,000 (the February 1st
Note and the February 15th Note, collectively, are the "PROMISSORY NOTES") which
Promissory Notes had original maturity dates, for the payment by DMD of
principal and interest respectively due Lender thereunder, of August 1, 1996 for
the February 1st Note, and August 15, 1996 for the February 15th Note
(collectively, the "ORIGINAL PAYMENT DATES"); and
WHEREAS, DMD and Lender have previously agreed to extend the respective
Original Payment Dates until the date hereof (the "PAYMENT DATE"); and
WHEREAS, EDUDATA and Lender each now wish to provide for an extension
the Payment Date as hereinafter provided;
NOW THEREFORE, in consideration of the foregoing premises and the mutual
agreements contained herein, and for other good and valuable consideration the
sufficiency of which is hereby acknowledged by the parties hereto, and subject
to the conditions contained herein, EDUDATA and Lender agree as follows:
1. Extension of the Payment Date of Promissory Notes. The Payment
Date shall be extended, until the earlier to occur of the following:
(a) twenty-four (24) months following the closing of that certain
$1.6 Million bridge loan transaction currently being negotiated by EDUDATA and
M.H. Meyerson & Company, as placement agent (the "BRIDGE LOAN"); or
(b) the repayment in full of the entire principal amount of and all
interest due under those certain Secured Convertible Promissory Notes in the
original principal amount of $1.6 Million which are to be issued in connection
with the Bridge Loan; or
<PAGE>
(c) at such time as EDUDATA receives the proceeds from an
underwritten public offering of its Common Stock.
2. Full Force and Effect of Promissory Notes. Other than the
changes mandated in Paragraph 1 of this Notes Extension, all of the terms and
conditions of the respective Promissory Notes shall remain in full force and
effect.
3. Miscellaneous.
(a) Notices. All notices, requests and other communications
(collectively, "NOTICES") given pursuant to this Notes Extension shall be in
writing, and shall be delivered by personal service or by United States first
class, registered or certified mail (return receipt requested), postage prepaid,
addressed to the party at the address set forth below:
If to EDUDATA:
EDUDATA CORPORATION
200 North Westlake Boulevard, Suite 202
Westlake Village, California 91362
Attn: Chief Financial Officer
Telephone: (805) 381-2700
Fax: (805) 374-1966
If to Lender:
Robert H. Gurevitch
--------------------------
--------------------------
Telephone: ( )
Fax: ( )
Any Notice shall be deemed duly given when received by the addressee thereof,
provided that any Notice sent by registered or certified mail shall be deemed to
have been duly given three days from date of deposit in the United States mails,
unless sooner received. Either party may from time to time change its address
for further Notices hereunder by giving notice to the other party in the manner
prescribed in this section.
(b) Governing Law. THIS NOTES EXTENSION SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD
TO CONFLICTS OF LAW PRINCIPLES THEREOF.
<PAGE>
(c) Captions. The various captions of this Notes Extension are for
reference only and shall not be considered or referred to in resolving questions
of interpretation of this Notes Extension.
(d) Successors and Assigns. This Notes Extension, and all obligations
and benefits of Lender and EDUDATA hereunder, shall bind and inure to the
benefit of Lender and EDUDATA, their respective affiliates, and their respective
successors and assigns. Conversely, no assignment of this Notes Extension, of
any of the rights and/or duties hereunder by any party hereto shall be valid
without the prior written consent of the other party.
(e) Amendments and Waivers. No amendment or waiver of any term or
provision of this Notes Extension shall be effective unless made in writing. Any
written amendment or waiver shall be effective only in the instance given and
then only with respect to the specific term or provision (or portion thereof) of
this Notes Extension to which it expressly relates, and shall not be deemed or
construed to constitute a waiver of any other term or provision (or portion
thereof) waived in any other instance.
(f) Counterparts. This Notes Extension may be executed in one or more
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
(g) Entire Agreement. This Notes Extension, when signed by the
authorized representatives of all parties hereto, shall constitute the only
agreement among them with respect to the Promissory Notes and shall supersede
all prior agreements.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Notes Extension as of
the date and year first above written.
EDUDATA:
EDUDATA CORPORATION,
a Delaware corporation
By: /s/ Robert H. Gurevitch
----------------------------------
Its:
----------------------------------
LENDER:
ROBERT H. GUREVITCH
/s/ Robert H. Gurevitch
--------------------------------------
<PAGE>
EXHIBIT 10.32
STANDARD OFFICE LEASE
1. BASIC LEASE PROVISIONS ("Basic Lease Provisions").
1.1 PARTIES: This Lease, dated, for reference purposes only,
October 30, 1995, is made by and between John Hancock Mutual Life Insurance
- -----------
Company, a Massachusetts corporation (herein called "Lessor"), and Medical
-------
Diagnostic Systems, L.L.C., a California corporation (herein called "Lessee").
- ----------------------------------------------------
1.2 PREMISES: Suite Number 202, consisting of approximately 3,854
---
rentable square feet, more or less, as defined in paragraph 2 and as shown on
Exhibit "A" hereto (the "Premises").
1.3 BUILDING: Commonly described as being located at 200 N.
Westlake Boulevard, in the City of Thousand Oaks, County of Ventura, State of
California, as more particularly described in Exhibit "B" hereto, and as
defined in paragraph 2.
1.4 PERMITTED USE: Office, subject to paragraph 6.
1.5 TERM: five (5) years commencing November 15, 1995
--------
("Commencement Date") and ending November 14, 2000 (the "Expiration Date"), as
-----------------
set forth in paragraph 3.
1.6 BASE RENT: $ see section 4.3.4. per rentable square foot per
-----------------
month, or $ see section 4.3.4. per month, payable on the 1st day of each month,
-----------------
in advance, per paragraph 4.1.
1.7 BASE RENT INCREASE: On see section 4.3.4., the monthly Base
-----------------
Rent payable under paragraph 1.6 above shall be adjusted.
1.8 RENT PAID UPON EXECUTION: Five Thousand Five Hundred Eighty
---------------------------------
Eight and 30/100 Dollars ($5,588.30) for first month's rent.
- ------------------------------------ ------------------
1.9 SECURITY DEPOSIT: Six Thousand Three Hundred Fifty Nine and
-----------------------------------------
10/100 Dollars ($6,359.10).
- --------------------------
1.10 LESSEE'S SHARE OF OPERATING EXPENSES: 9.75% as defined in
----
paragraph 4.2.
1.11 EXPENSE BASE YEAR: 1996 as defined in paragraph 4.2.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 PREMISES: The Premises are a portion of a building, herein
sometimes referred to as the "Building" identified in paragraph 1.3 of the
Basic Lease Provisions. "Building" shall include adjacent parking structures
used in connection therewith. The Premises, the Building, the Common Areas,
the land upon which the same are located, along with all other buildings and
improvements thereon or thereunder, are herein collectively referred to as the
"Office Building Project." Lessor hereby leases to Lessee and Lessee leases
from Lessor for the term, at the rental, and upon all of the conditions set
forth herein, the real property referred to in the Basic Lease Provisions,
paragraph 1.2, as the "Premises," including rights to the Common Areas as
hereinafter specified.
2.2 VEHICLE PARKING: So long as Lessee is not in default, and
subject to the rules and regulations attached hereto as Exhibit B, and as
established by Lessor from time to time Lessee shall be entitled to rent and
use up to fifteen (15) parking spaces in the Office Building Project at the
------------
monthly rate applicable from time to time for monthly parking as set by lessor
and/or its licensee.
2.2.1 If Lessee commits, permits or allows any of the
prohibited activities, described in the Lease or the rules then in effect, then
Lessor shall have the right, without notice, in addition to such other rights
and remedies that it may have, to remove or tow away the vehicle involved and
charge the cost to Lessee, which cost shall be immediately payable upon demand
by Lessor.
2.2.2 The monthly parking rate per parking space will be $0.00
-----
per month the term of this Lease. Notwithstanding anything to the contrary
contained herein, any tax imposed on the privilege of occupying space in the
parking facility, upon the revenues received by Lessor from the parking
facility or upon the charges paid for the privilege of using the parking
facility by any governmental or quasi-governmental entity may be added by Lessor
to the monthly parking charges paid by Lessee at any time, or Lessor may
require Lessee and other persons using the parking facility to pay said amounts
directly to the taxing authority.
2.2.3 Lessor agrees to conditionally waive all parking charges
for the first twenty-four (24) calendar months of the Lease term. No amounts
due to Lessor under the Lease other than the parking charges referred to above
shall be conditionally waived. In the event Lessee commits a default, as
defined in Section 13 of the Lease, the parking charges coming due thereafter
shall not be waived, and all parking charges that Lessor conditionally waived in
the past shall be immediately due and payable by Lessee to Lessor. If the Lease
expires in accordance with its terms and does not terminate as a result of a
default by Lessee, Lessor agrees to permanently waive the parking charges it has
conditionally waived. Beginning month nineteen (19) the parking rate shall be
at the ten prevailing building rate.
2.3 COMMON AREAS - DEFINITION. The term "Common Areas" is defined
as all areas and facilities outside the Premises and within the exterior
boundary line of the Office Building Project that are
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provided and designated by the Lessor from time to time for the general
non-exclusive use of Lessor, Lessee and of other lessees of the Office Building
Project and their respective employees, suppliers, shippers, customers and
invitees, including, but not limited to, common entrances, lobbies, corridors,
stairways and stairwells, public restrooms, elevators, escalators, parking areas
to the extent not otherwise prohibited by this Lease, loading and unloading
areas, trash areas, roadways, sidewalks, walkways, parkways, ramps, driveways,
landscaped areas and decorative walls.
2.4 COMMON AREAS - RULES AND REGULATIONS. Lessee agrees to abide by
and conform to the rules and regulations attached hereto as Exhibit B with
respect to the Office Building Project and Common Areas, and to cause its
employees, suppliers, shippers, customers, and invitees to so abide and conform.
Lessor or such other person(s) as Lessor may appoint shall have the exclusive
control and management of the Common Areas and shall have the right, from time
to time, to modify, amend and enforce said rules and regulations. Lessor shall
not be responsible to Lessee for the non-compliance with said rules and
regulations by other lessees, their agents, employees and invitees of the Office
Building Project.
2.5 COMMON AREAS - CHANGES. Lessor shall have the right, in Lessor's
sole discretion, from time to time:
(a) To make changes to the Building interior and exterior and
Common Areas, including, without limitation, changes in the location, size,
shape, number and appearance thereof, including but not limited to the lobbies,
windows, stairways, air shafts, elevators, escalators, restrooms, driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, discretion of traffic, decorative walls, landscaped areas and walkways;
provided, however, Lessor shall at all times provide the parking facilities
required by applicable law;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land and improvements outside the
boundaries of the Office Building Project to be a part of the Common Areas,
provided that such other land and improvements have a reasonable and functional
relationship to the Office Building Project;
(d) To add additional buildings and improvements to the
Common Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Office Building Project, or any
portion hereof;
(f) To do and perform such other acts and make such other changes
in, to or with respect to the Common Areas and Office Building Project as Lessor
may, in the exercise of sound business judgment deem to be appropriate.
3. TERM.
3.1 TERM. The term and Commencement Date of this Lease shall be as
specified in paragraph 1.5 of the Basic Lease Provisions.
3.2 DELAY IN POSSESSION. Notwithstanding said Commencement Date, if
for any reason Lessor cannot deliver possession of the Premises to Lessee in the
condition called for by the work letter of even date herewith being entered into
by and between Lessor and Lessee, a copy of which is attached hereto as Exhibit
C (the "Work Letter"), on said date and subject to paragraph 3.2.2, Lessor shall
not be subject to any liability therefor, nor shall such failure affect the
validity of this Lease or the obligations of Lessee hereunder or extend the term
hereof; but in such case, Lessee shall not be obligated to pay rent or perform
any other obligation of Lessee under the terms of this Lease, except as may be
otherwise provided in his Lease, until possession of the Premises is tendered to
Lessee, as hereinafter defined.
3.2.1 POSSESSION TENDERED - DEFINED. Possession of the Premises
shall be deemed tendered to Lessee ("Tender of Possession") when (1) the
improvements to be provided by Lessor under this Lease and the Work Letter are
substantially completed, (2) the Building utilities are ready for use in the
Premises, (3) Lessee has reasonable access to the Premises, and (4) ten (10)
days shall have expired following advance written notice to Lessee of the
occurrence of the matters described in (1), (2) and (3), above of this paragraph
3.2.1.
3.2.2 DELAYS CAUSED BY LESSEE. There shall be no abatement of
rent, to the extent of any delays caused by acts or omissions of Lessee, its
agents, employees and contractors.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said
Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not change the termination date, and Lessee shall
pay rent of such occupancy.
3.4 UNCERTAIN COMMENCEMENT. In the event commencement of the Lease
term is defined as the completion of the improvements, Lessee and Lessor shall,
upon request by Lessor, execute an amendment to this Lease establishing the date
of Tender Possession (as defined in paragraph 3.2.1) or the actual taking of
possession by Lessee, whichever first occurs, as the Commencement Date.
4. RENT.
4.1 BASE RENT. Subject to adjustment as hereinafter provided in
paragraph 4.8, and except as may be otherwise expressly provided in this Lease,
Lessee shall pay to Lessor the Base Rent for the Premises set forth in paragraph
1.6 of the Basic Lease Provisions, without offset or deduction. Lessee shall pay
Lessor upon execution hereof the advance Base Rent described in paragraph 1.8 of
the Basic Lease Provisions. Rent for any period during the term hereof which is
for less than one month shall be prorated based upon the actual number of days
of the calendar month involved. Rent shall be payable in lawful money of the
United States to Lessor at the address stated herein or to such other persons or
at such other places as Lessor may designate in writing.
4.2 OPERATING EXPENSES. Lessee shall pay to Lessor during the term
hereof, in addition to the Base Rent, Lessee's Share, as hereinafter defined, of
all Operating Expenses, as hereinafter defined, during each calendar year of the
term of this Lease, in accordance with the following provisions:
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(a) "Lessee's Share" is defined, for purposes of this Lease, as
the percentage set forth in paragraph 1.10 of the Basic Lease Provisions, which
percentage has been determined by dividing the approximate square footage of the
Premises by the total approximate square footage of the rentable space contained
in the Office Building Project. It is under stood and agreed that the square
footage figures set forth in the Basic Lease Provisions are approximations which
Lessor and Lessee agree are reasonable and shall not be subject to revision
except in connection with an actual change in the size of the Premises or a
change in the space available for lease in the Office Building Project. It is
further agreed that Lessee shall in no event be entitled to a credit to or
adjustment of Lessee's Share of Operating Expenses payable hereunder, even if
the ratio of Operating Expenses actually paid by Lessee compared to total
Operating Expenses actually paid by other lessees of the Office Building Project
exceeds Lessee's Share (as if might, by way of example only and not limitation,
if some leases of the Office Building Project are made on a "gross" basis, in
which case the lessees under such leases would not directly pay any portion of
the Operating Expenses).
"Comparison Year" is defined as each calendar year during the
term of the Lease subsequent to the Base Year. Operating expenses shall be based
on 95% occupancy level with the building fully assessed for real estate tax
purposes.
(b) "Operating Expenses" is defined, for purposes of the Lease,
to include all costs, it any, incurred by Lessor in the exercise of its
reasonable discretion, for: Tenant shall not be responsible for any increase in
real estate taxes due to a transfer, sale or refinancing of the property during
the first thirty six (36) months of the Lease Term.
(i) The operation, repair, maintenance and replacement, in
neat, clean, safe, good order and condition, of the Office Building Project,
including, but not limited to, the following:
(aa) The common areas, including their surfaces, coverings,
decorative items, carpet, drapes, and window coverings and including parking
areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways,
stairways, parkways, driveways, landscape areas, striping bumpers, irrigations
systems, Common Area lighting facilities, building exteriors and roofs, fences
and gates.
(bb) All heating, air conditioning, plumbing, electrical
systems, life safety equipment, telecommunication and other equipment used in
common by, or for benefit of, lessees or occupants of the Office Building
Project, including elevators, and escalators. Lessee directories, fire detection
systems including sprinkler systems maintenance and repair.
(ii) Trash disposal, janitorial and security services;
(iii) Any other service to be provided by Lessor that is
elsewhere in this Lease stated to be an "Operating Expense";
(iv) The cost of the premiums for the liability and property
insurance policies to be maintained by Lessor under paragraph 8 hereof.
(v) The amount of the real property taxes to be paid by Lessor
under paragraph 10.0 hereof;
(vi) The cost of water, sewer, gas, electricity and other
publicly mandated services to the Office Building Project;
(vii) Labor, salaries and applicable fringe benefits and costs,
materials, supplies, and tools, used in maintaining and/or cleaning the Office
Building Project and accounting and a management fee attributable to the
operation of the Office Building Project.
(viii) Replacing and/or adding improvements mandated by any
governmental agency and any repairs or removals necessitated thereby amortized
over its useful life according to Federal income tax regulations or guidelines
for depreciation thereof (including interest on unamortized balance as is then
reasonable in the judgment of Lessor's accountants);
(ix) Replacements of equipment or improvements as amortized over
such equipment or improvement's useful life for depreciation purposes according
to federal income tax guidelines.
(x) Environmental Damages (as hereinafter defined) to the extent
not recovered by such Lessor directly from any lessees of the Office Building
Project.
(c) Operating expenses shall not include any expenses paid by any
lessee directly to third parties, or as to which Lessor is otherwise reimbursed
by any third party, other lease, or by
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insurance proceeds.
(d) Lessee's Share of Operating Expenses shall be payable within
ten (10) days after a reasonably detailed statement of actual expenses is
presented to Lessee by Lessor. At Lessor's option, however, an amount may be
estimated by Lessor from time to time of Lessee's Share of annual Operation
Expenses and the same shall be payable monthly or quarterly, as Lessor shall
designate, during each calendar year of the Lease term, on the same day as Base
rent is due hereunder. In the event that Lessee pays Lessor's estimate of
Lessee's Share of Operating Expenses as aforesaid, Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of Operating Expenses
incurred during the preceding year. If Lessee's payments under this paragraph
4.2 (e) during said proceeding calendar year exceed Lessee's Share as indicated
on said statement, Lessee shall be entitled to credit the amount of such
overpayment against Lessee Share of Operating Expenses next falling due. If
Lessee payments under this paragraph during said proceeding calendar year were
less that Lessee's Share as indicated on the statement, Lessee shall pay to
Lessor the amount of deficiency within ten (10) days after delivery by Lessor
to Lessee of said statement.
4.3 Rent Increases.
4.3.4 The monthly Base Rent under the Lessee shall as of the
dates specified below, be increased to the following amounts:
<TABLE>
Date Revised Monthly Base Rent
- ---- -------------------------
<S> <C>
11/15/96 $1.50 rsf / $5,781.00
- -------- ---------------------
11/15/97 $1.60 rsf / $6,166.40
- -------- ---------------------
11/15/99 $1.65 rsf / $6.359.10
- -------- ---------------------
- -------- ---------------------
</TABLE>
4.3.5 Lessee shall continue to pay rent at the rate previously
in effect until the increase, if any, is determined. Within five (5) days
following the date on which the increase is determined, Lessee shall make
payment to Lessor as will bring the increased rental current, commencing with
the effective date of such increase through the date of any rental installments
than due. Thereafter the rental shall be paid at the increased rate.
4.3.6 At such time as the amounts of any change in rental
required by this Lease is known or determined. Lessor and Lessee shall execute
setting forth such.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution
hereof the security deposit set forth in paragraph 1.9 of the Basic Lease
Provisions as security for Lessee's faithful performance of Lessee's obligations
hereunder. If Lessee fails to pay rent or other charges due hereunder, or
otherwise
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defaults with respect to any provision of this Lease, Lessor may use, apply or
retain all or any portion of said deposit for the payment of any rent or other
charge in default for the payment of any other sum to which Lessor may become
obligated by reason of Lessee's default, or to compensate Lessor for any loss or
damage which Lessor may suffer thereby. If Lessor so uses or applies all or any
portion of said deposit, Lessee shall within ten (10) days after written demand
therefor deposit cash with Lessor in an amount sufficient to restore said
deposit to the full amount then required of Lessee. If the monthly Base Rent
shall, from time to time, increase during the term of this Lease, Lessee shall,
at the time of such increase, deposit with Lessor additional money as a security
deposit so that the total amount of the security deposit held by Lessor shall at
all times bear the same proportion to the then current Base Rent as the initial
security deposit bears to the initial Base Rent set forth in paragraph 1.6 of
the Basic Lease Provisions, Lessor shall not be required to keep said security
deposit separate from its general accounts. If Lessee performs all of the
Lessee's obligations hereunder, said deposit, or so much thereof as has not
heretofore been applied by Lessor, shall be returned, without payment of
interest or other increment for its use, to Lessee (or, at Lessor's option, to
the last assignee, if any, of Lessee's interest hereunder) at the expiration of
the term hereof, and after Lessee has vacated the Premises. No trust
relationship is created herein between Lessor and Lessee with respect to said
Security Deposit, and under no circumstances shall Lessor be required to keep
the Security Deposit separate from its other funds or in an interest-bearing
account, nor shall Lessee be entitled to any interest on such amounts regardless
of whether or not the Security Deposit is deposited in an interest-bearing
account.
6. PERMITTED USE.
6.1 PERMITTED USE. The Premises shall be used and occupied only for
the purpose set forth in paragraph 1.4 of the Basic Lease Provisions and for no
other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor makes no representation or warranty to Lessee
regarding the condition of the Premises or with respect to whether or not the
Premises, or the use for which Lessee will occupy the Premises, will violate any
covenants or restrictions of record, or any applicable building code,
regulation, law or ordinance in effect on the Lease term Commencement Date or at
any other time.
(b) Lessee shall, at Lessee's expense, promptly comply with all
applicable statutes, ordinances, rules, regulations, orders, covenants and
restrictions of record, and requirements of any fire insurance underwriters or
rating bureaus, now in effect or which may hereafter come into effect, whether
or not they reflect a change in policy from that now existing, during the term
or any part of the term hereof, relating in any manner to the Premises and the
occupation and use by Lessee of the Premises. Lessee shall conduct its business
in a lawful manner and shall not use or permit the use of the Premises or the
Common Areas in any manner that will tend to create waste or a nuisance or shall
tend to disturb other occupants of the Office Building Project.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee on the Lease
Commencement Date (unless Lessee is already in possession), but makes no
representation or warranty regarding the condition of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby
accepts the Premises and the Office Building Project in their condition existing
as of the Lease Commencement Date or the date that Lessee takes possession of
the Premises, whichever is earlier, subject to all applicable zoning, municipal,
county and state laws, ordinances and regulations governing and regulating the
use of the Premises, and any easements, covenants or restrictions of record, and
accepts this Lease subject thereto and to all matters disclosed thereby and by
any exhibits attached hereto. Lessee acknowledges that it has satisfied itself
by its own independent investigation that the Premises are suitable for its
intended use, and that neither Lessor nor Lessor's agent or agents has made any
representation or warranty as to the present or future suitability of the
Premises, Common Areas, or Office Building Project for the conduct of Lessee's
business.
7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.
7.1 LESSOR'S OBLIGATIONS. Lessor shall keep the Office Building
Project, including the Premises, interior and exterior walls (but not the
interior walls within the Premises), roof, and Common Areas, in good condition
and repair provided, however, Lessor shall not be obligated to paint, repair or
replace wall coverings, or to repair or replace any improvements that are not
ordinarily a part of the Building or are above then Building standards. Except
as provided in paragraph 9.5, there shall be no abatement of rent or liability
of Lessee on account of any injury or interference with Lessee's business with
respect to any improvements, alterations or repairs made by Lessor to the Office
Building Project or any part thereof, or on account of any interruption of
services or of access to the Premises, Building or Office Building Project.
Lessee expressly waives the benefits of any statute now or hereafter in effect
which would otherwise afford Lessee the right to make repairs at Lessor's
expense or to terminate this Lease because of Lessor's failure to keep the
Premises in good order, condition and repair.
7.2 LESSEE'S OBLIGATIONS.
(a) Notwithstanding Lessor's obligation to keep the Premises in
good condition and repair, Lessee shall be responsible for payment of the cost
thereof to Lessor as additional rent for that portion of the cost of any
maintenance and repair of the Premises, or any equipment (wherever located) that
serves only Lessee or the Premises, to the extent such cost is attributable to
causes beyond normal wear and tear. Lessee shall be responsible for the cost of
painting, repairing or replacing wall coverings, and to repair or replace any
Premises improvements that are not ordinarily a part of the Building or that are
above then Building standards. Lessor may, at its option, upon reasonable
notice, elect to have Lessor perform any particular such maintenance or repairs
the cost of which is otherwise Lessee's responsibility hereunder.
(b) On the last day of the term hereof, or on any sooner
termination, Lessee shall
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surrender the Premises to Lessor in the same condition as received, ordinary
wear and tear excepted, clean and free of debris. Any damage or deterioration of
the Premises shall not be deemed ordinary wear and tear if the same could have
been prevented by good maintenance practices by Lessee. Lessee shall repair any
damage to the Premises occasioned by the installation or removal of Lessee's
trade fixtures, alterations. furnishings and equipment. Except as otherwise
stated in this Lease, Lessee shall leave the air lines, power panels, electrical
distribution systems, lighting fixtures, air conditioning, window coverings,
wall coverings, carpets, wall paneling, ceilings and plumbing on the Premises
and in good operating condition.
7.3 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessors prior written consent make
any alterations, improvements additions, Utility Installations or repairs in, on
or about the Premises, or the Office Building Project. As used in this paragraph
7.3 the term "Utility Installation" shall mean carpeting, window and wall
coverings, power panels, electrical distribution systems, lighting fixtures, air
conditioning, plumbing, and telephone and telecommunication wiring and
equipment. At the expiration of the term, Lessor may require the removal of any
or all of said alterations, improvements, additions or Utility Installations,
and the restoration of the Premises and the Office Building Project to their
prior condition, at Lessee's expense. Should Lessor permit Lessee to make its
own alterations, improvements, additions or Utility Installations, Lessee shall
use only such contractor as has been expressly approved by Lessor, and Lessor
may require Lessee to provide Lessor, at Lessee's sole cost and expense, a lien
and completion bond in an amount equal to one and one-half times the estimated
cost of such improvements, to insure Lessor against any liability for mechanic's
and materialmen's liens and to insure completion of the work. Should Lessee make
any alterations, improvements, additions or Utility Installations without the
prior approval of Lessor, or use a contractor not expressly approved by Lessor,
Lessor may, at any time during the term of this Lease, require that Lessee
remove any part or all of the same.
(b) Any alterations, improvements, additions or Utility
Installations in or about the Premises or the Office Building Project that
Lessee shall desire to make shall be presented to Lessor in written form, with
proposed detailed plans. If Lessor shall give its consent to Lessee's making
such alteration, improvement, addition or Utility Installation, the consent
shall be deemed conditioned upon Lessee acquiring a permit to do so from the
applicable governmental agencies, furnishing a copy thereof to Lessor prior to
the commencement of the work, and compliance by Lessee with all conditions of
said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use in the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, the Building or the Office Building
Project, or any interest therein.
(d) Lessee shall give Lessor not less than ten (10) days' notice
prior to the commencement of any work in the Premises by Lessee, and Lessor
shall have the right to post notices of non-responsibility in or on the Premises
or the Building as provided by law. Lessee shall at all times keep the Premises,
the Building and the Office Building Project free and clear of liens
attributable in any way to a work of improvement commissioned by Lessee, or to
the acts or omissions of Lessee, any of Lessee's employees, agents, or
contractors, or any of their employees, agents or sub-contractors. If Lessee
shall, in good faith, contest the validity of any such lien, claim or demand,
then Lessee shall, at its sole expense defend itself and Lessor against the same
and shall pay and satisfy any such adverse judgment that may be rendered thereon
before the enforcement thereof against Lessor or the Premises, the Building or
the Office Building Project, upon the condition that if Lessor shall require,
Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount
not less than one hundred fifty percent (150%) of the amount of such contested
lien claim or demand indemnifying Lessor against liability for the same and
holding the Premises, the Building and the Office Building Project free from the
effect of such lien or claim. In addition, Lessor may require Lessee to pay
Lessor's reasonable attorneys' fees and costs in participating in such action if
Lessor shall decide it is to Lessor's best interest so to do.
(e) All alterations, improvements, additions and Utility
installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made to the Premises by Lessee, including but
not limited to, floor coverings, panelings, doors, drapes, built-ins, moldings,
sound attenuation, and lighting and telephone or communication systems, conduit,
wiring and outlets, shall be made and done in a good and workmanlike manner and
of good and sufficient quality and materials and shall be the property of Lessor
and remain upon and be surrendered with the Premises at the expiration of the
lease term, unless Lessor requires their removal pursuant to paragraph 7.3(a).
Provided Lessee is not in default, notwithstanding the provisions of this
paragraph 7.3(e), Lessee's personal property and equipment, other than that
which is affixed to the Premises so that it cannot be removed without material
damage to the Premises or the Building, and other than Utility Installations,
shall remain the property of Lessee and may be removed by Lessee subject to the
provisions of paragraph 7.2.
(f) Lessee shall provide Lessor with as-built plans and
specifications for any alterations, improvements, additions or Utility
Installations.
7.4 UTILITY ADDITIONS. Lessor reserves the right to install new or
additional utility facilities throughout the Office Building Project for the
benefit of Lessor or Lessee, or any other lessee of the Office Building Project,
including, but not by way of limitation, such utilities as plumbing, electrical
systems, security systems, communication systems, and fire protection and
detection systems, so long as such installations do not unreasonably interfere
with Lessee's use of the Premises.
8. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE-LESSEE. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease a policy of Comprehensive
General Liability insurance utilizing an Insurance Services Office standard form
with Broad Form General Liability Endorsement (GL0404), or
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equivalent, in an amount of not less than $2,000,000 per occurrence of bodily
injury and property damage combined or in a greater amount as reasonably
determined by Lessor and shall insure Lessee with Lessor and any mortgagee of
which Lessee has been provided notice as additional insureds against liability
arising out of the use, occupancy or maintenance of the Premises. Compliance
with the above requirement shall not, however, limit the liability of Lessee
hereunder.
8.2 LIABILITY INSURANCE-LESSOR. Although Lessor shall not be required
to maintain any liability insurance, any premiums for liability insurance
maintained by Lessor relating to the Premises, the Building or the Office
Building Project shall be Operating Expenses hereunder.
8.3 PROPERTY INSURANCE-LESSEE. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease for the benefit of
Lessee, replacement cost all-risks insurance, including without limitation fire
and extended coverage insurance, with vandalism and malicious mischief,
sprinkler leakage and earthquake sprinkler leakage endorsements, in an amount
sufficient to cover not less than 100% of the full replacement costs, as the
same may exist from time to time, of all of Lessee's personal property,
fixtures, equipment and tenant improvements.
8.4 PROPERTY INSURANCE-LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies of insurance covering loss or
damage to the Office Building Project improvements, but not Lessee's personal
property, fixtures, equipment or tenant improvements, in the amount of the full
replacement cost thereof, as the same may exist from time to time, utilizing
Insurance Services Office standard form, or equivalent providing protection
against all perils included within the classification of fire, extended
coverage, vandalism, malicious mischief, plate glass, and such other perils as
Lessor deems advisable or may be required by a lender having a lien on the
Office Building Project. In addition, Lessor shall obtain and keep in force,
during the term of this Lease, a policy of rental value insurance covering a
period of one year, with loss payable to Lessor, which insurance shall also
cover all Operating Expenses for said period. Lessee will not be named in any
such policies carried by Lessor and shall have no right to any proceeds
therefrom. The policies required by these paragraphs 8.2 and 8.4 shall contain
such deductibles as Lessor or the aforesaid lender may determine. In the event
that the Premises shall suffer an insured loss as defined in paragraph 9.1(f)
hereof, the deductible amounts under the applicable insurance policies shall be
deemed an Operating Expense. Lessee shall not do or permit to be done anything
which shall invalidate the insurance policies carried by Lessor. Lessee shall
pay the entirety of any increase in the property insurance premium for the
Office Building Project over what it was immediately prior to the commencement
of the term of this Lease if the increase is specified by Lessor's insurance
carrier as being caused by the nature of Lessee's occupancy or any act or
omission of Lessee.
8.5 INSURANCE POLICIES. Lessee shall deliver to Lessor copies
of liability insurance policies required under paragraph 8.1 or certificates
evidencing the existence and amounts of such insurance within seven (7) days
after the Commencement Date of this Lease.
Each policy required to be obtained by Lessee hereunder shall: (a) be
issued by insurers authorized to do business in the state in which the Building
is located and rated not less than financial class X, and not less than
policyholder rating A, in the most recent version of Best's Key Rating Guide, or
the equivalent rating in any other comparable guide selected by Lessor (provided
that, in any event, the same insurance company shall provide the coverages
described in paragraphs 8.1 and 8.3 above); (b) be in form reasonably
satisfactory from time to time to Lessor (c) name Lessee as named insured
thereunder and shall name Lessor and, at Lassoes request, Lassoes mortgagees and
ground lessors of which Lessee has been informed in writing, as additional
insureds (d) not have a deductible amount exceeding Five Thousand Dollars
($5,000.00); (e) specifically provide that the insurance afforded by such policy
for the benefit of Lessor and Lessor's mortgagees and ground lessors shall be
primary, and any insurance carried by Lessor or Lessor's mortgagees and ground
lessors shall be excess and non-contributing; (f) except for worker's
compensation insurance, contain an endorsement that the insurer waives its right
to subrogation as described in paragraph 8.6 below: and (g) contain an
undertaking by the insurer to notify Lessor (and the mortgagees and ground
lessors of Lessor who are named as additional insureds) in writing not less than
thirty (30) days prior to any material change, reduction in coverage,
cancellation or other termination thereof. Lessee agrees to deliver to Lessor,
as soon as practicable after the placing of the required insurance, but in no
event later than ten (10) days after the date Lessee takes possession of all or
any part of the Premises, certified copies of each such insurance policy (or
certificates from the insurance company evidencing the existence of such
insurance and Lessee's compliance with the foregoing provisions of this
paragraph 8). Lessee shall cause replacement policies or certificates to be
delivered to Lessor not less than thirty (30) days prior to the expiration of
any such policy or policies. If any such initial or replacement policies or
certificates are not furnished within the time(s) specified herein. Lessee shall
be deemed to be in material default under this Lease without the benefit of any
additional notice or cure period provided herein, and Lessor shall have the
right, but not the obligation, to procure such policies and certificates at
Lessee's expense.
8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other,
for direct or consequential loss or damage arising out of or incident to the
perils covered by properly insurance carded by such party, whether due to the
negligence of Lessor or Lessee or their agents, employees, contractors and/or
invitees. If necessary all property insurance policies required under this Lease
shall be endorsed to so provide.
8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor and
its agents, Lessor's master or ground lessor, partners and lenders, from and
against any and all claims for damage to the person or property of anyone or any
entity arising from Lessee's use of the Office Building Project, or from the
conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnify and hold harmless Lessor from and against any and all claims,
costs and expenses arising from any breach or default in the performance of any
obligation on Lessee's part to be performed under the terms of this Lease, or
arising from any act or omission of Lessee, or
<PAGE>
any of Lessee's agents, contractors, employees or invitees and from and against
all costs, attorneys' fees, expenses and liabilities incurred by Lessor as the
result of any such use, conduct, activity, work, things done, permitted or
suffered, breach, default or negligence, and in dealing reasonably therewith,
including but not limited to the defense or pursuit of any claim or any action
or proceeding involved therein; and in case any action or proceeding be brought
against Lessor by reason of any such matter, Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be so indemnified. Lessee, as a
material part of the consideration to Lessor, hereby assumes all risk of damage
to property of Lessee or injury to persons, in, upon or about the Office
Building Project arising from any cause and Lessee hereby waives all claims in
respect thereof against Lessor.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for loss of or damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or any other person
in or about the Premises or the Office Building Project, nor shall Lessor be
liable for injury to the person of Lessee, Lessee's employees, agents or
contractors, whether such damage or injury is caused by or results from theft,
fire, steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures, or from any other cause, whether said
damage or injury results from conditions arising upon the Premises or upon other
portions of the Office Building Project, or from other sources or places, or
from new construction or the repair, alteration or improvement of any part of
the Office Building Project, or of the equipment, fixtures or appurtenances
applicable thereto, and regardless of whether the cause of such damage or injury
or the means of repairing the same is inaccessible, Lessor shall not be liable
for any damages arising from any act or neglect of any other lessee, occupant or
user of the Office Building Project, nor from the failure of Lessor to enforce
the provisions of any other lease of any other lessee of the Office Building
Project.
8.9 NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no representation
that the limits or forms of coverage of insurance specified in this paragraph 8
are adequate to cover Lessee's property or obligations under this Lease.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) 'Premises Damage' shall mean if the Premises are damaged or
destroyed to any extent.
(b) 'Premises Building Partial Damage' shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is less than fifty percent (50%) of the then Replacement Cost of
the Building.
(c) 'Premises Building Total Destruction' shall mean if the Building
of which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is fifty percent (50%) or more of the then Replacement Cost of
the Building.
(d) 'Office Building Project Buildings' shall mean all of the
buildings on the Office Building Project site.
(e) 'Office Building Project Buildings Total Destruction' shall mean
if the Office Building Project Buildings are damaged or destroyed to the extent
that the cost of repair is fifty percent (50%) or more of the then Replacement
Cost of the Office Building Project Buildings.
(f) 'Insured Loss' shall mean damage or destruction which was caused
by an event required to be covered by the insurance described in paragraph S.
The fact that an Insured Loss has a deductible amount shall not make the loss an
uninsured loss.
(g) 'Replacement Cost' shall mean the amount of money necessary to be
spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring, excluding all improvements
made by lessees, other than those installed by Lessor at Lessee's expense.
9.2 PREMISES DAMAGE; PREMISES BUILDING PARTIAL DAMAGE.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is an
Insured Loss and which falls into the classification of either Premises Damage
or Premises Building Partial Damage, then Lessor shall, as soon as reasonably
possible and to the extent sufficient insurance proceeds are available and the
required materials and labor are readily available through usual commercial
channels, at Lessor's expense, repair such damage (but not Lessee's fixtures,
equipment or tenant improvements originally paid for by Lessee) to its condition
existing at the time of the damage, and this Lease shall continue in full force
and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is not
an Insured Loss and which falls within the classification of Premises Damage or
Premises Building Partial Damage, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense), which
damage prevents Lessee from making any substantial use of the Premises, Lessor
may at Lessor's option either (i) repair such damage as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in full
force and effect, or (ii) give written notice to Lessee within thirty (30) days
after the date of the occurrence of such damage of Lessor's intention to cancel
and terminate this Lease as of the date of the occurrence of such damage, in
which event this Lease shall terminate as of the date of the occurrence of such
damage.
9.3 PREMISES BUILDING TOTAL DESTRUCTION; Office Building Project Total
Destruction. Subject to the provisions of paragraphs 9.4 and 9.5, if at any time
during the term of this Lease there is damage, whether or not it is an insured
Loss, which falls into the classifications of either (i) Premises Building Total
Destruction, or (ii) Office Building Project Total Destruction, then Lessor may
at Lessor's option either (i) repair such damage or destruction as soon as
reasonably possible at Lessor's expense (to the extent the required materials
are readily available through usual commercial channels) to its
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condition existing at the time of the damage, but not Lessee's fixtures,
equipment or tenant improvements, and this Lease shall continue in full force
and effect, or (ii) give written notice to Lessee within thirty (30) days after
the date of occurrence of such damage of Lessor's intention to cancel and
terminate this Lease, in which case this Lease shall terminate as of the date of
the occurrence of such damage.
9.4 DAMAGE NEAR END OF TERM.
(a) Subject to paragraph 9.4(b), if at any time during the last
twelve (12) months of the term of this Lease there is substantial damage to the
Premises, Lessor may at Lessor's option cancel and terminate this Lease as of
the date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within 30 days after the date of occurrence of such
damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired, Lessee shall exercise such option, if it is to
be exercised at all, no later than twenty (20) days after the occurrence of an
Insured Loss falling within the classification of Premises Damage during the
last twelve (12) months of the term of this Lease. If Lessee duly exercises such
option during said twenty (20) day period, Lessor shall, at Lessor's expense,
repair such damage, but not Lessee's fixtures, equipment or tenant improvements,
as soon as reasonably possible and this Lease shall continue in full force and
effect. If Lessee fails to exercise such option during said twenty (20) day
period, then Lessor may at Lessor's option terminate and cancel this Lease as of
the expiration of said twenty (20) day period by giving written notice to Lessee
of Lessors election to do so within ten (10) days after the expiration of said
twenty (20) day period, notwithstanding any term or provision in the grant of
option to the contrary.
9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) If, in the event of Premises Damage, Lessor repairs or restores
the Building or Premises pursuant to the provisions of this paragraph 9, and any
part of the Premises are not usable (including loss of use due to loss of access
or essential services), the rent payable hereunder (including Lessee's Share of
Operating Expenses) for the period during which such damage, repair or
restoration continues shall be abated, provided (1) the damage was not the
result of the negligence of Lessee, and (2) such abatement shall only be to the
extent the operation and profitability of Lessee's business as operated from the
Premises is adversely affected. Except for said abatement of rent, if any,
Lessee shall have no claim against Lessor for any damage suffered by reason of
any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises or
the Building under the provisions of this paragraph 9 and shall not commence
such repair or restoration within ninety (90) days after such occurrence, or if
Lessor shall not complete the restoration and repair within nine (9) months
after such occurrence, Lessee may at Lessee's option cancel and terminate this
Lease by giving Lessor written notice of Lessee's election to do so at any time
prior to the commencement or completion, respectively, of such repair or
restoration. In such event this Lease shall terminate as of the date of such
notice.
(c) Lessee agrees to cooperate with Lessor in connection with any
such restoration and repair, including but not limited to the approval and/or
execution of plans and specifications required.
9.6 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this paragraph 9, an equitable adjustment shall be made concerning advance
rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 WAIVER. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the Applicable Taxes, as defined in
paragraph 4.2, applicable to the Office Building Project subject to
reimbursement by Lessee of Lessee's Tax Share in accordance with the provisions
of paragraph 4.3. except as otherwise provided in paragraph 10.2.
10.2 ADDITIONAL IMPROVEMENTS. Lessee shall not be responsible for paying
any increase in Applicable Taxes specified in the tax assessor's records and
work sheets as being caused by additional improvements placed upon the Office
Building Project by other lessees or by Lessor for the exclusive enjoyment of
any other lessee. Lessee shall, however, pay to Lessor at the time that
Operating Expenses are payable under paragraph 4.3 the entirety of any increase
in Applicable Taxes if assessed solely by reason of additional improvements
placed upon the Premises by Lessee or at Lessee's request.
10.3 JOINT ASSESSMENT. If the improvements or property, the taxes for which
are to be paid separately by Lessee under paragraph 10.2 or 10.4 are not
separately assessed, Lessee's portion of that tax shall be equitably determined
by Lessor from the respective valuations assigned in the assessors work sheets
or such other information (which may include the cost of construction) as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay to Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting forth
the taxes applicable to Lessee's property.
10.5 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Office Building Project or any portion thereof
by any authority having the
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direct or indirect power to tax, including any city, county, state or federal
government, or any school, agricultural, sanitary , fire, street, drainage or
other improvement district thereof, as against any legal or equitable interest
of Lessor in the Office building Project or in any portion thereof, as against
Lessor's right to rent or other income therefrom, and as against Lessor's
business of leasing the Office Building Project. The term "real property tax"
shall also include any tax, fee, levy assessment or charge (i) in substitution
of, partially or totally, any tax fee, levy assessment or charge hereinabove
included within the definition of "real property tax," or (ii) the nature of
which was hereinabove included within the definition of 'real property tax,' or
(iii) which is imposed for a service or right not charged prior to June 1, 1989,
or, if previously charged, has been increased since June 1, 1978, or (iv) which
is imposed as a result of a change in ownership as defined by applicable local
statutes for property tax purposes, of the Office Building Project or which is
added to a tax or charge hereinbefore included within the definition of real
property tax by reason of such change of ownership, or (v) which is imposed by
reason of this transaction, any modifications or changes hereto, or any
transfers hereof.
11. UTILITIES.
11.1 SERVICES PROVIDED BY LESSOR. Lessor shall provide heating,
ventilation, air conditioning and janitorial service as reasonably required,
reasonable amounts of electricity for normal lighting and office machines, water
for reasonable and normal drinking and lavatory use, and replacement light bulbs
and/or flourescent tubes and ballasts for standard overhead fixtures. Costs
incurred by Lessor in providing such services shall be Operating Expenses.
11.2 SERVICES EXCLUSIVE TO LESSEE. Lessee shall pay for all water, gas,
heat, light, power, telephone and other utilities and services specially or
exclusively supplied and/or metered exclusively to the Premises or to Lessee,
together with any taxes thereon. If any such services are not separately metered
to the Premises, Lessee shall pay at Lessor's option, either Lessee's share or a
reasonable proportion to be determined by Lessor of all charges jointly metered
with other premises in the Building.
11.3 HOURS OF SERVICE. Said services and utilities shall be provided during
generally accepted business days and hours or such other days or hours as may
hereafter be set forth. Utilities and services required at other times shall be
subject to advance request and reimbursement by Lessee to Lessor of the cost
thereof.
11.4 EXCESS USAGE BY LESSEE. Lessee shall not make connection to the
utilities except by or through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water, lighting
or power, or suffer or permit any act that causes extra burden upon the
utilities or services, including but not limited to security services, over
standard office usage for the Office Building Project. Lessor shall require
Lessee to reimburse Lessor for any excess expenses or costs that may arise out
of a breach of this subparagraph by Lessee. Lessor may, in its sole discretion,
install at Lessee's expense supplemental equipment and/or separate metering
applicable to Lessee's excess usage or loading.
11.5 INTERRUPTIONS. There shall be no abatement of rent and Lessor shall
not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service, regardless of whether
or not the cause thereof was within Lessor's control.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a material
default and breach of this Lease without the need for notice to Lessee under
paragraph 13.1. 'Transfer' within the meaning of this paragraph 12 shall include
the transfer or transfers aggregating: (a) if Lessee is a corporation, more
than twenty-five percent (25%) of the voting stock of such corporation or (b) if
Lessee is a partnership, more than twenty-five percent (25%) of the profit and
loss participation in such partnership.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, no assignment or subletting shall
release Lessee of Lessee's obligations hereunder or after the primary liability
of Lessee to pay the rent and other sums due Lessor hereunder including Lessee's
Share of Operating Expenses, and to perform all other obligations to be
performed by Lessee hereunder.
(b) Lessor may accept rent from any person other than Lessee pending
approval or disapproval of such assignment without being deemed to have
consented thereto.
(c) Neither a delay in the approval or disapproval of such assignment
or subletting, nor the acceptance of rent, shall constitute a waiver or estoppel
of Lessor's right to exercise its remedies for the breach of any of the terms or
conditions of this paragraph 12 or this Lease.
(d) If Lessee's obligations under this Lease have been guaranteed by
third parties, then an assignment or sublease, and Lessor's consent thereto,
shall not be effective unless said guarantors give their written consent to such
sublease and the terms thereof.
(e) The consent by Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent and such
action shall not relieve such persons from liability under this Lease or said
sublease; provided, however, such persons shall not be responsible to the extent
any such amendment or modification enlarges or increases the obligations of the
Lessee or sublessee under this Lease or such sublease.
(f) In the event of any default under this Lease, Lessor may proceed
directly against
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Lessee, any guarantors or anyone else responsible for the performance of this
Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(g) Lessor's written consent to any assignment or subletting of the
Premises by Lessee shall not constitute an acknowledgment that no default then
exists under this Lease of the obligations to be performed by Lessee nor shall
such consent be deemed a waiver of any then existing default, except as may be
otherwise stated by Lessor at the time.
(h) The discovery of the fact that any financial statement relied
upon by Lessor in giving its consent to an assignment or subletting was
materially false shall, at Lessors election, render Lessor's said consent null
and void.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. Regardless
of Lessors consent, the following terms and conditions shall apply to any
subletting by Lessee of all or any part of the Premises and shall be deemed
included in all subleases under this Lease whether or not expressly incorporated
therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease heretofore or
hereafter made by Lessee, and Lessor may collect such rent and income and apply
same toward Lessee's obligations under this Lease; provided, however, that until
a default shall occur in the performance of Lessee's obligations under this
Lease, Lessee may receive, collect and enjoy the rents accruing under such
sublease. Lessor shall not, by reason of this or any other assignment of such
sublease to Lessor nor by reason of the collection of the rents from a
sublessee, be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of Lessee's obligations to such sublessee under such
sublease. Lessee hereby irrevocably authorizes and directs any such sublessee,
upon receipt of a written notice from Lessor stating that a default exists in
the performance of Lessee's obligations under this Lease, to pay to Lessor the
rents due and to become due under the sublease. Lessee agrees that such
sublessee shall have the right to rely upon any such statement and request from
Lessor, and that such sublessee shall pay such rents to Lessor without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against said sublessee or Lessor for any such rents
so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective unless and
until it has been approved in writing by Lessor. In entering into any sublease,
Lessee shall use only such form of sublease as is satisfactory to Lessor, and
once approved by Lessor, such sublease shall not be changed or modified without
Lessor's prior written consent. Any sublessee shall, by reason of entering into
a sublease under this Lease, be deemed, for the benefit of Lessor, to have
assumed and agreed to conform and comply with each and every obligation herein
to be performed by Lessee other than such obligations as are contrary to or
inconsistent with provisions contained in a sublease to which Lessor has
expressly consented in writing.
(c) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of Lessee under such sublease from the time of
the exercise of said option to the termination of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to Lessee or for any other prior defaults of Lessee under
such sublease.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessors prior written consent.
(e) With respect to any subletting to which Lessor has consented,
Lessor agrees to deliver a copy of any notice of default by Lessee to the
sublessee. Such sublessee shall have the right to cure a default of Lessee
within three (3) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset from
and against Lessee for any such defaults cured by the sublessee.
(f) Notwithstanding anything to the contrary in the foregoing, any
rent or other economic consideration received by Lessee as a result of an
assignment or subletting which exceeds, in the aggregate, (i) the total rent
which Lessee is obligated to pay to Lessor under the Lease (prorated to reflect
obligations allocable to any portion of the Premises subleased), plus (ii) any
reasonable and customary brokerage commissions (not to exceed three percent (3%)
of base rent payable under the assignment or sublease), and attorneys' fees (not
to exceed $750 per assignment at subletting) actually paid by Lessee in
connection with such assignment or subletting, shall be paid to Lessor within
ten (10) days after receipt thereof as additional rent hereunder, without
altering or reducing any other obligations of Lessee hereunder.
12.4 LESSOR'S EXPENSES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable costs and expenses incurred in
connection therewith, including without limitation attorneys', architects',
engineers' and other consultants' fees.
12.5 CONDITIONS TO CONSENT. Lessor reserves the right to condition any
approval to assign or sublet upon Lessors determination that (a) the proposed
assignee or sublessee shall conduct a business on the Premises of a quality
substantially equal to that of Lessee and consistent with the general character
of the other occupants of the Office Building Project and not in violation of
any exclusives or rights then held by other lessees, and (b) the proposed
assignee or sublessee be at least as financially responsible as Lessee was
expected to be at the time of the execution of this Lease or of such assignment
or subletting, whichever is greater.
13. DEFAULT; REMEDIES.
13.1 DEFAULT. The occurrence of any one or more of the following events
shall constitute a
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material default of this Lease by Lessee:
(a) The vacation or abandonment of the Premises by Lessee. Vacation
of the Premises shall include the failure to occupy the Premises for a
continuous period of sixty (60) days or more, whether or not the rent is paid.
(b) The breach by Lessee of any of the covenants, conditions or
provisions of paragraphs 7.3(a), (b) or (d) (alterations), 12.1 (assignment or
subletting), 13.1(a) (vacation or abandonment), 13.1(e) (insolvency), 13.1(f)
(false statement), 16(a) (estoppel certificate), 30(b) (subordination), 33
(auctions), or 41.1 (easements), all of which are hereby deemed to be material,
non-curable defaults without the necessity of any notice by Lessor to Lessee
thereof.
(c) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
(d) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee
other than those referenced in subparagraphs (b) and (c), above, where such
failure shall continue for a period of thirty (30) days after written notice
thereof from Lessor to Lessee; provided, however, that if the nature of Lessee's
noncompliance is such that more than thirty (30) days are reasonably required
for its cure, then Lessee shall not be deemed to be in default it Lessee
commenced such cure within said thirty (30) day period and thereafter diligently
pursues such cure to completion. To the extent permitted by law, such thirty
(30) day notice shall constitute the sole and exclusive notice required to be
given to Lessee under applicable Unlawful Detainer statutes.
(e) (i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becoming a 'debtor' as
defined in 1 1 U.S.C. _ 1 01 or any successor statute thereto (unless, in the
case of a petition filed against Lessee, the same is dismissed within sixty (60)
days; (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 13.1(e) is contrary to
any applicable law, such provision shall be of no force or effect.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee, or its successor in interest or by any guarantor of Lessee's
obligation hereunder, was materially false.
13.2 LESSOR'S REMEDIES.
(a) Termination. In the event of any default by Lessee, in addition
to any other remedies available to Lessor under this Lease, at law or in equity,
Lessor shall have the immediate option to terminate this Lease and all rights of
Lessee hereunder. In the event that Lessor shall elect to so terminate this
Lease, then Lessor may recover from Lessee:
(i) the worth at the time of award of any unpaid rent which had
been earned at the time of such termination; plus
(ii) the worth at the time of the award of the amount by which
the unpaid rent which would have been earned after termination until
the time of award exceeds the amount of such rental loss that Lessee
proves could have been reasonably avoided; plus
(iii) the worth at the time of award of the amount by which the
unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that Lessee proves could be
reasonable avoided; plus
(iv) any other amount necessary to compensate Lessor for all the
detriment proximately caused by Lessee's failure to perform its
obligations under this Lease or which. in the ordinary course of
things, would be likely to result therefrom including, but not limited
to: "Unreimbursed Leasehold Improvement Costs' (as defined below);
attorneys' fees; brokers' commissions-, the costs of refurbishment,
alterations, renovation and repair of the Premises; and removal
(including the repair of damage caused by such removal) and storage
(or disposal) of Lessee's personal property, equipment, fixtures,
Lessee's alterations, additions, leasehold improvements and any other
items which Lessee is required under this Lease to remove but does not
remove. As used herein, the term "Unreimbursed Leasehold Improvement
Costs' shall mean the product when multiplying (i) the sum of any
leasehold improvement allowance plus any other costs provided, paid or
incurred by Lessor in connection with the design and construction of
the initial leasehold improvements installed in the Premises on or
prior to the Commencement Date pursuant to the Work Letter, by (ii)
the fraction, the numerator of which is the number of months of the
term of this Lease not yet elapsed as of the date on which this Lease
is terminated (excluding any unexercised renewal options), and the
denomination of which is the total number of months of the term of
this Lease (excluding any unsecured renewal options). For example, if
the total costs paid or incurred by Lessor with respect to the initial
leasehold improvements was $100,000.00, the Lease term was sixty (60)
months, and the Lease was terminated by reason of Lessee's default at
the end of twelve (12) months, the Unreimbursed Leasehold Improvement
Costs would be equal to $80,000.00 (i.e., $80,000.00 equals
$100,000.00 x 48/60).
As used in subparagraphs (i) and (ii), above, the "worth at the time
of award" is computed by allowing interest at the maximum interest rate which
Lessor is permitted by law to charge to Lessee (the "Lease Rate"). As used in
subparagraph (iii), above, the "worth at the time of award" is computed by
discounting such amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of
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award plus one percent (1%).
(b) Re-Entry Rights. In the event of any default by Lessee, in
addition to any other remedies available to Lessor under this Lease, at law or
in equity, Lessor shall also have the right, with or without terminating this
Lease, to re-enter the Premises and remove all persons and property from the
Premises; such property may be removed, stored and/or disposed of pursuant to
this Lease or any other procedures permitted by applicable law. No re-entry or
taking possession of the Premises by Lessor pursuant to this paragraph 13.2(b),
and no acceptance of surrender of the Premises or other action on Lessor's part,
shall be construed as an election to terminate this Lease unless a written
notice of such intention be given to Lessee or unless the termination thereof be
decreed by a court of competent jurisdiction.
(c) Continuation of Lease. In the event of any default by Lessee, in
addition to any other remedies available to Lessor under this Lease, at law or
in equity, Lessor shall have the right to continue this Lease in full force and
effect, whether or not Lessee shall have abandoned the Premises. The foregoing
remedy shall also be available to Lessor pursuant to California Civil Code
Section 1951.4 and any successor statute thereof in the event Lessee has
abandoned the Premises. In the event Lessor elects to continue this Lease in
full force and effect pursuant to this paragraph 13.2(c), then Lessor shall be
entitled to enforce all of its rights and remedies under this Lease, including
the right to recover rent as it becomes due. Lessor's election not to terminate
this Lease pursuant to this paragraph 13.2(c) or pursuant to any other provision
of this Lease, at law or in equity, shall not preclude Lessor from subsequently
electing to terminate this Lease or pursuing any of its other remedies.
(d) Rights and Remedies Cumulative. All rights, options and remedies
of Lessor contained in this paragraph 13.2 and elsewhere in this Lease shall be
construed and held to be cumulative, and no one of them shall be exclusive of
the other, and Lessor shall have the right to pursue any one or all of such
remedies or any other remedy or relief which may be provided by law or in
equity, whether or not stated in this Lease. Nothing in this paragraph 13.2
shall be deemed to limit or otherwise affect Lessee's indemnification of Lessor
pursuant to any provision of this Lease.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time, but in no
event later than thirty (30) days after written notice by Lessee to Lessor and
to the holder of any first Mortgage or deed of trust covering the Premises whose
name and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such 30-day period and thereafter diligently
pursues the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of Base Rent, Lessee's Share of Operating Expenses or other sums due
hereunder will cause Lessor to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed on Lessor by the terms of any mortgage or trust
deed covering the Office Building Project. Accordingly, if any installment of
Base Rent, Lessee's Share of Operating Expenses, Lessee's Tax Share or any other
sum due from Lessee shall not be received by Lessor or Lessor's designee within
ten (10) days after such amount shall be due, then, without any requirement for
notice to Lessee, Lessee shall pay to Lessor a late charge equal to 6% of such
overdue amount. The parties hereby agree that such late charge represents a fair
and reasonable estimate of the costs Lessor will incur by reason of late payment
by Lessee. Acceptance of such late charge by Lessor shall in no event constitute
a waiver of Lessee's default with respect to such overdue amount, nor prevent
Lessor from exercising any of the other rights and remedies granted hereunder.
14. CONDEMNATION. If the Premises or any portion thereof or the Office Building
Project are taken under the power of eminent domain, or sold under the threat of
the exercise of said power (all of which are herein called 'condemnation'), this
Lease shall terminate as to the part so taken as of the date the condemning
authority takes title or possession, whichever first occurs; provided that if so
much of the Premises or the Office Building Project are taken by such
condemnation as would substantially and adversely affect the operation and
profitability of Lessee's business conducted from the Premises, Lessee shall
have the option, to be exercised only in writing within thirty (30) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within thirty (30) days after the condemning authority shall
have taken possession), to terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the rent and Lessee's
Share of Operating Expenses and Lessee's Tax Share shall be reduced as set forth
in paragraph 4.2 in the proportion that the floor area of the Premises taken
bears to the total floor area of the Premises. Common Areas taken shall be
excluded from the Common Areas usable by Lessee and no reduction of rent shall
occur with respect thereto or by reason thereof. Lessor shall have the option in
its sole discretion to terminate this Lease as of the taking of possession by
the condemning authority, by giving written notice to Lessee of such election
within thirty (30) days after receipt of notice of a taking by condemnation of
any part of the Premises or the Office Building Project. Any award for the
taking of all or any part of the Premises or the Office Building Project under
the power of eminent domain or any payment made under threat of the exercise of
such power shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any separate award for loss of or damage to Lessee's trade fixtures,
removable personal property and unamortized tenant improvements that have been
paid for by Lessee. For that purpose the cost of such improvements shall be
amortized over the original term of this Lease excluding any options. In the
event that
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this Lease is not terminated by reason of such condemnation. Lessor shall to the
extent of severance damages received by Lessor in connection with such
condemnation, repair any damage to the Premises caused by such condemnation
except to the extent that Lessee has been reimbursed therefor by the condemning
authority. Lessee shall pay any amount in excess of such severance damages
required to complete such repair.
15. BROKER'S FEE.
(a) The brokers involved in this transaction are Charles Dunn as "listing
broker" and Daum Commercial as "cooperating broker," licensed real estate
broker(s). A "cooperating broker" is defined as any broker other than the
listing broker entitled to a share of any commission arising under this Lease.
Upon execution of this Lease by both parties, Lessor shall pay to said brokers
jointly, or in such separate shares as they may mutually designate in writing, a
fee as set forth in a separate agreement between Lessor and said broker(s), or
in the event there is no separate agreement between Lessor and said broker(s),
the sum of $ N/A for brokerage services rendered by said broker(s) to Lessor in
this transaction.
(b) Lessor agrees to pay said fee not only on behalf of Lessor but also on
behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee is
due hereunder. Any transferee of Lessor's interest in this Lease, whether such
transfer is by agreement or by operation of law, shall be deemed to have assumed
Lessor's obligation under this paragraph 15. Each listing and cooperating broker
shall be a third party beneficiary of the provisions of this paragraph 15 to the
extent of their interest in any commission arising under this Lease and may
enforce that right directly against Lessor; provided, however, that all brokers
having a right to any part of such total commission shall be a necessary party
to any suit with respect thereto.
(c) Lessee and Lessor each represents and warrants to the other that
neither has had any dealings with any person, firm, broker or finder (other than
the person(s), if any, whose names are set forth in paragraph 15(a), above) in
connection with the negotiation of this Lease and/or the consummation of the
transaction contemplated hereby, and no other broker or other person, firm or
entity is entitled to any commission or finder's fee in connection with said
transaction and Lessee and Lessor do each hereby indemnify and hold the other
harmless from and against any costs, expenses, attorneys" fees or liability for
compensation or charges which may be claimed by any such unnamed broker, finder
or other similar party by reason of any dealings or actions of the indemnifying
party.
16. ESTOPPEL CERTIFICATE.
(a) Each party (as "responding party") shall at any time upon not less
than ten (10) days' prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease, as so modified, is in full force and effect) and the date to
which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed, and (iii) in the case of Lessee, certify as to such
other matters as may be requested by Lessor or by a prospective purchaser or
encumbrancer of all or any part of the Office Building Project. Any such
statement may be conclusively relied upon by any prospective purchaser or
encumbrancer of the Office Building Project or of the business of Lessee.
(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it shall
be conclusive upon such party that (i) this Lease is in full force and effect,
without modification except as may be represented by the requesting party, (ii)
there are no uncured defaults in the requesting party's performance, (iii) if
Lessor is the requesting party, not more than one month's rent has been paid in
advance, and (iv) if Lessor is the requesting party, there are no remaining
obligations of the requesting party under this Lease yet to be performed.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners and any receiver, at the time in question, of the fee title or a
Lessee's interest in a ground lease of the Office Building Project, and except
as expressly provided in paragraph 15, in the event of any transfer of such
title or interest, Lessor herein named (and in case of any subsequent transfers
then the grantor) shall be relieved from and after the date of such transfer of
all liability as respects Lessor's obligations thereafter to be performed,
provided that any funds in the hands of Lessor or the then grantor at the time
of such transfer, in which Lessee has an interest, shall be delivered to the
grantee. The obligations contained in this Lease to be performed by Lessor
shall, subject as aforesaid, be binding on Lessor's successors and assigns, only
during their respective periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law or judgments from the date due (the "Lease Rate"). Payment
of such interest shall not excuse or cure any default by Lessee under this
Lease; provided, however, that interest shall not be payable on late charges
incurred by Lessee nor on any amounts upon which late charges are paid by
Lessee.
20. TIME OF ESSENCE. Time is of the essence with respect to the obligations to
be performed under this Lease.
21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expense and any other expenses payable by Lessee hereunder shall be deemed to be
rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or
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understanding pertaining to any such matter shall be effective. This Lease may
be modified in writing only, signed by the parties in interest at the time of
the modification. Except as otherwise stated in this Lease, Lessee hereby
acknowledges that neither the real estate broker listed in paragraph 15 hereof
nor any cooperating broker on this transaction nor the Lessor or any employee or
agents of any of said persons has made any oral or written warranties or
representations to Lessee relative to the condition or use by Lessee of the
Premises or the Office Building Project and Lessee acknowledges that Lessee
assumes all responsibility regarding the Occupational Safety Health Act, the
legal use and adaptability of the Premises and the compliance thereof with all
applicable laws and regulations in effect during the term of this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified or registered
mail, and shall be deemed sufficiently given if delivered or addressed to Lessee
or to Lessor at the address noted below or adjacent to the signature of the
respective parties, as the case may be. Mailed notices shall be deemed given
upon actual receipt at the address required, or forty-eight hours following
deposit in the mail, postage prepaid, whichever first occurs. Either party may
by notice to the other specify a different address for notice purposes except
that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for notice purposes. A copy of all notices required
or permitted to be given to Lessor hereunder shall be concurrently transmitted
to such party or parties at such addresses as Lessor may from time to time
hereafter designate by notice to Lessee.
24. WAIVERS. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof, other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessors knowledge of such preceding breach at the time of
acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, except that the rent payable
shall be two hundred percent (200%) of the rent payable immediately preceding
the termination date of this Lease. and all Options, if any, granted under the
terms of this Lease shall be deemed terminated and be of no further effect
during said month to month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State of
California applicable to contracts to be wholly performed within such State.
30. SUBORDINATION.
(a) This Lease, and any Option or right of first refusal granted hereby, at
Lessor's option, shall, without the necessity of Lessee or any other party
executing any additional documentation, be subordinate to any ground lease,
mortgage, deed of trust, or any other hypothecation or security now or hereafter
placed upon the Office Building Project and to any and all advances made on the
security thereof and to all renewals, modifications, consolidations,
replacements and extensions thereof. If any mortgagee, trustee or ground lessor
shall elect to have this Lease and any Options granted hereby prior to the lien
of its mortgage, deed of trust or ground lease, and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
mortgage, deed of trust or ground lease whether this Lease or such Options are
dated prior or subsequent to the date of said mortgage, deed of trust or ground
lease or the date of recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Lessee's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Lessee hereunder without
further notice to Lessee or, at Lessor's option, Lessor shall execute such
documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and
in Lessee's name, place and stead, to execute such documents in accordance with
this paragraph 30(b).
31. ATTORNEYS' FEES.
31.1 If either party or the broker(s) named herein bring an action to
enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, trial or appeal thereon, shall be entitled to his reasonable
attorneys' fees to be paid by the losing party as fixed by the court in the same
or a separate suit, and whether or not such action is pursued to decision or
judgment. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
31.2 The attorneys' fee award shall not be computed in accordance with any
court fee schedule, but shall be such as to fully reimburse all attorneys' fees
reasonably incurred in good faith.
31.3 Lessor shall be entitled to reasonable attorneys' fees and all other
costs and expenses incurred in the preparation and service of notices of default
and consultations in connection therewith, whether or not a legal action is
subsequently commenced in connection with such default.
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32. LESSOR'S ACCESS.
32.1 Lessor and Lessor's agents shall have the right to enter the Premises
at reasonable times for the purpose of inspecting the same, performing any
services required of Lessor, showing the same to prospective purchasers,
lenders, or lessees, taking such safety measures, erecting such scaffolding or
other necessary structures, making such alterations, repairs, improvements or
additions to the Premises or to the Office Building Project as Lessor may
reasonably deem necessary or desirable and the erecting, using and maintaining
of utilities, services, pipes and conduits through the Premises and/or other
premises as long as there is no material adverse effect to Lessee's use of the
Premises. Lessor may at any time place on or about the Premises or the Building
any ordinary "For Sale" signs and Lessor may at any time during the last 120
days of the term hereof place on or about the Premises any ordinary "For Lease"
signs.
32.2 All activities of Lessor pursuant to this paragraph shall be without
abatement of rent, nor shall Lessor have any liability to Lessee for the same.
32.3 Lessor shall have the right to retain keys to the Premises and to
unlock all doors in or upon the Premises other than to files, vaults and safes,
and in the case of emergency to enter the Premises by any reasonably appropriate
means, and any such entry shall not be deemed a forcible or unlawful entry or
detainer of the Premises or an eviction. Lessee waives any charges for damages
or injuries or interference with Lessee's property or business in connection
therewith.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent. The holding of any auction on the Premises or Common Areas in violation
of this paragraph shall constitute a material default of this Lease.
34. SIGNS. Lessee shall not place any sign upon the Premises or the Office
Building Project without Lessors prior written consent. Under no circumstances
shall Lessee place a sign on any roof of the Office Building Project.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. CONSENTS. Except for paragraphs 33 (auctions) and 34 (signs) hereof,
wherever in this Lease the consent of one party is required to an act of the
other party such consent shall not be unreasonably withheld or delayed.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Office Building Project.
39. OPTIONS.
39.1 DEFINITION. As used in this paragraph the work "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Office Building Project or other
property of Lessor or the right of first offer to lease other space within the
Office Building Project or other property of Lessor; (3) the right or option to
purchase the Premises or the Office Building Project, or the right of first
refusal to purchase the Premises or the Office Building Project or the right or
first offer to purchase the Premises or the Office Building Project, or the
right or option to purchase other property of Lessor, or the right of first
refusal to purchase other property of Lessor or the right of first offer to
purchase other property of Lessor.
39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original Lessee
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof, and may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than Lessee; provided, however, that an Option may be
exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of
this Lease. The Options, if any, herein granted to Lessee are not assignable
separate and apart from this Lease, nor may any Option be separated from this
Lease in any manner, either by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple options to
extend or renew this Lease a later option cannot be exercised unless the prior
option to extend or renew this Lease has been so exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary, (i) during the time
commencing from the date Lessor gives to Lessee a notice of default pursuant to
paragraph 13.1(c) or 13.1(d) and continuing until the noncompliance alleged in
said notice of default is cured, or (ii) during the period of time commencing on
the day after a monetary obligation to Lessor is due from Lessee and Unpaid
(without any necessity for notice thereof to Lessee) and continuing until the
obligation is paid, or (iii) in the event that Lessor has given to Lessee three
or more notices of default under paragraph 13.1(c), or paragraph 13.1(d),
whether or not the defaults are cured,
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during the 12-month period of time immediately prior to the time that Lessee
attempts to exercise the subject Option, (iv) if Lessee has committed any
non-curable breach, including without limitation those described in paragraph
13.1(b), or is otherwise in default of any of the terms, covenants or
conditions of this Lease.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force of effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to
commence to cure a default specified in paragraph 13.1(d) within thirty (30)
days after the date that Lessor gives notice to Lessee of such default and/or
Lessee fails thereafter to diligently prosecute said cure to completion, (iii)
Lessor gives to Lessee three or more notices of default under paragraph
13.1(c), or paragraph 13.1(d), whether or not the defaults are cured, or (iv) if
Lessee has committed any non-curable breach, including without limitation those
described in paragraph 13.1(b), or is otherwise in default of any of the terms,
covenants and conditions of this Lease.
40. SECURITY MEASURES--LESSOR'S RESERVATIONS.
40.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide guard service or other security measures for the benefit
of the Premises or the Office Building Project. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole option,
from providing security protection for the Office Building Project or any part
thereof, in which event the cost thereof shall be included within the definition
of Operating Expenses, as set forth in paragraph 4.2(g).
40.2 Without limiting its rights at law or elsewhere under this Lease,
Lessor shall have the following rights:
(a) To change the name, address or title of the Office Building
Project or building in which the Premises are located upon not less than 90
days' prior written notice;
(b) To, at Lessee's expense, provide and install Building standard
graphics on the door of the Premises and such portions of the Common Areas as
Lessor shall reasonably deem appropriate;
(c) To permit any lessee the exclusive right to conduct any business
as long as such exclusive does not conflict with any rights expressly given
herein;
(d) To place such signs, notices or displays as Lessor reasonably
deems necessary or advisable upon the roof, exterior of the buildings or the
Office Building Project or on pole signs in the Common Areas.
40.3 Lessee shall not:
(a) Use a representation (photographic or otherwise) of the Building
or the Office Building Project or their name(s) in connection with Lessee's
business;
(b) Suffer or permit anyone, except in emergency, to go upon the roof
of the Building.
41. EASEMENTS.
41.1 Lessor reserves to itself the right, from time to time, to grant such
easements, rights and dedications that Lessor deems necessary or desirable, and
to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
41.2 The obstruction of Lessee's view, air, or light by any structure
erected in the vicinity of the Building, whether by Lessor or third parties,
shall in no way affect this Lease or impose any liability upon Lessor.
42. BUILDING PLANNING. If Lessor requires the Premises for use by another
lessee or for other reasons connected with its Building planning program, then
Lessor shall have the right, upon sixty (60) days' prior written notice to
Lessee, to relocate the Premises to other space in the Building of substantially
similar size as the Premises, and with tenant improvements of substantially
similar age, quality and layout as then existing in the Premises. In the event
of any such relocation, Lessor shall pay for the cost of providing such
substantially similar tenant improvements (but not any furniture or personal
property), and Lessor shall reimburse Lessee, within thirty (30) days after
Lessor's receipt of invoices and paid receipts, for the reasonable moving,
telephone installation and stationery reprinting costs actually paid for by
Lessee in connection with such relocation. If Lessor so relocates Lessee, the
terms and conditions of this Lease shall remain in full force and effect and
apply to the new space, except that (a) a revised Exhibit "A" shall become part
of this Lease and shall reflect the location of the new space, (b) all of
paragraph 1 of this Lease shall be amended to include and state all correct data
as to the new space (such as, by way of example only and not by way of
limitation, any recalculated square footage, Base Rent and Lessee's share of
Operating Expenses), and (c) such new space shall thereafter be deemed to be the
"Premises". Lessor and Lessee agree to cooperate fully in order to minimize the
inconvenience of Lessee resulting from such relocating.
43. LESSOR'S RIGHT TO PERFORM. Except as specifically provided otherwise in
this Lease, all covenants and agreements by Lessee under this Lease shall be
performed by Lessee at Lessee's sole cost and expense and without any abatement
or offset of rent. If Lessee shall fail to pay any sum of money (other than
Basic Rent) or perform any other act on its part to be paid or performed
hereunder and such failure shall continue for three (3) days with respect to
monetary obligations (or ten (10) days with respect to nonmonetary obligations)
then, notwithstanding anything to the contrary provided elsewhere herein, after
Lessee's receipt of written notice thereof from Lessor, Lessor may, without
waiving or releasing Lessee from
17
<PAGE>
any of Lessee's obligations, make such payment or perform such other act on
behalf of Lessee. All sums so paid by Lessor and all necessary incidental costs
incurred by Lessor in performing such other acts, together with interest at the
Lease Rate, shall be payable by Lessee to Lessor within five (5) days after
demand therefor as additional rent. The foregoing rights are in addition to any
and all remedies available to Lessor upon Lessee's default as described in
paragraph 13.2.
44. LIMITATION ON LESSOR'S LIABILITY. Notwithstanding anything contained in
this Lease to the contrary, the obligations of Lessor under this Lease
(including any actual or alleged breach or default by Lessor) do not constitute
personal obligations of the individual partners, directors, officers or
shareholders of Lessor or Lessor's partners, or Lessor's mortgagees, and Lessee
shall not seek recourse against the individual partners, directors, officers or
shareholders of Lessor or Lessor's partners, or Lessor's mortgagees, or any of
their personal assets, for satisfaction of any liability with respect to this
Lease. In addition, in consideration of the benefits accruing hereunder to
Lessee and notwithstanding anything contained in this Lease to the contrary,
Lessee hereby covenants and agrees for itself and all of its successor and
assigns that the liability of Lessor for its obligations under this Lease
(including any liability as a result of any actual or alleged failure, breach or
default hereunder by Lessor), shall be limited solely to, and Lessee's and its
successors' and assigns' sole and exclusive remedy shall be against, Lessor's
interest in the Office Building Project and proceeds therefrom, and no other
assets of Lessor.
45. TOXIC MATERIALS.
(a) Definitions.
For purposes of this paragraph 45, "Hazardous Material" shall mean any
substance:
(i) the presence of which requires investigation or remediation under
any federal, state or local statute, regulation, ordinance, order, action or
policy; or
(ii) which is or becomes defined as a "hazardous waste" or "hazardous
substance" under any federal, state or local statute, regulation, ordinance or
amendments thereto including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. section 9601
et seq.) and or the Resource Conservation and Recovery Act (42 U.S.C. section
6901 et seq.); or
(iii) which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic, or otherwise hazardous and is or becomes
regulated by any governmental authority, agency, department, commission, board,
agency or instrumentality of the United States, the State of California or any
political subdivision thereof; or
(iv) the presence of which on the Premises, Building or Office
Building Project causes or threatens to cause a nuisance upon the Premises,
Building or Office Building Project or to adjacent properties or poses or
threatens to pose a hazard to the Premises, Building or Office Building Project
or to the health or safety of persons on or about the Premises, Building or
Office Building Project; or
(v) without limitation which contains gasoline, diesel fuel or other
petroleum hydrocarbons; or
(vi) without limitation which contains polychlorinated bipheynols
(PCBs), asbestos or urea formaldehyde foam insulation; or
(vii) which is or becomes defined as "medical waste" under the Medical
Waste Management Act (Health & Safety Code Sections 25015-25099.3).
For purposes of this paragraph 45, "Environmental Requirements" means
all applicable present and future statutes, regulations, rules, ordinances,
codes, licenses, permits, orders, approvals, plans, authorizations, concessions,
franchises and similar items, of all governmental agencies, departments,
commissions, boards, bureaus or instrumentalities of the United States, states
and political subdivisions thereof and all applicable judicial and
administrative and regulatory decrees, judgments and orders relating to the
protection of human health or the environment, including without limitation:
(i) all requirements, including but not limited to those pertaining
to reporting, licensing, permitting, investigation and remediation of emissions,
discharges, releases or threatened releases of "Hazardous Materials," chemical
substances, pollutants, contaminants or hazardous or toxic substances, materials
or wastes whether solid, liquid or gaseous in nature, into the air, surface
water, groundwater or land, or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
chemical substances, pollutants, contaminants or hazardous or toxic substances,
materials, or wastes, whether solid, liquid or gaseous in nature; and
(ii) all requirements pertaining to the protection of the health and
safety of employees or the public
For purposes of this paragraph 45, "Environmental Damages" means all
claims, judgments, damages, losses, penalties, fines, liabilities (including
strict liability), encumbrances, liens, costs and expenses of investigation and
defense of any claim, whether or not such claim is ultimately defeated, and of
any good faith settlement of judgment, of whatever kind or nature, contingent or
otherwise, matured or unmatured, foreseeable or unforeseeable, including without
limitation reasonable attorneys' fees and disbursements and consultants' fees,
any of which are incurred at any time as a result of the existence on or after
the date upon which Lessee takes possession of the Premises (the "Possession
Date") of "Hazardous Material" upon, about, beneath the Premises, Building or
Office Building Project or migrating or threatening to migrate to or from the
Premises, Building or Office Building Project or the existence of a violation of
"Environmental Requirements" pertaining to the Premises, Building or Office
Building Project, regardless of whether the existence of such "Hazardous
Material" or the violation of "Environmental Requirements" arose prior to the
present ownership or operation of the Premises, Building or Office Building
Project, and including without limitation:
(i) damages for personal injury, or injury to property or natural
resources occurring upon or off of the Premises, Building or Office Building
Project, foreseeable or unforeseeable, including, without limitation, lost
profits, consequential damages, the cost of demolition and rebuilding of any
18
<PAGE>
improvements on real property, interest and penalties including but not limited
to claims brought by or on behalf of employees of Lessee, with respect to which
Lessee waives any immunity to which it may be entitled under any industrial or
worker's compensation laws;
(ii) fees incurred for the service of attorneys, consultants,
contractors, experts, laboratories and all other costs incurred in connection
with the investigation or remediation of such "Hazardous Materials" or violation
of "Environmental Requirements" including, but not limited to, the preparation
of any feasibility studies or reports or the performance of any cleanup,
remedial, removal, response, abatement, containment, closure, restoration or
monitoring work required by any federal, state or local governmental agency or
political subdivision, or reasonably necessary to make full economic use of the
Premises, Building or Office Building Project or any other property or otherwise
expended in connection with such conditions, and including without limitation
any attorneys' fees, costs and expenses incurred in enforcing this Lease or
collection of any sums due hereunder
(iii) liability to any third person or governmental agency to
indemnify such person or agency for costs expended in connection with the items
referenced in subparagraph (ii) herein; and
(iv) diminution in the value of the Premises, Building or Office
Building Project, and damages for the loss of business and restriction on the
use of or adverse impact on the marketing of rentable or usable space or of any
amenity of the Premises, Building or Office Building Project.
(b) Lessee's Obligations.
Lessee, at its sole cost and expense, shall comply with all Environmental
Requirements relating to the storage, use and disposal of all Hazardous
Materials, including those materials identified in Sections 66680 through 66685
of Title 22 of the California Administrative Code, Division 4, Chapter 30
("Title 22") as the same may be amended from time to time. If Lessee does store,
use or dispose of any Hazardous Materials, Lessee shall notify Landlord in
writing at least ten (10) days prior to the first appearance of such materials
on the Premises, Building or Office Building Project, and Lessor shall have the
right to disapprove of Lessee's use thereof on the Premises (provided that
Lessor's failure to disapprove thereof shall not constitute Lessor's approval
thereof or excuse Lessee from complying with the terms of this paragraph 45),
and Lessee's failure to so notify Lessor shall constitute a default under this
Lease. Lessee shall be solely responsible for and shall protect, defend,
indemnify, and hold Lessor, its agents and contractors harmless from and against
all Environmental Damages arising out of or in connection with the storage, use
and disposal of Hazardous Materials by Lessee, its officers, employees, agents,
representatives, servants, sublessees, concessionaires, licensees, contractors,
invitees or permittees. If the presence of Hazardous Materials on the Premises,
Building or Office Building Project caused or permitted by Lessee results in
contamination or deterioration of water or soil resulting in a level of
contamination greater than the levels established by any governmental agency
having jurisdiction over such contamination, then Lessee shall, at its sole cost
and expense, promptly take any and all action necessary to clean up such
contamination if required by law or as a condition to the issuance or continuing
effectiveness of any governmental approval which relates to the use of the
Premises, Building or Office Building Project. If at any time prior to the
expiration of the Lease term, Lessor shall reach a reasonable good faith
determination that Lessee or its officers, employees, agents, representatives,
servants, sublessees, concessionaires, licensees, contractors, invitees or
permittees have at any time violated any Environmental Requirements, discharged
any Hazardous Material onto the Premises, Building or Office Building Project,
or surrounding areas or otherwise subjected Lessor or the Office Building
Project to liability for Environmental Damages, then Lessor shall have the right
to require Lessee to conduct appropriate tests of water and soil and to deliver
to Lessor the result of such tests to demonstrate that no contamination in
excess of legally permitted levels has occurred as a result of Lessee's use of
the Premises, Building or Office Building Project. If the presence of Hazardous
Materials on the Premises, Building or office Building Project is caused or
permitted by Lessee or its officers, employees, agents, representatives,
servants, sublessees, concessionaires, licensees, contractors, invitees or
permittees such that Lessor or Lessee becomes obligated to conduct the necessary
clean-up of such contamination as required above, then, Lessee shall further be
solely responsible for, and shall protect, defend, indemnify and hold Lessor,
its agents and contractors harmless from and against all claims, costs and
liabilities, including actual attorneys' fees, expert witness fees and costs,
arising out of or in connection with any removal, cleanup and restoration work
and materials required hereunder to return the Premises, Building or office
Building Project and any other property of whatever nature to conditions which
existed prior to Lessee's use thereof and which are within acceptable levels
according to all Environmental Requirements or any other Federal, State or local
governmental requirements. Lessee's obligations hereunder shall survive the
termination of this Lease.
46. MODIFIED GROSS LEASE. Lessee acknowledges and agrees that this Lease
is of the type commonly referred to as a "modified gross" Lease, and that
accordingly, and without limiting the generality of the foregoing or any other
provision of the Lease, Lessee shall be responsible for the payment of its
separately metered suite electrical utilities and for its pro-rata share of the
increase in the Office Building Project operating expenses over the Base Year,
subject to Section 4.2.
47. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, Lessee, and each individual executing this Lease on behalf of such
entity, represent and warrant that such individual is duly authorized to execute
and deliver this Lease on behalf of said entity. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after execution of
this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
48. CONFLICT. Any conflict between the printed provisions, Exhibits or Addenda
of this Lease and the computer-generated, typewritten or handwritten provisions,
if any, shall be controlled by the computer-generated, typewritten or
handwritten provisions,
49. NO OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully executed
by both parties.
19
<PAGE>
50. LENDER MODIFICATION. Lessee agrees to make such reasonable modifications to
this Lease as may be reasonably required by an institutional lender in
connection with the obtaining of normal financing or refinancing of the Office
Building Project.
51. MULTIPLE PARTIES. If more than one person or entity is named as either
Lessor or Lessee herein, except as otherwise expressly provided herein, the
obligations of the Lessor or Lessee herein shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee,
respectively.
52. WORK LETTER. This Lease is supplemented by that certain Work Letter of
even date executed by Lessor and Lessee attached hereto as Exhibit E and
incorporated herein by this reference.
53. ATTACHMENTS. Attached hereto are the following documents which constitute a
part of this Lease:
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF THE LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY
THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE
BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OF THE TRANSACTION RELATING
THERETO: THE PARTIES SHALL RELY SOLELY UPON THE ADVISE OF THEIR OWN LEGAL
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
"LESSOR" "LESSEE"
JOHN HANCOCK MUTUAL LIFE MEDICAL DIAGNOSTIC SYSTEMS, L.L.C.
INSURANCE COMPANY
By /s/ JOHN MCDONOUGH By /s/ ROBERT H. GUREVITCH
----------------------------- -----------------------------
John McDonough Robert H. Gurevitch
----------------------------- -----------------------------
(print name)
Its Investment Officer Its President
---------------------------- -----------------------------
EXHIBIT LEASE
EXHIBIT A - Premises
EXHIBIT B - Rules and Regulations
EXHIBIT C - Addendum
20
<PAGE>
GUARANTY OF LEASE
WHEREAS, JOHN HANCOCK MUTUAL LIFE INSURANCE, hereinafter referred to as
"Lessor", and MEDICAL DIAGNOSTIC SYSTEMS, L.L.C., hereinafter referred to as
"Lessee", are about to execute a document entitled "Lease", dated October 30,
1995, concerning the Premises commonly known as 200 Westlake Blvd., #202,
Westlake Village, California 91362, wherein Lessor will lease the Promises to
Lessee; and
WHEREAS, ROBERT H. GUREVITCH, hereinafter referred to as "Guarantor" have a
financial interest in Lessee; and
WHEREAS, Lessor would not execute the Lease if Guarantor did not execute
and deliver to Lessor this Guaranty of Lease,
NOW THEREFORE, for and in consideration of the execution of the foregoing
Lease by Lessor and as a material inducement to Lessee to execute said Lease,
Guarantor hereby jointly, severally, unconditionally and irrevocably guaranty
the prompt payment by Lessee of all rentals and all other sums payable by Lessee
under said Lease and the faithful and prompt performance by Lessee of each and
every one of the terms, conditions and covenants of said Lease to be kept and
performed by Lessee.
It is specifically agreed and understood that the terms of the foregoing
Lease may be altered, affected, modified or changed by agreement between Lessor
and Lessee, or by a course of conduct, and said Lease may be assigned by Lessor
or any assignee of Lessor without consent or notice to Guarantor and that this
Guaranty shall thereupon and thereafter guaranty in performance of said Lease as
so changed, modified, altered or assigned.
This Guaranty shall not be released, modified or affected by failure or
delay on the part of to enforce any of the rights or remedies of the Lessor
under said Lease, whether pursuant to the terms thereof or a law of in equity.
No notice of default need be given to Guarantor, it being specifically
agreed and understood that the Guaranty of the undersigned is a continuing
Guaranty under which Lessor may proceed forthwith and immediately against Lessee
or against Guarantor following any breach or default by Lessee, or for the
enforcement of any rights which Lessor may have as against Lessee pursuant to or
under the terms of the within Lease of at law or in equity.
Lessor shall have the right to proceed against Guarantor hereunder
following any breach or default by Lessee without first proceeding against
Lessee and without previous notice to or demand upon either Lessee or Guarantor.
Guarantor hereby waives (a) notice of acceptance of this Guaranty, (b)
demand of payment, presentation and protest, (c) any right to require the Lessor
to proceed against the Lessee or any other Guarantor or any other person or
entity liable to Lessor, (d) any right to require Lessor to apply to a default
any security deposit or other security It may hold under the Lease, (a) any
right to require Lessor to proceed under any other remedy Lessor may have before
proceeding against Guarantor, (f) any right of subrogation.
Guarantor does hereby subrogate all existing or future indebtedness of
Lessee to Guarantor to the obligations owed to Lessor under the Lease and this
Guaranty.
Any married woman who signs this Guaranty expressly agrees that recourse
may be had against her separate property for all of her obligations hereunder.
The obligations of Lessee under the Lease to execute and deliver estoppel
statements and financial statements, as therein provided, shall be deemed to
also require the Guarantors hereunder to do and provide the same relative to
Guarantor.
The term "Lessor" whenever hereinabove used refers to and means the Lessor
in the foregoing Lease specifically named and also any assignee of said Lessor,
whether by outright assignment or by assignment for security, and also any
successor to the interest of said Lessor or of any assignee in such Lease or any
part thereof, whether by assignment or otherwise. So long as the Lessor's
interest in or to the leased Premises or the rents, issues and profits
therefrom, or in, to or under said Lease, are subject to any mortgage or deed of
trust or assignment for security, no acquisition by Guarantor of the Lessor's
interest in the leased Premises or under said Lease shall affect the continuing
obligation of Guarantor under this Guaranty which shall nevertheless continue in
full force and effect for the benefit of the mortgagee, beneficiary, trustee or
assignee under such mortgage, deed of trust or assignment, of any purchase at
sale by judicial foreclosure or under private power of sale, and of the
successors and assigns of any such mortgagee, beneficiary, trustee, assignee of
purchaser.
<PAGE>
The term "Lessee" whenever hereinabove used refers to and means the Lessee
in the foregoing Lease specifically named and also any assignee or sublessee of
said Lease and also any successor to the interest of said Lessee, assignee or
sublessee of such Lease or any part thereof, whether by assignment, sublease or
otherwise.
In the event any action be brought by said Lessor against Guarantor
hereunder to endorse the obligation of Guarantor hereunder, the unsuccessful
party in such action shall pay to the prevailing party therein a reasonable
attorney's fee which shall be fixed by the court.
Dated: 11-6-95
----------------------------
/s/ ROBERT H. GUREVITCH
- ----------------------------------
ROBERT H. GUREVITCH
<PAGE>
EXHIBIT 10.34
INDUSTRIAL LEASE
(Multi-Tenant; Net)
"AS-IS"
BETWEEN
THE IRVINE COMPANY
AND
MEDICAL DIAGNOSTIC SYSTEMS, LLC
<PAGE>
INDEX TO LEASE
Page
ARTICLE I. BASIC LEASE PROVISIONS............1
ARTICLE II. PREMISES..........................2
Section 2.1 Leased Premises...................2
Section 2.2 Acceptance of Premises............2
Section 2.3 Building Name and Address.........2
ARTICLE III. TERM..............................2
Section 3.1 General...........................2
Section 3.2 Delay in Possession...............2
ARTICLE IV. RENT AND OPERATING EXPENSES.......2
Section 4.1 Basic Rent........................2
Section 4.2 Operating Expenses................2
Section 4.3 Security Deposit..................3
ARTICLE V. USES..............................4
Section 5.1 Use...............................4
Section 5.2 Signs.............................4
Section 5.3 Hazardous Materials...............4
ARTICLE VI. COMMON AREAS; SERVICES............6
Section 6.1 Utilities and Services............6
Section 6.2 Operation and Maintenance of
Common Areas....................6
Section 6.3 Use of Common Areas...............6
Section 6.4 Parking...........................6
Section 6.5 Changes and Additions
by Landlord.....................6
ARTICLE VII. MAINTAINING THE PREMISES..........7
Section 7.1 Tenant's Maintenance and
Repair..........................7
Section 7.2 Landlord's Maintenance and
Repair..........................7
Section 7.3 Alterations.......................7
Section 7.4 Mechanic's Liens..................7
Section 7.5 Entry and Inspection..............8
ARTICLE VIII. TAXES AND ASSESSMENTS ON
TENANT'S PROPERTY...............8
ARTICLE IX. ASSIGNMENT AND SUBLETTING.........8
Section 9.1 Rights of Parties.................8
Section 9.2 Effect of Transfer................9
Section 9.3 Sublease Requirements.............9
Section 9.4 Certain Transfers.................9
ARTICLE X. INSURANCE AND INDEMNITY..........10
Section 10.1 Tenant's Insurance...............10
Section 10.2 Landlord's Insurance.............10
Section 10.3 Tenant's Indemnity...............10
Section 10.4 Landlord's Nonliability..........10
Section 10.5 Waiver of Subrogation............10
ARTICLE XI. DAMAGE OR DESTRUCTION............11
Section 11.1 Restoration......................11
Section 11.2 Lease Governs....................11
ARTICLE XII. EMINENT DOMAIN...................11
Section 12.1 Total or Partial Taking..........11
Section 12.2 Temporary Taking.................11
Section 12.3 Taking of Parking Area...........11
ARTICLE XIII. SUBORDINATION; ESTOPPEL
CERTIFICATE; FINANCIALS........12
Section 13.1 Subordination....................12
Section 13.2 Estoppel Certificate.............12
Section 13.3 Financials.......................12
ARTICLE XIV. DEFAULTS AND REMEDIES............12
Section 14.1 Tenant's Defaults................12
Section 14.2 Landlord's Remedies..............13
Section 14.3 Late Payments....................14
Section 14.4 Right of Landlord to Perform.....14
Section 14.5 Default by Landlord..............14
Section 14.6 Expenses and Legal Fees..........14
Section 14.7 Waiver of Jury Trial.............14
Section 14.8 Satisfaction of Judgment.........14
Section 14.9 Limitation of Actions Against
Landlord.......................14
ARTICLE XV. END OF TERM......................15
Section 15.1 Holding Over.....................15
Section 15.2 Merger on Termination............15
Section 15.3 Surrender of Premises;
Removal of Property............15
ARTICLE XVI. PAYMENTS AND NOTICES.............16
ARTICLE XVII. RULES AND REGULATIONS............16
ARTICLE XVIII. BROKER'S COMMISSION..............16
ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST..16
ARTICLE XX. INTERPRETATION...................16
Section 20.1 Gender and Number................16
Section 20.2 Headings.........................16
Section 20.3 Joint and Several Liability......16
Section 20.4 Successors.......................16
Section 20.5 Time of Essence..................16
Section 20.6 Controlling Law..................16
Section 20.7 Severability.....................16
Section 20.8 Waiver and Cumulative Remedies...16
Section 20.9 Inability to Perform.............16
Section 20.10 Entire Agreement.................16
Section 20.11 Quiet Enjoyment..................17
Section 20.12 Survival.........................17
ARTICLE XXI. EXECUTION AND RECORDING..........17
Section 21.1 Counterparts.....................17
Section 21.2 Corporate and Partnership
Authority......................17
Section 21.3 Execution of Lease; No Option
or Offer.......................17
Section 21.4 Recording........................17
Section 21.5 Amendments.......................17
Section 21.6 Executed Copy....................17
Section 21.7 Attachments......................17
ARTICLE XXII. MISCELLANEOUS....................17
Section 22.1 Nondisclosure of Lease Terms.....17
Section 22.2 Guaranty.........................17
Section 22.3 Changes Requested by Lender......17
Section 22.4 Mortgagee Protection.............17
Section 22.5 Covenants and Conditions.........18
Section 22.6 Security Measures................18
EXHIBITS
Exhibit A Description of Premises
Exhibit B Environmental Questionnaire
Exhibit C Landlord's Disclosures
Exhibit D Insurance Requirements
Exhibit E Rules and Regulations
Exhibit Y Project Site Plan
<PAGE>
INDUSTRIAL LEASE
(Multi-Tenant; Net)
"AS-IS"
THIS LEASE is made as of 27th day of October, 1995 by and between the
---- -------------
Irvine Company, a Michigan corporation, hereafter called "Landlord," and
MEDICAL DIAGNOSTIC SYSTEMS, LLC, a limited liability company, hereinafter
- ------------------------------------------------------------
called "Tenant."
INITIAL
ARTICLE 1. BASIC LEASE PROVISIONS /s/
HERE
Each reference in this Lease to the "Basic Lease Provisions" shall mean
and refer to the following collective terms, the application of which shall be
governed by the provisions in the remaining Articles of this Lease.
1. Premises: Suite No. C-501 (the Premises are more particularly
-----
described in Section 2.1).
Address of Building: One Technology Drive, Irvine, CA 92718
--------------------------------------------
2. Project Description (if applicable): One Technology Park
-----------------------------
3. Use of Premises: Office and distribution of dental equipment and
-------------------------------------------------
assembly.
------------------------------------------------------------------
4. Commencement Date: November 1, 1995
------------------------------------------------
5. Lease Term: Thirty-six (36) months, plus such additional days as
--------------------
may be required to cause this Lease to terminate on the final day of
the calendar month.
6. Basic Rent: Three Thousand Seven Hundred Twenty-Nine Dollars and
-------------------------------------------------------
Seventy Cents ($3,729.70) per month, based on $ .65 per rentable
------------------------- -----
square foot.
Basic Rent is subject to adjustment as follows:
Commencing November 1, 1996, the Basic Rent payable shall be Three
Thousand Nine Hundred One Dollars and Eighty-Four Cents ($3,901.84) per
month, based on $.68 per rentable square foot.
Commencing November 1, 1997, the Basic Rent payable shall be Four
Thousand Seventy-Three Dollars and Ninety-Eight Cents ($4,073.98) per
month, based on $.71 per rentable square foot.
7. Guarantor(s): Robert Gurevitch and Hiroki Umezaki
-------------------------------------------------------
8. Floor Area of Premises: approximately 5,738 rentable square feet.
-------
9. Security Deposit: $4,481.38
---------------------------------------------------
10. Broker(s): None
----------------------------------------------------------
11. Additional Insureds: The Irvine Company and Insignia*O'Donnell
-------------------------------------------------
Commercial Group
---------------------------------------------------------------------
12. Address for Payments and Notices:
<TABLE>
<CAPTION>
LANDLORD TENANT
<S> <C>
The Irvine Company Medical Diagnostic Systems, LLC
c/o Insignia*O'Donnell Commercial Group One Technology Drive, Suite C-501
One Technology Drive, Suite F-207 Irvine CA 92718
Irvine, CA 91718
Attn: Property Manager
with a copy of notices to:
IRVINE INDUSTRIAL COMPANY
P.O. Box 6370
Newport Beach, CA 92658-6370
Attn: Vice President, Industrial Operations
</TABLE>
13. Tenant's Liability Insurance Requirements: $1,000,000.00
----------------------------
14. Vehicle Parking Spaces: Seventeen ( 17 )
-----------------------
Exhibits:
A Description of Premises D Insurance Requirements
B Environmental Questionnaire E Rules and Regulations
C Landlord's Disclosures Y Project Site Plan
Riders:
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ARTICLE II. PREMISES
SECTION 2.1. LEASED PREMISES. Landlord leases to Tenant and Tenant
Leases from Landlord the premises shown in Exhibit A (the "Premises"),
containing approximately the floor area set forth in Item 8 of the Basic Lease
Provisions and known by the suite number identified in Item 1 of the Basic Lease
Provisions. The Premises are located in the building identified in Item 1 of
the Basic Lease Provisions (which together with the underlying real property, is
called the "Building"), and is a portion of the project shown in Exhibit Y (the
"Project"). Tenant understands that the floor area set forth in Item 8 of the
Basic Lease Provisions may include, at Landlord's option, a factor approximating
the total square footage of any common lobby or internal common features of the
Building times the ratio of the actual square footage of the Premises to the
total square footage of the Building. If, at any time and from time to time,
Landlord's architect or space planner determines that the rentable square
footage of the Premises differs from that set forth in the Basic Lease
Provisions, then Landlord shall so notify Tenant and the Basic Rent (as shown in
Item 6 of the Basic Lease Provisions) shall be promptly adjusted in proportion
to the change in square footage. Within five (5) days following Landlord's
request, the parties shall memorialize the adjustments by executing an amendment
to this Lease prepared by Landlord, provided that the failure or refusal by
either party to execute the amendment shall not affect its validity.
SECTION 2.2. ACCEPTANCE OF PREMISES. Tenant acknowledges that
neither Landlord nor any representative of Landlord has made any representation
or warranty with respect to the Premises or the Building or the suitability or
fitness of either for any purpose, including without limitation any
representations or warranties regarding zoning or other land use matters, and
that neither Landlord nor any representative of Landlord has made any
representations or warranties regarding (i) what other tenants or uses may be
permitted or intended in the Building and the Project, or (ii) any exclusivity
of use by Tenant with respect to its permitted use of the Premises as set forth
in Item 3 of the Basic Lease Provisions. Tenant further acknowledges that
neither Landlord nor any representative of Landlord has agreed to undertake any
alterations or additions to the Premises except as expressly provided in this
Lease, except that Landlord shall install one (1) main door between the office
portion of the Premises and the warehouse portion of the Premises. The taking
of possession or use of the Premises by Tenant for any purpose shall
conclusively establish that the Premises and the Building were in satisfactory
condition and in conformity with the provisions of this Lease in all respects.
SECTION 2.3. BUILDING NAME AND ADDRESS. Tenant shall not utilize
any name selected by Landlord from time to time for the Building and/or the
Project as any part of Tenant's corporate or trade name. Landlord shall have
the right to change the name, address, number or designation of the Building or
Project without liability to Tenant.
ARTICLE III. TERM
SECTION 3.1. GENERAL. The Term shall be for the period shown in
Item 5 of the Basic Lease Provisions. The Term shall commence ("Commencement
Date") on the date set forth in Item 4 of the Basic Lease Provisions. Promptly
following the Commencement Date, the parties shall memorialize on a form
provided by Landlord the actual Commencement Date and the expiration date
("Expiration Date") of this Lease. Tenant's failure to execute that form shall
not affect the validity of Landlord's determination of those dates.
SECTION 3.2. DELAY IN POSSESSION. If Landlord, for any reason
whatsoever, cannot delivery possession of the Premises to Tenant on or before
the Commencement Date, this Lease shall not be void or voidable nor shall
Landlord be liable to Tenant for any resulting loss or damage. However, Tenant
shall not be liable for any rent and the Commencement Date shall not occur
until Landlord delivers possession of the Premises and the Premises are in fact
available for Tenant's occupancy, except that if Landlord's failure to so
deliver possession on the Estimated Commencement Date is attributable to any
action or inaction by Tenant, then the Commencement Date shall not be advanced
to the date on which possession of the Premises is tendered to Tenant, and
Landlord shall be entitled to full performance by Tenant (including the payment
of rent) from the date Landlord would have been able to deliver the Premises to
Tenant but for Tenant's delay(s).
ARTICLE IV. RENT AND OPERATING EXPENSES
SECTION 4.1. BASIC RENT. From and after the Commencement Date, Tenant
shall pay to Landlord without deduction or offset, Basic Rent for the Premises
in the total amount shown (including subsequent adjustments, if any) in Item 6
of the Basic Lease Provisions. Any rental adjustment shown in Item 6 shall be
deemed to occur on the specified monthly anniversary of the Commencement Date,
whether or not that date occurs at the end of a calendar month. The rent shall
be due and payable in advance commencing on the Commencement Date (as prorated
for any partial month) and continuing thereafter on the first day of each
successive calendar month of the Term. No demand, notice or invoice shall be
required for the payment of Basic Rent. An installment of rent in the amount
of one (1) full month's Basic Rent at the initial rate specified in Item 6 of
the Basic Lease Provisions shall be delivered to Landlord concurrently with
Tenant's execution of this Lease and shall be applied against the Basic Rent
first due hereunder.
SECTION 4.2. OPERATING EXPENSES.
(a) Tenant shall pay to Landlord, as additional rent,
Tenant's Share of "Operating Expenses", as defined below, incurred by Landlord
in the operation of the Building and Project. The term "Tenant's Share" means
that portion of an Operating Expense determined by multiplying the cost of such
item by a fraction, the numerator of which is the floor area of the Premises and
the denominator of which is the total square footage of the floor area, as of
the date on which the computation is made, to be charged with such Operating
Expense.
(b) Commencing prior to the state of the first full
"Expense Recovery Period" (as defined below) of the Lease, and prior to the
start of each full or partial Expense Recovery Period thereafter, Landlord
shall give Tenant a written estimate of the amount of Tenant's Share of
Operating Expenses for the Expense Recovery Period. Tenant shall pay the
estimated amounts to Landlord in equal monthly installments, in advance, with
Basic Rent. If Landlord has not furnished its written estimate
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for any Expense Recovery Period by the time set forth above, Tenant shall
continue to pay cost reimbursements at the rates established for the prior
Expense Recovery Period, if any; provided that when the new estimate is
delivered to Tenant, Tenant shall, at the next monthly payment date, pay any
accrued cost reimbursements based upon the new estimate. For purposes hereof,
"Expense Recovery Period" shall mean every twelve month period during the Term
(or portion thereof for the first and last lease years) commencing July 1 and
ending June 30.
(c) Within one hundred twenty (120) days after the end of
each Expense Recovery Period, Landlord shall furnish to Tenant a statement
showing in reasonable detail the actual or prorated Operating Expenses incurred
by Landlord during the period, and the parties shall within thirty (30) days
thereafter make any payment or allowance necessary to adjust Tenant's estimated
payments, if any, to the actual Tenant's Share as shown by the annual
statement. Any delay or failure by Landlord in delivering any statement
hereunder shall not constitute a waiver of Landlord's right to require Tenant
to pay Tenant's Share of Operating Expenses pursuant hereto. Any amount due
Tenant shall be credited against installments next coming due under this
Section 4.2, and any deficiency shall be paid by Tenant together with the next
installment. If Tenant has not made estimated payments during the Expense
Recovery Period, any amount owing by Tenant pursuant to subsection (a) above
shall be paid to Landlord in accordance with Article XVI. Should Tenant fail to
object in writing to Landlord's determination of actual Operating Expenses
within sixty (60) days following delivery of Landlord's expense statement,
Landlord's determination of actual Operating Expenses for the applicable
Expense Recovery Period shall be conclusive and binding on the parties and any
future claims to the contrary shall be barred.
(d) Even though the Lease has terminated and the Tenant has
vacated the Premises, when the final determination is made of Tenant's Share of
Operating Expenses for the Expense Recovery Period in which the Lease
terminates, Tenant shall upon notice pay the entire increase due over the
estimated expenses paid. Conversely, any overpayment made in the event expenses
decrease shall be rebated by Landlord to Tenant.
(e) If, at any time during any Expense Recovery Period, any
one or more of the Operating Expenses are increased to a rate(s) or amount(s)
in excess of the rate(s) or amount(s) used in calculating the estimated
expenses for the year, then the estimate of Tenant's Share of Operating Expenses
shall be increased for the month in which such rate(s) or amount(s) becomes
effective and for all succeeding months by an amount equal to Tenant's Share of
the increase. Landlord shall give Tenant written notice of the amount or
estimated amount of the increase, the month in which the increase will become
effective, Tenant's Share thereof and the month for which the payments are due.
Tenant shall pay the increase to Landlord as part of Tenant's monthly payments
of estimated expenses as provided in paragraph (b) above, commencing with the
month in which effective.
(f) The term "Operating Expenses" shall mean and include
all "Project Costs" (as hereafter defined) and "Property Taxes" (as hereafter
defined).
(g) The term "Project Costs" shall include all expenses of
operation and maintenance of the Building and the Project, together with all
appurtenant Common Areas (as defined in Section 6.2), and shall include the
following charges by way of illustration but not limitation: water and sewer
charges; insurance premiums or reasonable premium equivalents should Landlord
elect to self-insure any risk that Landlord is authorized to insure hereunder;
license, permit, and inspection fees; heat; light; power; janitorial services
to any interior Common Areas; air conditioning; supplies; materials; equipment;
tools; the cost of any environmental, insurance, tax or other consultant
utilized by Landlord in connection with the Building and/or Project;
establishment of reasonable reserves for replacements and/or repair of Common
Area improvements, equipment and supplies; costs incurred in connection with
compliance of any laws or changes in laws applicable to the Building or the
Project; the cost of any capital investments (other than tenant improvements
for specific tenants) to the extent of the amortized amount thereof over the
useful life of such capital investments calculated at a market cost of funds,
all as determined by Landlord, for each such year of useful life during the
Term; costs associated with the procurement and maintenance of an air
conditioning, heating and ventilation service agreement, and procurement and
maintenance of an intrabuilding network cable service agreement for any
intrabuilding network cable telecommunications lines within the Project, and
any other installation, maintenance, repair and replacement costs associated
with such lines; labor; reasonably allocated wages and salaries, fringe
benefits, and payroll taxes for administrative and other personnel directly
applicable to the Building and/or Project, including both Landlord's personnel
and outside personnel; any expense incurred pursuant to Sections 6.1, 6.2, 6.4,
7.2, and 10.2; and a reasonable overhead/management fee for the professional
operation of the Project. Notwithstanding anything to the contrary herein,
Tenants's Share of any such property management fees shall be determined by
multiplying the actual property management fee charged (which from time to time
may be with respect to the Building only, a portion of the Project only, the
entire project, or the Project together with other properties owned by Landlord
and/or its affiliates) by a fraction, the numerator of which is the floor area
of the Premises (as set forth in Item 8 of the Basic Lease Provisions contained
in the Lease), and the denominator of which is the total square footage of
space charged with such management fee actually leased to tenants (including
Tenant). It is understood that Project Costs shall include competitive charges
for direct services provided by any subsidiary or division of Landlord.
(h) The term "Property Taxes" as used herein shall include
the following: (i) all real estate taxes or personal property taxes, as such
property taxes may be reassessed from time to time; and (ii) other taxes,
charges and assessments which are levied with respect to this Lease or to the
Building and/or the Project, and any improvements, fixtures and equipment and
other property of Landlord located in the Building and/or the Project, except
that general net income and franchise taxes imposed against Landlord shall be
excluded; and (iii) all assessments and fees for public improvements, services,
and facilities and impacts thereon, including without limitation arising out of
any Community Facilities Districts, "Mello Roos" districts, similar assessment
districts, and any traffic impact mitigation assessments or fees; (iv) any tax,
surcharge or assessment which shall be levied in addition to or in lieu of real
estate of personal property taxes, other than taxes covered by Article VIII;
and (v) costs and expenses incurred in contesting the amount or validity of any
Property Tax by appropriate proceedings.
SECTION 4.3 SECURITY DEPOSIT. Concurrently with Tenant's delivery
of this Lease, Tenant shall deposit with Landlord the sum, if any, stated in
Item 9 of the Basic Lease Provisions, to be held by Landlord as security for
the full and faithful performance of Tenant's obligations under this Lease (the
"Security Deposit"). Subject to the last sentence of this Section, the Security
Deposit shall be understood and agreed to be the property of Landlord upon
Landlord's receipt thereof, and may be utilized
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by Landlord in its discretion towards the payment of all prepaid expenses by
Landlord for which Tenant would be required to reimburse Landlord under this
Lease, including without limitation brokerage commissions. Upon any default by
Tenant, including specifically Tenant's failure to pay rent or to abide by its
obligations under Section 7.1 and 15.3 below, whether or not Landlord is
informed of or has knowledge of the default, the Security Deposit shall be
deemed to be automatically and immediately applied, without waiver of any
rights Landlord may have under this Lease or at law or in equity as a result of
the default, as a setoff for full or partial compensation for that default. If
any portion of the Security Deposit is applied after a default by Tenant,
Tenant shall within five (5) days after written demand by Landlord deposit cash
with Landlord in an amount sufficient to restore the Security Deposit to its
original amount. Landlord shall not be required to keep this Security Deposit
separate from its general funds, and Tenant shall not be entitled to interest
on the Security Deposit. If Tenant fully performs its obligations under this
Lease, the Security Deposit shall be returned to Tenant (or, at Landlord's
option, to the last assignee of Tenant's interest in this Lease) after the
expiration of the Term, provided that Landlord may retain the Security Deposit
to the extent and until such time as all amounts due from Tenant in accordance
with this Lease have been determined and paid in full.
ARTICLE V. USES
SECTION 5.1. USE. Tenant shall use the Premises only for the
purposes stated in Item 3 of the Basic Lease Provisions, all in accordance with
applicable laws and restrictions and pursuant to approvals to be obtained by
Tenant from all relevant and required governmental agencies and authorities.
The parties agree that any contrary use shall be deemed to cause material and
irreparable harm to Landlord and shall entitle Landlord to injunctive relief in
addition to any other available remedy. Tenant, at its expense, shall
procure, maintain and make available for Landlord's inspection throughout the
Term, all governmental approvals, licenses and permits required for the proper
and lawful conduct of Tenant's permitted use of the Premises. Tenant shall not
do or permit anything to be done in or about the Premises which will in any way
interfere with the rights of other occupants of the Building or the Project, or
use or allow the Premises to be used for any unlawful purpose, nor shall Tenant
permit any nuisance or commit any waste in the Premises or the Project. Tenant
shall not perform any work or conduct any business whatsoever in the Project
other than inside the Premises. Tenant shall not do or permit to be done
anything which will invalidate or increase the cost of any insurance
policy(ies) covering the Building, the Project and/or their contents, and shall
comply with all applicable insurance underwriters rules and the requirements of
the Pacific Fire Rating Bureau or any other organization performing a similar
function. Tenant shall comply at its expense with all present and future laws,
ordinances, restrictions, regulations, orders, rules and requirements of all
governmental authorities that pertain to Tenant or its use of the Premises,
including without limitation all federal and state occupational health and
safety requirements, whether or not Tenant's compliance will necessitate
expenditures or interfere with its use and enjoyment of the Premises. Tenant
shall comply at its expense with all present and future covenants, conditions,
easements or restrictions now or hereafter affecting or encumbering the
Building and/or Project, and any amendments or modifications thereto, including
without limitation the payment by Tenant of any periodic or special dues or
assessments charged against the Premises or Tenant which may be allocated to
the Premises or Tenant in accordance with the provisions thereof. Tenant shall
promptly upon demand reimburse Landlord for any additional insurance premium
charged by reason of Tenant's failure to comply with the provisions of this
Section, and shall indemnify Landlord from any liability and/or expense
resulting from Tenant's noncompliance.
SECTION 5.2 SIGNS. Except as approved in writing by Landlord, in
its sole discretion, Tenant shall have no right to maintain identification signs
in any location in, on or about the Premises, the Building or the Project and
shall not place or erect any other signs, displays or other advertising
materials that are visible from the exterior of the Building. The size, design,
graphics, material, style, color and other physical aspects of any permitted
sign shall be subject to Landlord's written approval prior to installation
(which approval may be withheld in Landlord's discretion), any covenants,
conditions or restrictions encumbering the Premises, Landlord's signage program
for the Project, as in effect from time to time and approved by the City of
Irvine ("Signage Criteria"), and any applicable municipal or other governmental
permits and approvals. Tenant acknowledges having received and reviewed a copy
of the current Signage Criteria for the Project. Tenant shall be responsible
for the cost of any permitted sign, including the fabrication, installation,
maintenance and removal thereof. If Tenant fails to maintain its sign, or if
Tenant fails to remove same upon termination of this Lease and repair any damage
caused by such removal, Landlord may do so at Tenant's expense.
SECTION 5.3 HAZARDOUS MATERIALS.
(a) For purposes of this Lease, the term "Hazardous
Materials" includes (i) any "hazardous materials" as defined in Section
25501(k) of the California Health and Safety Code, (ii) any other substance or
mater which results in liability to any person or entity from exposure to such
substance or matter under any statutory or common law theory, and (iii) any
substance or matter which is in excess of permitted levels set forth in any
federal, California or local law or regulation pertaining to any hazardous or
toxic substance, material or waste.
(b) Tenant shall not cause or permit any Hazardous
Materials to be brought upon, stored, used, generated, released or disposed of
on, under, from or about the Premises (including without limitation the soil
and groundwater thereunder) without the prior written consent of Landlord.
Notwithstanding the foregoing, Tenant shall have the right, without obtaining
prior written consent of Landlord, to utilize within the Premises standard
office products that may contain Hazardous Materials (such as photocopy toner,
"White Out", and the like), provided however, that (i) Tenant shall maintain
such products in their original retail packaging, shall follow all instructions
on such packaging with respect to the storage, use and disposal of such
products, and shall otherwise comply with all applicable laws with respect to
such products, and (ii) all of the other terms and provisions of this Section
5.3 shall apply with respect to Tenant's storage, use and disposal of all such
products. Landlord may, in its sole discretion, place such conditions as
Landlord deems appropriate with respect to any such Hazardous Materials, and
may further require that Tenant demonstrate that any such Hazardous Materials
are necessary or useful to Tenant's business and will be generated, stored,
used and disposed of in a manner that complies with all applicable laws and
regulations pertaining thereto and with good business practices. Tenant
understands that Landlord may utilize an environmental consultant to assist in
determining conditions of approval in connection with the storage, generation,
release, disposal or use
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of Hazardous Materials by Tenant on or about the Premises, and/or to conduct
periodic inspections of the storage, generation, use, release and/or disposal
of such Hazardous Materials by Tenant on and from the Premises, and Tenant
agrees that any costs incurred by Landlord in connection therewith shall be
reimbursed by Tenant to Landlord as additional rent hereunder upon demand.
(c) Prior to the execution of this Lease, Tenant shall
complete, execute and deliver to Landlord an Environmental Questionnaire and
Disclosure Statement (the "Environmental Questionnaire") in the form of Exhibit
8 attached hereto. The completed Environmental Questionnaire shall be deemed
incorporated into this Lease for all purposes, and Landlord shall be entitled
to rely fully on the information contained therein. On each anniversary of the
Commencement Date until the expiration or sooner termination of this Lease,
Tenant shall disclose to Landlord in writing the names and amounts of all
Hazardous Materials which were stored, generated, used, released and/or
disposed of on, under or about the Premises for the twelve-month period prior
thereto, and which Tenant desires to store, generate, use, release and/or
disposed of on, under or about the Premises for the succeeding twelve-month
period. In addition, to the extent Tenant is permitted to utilize Hazardous
Materials upon the Premises, Tenant shall promptly provide Landlord with
complete and legible copies of all the following environmental documents
relating thereto: reports filed pursuant to any self-reporting requirements;
permit applications, permits, monitoring reports, workplace exposure and
community exposure warnings or notices and all other reports, disclosures,
plans or documents (even those which may be characterized as confidential)
relating to water discharges, air pollution, waste generation or disposal, and
underground storage tanks for Hazardous Materials; orders, reports, notices,
listings and correspondence (even those which may be considered confidential)
of or concerning the release, investigation of, compliance, cleanup, remedial
and corrective actions, and abatement of Hazardous Materials; and all
complaints, pleadings and other legal documents filed by or against Tenant
related to Tenant's use, handling, storage, release and/or disposal of
Hazardous Materials.
(d) Landlord and its agents shall have the right, but not
the obligation, to inspect, sample and/or monitor the Premises and/or the soil
or groundwater thereunder at any time to determine whether Tenant is complying
with the terms of this Section 5.3, and in connection therewith Tenant shall
provide Landlord with full access to all relevant facilities, records and
personnel. If Tenant is not in compliance with any of the provisions of this
Section 5.3, or in the event of a release of any Hazardous Material on, under
or about the Premises caused or permitted by Tenant, its agents, employees,
contractors, licensees or invitees, Landlord and its agents shall have the
right, but not the obligation, without limitation upon any of Landlord's other
rights and remedies under this Lease, to immediately enter upon the Premises
without notice and to discharge Tenant's obligations under this Section 5.3 at
Tenant's expense, including without limitation the taking of emergency or
long-term remedial action. Landlord and its agents shall endeavor to minimize
interference with Tenant's business in connection therewith, but shall not be
liable for any such interference. In addition, Landlord, at Tenant's expense,
shall have the right, but not the obligation, to join and participate in any
legal proceedings or actions initiated in connection with any claims arising out
of the storage, generation, use, release and/or disposal by Tenant or its
agents, employees, contractors, licensees or invitees of Hazardous Materials on,
under, from or about the Premises.
(e) If the presence of any Hazardous Materials on, under,
from or about the Premises or the Project caused or permitted by Tenant or its
agents, employees, contractors, licensees or invitees results in (i) injury to
any person, (ii) injury to or any contamination of the Premises or the Project,
or (iii) injury to or contamination of any real or personal property wherever
situated, Tenant, at its expense, shall promptly take all actions necessary to
return the Premises and the Project and any other affected real or personal
property owned by Landlord to the condition existing prior to the introduction
of such Hazardous Materials and to remedy or repair any such injury or
contamination, including without limitation, any cleanup, remediation,
removal, disposal, neutralization or other treatment of any such Hazardous
Materials. Notwithstanding the foregoing, Tenant shall not, without Landlord's
prior written consent, take any remedial action in response to the presence of
any Hazardous Materials on, under or about the Premises or the Project or any
other affected real or personal property owned by Landlord or enter into any
similar agreement, consent, decree or other compromise with any governmental
agency with respect to any Hazardous Materials claims; provided however,
Landlord's prior written consent shall not be necessary in the event that the
presence of Hazardous Materials on, under or about the Premises or the Project
or any other affected real or personal property owned by the Landlord (i)
imposes an immediate threat to the health, safety or welfare of any individual
or (ii) is of such a nature that an immediate remedial response is necessary
and it is not possible to obtain Landlord's consent before taking such action.
To the fullest extent permitted by law, Tenant shall indemnify, hold harmless,
protect and defend (with attorneys acceptable to Landlord) Landlord and any
successors to all or any portion of Landlord's interest in the Premises and the
Project and any other real or personal property owned by Landlord from and
against any and all liabilities, losses, damages, diminution in value,
judgments, fines, demands, claims, recoveries, deficiencies, costs and expenses
(including without limitation attorneys' fees, court costs and other
professional expenses), whether foreseeable or unforeseeable, arising directly
or indirectly out of the use, generation, storage, treatment, release, on- or
off-site disposal or transportation of Hazardous Materials on, into, from,
under or about the Premises, the Building and the Project and any other real or
personal property owned by Landlord caused or permitted by Tenant, its agents,
employees, contractors, licensees or invitees, specifically including without
limitation the cost of any required or necessary repair, restoration, cleanup or
detoxification of the Premises, the Building and the Project and any other real
or personal property owned by Landlord, and the preparation of any closure or
other required plans, whether or not such action is required or necessary during
the Term or after the expiration of this Lease. If Landlord at any time
discovers that Tenant or its agents, employees, contractors, licensees or
invitees may have caused or permitted the release of a Hazardous Material on,
under, from or about the Premises or any other real or personal property owned
by Landlord, Tenant shall, at Landlord's request, immediately prepare and
submit to Landlord a comprehensive plan, subject to Landlord's approval,
specifying the actions to be taken by Tenant to return the Premises or the
Project or any other real or personal property owned by Landlord to the
condition existing prior to the introduction of such Hazardous Materials. Upon
Landlord's approval of such cleanup plan, Tenant shall, at its expense, and
without limitation of any rights and remedies of Landlord under this Lease or at
law or in equity, immediately implement such plan and proceed to cleanup such
Hazardous Materials in accordance with all applicable laws and as required by
such plan and this Lease. The provisions of this subsection (e) shall
expressly survive the expiration or sooner termination of this Lease.
(f) Landlord hereby discloses to Tenant, and Tenant hereby
acknowledges, certain facts relating to Hazardous Materials at the Project
known by Landlord to exist as of the date of this Lease, as more particularly
described in Exhibit C attached hereto. Tenant shall have no liability or
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responsibility with respect to the Hazardous Materials facts described in
Exhibit C, nor with respect to any Hazardous Materials which Tenant proves were
not caused or permitted by Tenant, its agents, employees, contractors,
licensees or invitees. Notwithstanding the preceding two sentences, Tenant
agrees to notify its agents, employees, contractors, licensees, and invitees of
any exposure or potential exposure to Hazardous Materials at the Premises that
Landlord brings to Tenant's attention.
ARTICLE VI. COMMON AREAS; SERVICES
SECTION 6.1. UTILITIES AND SERVICES. Tenant shall be responsible
for and shall pay promptly, directly to the appropriate supplier, all charges
for water, gas, electricity, sewer, heat, light, power, telephone, refuse
pickup, janitorial service, interior landscape maintenance and all other
utilities, materials and services furnished directly to Tenant or the Premises
or used by Tenant in, on or about the Premises during the Term, together with
any taxes thereon. If any utilities or services are not separately metered or
assessed to Tenant, Landlord shall make a reasonable determination of Tenant's
proportionate share of the cost of such utilities and services and Tenant shall
pay such amount to Landlord, as an item of additional rent, within ten (10) days
after receipt of Landlord's statement or invoice therefor. Alternatively,
Landlord may elect to include such cost in the definition of Building Costs in
which event Tenant shall pay Tenant's proportionate share of such costs in the
manner set forth in Section 4.2. Landlord shall not be liable for damages or
otherwise for any failure or interruption of any utility or other service
furnished to the Premises, and no such failure or interruption shall be deemed
an eviction or entitle Tenant to terminate this Lease or withhold or abate any
rent due hereunder. Landlord shall at all reasonable times have free access to
all electrical and mechanical installations of Landlord.
SECTION 6.2. OPERATION AND MAINTENANCE OF COMMON AREAS. During the
Term, Landlord shall operate all Common Areas within the Building and the
Project. The term "Common Areas" shall mean all areas within the exterior
boundaries of the Building and other buildings in the Project which are not
held for exclusive use by persons entitled to occupy space, and all other
appurtenant areas and improvements provided by Landlord for the common use of
Landlord and tenants and their respective employees and invitees, including
without limitation parking areas and structures, driveways, sidewalks,
landscaped and planted areas, hallways and interior stairwells not located
within the premises of any tenant, common electrical rooms and roof access
entries, common entrances and lobbies, elevators, and restrooms not located
within the premises of any tenant.
SECTION 6.3. USE OF COMMON AREAS. The occupancy by Tenant of the
Premises shall include the use of the Common Areas in common with Landlord and
with all others for whose convenience and use the Common Areas may be provided
by Landlord, subject, however, to compliance with all rules and regulations as
are prescribed from time to time by Landlord. Landlord shall operate and
maintain the Common Areas in the manner Landlord may determine to be
appropriate. All costs incurred by Landlord for the maintenance and operation
of the Common Areas shall be included in Project Costs unless any particular
cost incurred can be charged to a specific tenant of the Project. Landlord
shall at all times during the Term have exclusive control of the Common Areas,
and may restrain any use or occupancy, except as authorized by Landlord's rules
and regulations. Tenant shall keep the Common Areas clear of any obstruction
or unauthorized use related to Tenant's operations. Nothing in this Lease
shall be deemed to impose liability upon Landlord for any damage to or loss of
the property of, or for any injury to, Tenant, its invitees or employees.
Landlord may temporarily close any portion of the Common Areas for repairs,
remodeling and/or alterations, to prevent a public dedication or the accrual of
prescriptive rights, or for any other reason deemed sufficient by Landlord,
without liability to Landlord.
SECTION 6.4. PARKING. Tenant shall be entitled to the number of
vehicle parking spaces set forth in Item 14 of the Basic Lease Provisions,
which spaces shall be unreserved and unassigned, on those portions of the
Common Areas designated by Landlord for parking. Tenant shall not use more
parking spaces than such number. All parking spaces shall be used only for
parking by vehicles no larger than full size passenger automobiles or pickup
trucks. Tenant shall not permit or allow any vehicles that belong to or are
controlled by Tenant or Tenant's employees, suppliers, shippers, customers or
invitees to be loaded, unloaded or parked in areas other than those designated
by Landlord for such activities. If Tenant permits or allows any of the
prohibited activities described above, then Landlord shall have the right,
without notice, in addition to such other rights and remedies that Landlord may
have, to remove or tow away the vehicle involved and charge the costs to
Tenant. Parking within the Common Areas shall be limited to striped parking
stalls, and no parking shall be permitted in any driveways, access ways or in
any area which would prohibit or impede the free flow of traffic within the
Common Areas. There shall be no overnight parking of any vehicles of any kind
unless otherwise authorized by Landlord, and vehicles which have been abandoned
or parked in violation of the terms hereof may be towed away at the owner's
expense. Nothing contained in this Lease shall be deemed to create liability
upon Landlord for any damage to motor vehicles of visitors or employees, for
any loss of property from within those motor vehicles, or for any injury to
Tenant, its visitors or employees, unless ultimately determined to be caused by
the sole active negligence or willful misconduct of Landlord. Landlord shall
have the right to establish, and from time to time amend, and to enforce
against all users all reasonable rules and regulations (including the
designation of areas for employee parking) that Landlord may deem necessary and
advisable for the proper and efficient operation and maintenance of parking
within the Common Areas. Landlord shall have the right to construct, maintain
and operate lighting facilities within the parking areas; to change the
area, level, location and arrangement of the parking areas and improvements
therein; to restrict parking by tenants, their officers, agents and employees
to employee parking areas; to enforce parking charges (by operation of meters
or otherwise); and to do and perform such other acts in and to the parking
areas and improvements therein as, in the use of good business judgment,
Landlord shall determine to be advisable. Any person using the parking area
shall observe all directional signs and arrows and any posted speed limits. In
no event shall Tenant interfere with the use and enjoyment of the parking area
by other tenants of the Building or their employees or invitees. Parking areas
shall be used only for parking vehicles. Washing, waxing, cleaning or servicing
of vehicles, or the storage of vehicles for 24-hour periods, is prohibited
unless otherwise authorized by Landlord. Tenant shall be liable for any damage
to the parking areas caused by Tenant or Tenant's employees, suppliers,
shippers, customers or invitees, including without limitation damage from excess
oil leakage. Tenant shall have no right to install any fixtures, equipment or
personal property in the parking areas.
SECTION 6.5. CHANGES AND ADDITIONS BY LANDLORD. Landlord reserves
the right to make alterations or additions to the Building or the Project, or
to the attendant fixtures, equipment and Common Areas. Landlord may at any
time relocate or remove any of the various buildings, parking areas,
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and other Common Areas, and may add buildings and areas to the Project from
time to time. No change shall entitle Tenant to any abatement of rent or other
claim against Landlord, provided that the change does not deprive Tenant of
reasonable access to or use of the Premises.
ARTICLE VII. MAINTAINING THE PREMISES
SECTION 7.1. TENANT'S MAINTENANCE AND REPAIR. Tenant at its sole
expense shall comply with all applicable laws and governmental regulations
governing the Premises and make all repairs necessary to keep the Premises in
the condition as existed on the Commencement Date, excepting ordinary wear and
tear, including without limitation all glass, windows, doors, door closures,
hardware, fixtures, electrical, plumbing, fire extinguisher equipment and other
equipment. Any damage or deterioration of the Premises shall not be deemed
ordinary wear and tear if the same could have been prevented by good
maintenance practices by Tenant. As part of its maintenance obligations
hereunder, Tenant shall, at Landlord's request, provide Landlord with copies of
all maintenance schedules, reports and notices prepared by, for or on behalf of
Tenant. All repairs shall be at least equal in quality to the original work,
shall be made only by a licensed contractor approved in writing in advance by
Landlord and shall be made only at the time or times approved by Landlord. Any
contractor utilized by Tenant shall be subject to Landlord's standard
requirements for contractors, as modified from time to time. Landlord may
impose reasonable restrictions and requirements with respect to repairs, as
provided in Section 7.3, and the provisions of Section 7.4 shall apply to all
repairs. Alternatively, Landlord may elect to make any such repair on behalf of
Tenant and at Tenant's expense, and Tenant shall promptly reimburse Landlord
for all costs incurred upon submission of an invoice.
SECTION 7.2. LANDLORD'S MAINTENANCE AND REPAIR. Subject to Section
7.1 and Article XI, Landlord shall provide service, maintenance and repair with
respect to any air conditioning, ventilating or heating equipment which serves
the Premises and shall maintain in good repair the roof, foundations, footings,
the exterior surfaces of the exterior walls of the Building, and the
structural, electrical and mechanical systems, except that Tenant at its
expense shall make all repairs which Landlord deems reasonably necessary as a
result of the act or negligence of Tenant, its agents, employees, invitees,
subtenants or contractors. Landlord shall have the right to employ or designate
any reputable person or firm, including any employee or agent of Landlord or
any of Landlord's affiliates or divisions, to perform any service, repair or
maintenance function. Landlord need not make any other improvements or repairs
except as specifically required under this Lease, and nothing contained in this
Section shall limit Landlord's right to reimbursement from Tenant for
maintenance, repair costs and replacement costs as provided elsewhere in this
Lease. Tenant understands that it shall not make repairs at Landlord's expense
or by rental offset. Tenant further understands that Landlord shall not be
required to make any repairs to the roof, foundations, footings, structural,
electrical or mechanical systems unless and until Tenant has notified Landlord
in writing of the need for such repair and Landlord shall have a reasonable
period of time thereafter to commence and complete said repair, if warranted.
All costs of any maintenance and repairs on the part of Landlord provided
hereunder shall be considered part of Project Costs.
SECTION 7.3. ALTERATIONS. Tenant shall make no alterations,
additions or improvements to the Premises without the prior written consent of
Landlord, which consent may be given or withheld in Landlord's sole discretion.
Notwithstanding the foregoing, Landlord shall not unreasonably withhold its
consent to any alterations, additions or improvements to the Premises which
cost less than One Dollar ($1.00) per square foot of the improved portions of
the Premises (excluding warehouse square footage) and do not (i) affect the
exterior of the Building or outside areas (or be visible from adjoining sites),
or (ii) affect or penetrate any of the structural portions of the Building,
including but not limited to the roof, or (iii) require any change to the basic
floor plan of the Premises, any change to any structural or mechanical systems
of the Premises, or any governmental permit as a prerequisite to the
construction thereof, or (iv) interfere in any manner with the proper
functioning of or Landlord's access to any mechanical, electrical, plumbing or
HVAC systems, facilities or equipment located in or serving the Building, or
(v) diminish the value of the Premises. Landlord may impose, as a condition to
its consent, any requirements that Landlord in its discretion may deem
reasonable or desirable, including but not limited to a requirement that all
work be covered by a lien and completion bond satisfactory to Landlord and
requirements as to the manner, time, and contractor for performance of the
work. Tenant shall obtain all required permits for the work and shall perform
the work in compliance with all applicable laws, regulations and ordinances,
all covenants, conditions and restrictions affecting the Project, and the Rules
and Regulations (hereafter defined). If any governmental entity requires, as a
condition to any proposed alterations, additions or improvements to the
Premises by Tenant, that improvements be made to the Common Areas, and if
Landlord consents to such improvements to the Common Areas, then Tenant shall,
at Tenant's sole expense, make such required improvements to the Common Areas
in such manner, utilizing such materials, and with such contractors (including,
if required by Landlord, Landlord's contractors) as Landlord may require in its
sole discretion. Under no circumstances shall Tenant make any improvement which
incorporates any Hazardous Materials, including without limitation
asbestos-containing construction materials into the Premises. Any request for
Landlord's consent shall be made in writing and shall contain architectural
plans describing the work in detail reasonably satisfactory to Landlord. Unless
Landlord otherwise agrees in writing, all alterations, additions or
improvements affixed to the Premises (excluding moveable trade fixtures and
furniture) shall become the property of Landlord and shall be surrendered with
the Premises at the end of the Term, except that Landlord may, by notice to
Tenant, require Tenant to remove by the Expiration Date, or sooner termination
date of this Lease, all or any alterations, decorations, fixtures, additions,
improvements and the like installed either by Tenant or by Landlord at Tenant's
request and to repair any damage to the Premises arising from that removal.
Except as otherwise provided in this Lease or in any Exhibit to this Lease,
should Landlord make any alteration or improvement to the Premises for Tenant,
Landlord shall be entitled to prompt reimbursement from Tenant for all costs
incurred.
SECTION 7.4. MECHANIC'S LIENS. Tenant shall keep the Premises free
from any liens arising out of any work performed, materials furnished, or
obligations incurred by or for Tenant. Upon request by Landlord, Tenant shall
promptly cause any such lien to be released by posting a bond in accordance
with California Civil Code Section 3143 or any successor statute. In the event
that Tenant shall not, within thirty (30) days following the imposition of any
lien, cause the lien to be released of record by payment or posting of a proper
bond, Landlord shall have, in addition to all other available remedies, the
right to cause the lien to be released by any means it deems proper, including
payment of or defense against the claim giving rise to the lien. All expenses
so incurred by Landlord, including Landlord's attorneys' fees, and any
consequential or other damages incurred by Landlord arising out of such lien,
shall be
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reimbursed by Tenant promptly following Landlord's demand, together with
interest from the date of payment by Landlord at the maximum rate permitted by
law until paid. Tenant shall give Landlord no less than twenty (20) days' prior
notice in writing before commencing construction of any kind on the Premises so
that Landlord may post and maintain notices of nonresponsibility on the
Premises.
SECTION 7.5 ENTRY AND INSPECTION. Landlord shall at all reasonable
times, upon written or oral notice (except in emergencies, when no notice shall
be required) have the right to enter the Premises to inspect them, to supply
services in accordance with this Lease, to protect the interests of Landlord in
the Premises, and to submit the Premises to prospective or actual purchasers or
encumbrance holders (or, during the last one hundred and eighty (180) days of
the Term or when an uncured Tenant default exists, to prospective tenants), all
without being deemed to have caused an eviction of Tenant and without abatement
of rent except as provided elsewhere in this Lease. Landlord shall have the
right, if desired, to retain a key which unlocks all of the doors in the
Premises, excluding Tenant's vaults and safes, and Landlord shall have the
right to use any and all means which Landlord may deem proper to open the doors
in an emergency in order to obtain entry to the Premises, and any entry to the
Premises obtained by Landlord shall not under any circumstances be deemed to be
a forcible or unlawful entry into, or a detainer of, the Premises, or any
eviction of Tenant from the Premises.
ARTICLE VIII. TAXES AND ASSESSMENTS ON TENANT'S PROPERTY
Tenant shall be liable for and shall pay, at least ten (10) days before
delinquency, all taxes and assessments levied against all personal property of
Tenant located in the Premises, against all improvements to the Premises made
by Landlord or Tenant which are above Landlord's Project standard in quality
and/or quantity for comparable space within the Project ("Above Standard
Improvements"), and against any alterations, additions or like improvements
made to the Premises by or on behalf of Tenant. When possible Tenant shall
cause its personal property, Above Standard Improvements and alterations to be
assessed and billed separately from the real property of which the Premises
form a part. If any taxes on Tenant's personal property, Above Standard
Improvements and/or alterations are levied against Landlord or Landlord's
property and if Landlord pays the same, or if the assessed value of Landlord's
property is increased by the inclusion of a value placed upon the personal
property, Above Standard Improvements and/or alterations of Tenant and if
Landlord pays the taxes based upon the increased assessment, Tenant shall pay
to Landlord the taxes so levied against Landlord or the proportion of the taxes
resulting from the increase in the assessment. In calculating what portion of
any tax bill which is assessed against Landlord separately, or Landlord and
Tenant jointly, is attributable to Tenant's Above Standard Improvements,
alterations and personal property, Landlord's reasonable determination shall be
conclusive.
ARTICLE IX. ASSIGNMENT AND SUBLETTING
SECTION 9.1 RIGHTS OF PARTIES.
(a) Notwithstanding any provision of this Lease to the
contrary, Tenant will not, either voluntarily or by operation of law, assign,
sublet, encumber, or otherwise transfer all or any part of Tenant's interest in
this lease, or permit the Premises to be occupied by anyone other than Tenant,
without Landlord's prior written consent, which consent shall not unreasonably
be withheld in accordance with the provisions of Section 9.1(b). No assignment
(whether voluntary, involuntary or by operation of law) and no subletting shall
be valid or effective without Landlord's prior written consent and, at
Landlord's election, any such assignment or subletting or attempted assignment
or subletting shall constitute a material default of this Lease. Landlord shall
not be deemed to have given its consent to any assignment or subletting by any
other course of action, including its acceptance of any name for listing in the
Building directory. To the extent not prohibited by provisions of the
Bankruptcy Code, 11 U.S.C. Section 101 et seq. (the "Bankruptcy Code"),
including Section 365(f)(1), Tenant on behalf of itself and its creditors,
administrators and assigns waives the applicability of Section 365(e) of the
Bankruptcy Code unless the proposed assignee of the Trustee for the estate of
the bankrupt meets Landlord's standard for consent as set forth in Section
9.1(b) of this Lease. If this Lease is assigned to any person or entity
pursuant to the provisions of the Bankruptcy Code, any and all monies or other
considerations to be delivered in connection with the assignment shall be
delivered to Landlord, shall be and remain the exclusive property of Landlord
and shall not constitute property of Tenant or of the estate of Tenant within
the meaning of the Bankruptcy Code. Any person or entity to which this Lease is
assigned pursuant to the provisions of the Bankruptcy Code shall be deemed to
have assumed all of the obligations arising under this Lease on and after the
date of the assignment, and shall upon demand execute and deliver to Landlord
an instrument confirming that assumption.
(b) If Tenant desires to transfer an interest in this
Lease, it shall first notify Landlord of its desire and shall submit in
writing to Landlord: (i) the name and address of the proposed transferee; (ii)
the nature of any proposed subtenant's or assignee's business to be carried on
in the Premises; (iii) the terms and provisions of any proposed sublease or
assignment, including a copy of the proposed assignment or sublease form; (iv)
evidence of insurance of the proposed assignee or subtenant complying with the
requirements of Exhibit D hereto; (v) a completed Environmental Questionnaire
from the proposed assignee or subtenant; and (vi) any other information
requested by Landlord and reasonably related to the transfer. Except as
provided in Subsection (c) of this Section, Landlord shall not unreasonably
withhold its consent, provided: (1) the use of the Premises will be consistent
with the provisions of this Lease and with Landlord's commitment to other
tenants of the Building and Project; (2) the proposed assignee or subtenant has
not been required by any prior Landlord, lender or governmental authority to
take remedial action in connection with Hazardous Materials contaminating a
property arising out of the proposed assignee's or subtenant's actions or use
of the property in question and is not subject to any enforcement order issued
by any governmental authority in connection with the use, disposal or storage
of a Hazardous Material; (3) at Landlord's election, insurance requirements
shall be brought into conformity with Landlord's then current leasing practice;
(4) any proposed subtenant or assignee demonstrates that it is financially
responsible by submission to Landlord of all reasonable information as Landlord
may request concerning the proposed subtenant or assignee, including, but not
limited to, a balance sheet of the proposed subtenant or assignee as of a date
within ninety (90) days of the request for Landlord's consent, statements of
income or profit and loss of the proposed subtenant or assignee for the
two-year period preceding the request for Landlord's consent, and/or a
certification signed by the proposed subtenant or assignee that it has not been
evicted or been in arrears in rent at any other leased
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premises for the 3-year period preceding the request for Landlord's consent;
(5) any proposed subtenant or assignee demonstrates to Landlord's reasonable
satisfaction a record of successful experience in business; (6) the proposed
assignee or subtenant is not an existing tenant of the Building or Project or a
prospect with whom Landlord is negotiating to become a tenant at the Building
or Project; and (7) the proposed transfer will not impose additional burdens or
adverse tax effects on Landlord. If Tenant has any exterior sign rights under
this Lease, such rights are personal to Tenant and may not be assigned or
transferred to any assignee of this Lease or subtenant of the Premises without
Landlord's prior written consent, which may be withheld in Landlord's sole and
absolute discretion.
If Landlord consents to the proposed transfer, Tenant may within ninety (90)
days after the date of the consent effect the transfer upon the terms described
in the information furnished to Landlord; provided that any material change in
the terms shall be subject to Landlord's consent as set forth in this Section.
Landlord shall approve or disapprove any requested transfer within thirty (30)
days following receipt of Tenant's written request, the information set forth
above, and the fee set forth below.
(c) Notwithstanding the provisions of Subsection (b) above,
in lieu of consenting to a proposed assignment or subletting, Landlord may elect
to (i) sublease the Premises (or the portion proposed to be subleased), or take
an assignment or Tenant's interest in this Lease, upon the same terms as offered
to the proposed subtenant or assignee (excluding terms relating to the purchase
of personal property, the use of Tenant's name or the continuation of Tenant's
business), or (ii) terminate this Lease as to the portion of the Premises
proposed to be subleased or assigned with a proportionate abatement in the rent
payable under this Lease, effective on the date that the proposed sublease or
assignment would have become effective. Landlord may thereafter, at its option,
assign or re-let any space so recaptured to any third party, including without
limitation the proposed transferee of Tenant.
(d) Tenant agrees that fifty percent (50%) of any amounts
paid by the assignee or subtenant, however described, in excess of (i) the Basic
Rent payable by Tenant hereunder, or in the case of a sublease of a portion of
the Premises, in excess of the Basic Rent reasonably allocable to such portion,
plus (ii) Tenant's direct out-of-pocket costs which Tenant certifies to Landlord
have been paid to provide occupancy related services to such assignee or
subtenant of a nature commonly provided by landlords or similar space, shall be
the property of Landlord and such amounts shall be payable directly to Landlord
by assignee or subtenant or, at Landlord's option, by Tenant. At Landlord's
request, a written agreement shall be entered into by and among Tenant, Landlord
and the proposed assignee or subtenant confirming the requirements of this
subsection.
(e) Tenant shall pay to Landlord a fee of Five Hundred
Dollars ($500.00) if and when any transfer hereunder is requested by Tenant.
Such fee is hereby acknowledged as a reasonable amount to reimburse Landlord for
its costs of review and evaluation of a proposed assignee/sublessee, and
Landlord shall not be obligated to commence such review and evaluation unless
and until such fee is paid.
SECTION 9.2. EFFECT OF TRANSFER. No subletting or assignment, even
with the consent of Landlord, shall relieve Tenant of its obligation to pay
rent and to perform all its other obligations under this Lease. Moreover,
Tenant shall indemnify and hold Landlord harmless, as provided in Section 10.3,
for any act or omission by an assignee or subtenant. Each assignee, other than
Landlord, shall be deemed to assume all obligations of Tenant under this Lease
and shall be liable jointly and severally with Tenant for the payment of all
rent, and for the due performance of all of Tenant's obligations, under this
Lease. No transfer shall be binding on Landlord unless any document
memorializing the transfer is delivered to Landlord and both the
assignee/subtenant and Tenant deliver to Landlord an executed consent to
transfer instrument prepared by Landlord and consistent with the requirements
of this Article. The acceptance by Landlord of any payment due under this Lease
from any other person shall not be deemed to be a waiver by Landlord of any
provision of this Lease or to be a consent to any transfer. Consent by
Landlord to one or more transfers shall not operate as a waiver or estoppel to
the future enforcement by Landlord or its rights under this Lease.
SECTION 9.3 SUBLEASE REQUIREMENTS. The following terms and
conditions shall apply to any subletting by Tenant of all or any part of the
Premises and shall be included in each sublease:
(a) Each and every provision contained in this Lease (other
than with respect to the payment of rent hereunder) is incorporated by
reference into and make a part of such sublease, with "Landlord" hereunder
meaning the sublandlord therein and "Tenant" hereunder meaning the subtenant
therein.
(b) Tenant hereby irrevocably assigns to Landlord all of
Tenant's interest in all rentals and income arising from any sublease of the
Premises, and Landlord may collect such rent and income and apply same toward
Tenant's obligations under this Lease; provided, however, that until a default
occurs in the performance of Tenant's obligations under this Lease, Tenant
shall have the right to receive and collect the sublease rentals. Landlord
shall not, by reason of this assignment or the collection of sublease rentals,
be deemed liable to the subtenant for the performance of any of Tenant's
obligations under the sublease. Tenant hereby irrevocably authorizes and
directs any subtenant, upon receipt of a written notice from Landlord stating
that an uncured default exists in the performance of Tenant's obligations
under this Lease, to pay to Landlord all sums then and thereafter due under the
sublease. Tenant agrees that the subtenant may rely on that notice without any
duty of further inquiry and notwithstanding any notice or claim by Tenant to
the contrary. Tenant shall have no right or claim against the subtenant or
Landlord for any rentals so paid to Landlord.
(c) In the event of the termination of this Lease, Landlord
may, at its sole option, take over Tenant's entire interest in any sublease
and, upon notice from Landlord, the subtenant shall attorn to Landlord. In no
event, however, shall Landlord be liable for any previous act or omission by
Tenant under the sublease or for the return of any advance rental payments or
deposits under the sublease that have not been actually delivered to landlord,
nor shall Landlord be bound by any sublease modification executed without
Landlord's consent or for any advance rental payment by the subtenant in excess
of one month's rent. The general provisions of this Lease, including without
limitation those pertaining to insurance and indemnification, shall be deemed
incorporated by reference into the sublease despite the termination of this
Lease.
SECTION 9.4. CERTAIN TRANSFERS. The sale of all or substantially
all of Tenant's assets (other than bulk sales in the ordinary course of
business) or, if Tenant is a corporation, an unincorporated association, or a
partnership, the transfer, assignment or hypothecation of any stock or interest
in such corporation, association, or partnership in the aggregate of
twenty-five percent (25%)
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(except for publicly traded shares of stock constituting a transfer of
twenty-five percent (25%) or more in the aggregate, so long as no change in the
controlling interest of Tenant occurs as a result thereof) shall be deemed an
assignment within the meaning and provisions of this Article. Notwithstanding
the foregoing, Landlord's consent shall not be required for the assignment of
this Lease as a result of a merger by Tenant with or into another entity, so
long as (i) the net worth of the successor entity after such merger is at least
equal to the greater of the net worth of Tenant as of the execution of this
Lease by Landlord or the net worth of Tenant immediately prior to the date of
such merger, evidence of which, satisfactory to Landlord, shall be presented to
Landlord prior to such merger, (ii) Tenant shall provide to Landlord, prior to
such merger, written notice of such merger and such assignment documentation
and other information as Landlord may request in connection therewith, and
(iii) all of the other terms and requirements of this Article shall apply with
respect to such assignment.
ARTICLE X. INSURANCE AND INDEMNITY
SECTION 10.1. TENANT'S INSURANCE. Tenant, at its sole cost and
expense, shall provide and maintain in effect the insurance described in
Exhibit D. Evidence of that insurance must be delivered to Landlord prior to
the Commencement Date.
SECTION 10.2. LANDLORD'S INSURANCE. Landlord may, at its election,
provide any or all of the following types of insurance, with or without
deductible and in amounts and coverages as may be determined by Landlord in its
discretion: "all risk" property insurance, subject to standard exclusions,
covering the Building or Project, and such other risks as Landlord or its
mortgagees may from time to time deem appropriate, including leasehold
improvements made by Landlord, and commercial general liability coverage.
Landlord shall not be required to carry insurance of any kind on Tenant's
property, including leasehold improvements, trade fixtures, furnishings,
equipment, plate glass, signs and all other items of personal property, and
shall not be obligated to repair or replace that property should damage occur.
All proceeds of insurance maintained by Landlord upon the Building and Project
shall be the property of Landlord, whether or not Landlord is obligated to or
elects to make any repairs. At Landlord's option, Landlord may self-insure all
or any portion of the risks for which Landlord elects to provide insurance
hereunder.
SECTION 10.3. TENANT'S INDEMNITY. To the fullest extent permitted by
law, Tenant shall defend, indemnify, protect, save and hold harmless Landlord,
its agents, and any and all affiliates of Landlord, including, without
limitation, any corporations or other entities controlling, controlled by or
under common control with Landlord, from and against any and all claims,
liabilities, costs or expenses arising either before or after the Commencement
Date from Tenant's use or occupancy of the Premises, the Building or the Common
Areas, or from the conduct of its business, or from any activity, work, or
thing done, permitted or suffered by Tenant or its agents, employees, invitees
or licensees in or about the Premises, the Building or the Common Areas, or
from any default in the performance of any obligation on Tenant's part to be
performed under this Lease, or from any act or negligence of Tenant or its
agents, employees, visitors, patrons, guests, invitees or licensees. Landlord
may, at its option, require Tenant to assume Landlord's defense in any action
covered by this Section through counsel satisfactory to Landlord. The
provisions of this Section shall expressly survive the expiration or sooner
termination of this Lease.
SECTION 10.4. LANDLORD'S NONLIABILITY. Landlord shall not be liable
to Tenant, its employees, agents and invitees, and Tenant hereby waives all
claims against Landlord for loss of or damage to any property, or loss or
interruption of business or income, or any other loss, cost, damage, injury or
liability whatsoever (including without limitation any consequential damages
and lost profit or opportunity costs) resulting from, but not limited to, Acts
of God, acts of civil disobedience or insurrection, acts or omissions of other
tenants within the Project or their agents, employees, contractors, guests or
invitees, fire, explosion, falling plaster, steam, gas, electricity, water or
rain which may leak or flow from or into any part of the Premises or from the
breakage, leakage, obstruction or other defects of the pipes, sprinklers,
wires, appliances, plumbing, air conditioning, electrical works or other
fixtures in the Building, whether the damage or injury results from conditions
arising in the Premises or in other portions of the Building. It is understood
that any such condition may require the temporary evacuation or closure of all
or a portion of the Building. Except as provided in Sections 11.1 and 12.1
below, there shall be no abatement of rent and no liability of Landlord by
reason of any injury to or interference with Tenant's business (including
without limitation consequential damages and lost profit or opportunity costs)
arising from the making of any repairs, alterations or improvements to any
portion of the Building, including repairs to the Premises, nor shall any
related activity by Landlord constitute an actual or constructive eviction;
provided, however, that in making repairs, alterations or improvements,
Landlord shall interfere as little as reasonably practicable with the conduct of
Tenant's business in the Premises. Neither Landlord nor its agents shall be
liable for interference with light or other similar intangible interests.
Tenant shall immediately notify Landlord in case of fire or accident in the
Premises, the Building or the Project and of defects in any improvements or
equipment.
SECTION 10.5. WAIVER OF SUBROGATION. Landlord and Tenant each hereby
waives all rights of recovery against the other and the other's agents on
account of loss and damage occasioned to the property of such waiving party to
the extent only that such loss or damage is required to be insured against
under any "all risk" property insurance policies required by this Article X;
provided however, that (i) the foregoing waiver shall not apply to the extent
of Tenant's obligations to pay deductibles under any such policies and this
Lease, and (ii) if any loss is due to the act, omission or negligence or
willful misconduct of Tenant or its agents, employees, contractors, guests or
invitees, Tenant's liability insurance shall be primary and shall cover all
losses and damages prior to any other insurance hereunder. By this waiver it
is the intent of the parties that neither Landlord nor Tenant shall be liable
to any insurance company (by way of subrogation or otherwise) insuring the
other party for any loss or damage insured against under any "all-risk"
property insurance policies required by this Article, even though such loss or
damage might be occasioned by the negligence of such party, its agents,
employees, contractors, guests or invitees. The provisions of this Section
shall not limit the indemnification provisions elsewhere contained in this
Lease.
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ARTICLE XI. DAMAGE OR DESTRUCTION
SECTION 11.1. RESTORATION.
(a) If the Building of which the Premises are a part is
damaged, Landlord shall repair that damage as soon as reasonably possible, at
its expense, unless: (i) Landlord reasonably determines that the cost of repair
is not covered by Landlord's fire and extended coverage insurance plus such
additional amounts Tenant elects, at its option, to contribute, excluding
however the deductible (for which Tenant shall be responsible for Tenant's
Share); (ii) Landlord reasonably determines that the Premises cannot, with
reasonable diligence, be fully repaired by Landlord (or cannot be safely
repaired because of the presence of hazardous factors, including without
limitation Hazardous Materials, earthquake faults, and other similar dangers)
within two hundred seventy (270) days after the date of the damage; (iii) an
event of default by Tenant has occurred and is continuing at the time of such
damage; or (iv) the damage occurs during the final twelve (12) months of the
Term. Should Landlord elect not to repair the damage for one of the preceding
reasons, Landlord shall so notify Tenant in writing within sixty (60) days after
the damage occurs and this Lease shall terminate as of the date of that notice.
(b) Unless Landlord elects to terminate this Lease in
accordance with subsection (a) above, this Lease shall continue in effect for
the remainder of the Term; provided that so long as Tenant is not in default
under this Lease, if the damage is so extensive that Landlord reasonably
determines that the Premises cannot, with reasonable diligence, be repaired by
Landlord (or cannot be safely repaired because of the presence of hazardous
factors, earthquake faults, and other similar dangers) so as to allow Tenant's
substantial use and enjoyment of the Premises within two hundred seventy (270)
days after the date of damage, then Tenant may elect to terminate this Lease by
written notice to Landlord within the sixty (60) day period stated in
subsection (a).
(c) Commencing on the date of any damage to the Building,
and ending on the sooner of the date the damage is repaired or the date this
Lease is terminated, the rental to be paid under this Lease shall be abated in
the same proportion that the floor area of the Premises that is rendered
unusable by the damage from time to time bears to the total floor area of the
Premises, but only to the extent that any business interruption insurance
proceeds are received by Landlord therefor from Tenant's insurance described in
Exhibit D.
(d) Notwithstanding the provisions of subsections (a), (b)
and (c) of this Section, and subject to the provisions of Section 10.5 above,
the cost of any repairs shall be borne by Tenant, and Tenant shall not be
entitled to rental abatement or termination rights, if the damage is due to the
fault or neglect of Tenant or its employees, subtenants, invitees or
representatives. In addition, the provisions of this Section shall not be
deemed to require Landlord to repair any improvements or fixtures that Tenant
is obligated to repair or insure pursuant to any other provision of this Lease.
(e) Tenant shall fully cooperate with Landlord in removing
Tenant's personal property and any debris from the Premises to facilitate all
inspections of the Premises and the making of any repairs. Notwithstanding
anything to the contrary contained in this Lease, if Landlord in good faith
believes there is a risk of injury to persons or damage to property from entry
into the Building or Premises following any damage or destruction thereto,
Landlord may restrict entry into the Building or the Premises by Tenant, its
employees, agents and contractors in a non-discriminatory manner, without being
deemed to have violated Tenant's rights of quiet enjoyment to, or made an
unlawful detainer of, or evicted Tenant from, the Premises. Upon request,
Landlord shall consult with Tenant to determine if there are safe methods of
entry into the Building or the Premises solely in order to allow Tenant to
retrieve files, data in computers, and necessary inventory, subject however to
all indemnities and waivers of liability from Tenant to Landlord contained in
this Lease and any additional indemnities and waivers of liability which
Landlord may require.
SECTION 11.2. LEASE GOVERNS. Tenant agrees that the provisions of
this Lease, including without limitation Section 11.1, shall govern any damage
or destruction and shall accordingly supersede any contrary statute or rule of
law.
ARTICLE XII. EMINENT DOMAIN
SECTION 12.1. TOTAL OR PARTIAL TAKING. If all or a material portion
of the Premises is taken by any lawful authority by exercise of the right of
eminent domain, or sold to prevent a taking, either Tenant or Landlord may
terminate this Lease effective as of the date possession is required to be
surrendered to the authority. In the event title to a portion of the Building
or Project, other than the Premises, is taken or sold in lieu of taking, and if
Landlord elects to restore the Building in such a way as to alter the Premises
materially, either party may terminate this Lease, by written notice to the
other party, effective on the date of vesting of title. In the event neither
party has elected to terminate this Lease as provided above, then Landlord
shall promptly, after receipt of a sufficient condemnation award, proceed to
restore the Premises to substantially their condition prior to the taking, and
a proportionate allowance shall be made to Tenant for the rent corresponding to
the time during which, and to the part of the Premises of which, Tenant is
deprived on account of the taking and restoration. In the event of a taking,
Landlord shall be entitled to the entire amount of the condemnation award
without deduction for any estate or interest of Tenant; provided that nothing
in this Section shall be deemed to give Landlord any interest in, or prevent
Tenant from seeking any award against the taking authority for, the taking of
personal property and fixtures belonging to Tenant or for relocation or
business interruption expenses recoverable from the taking authority.
SECTION 12.2. TEMPORARY TAKING. No temporary taking of the Premises
shall terminate this Lease or give Tenant any right to abatement of rent, and
any award specifically attributable to a temporary taking of the Premises shall
belong entirely to Tenant. A temporary taking shall be deemed to be a taking of
the use or occupancy of the Premises for a period of not to exceed one hundred
eighty (180) days.
SECTION 12.3. TAKING OF PARKING AREA. In the event there shall be a
taking of the parking area such that Landlord can no longer provide sufficient
parking to comply with this Lease, Landlord may substitute reasonably equivalent
parking in a location reasonably close to the Building; provided that
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if Landlord fails to make that substitution within one hundred eighty (180) days
following the taking and if the taking materially impairs Tenant's use and
enjoyment of the Premises, Tenant may, at its own option, terminate this Lease
by written notice to Landlord. If this Lease is not so terminated by Tenant,
there shall be no abatement of rent and this Lease shall continue in effect.
ARTICLE XIII. SUBORDINATION: ESTOPPEL CERTIFICATE; FINANCIALS
SECTION 13.1. SUBORDINATION. At the option of Landlord, this Lease
shall be either superior or subordinate to all ground or underlying Leases,
mortgages and deeds of trust, if any, which may hereafter affect the Building,
and to all renewals, modifications, consolidations, replacements and extensions
thereof; provided, that so long as Tenant is not in default under this Lease,
this Lease shall not be terminated or Tenant's quiet enjoyment of the Premises
disturbed in the event of termination of any such ground or underlying lease,
or the foreclosure of any such mortgage or deed of trust, to which Tenant has
subordinated this Lease pursuant to this Section. In the event of a termination
or foreclosure, Tenant shall become a tenant of and attorn to the
successor-in-interest to Landlord upon the same terms and conditions as are
contained in this Lease, and shall execute any instrument reasonably required
by Landlord's successor for that purpose. Tenant shall also, upon written
request of Landlord, execute and deliver all instruments as may be required
from time to time to subordinate the rights of Tenant under this Lease to any
ground or underlying lease or to the lien of any mortgage or deed of trust
(provided that such instruments include the nondisturbance and attornment
provisions set forth above), or, if requested by Landlord, to subordinate, in
whole or in part, any ground or underlying lease or the lien of any mortgage or
deed of trust to this Lease.
SECTION 13.2. ESTOPPEL CERTIFICATE.
(a) Tenant shall, at any time upon not less than ten (10)
days prior written notice from Landlord, execute, acknowledge and deliver to
Landlord, in any form that Landlord may reasonably require, a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of the modification and certifying
that this Lease, as modified, is in full force and effect) and the dates to
which the rental, additional rent and other charges have been paid in advance,
if any, and (ii) acknowledging that, to Tenant's knowledge, there are no
uncured defaults on the part of Landlord, or specifying each default if any
are claimed, and (iii) setting forth all further information that Landlord may
reasonably require. Tenant's statement may be relied upon by any prospective
purchaser or encumbrancer of all or any portion of the Building or Project.
(b) Notwithstanding any other rights and remedies of
Landlord, Tenant's failure to deliver any estoppel statement within the provided
time shall be conclusive upon Tenant that (i) this Lease is in full force and
effect, without modification except as may be represented by Landlord, (ii)
there are no uncured defaults in Landlord's performance, and (iii) not more
than one month's rental has been paid in advance.
SECTION 13.3 FINANCIALS.
(a) Tenant shall deliver to Landlord, prior to the
execution of this Lease and thereafter at any time upon Landlord's request,
Tenant's current tax returns and financial statements, certified true, accurate
and complete by the chief financial officer of Tenant, including a balance
sheet and profit and loss statement for the most recent prior year
(collectively, the "Statements"), which Statements shall accurately and
completely reflect the financial condition of Tenant. Landlord agrees that it
will keep the Statements confidential, except that Landlord shall have the
right to deliver the same to any proposed purchaser of the building or Project,
and to any encumbrancer of all or any portion of the Building or Project.
(b) Tenant acknowledges that Landlord is relying on the
Statements in its determination to enter into this Lease, and Tenant represents
to Landlord, which representation shall be deemed made on the date of this
Lease and again on the Commencement Date, that no material change in the
financial condition of Tenant, as reflected in the Statements, has occurred
since the date Tenant delivered the Statements to Landlord. The Statements are
represented and warranted by Tenant to be correct and to accurately and fully
reflect Tenant's true financial condition as of the date of submission by any
statements to Landlord.
ARTICLE XIV. DEFAULTS AND REMEDIES
SECTION 14.1. TENANT'S DEFAULTS. In addition to any other event of
default set forth in this Lease, the occurrence of any one or more of the
following events shall constitute a default by Tenant:
(a) The failure by Tenant to make any payment of rent or
additional rent required to be made by Tenant, as and when due, where the
failure continues for a period of three (3) days after written notice from
Landlord to Tenant; provided, however, that any such notice shall be in Lieu
of, and as amended. For purposes of these default and remedies provisions, the
term "additional rent" shall be deemed to include all amounts of any type
whatsoever other than Basic Rent to be paid by Tenant pursuant to the terms of
this Lease.
(b) Assignment, sublease, encumbrance or other transfer of
the Lease by Tenant, either voluntarily or by operation of Law, whether by
judgment, execution, transfer by intestacy or testacy, or other means, without
the prior written consent of Landlord.
(c) The discovery by Landlord that any financial statement
provided by Tenant or by any affiliate, successor or guarantor of Tenant, was
materially false.
(d) The failure of Tenant to timely and fully provide any
subordination agreement, estoppel certificate or financial statements in
accordance with the requirements of Article XIII.
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(e) The failure or inability by Tenant to observe or perform
any of the express or implied covenants or provisions of this Lease to be
observed or performed by Tenant, other than as specified in any other subsection
of this Section, where the failure continues for a period of thirty (30) days
after written notice from Landlord to Tenant or such shorter period as is
specified in any other provision of this Lease; provided, however, that any such
notice shall be in lieu of, and not in addition to, any notice required under
California Code of Civil Procedure Section 1161 and 1161(a) as amended. However,
if the nature of the failure is such that more than thirty (30) days are
reasonably required for its cure, then Tenant shall not be deemed to be in
default if Tenant commences the cure within thirty (30) days, and thereafter
diligently pursues the cure to completion.
(f) (i) The making by Tenant of any general assignment for
the benefit of creditors; (ii) the filing by or against Tenant of a petition to
have Tenant adjudged a Chapter 7 debtor under the Bankruptcy Code or to have
debts discharged or a petition for reorganization or arrangement under any law
relating to bankruptcy (unless, in the case of a petition filed against Tenant,
the same is dismissed within thirty (30) days); (iii) the appointment of a
trustee or receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, if possession is
not restored to Tenant within thirty (30) days; (iv) the attachment, execution
or other judicial seizure of substantially all of Tenant's assets located at
the Premises or of Tenant's interest in this Lease, where the seizure is not
discharged within thirty (30) days; or (v) Tenant's convening of a meeting of
its creditors for the purpose of effecting a moratorium upon or composition of
its debts. Landlord shall not be deemed to have knowledge of any event described
in this subsection unless notification in writing is received by Landlord, nor
shall there be any presumption attributable to Landlord of Tenant's insolvency.
In the event that any provision of this subsection is contrary to applicable
law, the provision shall be of no force or effect.
SECTION 14.2. LANDLORD'S REMEDIES.
(a) In the event of any default by Tenant, or in the event
of the abandonment of the Premises by Tenant, then in addition to any other
remedies available to Landlord, Landlord may exercise the following remedies:
(i) Landlord may terminate Tenant's right to
possession of the Premises by any lawful means, in which case this Lease shall
terminate and Tenant shall immediately surrender possession of the Premises to
Landlord. Such termination shall not affect any accrued obligations of Tenant
under this Lease. Upon termination, Landlord shall have the right to reenter
the Premises and remove all persons and property. Landlord shall also be
entitled to recover from Tenant:
(1) The worth at the time of award of the
unpaid rent and additional rent which had been earned at the time of
termination;
(2) The worth at the time of award of the
amount by which the unpaid rent and additional rent which would have been
earned after termination until the time of award exceeds the amount of such
loss that Tenant proves could have been reasonably avoided;
(3) The worth at the time of award of the
amount by which the unpaid rent and additional rent for the balance of the Term
after the time of award exceeds the amount of such loss that Tenant proves
could be reasonably avoided;
(4) Any other amount necessary to
compensate Landlord for all the detriment proximately caused by Tenant's
failure to perform its obligations under this Lease or which in the ordinary
course of things would be likely to result from Tenant's default, including,
but not limited to, the cost of recovering possession of the Premises,
refurbishment of the Premises, marketing costs, commissions and other expenses
of reletting, including necessary repair, the unamortized portion of any
brokerage commissions funded by Landlord in connection with this Lease,
reasonable attorneys' fees, and any other reasonable costs; and
(5) At Landlord's election, all other
amounts in addition to or in lieu of the foregoing as may be permitted by law.
The term "rent" as used in this Lease shall be deemed to mean the Basic Rent
and all other sums required to be paid by Tenant to Landlord pursuant to the
terms of this Lease. Any sum, other than Basic Rent, shall be computed on the
basis of the average monthly amount accruing during the twenty-four (24) month
period immediately prior to default, except that if it becomes necessary to
compute such rental before the twenty-four (24) month period has occurred, then
the computation shall be on the basis of the average monthly amount during the
shorter period. As used in subparagraphs (1) and (2) above, the "worth at the
time of award" shall be computed by allowing interest at the rate of ten
percent (10%) per annum. As used in subparagraph (3) above, the "worth at the
time of award" shall be computed by discounting the amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of award plus one
percent (1%).
(ii) Landlord may elect not to terminate Tenant's
right to possession of the Premises, in which event Landlord may continue to
enforce all of its rights and remedies under this Lease, including the right to
collect all rent as it becomes due. Efforts by the Landlord to maintain,
preserve or relet the Premises, or the appointment of a receiver to protect the
Landlord's interests under this Lease, shall not constitute a termination of
the Tenant's right to possession of the Premises. In the event that Landlord
elects to avail itself of the remedy provided by this subsection (ii), Landlord
shall not unreasonably withhold its consent to an assignment or subletting of
the Premises subject to the reasonable standards for Landlord's consent as are
contained in this Lease.
(b) Landlord shall be under no obligation to observe or
perform any covenant of this Lease on its part to be observed or performed
which accrues after the date of any default by Tenant unless and until the
default is cured by Tenant, it being understood and agreed that the performance
by Landlord of its obligations under this Lease are expressly conditioned upon
Tenant's full and timely performance of its obligations under this Lease. The
various rights and remedies reserved to Landlord in this Lease or otherwise
shall be cumulative and, except as otherwise provided by California law,
Landlord may pursue any or all of its rights and remedies at the same time.
(c) No delay or omission of Landlord to exercise any right
or remedy shall be construed as a waiver of the right or remedy or of any
default by Tenant. The acceptance by Landlord of rent shall not be a (i)
waiver of any preceding breach or default by Tenant of any provision of this
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Lease, other than the failure of Tenant to pay the particular rent accepted,
regardless of Landlords' knowledge of the preceding breach or default at the
time of acceptance of rent, or (ii) a waiver of Landlord's right to exercise
any remedy available to Landlord by virtue of the breach or default. The
acceptance of any payment from a debtor in possession, a trustee, a receiver or
any other person acting on behalf of Tenant or Tenant's estate shall not waive
or cure a default under Section 14.1. No payment by Tenant or receipt by
Landlord of a lesser amount than the rent required by this Lease shall be
deemed to be other than a partial payment on account of the earliest due
stipulated rent, nor shall any endorsement or statement on any check or letter
be deemed an accord and satisfaction and Landlord shall accept the check or
payment without prejudice to Landlord's right to recover the balance of the
rent or pursue any other remedy available to it. No act or thing done by
Landlord or Landlord's agents during the Term shall be deemed an acceptance of
a surrender of the Premises, and no agreement to accept a surrender shall be
valid unless in writing and signed by Landlord. No employee of Landlord or of
Landlord's agents shall have any power to accept the keys to the Premises prior
to the termination of this Lease, and the delivery of the keys to any employee
shall not operate as a termination of the Lease or a surrender of the Premises.
SECTION 14.3. LATE PAYMENTS.
(a) Any rent due under this Lease that is not received by
Landlord within five (5) days of the date when due shall bear interest at the
maximum rate permitted by law from the date due until fully paid. The payment
of interest shall not cure any default by Tenant under this Lease. In
addition, Tenant acknowledges that the late payment by Tenant to Landlord of
rent will cause Landlord to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult and impracticable to
ascertain. Those costs may include, but are not limited to, administrative,
processing and accounting charges, and late charges which may be imposed on
Landlord by the terms of any ground lease, mortgage or trust deed covering the
Premises. Accordingly, if any rent due from Tenant shall not be received by
Landlord or Landlord's designee within five (5) days after the date due, then
Tenant shall pay to Landlord, in addition to the interest provided above, a
late charge in a sum equal to the greater of five percent (5%) of the amount
overdue or Two Hundred Fifty Dollars ($250.00) for each delinquent payment.
Acceptance of a late charge by Landlord shall not constitute a waiver of
Tenant's default with respect to the overdue amount, nor shall it prevent
Landlord from exercising any of its other rights and remedies.
(b) Following each second consecutive installment of rent
that is not paid within five (5) days following notice of nonpayment from
Landlord, Landlord shall have the option (i) to require that beginning with the
first payment of rent next due, rent shall no longer be paid in monthly
installments but shall be payable quarterly three (3) months in advance and/or
(ii) to require that Tenant increase the amount, if any, of the Security Deposit
by one hundred percent (100%). Should Tenant deliver to Landlord, at any time
during the Term, two (2) or more insufficient checks, the Landlord may require
that all monies then and thereafter due from Tenant be paid to Landlord by
cashier's check.
SECTION 14.4. RIGHT OF LANDLORD TO PERFORM. All covenants and
agreements to be performed by Tenant under this Lease shall be performed at
Tenant's sole cost and expense and without any abatement of rent or right of
set-off. If Tenant fails to pay any sum of money, other than rent, or fails to
perform any other act on its part to be performed under this Lease, and the
failure continues beyond any applicable grace period set forth in Section 14.1,
then in addition to any other available remedies, Landlord may, at its election
make the payment or perform the other act on Tenant's part. Landlord's
election to make the payment or perform the act on Tenant's part shall not give
rise to any responsibility of Landlord to continue making the same or similar
payments or performing the same or similar acts. Tenant shall, promptly upon
demand by Landlord, reimburse Landlord for all sums paid by Landlord and all
necessary incidental costs, together with interest at the maximum rate
permitted by law from the date of the payment by Landlord. Landlord shall have
the same rights and remedies if Tenant fails to pay those amounts as Landlord
would have in the event of a default by Tenant in the payment of rent.
SECTION 14.5. DEFAULT BY LANDLORD. Landlord shall not be deemed to
be in default on the performance of any obligation under this Lease unless and
until it has failed to perform the obligation within thirty (30) days after
written notice by Tenant to Landlord specifying in reasonable detail the nature
and extent of the failure; provided, however, that if the nature of Landlord's
obligation is such that more than thirty (30) days are required for its
performance, then Landlord shall not be deemed to be in default if it commences
performance within the thirty (30) day period and thereafter diligently pursues
the cure to completion.
SECTION 14.6. EXPENSES AND LEGAL FEES. All sums reasonably incurred
by Landlord in connection with any event of default by Tenant under this Lease
or holding over of possession by Tenant after the expiration or earlier
termination of this Lease, including without limitation all costs, expenses and
actual accountants, appraisers, attorneys and other professional fees, and any
collection agency or other collection charges, shall be due and payable by
Tenant to Landlord on demand, and shall bear interest at the rate of ten
percent (10%) per annum. Should either Landlord or Tenant bring any action in
connection with this Lease, the prevailing party shall be entitled to recover
as a part of the action its reasonable attorneys' fees, and all other costs.
The prevailing party for the purpose of this paragraph shall be determined by
the trier of the facts.
SECTION 14.7. WAIVER OF JURY TRIAL. LANDLORD AND TENANT EACH
ACKNOWLEDGES THAT IT IS AWARE OF AND HAS HAD THE ADVICE OF COUNSEL OF ITS
CHOICE WITH RESPECT TO ITS RIGHTS TO TRIAL BY JURY, AND EACH PARTY DOES HEREBY
EXPRESSLY AND KNOWINGLY WAIVE AND RELEASE ALL SUCH RIGHTS TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY HERETO AGAINST
THE OTHER (AND/OR AGAINST ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, OR
SUBSIDIARY OR AFFILIATED ENTITIES) ON ANY MATTERS WHATSOEVER ARISING OUT OF OR
IN ANY WAY CONNECTED WITH THIS LEASE, TENANT'S USE OR OCCUPANCY OF THE
PREMISES, AND/OR ANY CLAIM OF INJURY OR DAMAGE.
SECTION 14.8. SATISFACTION OF JUDGMENT. The obligations of Landlord
do not constitute the personal obligations of the individual partners,
trustees, directors, officers or shareholders of Landlord or its constituent
partners. Should Tenant recover a money judgment against Landlord, such
judgment shall be satisfied only out of the proceeds of sale received upon
execution of such judgment and levied thereon against the right, title and
interest of Landlord in the Project and out of the rent or other income from
such property receivable by Landlord or out of consideration received by
Landlord from the sale or other disposition of all or any part of Landlord's
right, title or interest in the Project and no action for any deficiency may
be sought or obtained by Tenant.
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SECTION 14.9. LIMITATION OF ACTIONS AGAINST LANDLORD. Any claim,
demand or right of any kind by Tenant which is based upon or arises in
connection with this Lease shall be barred unless Tenant commences an action
thereon within six (6) months after the date that the act, omission, event or
default upon which the claim, demand or right arises, has occurred.
ARTICLE XV. END OF TERM
SECTION 15.1. HOLDING OVER. This Lease shall terminate without
further notice upon the expiration of the Term, and any holding over by Tenant
after the expiration shall not constitute a renewal or extension of this Lease,
or give Tenant any rights under this Lease, except when in writing signed by
both parties. If Tenant holds over for any period after the expiration (or
earlier termination) of the Term without the prior written consent of
Landlord, such possession shall constitute a tenancy at sufferance only; such
holding over with the prior written consent of Landlord shall constitute a
month-to-month tenancy commencing on the first (1st) day following the
termination of this Lease. In either of such events, possession shall be
subject to all of the terms of this Lease, except that the monthly Basic Rent
shall be the greater of (a) two hundred percent (200%) of the Basic Rent for
the month immediately preceding the date of termination or (b) the then
currently scheduled Basic Rent for comparable space in the Building. If Tenant
fails to surrender the Premises upon the expiration of this Lease despite
demand to do so by Landlord, Tenant shall indemnify and hold Landlord harmless
from all loss or liability, including without limitation, any claims made by
any succeeding tenant relating to such failure to surrender. Acceptance by
Landlord of rent after the termination shall not constitute a consent to a
holdover or result in a renewal of this Lease. The foregoing provisions of
this Section are in addition to and do not affect Landlord's right of re-entry
or any other rights of Landlord under this Lease or at law.
SECTION 15.2. MERGER ON TERMINATION. The voluntary or other
surrender of this Lease by Tenant, or a mutual termination of this Lease, shall
terminate any or all existing subleases unless Landlord, at its option, elects
in writing to treat the surrender or termination as an assignment to it of any
or all subleases affecting the Premises.
SECTION 15.3. SURRENDER OF PREMISES; REMOVAL OF PROPERTY. Upon the
Expiration Date or upon any earlier termination of this Lease, Tenant shall
quit and surrender possession of the Premises to Landlord in as good order,
condition and repair as when received or as hereafter may be improved by
Landlord or Tenant, reasonable wear and tear and repairs which are Landlord's
obligation excepted, and shall, without expense to Landlord, remove or cause to
be removed from the Premises all personal property, improvements constructed by
Tenant that Landlord require be removed in accordance with the terms of this
Lease, and debris, except for any items or improvements that Landlord may by
written authorization allow to remain. Tenant shall repair all damage to the
Premises resulting from the removal, which repair shall include the patching
and filling of holes and repair of structural damage, provided that Landlord
may instead elect to repair any structural damage at Tenant's expense. If
Tenant shall fail to comply with the provisions of this Section, Landlord may
effect the removal and/or make any repairs, and the cost to Landlord shall be
additional rent payable by Tenant upon demand. If Tenant fails to remove
Tenant's personal property from the Premises upon the expiration of the Term,
Landlord may remove, store, dispose of and/or retain such personal property, at
Landlord's option, in accordance with then applicable laws, all at the expense
of Tenant. If requested by Landlord, Tenant shall execute, acknowledge and
deliver to Landlord an instrument in writing releasing and quitclaiming to
Landlord all right, title and interest of Tenant in the Premises.
ARTICLE XVI. PAYMENTS AND NOTICES
All sums payable by Tenant to Landlord shall be paid, without deduction
or offset, in lawful money of the United States to Landlord at its address set
forth in Item 12 of the Basic Lease Provisions, or at any other place as
Landlord may designate in writing. Unless this Lease expressly provides
otherwise, as for example in the payment of rent pursuant to Section 4.1, all
payments shall be due and payable within five (5) days after demand. All
payments requiring proration shall be prorated on the basis of a thirty (30)
day month and a three hundred sixty (360) day year. Any notice, election,
demand, consent, approval or other communication to be given or other document
to be delivered by either party to the other may be delivered in person or by
courier or overnight delivery service to the other party, or may be deposited
in the United States mail, duly registered or certified, postage prepaid,
return receipt requested, and addressed to the other party at the address set
forth in Item 12 of the Basic Lease Provisions, or if to Tenant, at that
address or, from and after the Commencement Date, at the Premises (whether or
not Tenant has departed from, abandoned or vacated the Premises), or may be
delivered by telegram, telex or telecopy, provided that receipt thereof is
telephonically confirmed. Either party may, by written notice to the other,
served in the manner provided in this Article, designate a different address.
If any notice or other document is sent by mail, it shall be deemed served or
delivered twenty-four (24) hours after mailing. If more than one person or
entity is named as Tenant under this Lease, service of any notice upon any one
of them shall be deemed as service upon all of them.
ARTICLE XVII. RULES AND REGULATIONS
Tenant agrees to observe faithfully and comply strictly with the Rules
and Regulations, attached as Exhibit E, and any reasonable and
nondiscriminatory amendments, modifications and/or additions as may be adopted
and published by written notice to tenants by Landlord for the safety, care,
security, good order, or cleanliness of the Premises, Building, Project and
Common Areas. Landlord shall not be liable to Tenant for any violation of the
Rules and Regulations or the breach of any covenant or condition in any lease
by any other tenant or such tenant's agents, employees, contractors, guests or
invitees. One or more waivers by Landlord or any breach of the Rules and
Regulations by Tenant or by any other tenant(s) shall not be a waiver of any
subsequent breach of that rule or any other. Tenant's failure to keep and
observe the Rules and Regulations shall constitute a default under this Lease.
In the case of any conflict between the Rules and Regulations and this Lease,
this Lease shall be controlling.
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ARTICLE XVIII. BROKER'S COMMISSION
The parties recognize as the broker(s) who negotiated this Lease the
firm(s), if any, whose name(s) is (are) stated in Item 10 of the Basic Lease
Provisions, and agree that Landlord shall be responsible for the payment of
brokerage commissions to those broker(s) unless otherwise provided in this
Lease. Tenant warrants that it has had no dealings with any other real estate
broker or agent in connection with the negotiation of this Lease, and Tenant
agrees to indemnify and hold Landlord harmless from any cost, expense or
liability (including reasonable attorneys' fees) for any compensation,
commissions or charges claimed by any other real estate broker or agent
employed or claiming to represent or to have been employed by Tenant in
connection with the negotiation of this Lease. The foregoing agreement shall
survive the termination of this Lease. If Tenant fails to take possession of
the Premises or if this Lease otherwise terminates prior to the Expiration Date
as the result of failure of performance by Tenant, Landlord shall be entitled
to recover from Tenant the unamortized portion of any brokerage commission
funded by Landlord in addition to any other damages to which Landlord may be
entitled.
ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST
In the event of any transfer of Landlord's interest in the Premises,
the transferor shall be automatically relieved of all obligations on the part
of Landlord accruing under this Lease from and after the date of the transfer,
provided that any funds held by the transferor in which Tenant has an interest
shall be turned over, subject to that interest, to the transferee and Tenant is
notified of the transfer as required by law. No holder of a mortgage and/or
deed of trust to which this Lease is or may be subordinate, and no landlord
under a so-called sale-leaseback, shall be responsible in connection with the
Security Deposit, unless the mortgagee or holder of the deed of trust or the
landlord actually receives the Security Deposit. It is intended that the
covenants and obligations contained in this Lease on the part of Landlord
shall, subject to the foregoing, be binding on Landlord, its successors and
assigns, only during and in respect to their respective successive periods of
ownership.
ARTICLE XX. INTERPRETATION
SECTION 20.1. GENDER AND NUMBER. Whenever the context of this Lease
requires, the words "Landlord" and "Tenant" shall include the plural as well as
the singular, and words used in neuter, masculine or feminine genders shall
include the others.
SECTION 20.2. HEADINGS. The captions and headings of the articles and
sections of this Lease are for convenience only, are not a part of this Lease
and shall have no effect upon its construction or interpretation.
SECTION 20.3. JOINT AND SEVERAL LIABILITY. If more than one person
or entity is named as Tenant, the obligations imposed upon each shall be joint
and several and the act of or notice from, or notice or refund to, or the
signature of, any one or more of them shall be binding on all of them with
respect to the tenancy of this Lease, including, but not limited to, any
renewal, extension, termination or modification of this Lease.
SECTION 20.4. SUCCESSORS. Subject to Articles IX and XIX, all rights
and liabilities given to or imposed upon Landlord and Tenant shall extend to
and bind their respective heirs, executors, administrators, successors and
assigns. Nothing contained in this Section is intended, or shall be construed,
to grant to any person other than Landlord and Tenant and their successors and
assigns any rights or remedies under this Lease.
SECTION 20.5. TIME OF ESSENCE. This is of the essence with respect
to the performance of every provision of this Lease.
SECTION 20.6. CONTROLLING LAW. This Lease shall be governed by and
interpreted in accordance with the laws of the State of California.
SECTION 20.7. SEVERABILITY. If any term or provision of this Lease,
the deletion of which would not adversely affect the receipt of any material
benefit by either party or the deletion of which is consented to by the party
adversely affected, shall be held invalid or unenforceable to any extent, the
remainder of this Lease shall not be affected and each term and provision of
this Lease shall be valid and enforceable to the fullest extent permitted by
law.
SECTION 20.8. WAIVER AND CUMULATIVE REMEDIES. One or more waivers by
Landlord or Tenant of any breach of any term, covenant or condition contained
in this Lease shall not be a waiver of any subsequent breach of the same or any
other term, covenant or condition. Consent to any act by one of the parties
shall not be deemed to render unnecessary the obtaining of that party's consent
to any subsequent act. No breach by Tenant of this Lease shall be deemed to
have been waived by Landlord unless the waiver is in a writing signed by
Landlord. The rights and remedies of Landlord under this Lease shall be
cumulative and in addition to any and all other rights and remedies which
Landlord may have.
SECTION 20.9. INABILITY TO PERFORM. In the event that either party
shall be delayed or hindered in or prevented from the performance of any work
or in performing any act required under this Lease by reason of any cause
beyond the reasonable control of that party, then the performance of the work
or the doing of the act shall be excused for the period of the delay and the
time for performance shall be extended for a period equivalent to the period of
the delay. The provisions of this Section shall not operate to excuse Tenant
from the prompt payment of rent or from the timely performance of any other
obligation under this Lease within Tenant's reasonable control.
SECTION 20.10. ENTIRE AGREEMENT. This Lease and its exhibits and
other attachments cover in full each and every agreement of every kind between
the parties concerning the Premises, the Building, and the Project, and all
preliminary negotiations, oral agreements, understandings and/or practices,
except those contained in this Lease, are superseded and of no further
effect. Tenant waives its rights to rely on any representations or promises
made by Landlord or others which are not contained in this
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Lease. No verbal agreement or implied covenant shall be held to modify the
provisions of this Lease, any statute, law, or custom to the contrary
notwithstanding.
SECTION 20.11. QUIET ENJOYMENT. Upon the observance and performance
of all the covenants, terms and conditions on Tenant's part to be observed and
performed, and subject to the other provisions of this Lease, Tenant shall
peaceably and quietly hold and enjoy the Premises for the Term without
hindrance or interruption by Landlord or any other person claiming by or
through Landlord.
SECTION 20.12. SURVIVAL. All covenants of Landlord or Tenant which
reasonably would be intended to survive the expiration or sooner termination of
this Lease, including without limitation any warranty or indemnity hereunder,
shall so survive and continue to be binding upon and inure to the benefit of
the respective parties and their successors and assigns.
ARTICLE XXI. EXECUTION AND RECORDING
SECTION 21.1. COUNTERPARTS. This Lease may be executed in one or
more counterparts, each of which shall constitute an original and all of which
shall be one and the same agreement.
SECTION 21.2. CORPORATE AND PARTNERSHIP AUTHORITY. If Tenant is a
corporation or partnership, each individual executing this Lease on behalf of
the corporation or partnership represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of the corporation or
partnership, and that this Lease is binding upon the corporation or partnership
in accordance with its terms. Tenant shall, at Landlord's request, deliver a
certified copy of its board of directors' resolution or partnership agreement
or certificate authorizing or evidencing the execution of this Lease.
SECTION 21.3. EXECUTION OF LEASE; NO OPTION OR OFFER. The submission
of this Lease to Tenant shall be for examination purposes only, and shall not
constitute an offer to or option for Tenant to lease the Premises. Execution of
this Lease by Tenant and its return to Landlord shall not be binding upon
Landlord, notwithstanding any time interval, until Landlord has in fact executed
and delivered this Lease to Tenant, it being intended that this Lease shall only
become effective upon execution by Landlord and delivery of a fully executed
counterpart to Tenant.
SECTION 21.4. RECORDING. Tenant shall not record this Lease without
the prior written consent of Landlord. Tenant, upon the request of Landlord,
shall execute and acknowledge a "short form" memorandum of this Lease for
recording purposes.
SECTION 21.5. AMENDMENTS. No amendment or termination of this Lease
shall be effective unless in writing signed by authorized signatories of Tenant
and Landlord, or by their respective successors in interest. No actions,
policies, oral or informal arrangements, business dealings or other course of
conduct by or between the parties shall be deemed to modify this Lease in any
respect.
SECTION 21.6. EXECUTED COPY. Any fully executed photocopy or similar
reproduction of this Lease shall be deemed an original for all purposes.
SECTION 21.7. ATTACHMENTS. All exhibits, amendments, riders and
addenda attached to this Lease are hereby incorporated into and made a part of
this Lease.
ARTICLE XXII. MISCELLANEOUS
SECTION 22.1. NONDISCLOSURE OF LEASE TERMS. Tenant acknowledges and
agrees that the terms of this Lease are confidential and constitute proprietary
information of Landlord. Disclosure of the terms could adversely affect the
ability of Landlord to negotiate other leases and impair Landlord's relationship
with other tenants. Accordingly, Tenant agrees that it, and its partners,
officers, directors, employees and attorneys, shall not intentionally and
voluntarily disclose the terms and conditions of this Lease to any other tenant
or apparent prospective tenant of the Building or Project, either directly or
indirectly, without the prior written consent of Landlord, provided, however,
that Tenant may disclose the terms to prospective subtenants or assignees under
this Lease.
SECTION 22.2. GUARANTY. As a condition to the execution of this Lease
by Landlord, the obligations, covenants and performance of the Tenant as herein
provided shall be guaranteed in writing by the Guarantor(s) listed in Item 7 of
the Basic Lease Provisions, if any, on a form of guaranty provided by Landlord.
SECTION 22.3. CHANGES REQUESTED BY LENDER. If, in connection with
obtaining financing for the Project, the Lender shall request reasonable
modifications in this Lease as a condition to the financing, Tenant will not
unreasonably withhold or delay its consent, provided that the modifications do
not materially increase the obligations of Tenant or materially and adversely
affect the leasehold interest created by this Lease.
SECTION 22.4. MORTGAGEE PROTECTION. No act or failure to act on the
part of Landlord which would otherwise entitle Tenant to be relieved of its
obligations hereunder or to terminate this Lease shall result in such a release
or termination unless (a) Tenant has given notice by registered or certified
mail to any beneficiary of a deed of trust or mortgage covering the Building
whose address has been furnished to Tenant and (b) such beneficiary is afforded
a reasonable opportunity to cure the default by Landlord (which in no event
shall be less than sixty (60) days, including, if necessary to effect the cure,
time to obtain possession of the Building by power of sale or judicial
foreclosure provided that such foreclosure remedy is diligently pursued. Tenant
agrees that each beneficiary of a deed of trust or mortgage covering the
Building is an express third party beneficiary hereof, Tenant shall have no
right or claim for the collection of any deposit from such beneficiary or from
any purchaser at a foreclosure sale unless such beneficiary or purchaser shall
have actually received and not refunded the deposit, and Tenant shall comply
with any written directions by any beneficiary to pay rent due hereunder
directly to such beneficiary without determining whether an event of default
exists under such beneficiary's deed of trust.
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SECTION 22.5. COVENANTS AND CONDITIONS. All of the provisions of this
Lease shall be construed to be conditions as well as covenants as though the
words specifically expressing or imparting covenants and conditions were used
in each separate provision.
SECTION 22.6. SECURITY MEASURES. Tenant hereby acknowledges that
Landlord shall have no obligation whatsoever to provide guard service or other
security measures for the benefit of the Premises or the Project. Tenant
assumes all responsibility for the protection of Tenant, its agents, invitees
and property from acts of third parties. Nothing herein contained shall prevent
Landlord, at its sole option, from providing security protection for the
Project or any part thereof, in which event the cost thereof shall be included
within the definition of Project Costs.
LANDLORD: TENANT:
THE IRVINE COMPANY, MEDICAL DIAGNOSTIC SYSTEMS, LLC
a Michigan corporation a limited liability company
By Clarence W. Barker By Robert H. Gurevitch
--------------------------- ----------------------------------
Clarence W. Barker, Title President
President, Irvine Industrial Company, ---------------------------
a division of The Irvine Company
By John C. Tsu By Signature Illegible
--------------------------- ----------------------------------
John C. Tsu, Title
Assistant Secretary ----------------------------
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EXHIBIT 10.39
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of this _____
day of February, 1997, by and between DENTAL/MEDICAL DIAGNOSTIC SYSTEMS,
INC., a Delaware corporation (the "Company"), and __________________
("Indemnitee").
RECITALS
A. The Company and Indemnitee recognize the increasing difficulty in
obtaining liability insurance for directors, officers, employees and agents,
the significant increases in the cost of such insurance and the general
reductions in the coverage of such insurance.
B. The Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, and agents to expensive litigation risk at the same time that the
availability and coverage of liability insurance has been severely limited.
C. Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other directors,
officers, employers and agents of the Company may not be willing to continue
to serve as directors, officers, employees and agents without additional
protection.
D. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve as directors, officers,
employees and agents of the Company and to indemnify its directors, officers,
employees and agents so as to provide them with the maximum protection
permitted by law.
AGREEMENT
The Company and Indemnitee hereby agree as follows:
1. AGREEMENT TO SERVE. Indemnitee agrees to serve and/or continue to
serve the Company, at the Company's will (or under separate written agreement
approved by the Board of Directors of the Company, if such agreement exists),
in the capacity Indemnitee currently serves the Company, as long as
Indemnitee is duly appointed or elected and qualified in accordance with the
applicable provisions of the Bylaws of the Company or any subsidiary of the
Company or (subject to any employment agreement between Indemnitee and the
Company) until such time as Indemnitee tenders a written resignation or is
removed in accordance with the Bylaws; PROVIDED, HOWEVER, that
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nothing contained in this Agreement is intended to or shall create any right
(express or implied) to continued employment by Indemnitee.
2. INDEMNIFICATION.
(a) THIRD PARTY PROCEEDINGS. The Company shall indemnify
Indemnitee if Indemnitee is or was a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an
action by or in the right of the Company) by reason of the fact that
Indemnitee is or was a director, officer, employee or agent of the Company,
or any subsidiary of the Company, by reason of any action or inaction on the
part of Indemnitee while a director, officer, employee or agent, or by reason
of the fact that Indemnitee is or was serving at the request of the Company
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including, without limitation, attorneys' fees, disbursements and retainers,
accounting and witness fees, travel and deposition costs, and expenses of
investigations), judgments, fines and amounts paid in settlement (if such
settlement is approved in advance by the Company) actually and reasonably
incurred by Indemnitee in connection with such action, suit or proceeding if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed
to be in or not opposed to the best interests of the Company, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe Indemnitee's conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction, or upon a plea
of nolo contendere or its equivalent, shall not, of itself, create a
presumption that Indemnitee did not act in good faith and in a manner which
Indemnitee reasonably believed to be in or not opposed to the best interests
of the Company, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that Indemnitee's conduct was unlawful.
(b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company
shall indemnify Indemnitee if Indemnitee was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by
or in the right of the Company or any subsidiary of the Company to procure a
judgment in its favor by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while
a director, officer, employee or agent, or by reason of the fact that
Indemnitee is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including, without
limitation, attorneys' fees, disbursements and retainers, accounting and
witness fees, travel and deposition costs, and expenses of investigations)
and, to the fullest extent permitted by law, amounts paid in settlement, in
each case to the extent actually and reasonably incurred by Indemnitee in
connection with the defense or settlement of such action or suit (i) if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed
to be in or not opposed to the best interests of the Company and its
stockholders, except that no indemnification shall be made in respect of any
claim, issue or matter as to which Indemnitee shall have been adjudged to be
liable to the Company in the performance of Indemnitee's duty to the Company
and its stockholders unless and only to the extent that the court in which
such action or suit is or was
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pending shall determine upon application that, in view of all the
circumstances of the case, Indemnitee is fairly and reasonably entitled to
indemnity for expenses and then only to the extent that the court shall
determine; (ii) if Indemnitee is a director, to the extent that the action or
contemplated action seeks monetary damages for breach of Indemnitee's duties
to the Company and its stockholders in circumstances under which Indemnitee's
personal liability therefor has been eliminated as a result of the
provisions of Section 102(b)(7) of the Delaware General Corporation Law; or
(iii) if Indemnitee is an agent other than a director, to the extent that,
were Indemnitee a director, Indemnitee would have the right to be indemnified
under Section 2(b)(ii), above; and in the case of Section 2(b)(ii) and
2(b)(iii) above, indemnification shall include, to the extent not prohibited
by law, indemnification against all judgments, fines and amounts paid in
settlement actually and reasonably incurred by Indemnitee in connection with
such action, suit or proceeding.
(c) MANDATORY PAYMENT OF EXPENSES. To the extent that Indemnitee
has been successful on the merits or otherwise in defense of any action, suit
or proceeding referred to in Subsection (a) or (b) of this Section 2 or in
defense of any claim, issue or matter therein, Indemnitee shall be
indemnified against expenses (including, without limitation, attorneys' fees,
disbursements and retainers, accounting and witness fees, travel and
deposition costs, and expenses of investigations) actually and reasonably
incurred by Indemnitee in connection therewith.
(d) INDEMNIFICATION FOR SERVING AS A WITNESS. Notwithstanding any
other provision of this Agreement, to the extent that Indemnitee is, by
reason of Indemnitee's status as a director, officer, employee or agent of
the Company, a witness in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, Indemnitee shall be indemnified
against expenses actually and reasonably incurred by Indemnitee in connection
therewith.
3. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all
reasonable expenses incurred by Indemnitee in connection with the
investigation, defense, settlement or appeal of any civil, criminal,
administrative or investigative action, suit or proceeding referenced in
Section 2(a) or (b) hereof (but not amounts actually paid in settlement of
any such action, suit or proceeding). Indemnitee hereby undertakes to repay
such amounts advanced only if, and to the extent that, it shall ultimately be
determined that Indemnitee is not entitled to be indemnified by the Company
as authorized hereby. The advances to be made hereunder shall be paid by the
Company to Indemnitee within 45 days following delivery of a written request
therefor by Indemnitee to the Company.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a
condition precedent to his right to be indemnified under this Agreement, give
the Company notice, in accordance with Section 14 hereof, of any claim made
against Indemnitee for which indemnification will or could be sought under
this Agreement. Notice to the Company shall be directed to the Chief
Executive Officer of the Company. In addition, Indemnitee shall give the
Company such information and cooperation as it may reasonably require and as
shall be within Indemnitee's power.
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(c) PROCEDURE. Any indemnification and advances provided for in
Section 2 and this Section 3 shall be made no later than 45 days after
receipt of the written request of Indemnitee. If a claim under this
Agreement, under any statute, or under any provision of the Company's
Certificate of Incorporation or Bylaws providing for indemnification, is not
paid in full by the Company within 45 days after a written request for
payment thereof has first been received by the Company, Indemnitee may, but
need not, at any time thereafter bring an action against the Company to
recover the unpaid amount of the claim and, subject to Section 13 of this
Agreement, Indemnitee shall also be entitled to be paid for the expenses
(including attorneys' fees) of bringing such action. It shall be a defense
to any such action (other than an action brought to enforce a claim for
expenses incurred in connection with any action, suit or proceeding in
advance of its final disposition) that Indemnitee has not met the standards
of conduct which make it permissible under applicable law for the Company to
indemnify Indemnitee. Indemnitee shall be entitled to receive interim
payments of expenses pursuant to Section 3(a) unless and until such defense
may be finally adjudicated by court order or judgment from which no further
right of appeal exists. It is the intention of the parties that if the
Company contests Indemnitee's right to indemnification, the question of
Indemnitee's right to indemnification shall be for the court to decide, and
neither the failure of the Company (including its Board of Directors, any
committee or subgroup of the Board of Directors, independent legal counsel,
or its stockholders) to have made a determination that indemnification of
Indemnitee is proper in the circumstances because Indemnitee has met the
applicable standard of conduct required by applicable law, nor an actual
determination by the Company (including its Board of Directors, any committee
or subgroup of the Board of Directors, independent legal counsel, or its
stockholders) that Indemnitee has not met such applicable standard of
conduct, shall create a presumption that Indemnitee has or has not met the
applicable standard of conduct.
(d) NOTICE TO INSURERS. If, at the time of the receipt of a notice
of a claim pursuant to Section 3(b) hereof, the Company has director and
officer liability insurance in effect, the Company shall give prompt notice
of the commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to
pay, on behalf of the Indemnitee, all amounts payable as a result of such
proceeding in accordance with the terms of such policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be
obligated under Section 3(a) hereof to pay the expenses of any proceedings
against Indemnitee, the Company, if appropriate, shall be entitled to assume
the defense of such proceeding, with counsel approved by Indemnitee, upon the
delivery to Indemnitee of written notice of its election so to do. After
delivery of such notice, approval of such counsel by Indemnitee and the
retention of such counsel by the Company, the Company will not be liable to
Indemnitee under this Agreement for any fees of counsel subsequently incurred
by Indemnitee with respect to the same proceeding, provided that (i)
Indemnitee shall have the right to employ separate counsel in any such
proceeding at Indemnitee's expense; and (ii) if (A) the employment of counsel
by Indemnitee has been previously authorized by the Company, (B) Indemnitee
shall have reasonably concluded that there may be a conflict of interest
between the Company and Indemnitee in the conduct of any such defense, or (C)
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the Company shall not, in fact, have employed counsel to assume the defense
of such proceeding, then the fees and expenses of Indemnitee's counsel shall
be at the expense of the Company.
4. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. Notwithstanding any other provision of this Agreement,
the Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not
specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute.
In the event of any change in any applicable law, statute or rule which
narrows the right of a Delaware corporation to indemnify a member of its
board of directors or its officers, employees or agents, such change, to the
extent not otherwise required by such law, statute or rule to be applied to
this Agreement, shall have no effect on this Agreement or the parties' rights
and obligations hereunder.
(b) NONEXCLUSIVITY. The indemnification provided by this Agreement
shall not be deemed exclusive of any rights to which Indemnitee may be
entitled under the Company's Certificate of Incorporation, its Bylaws, any
agreement, any vote of stockholders or disinterested Directors, the
Corporation Law of the State of Delaware or otherwise, both as to action in
Indemnitee's official capacity and as to action in another capacity while
holding such office. The indemnification provided under this Agreement shall
continue as to Indemnitee for any action taken or not taken while serving in
an indemnified capacity even though he may have ceased to serve in such
capacity at the time of any action, suit or other covered proceeding.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments, fines or penalties actually or reasonably
incurred by him in the investigation, defense, appeal or settlement of any
civil or criminal action, suit or proceeding, but not, however, for the total
amount thereof, the Company shall nevertheless indemnify Indemnitee for the
portion of such expenses, judgments, fines or penalties to which Indemnitee
is entitled.
6. MUTUAL ACKNOWLEDGEMENT. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may
prohibit the Company from indemnifying its directors, officers, employees
and/or agents under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future
to undertake with the Securities and Exchange Commission to submit the
question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
7. LIABILITY INSURANCE. The Company shall, from time to time, make the
good faith determination whether or not it is practicable for the Company to
obtain and maintain a policy or policies of insurance with reputable
insurance companies providing the directors, officers, employees and agents
of the Company with coverage for losses from wrongful acts, or to ensure the
Company's performance of its indemnification obligations under this
agreement. Among other
5
<PAGE>
considerations, the Company will weigh the costs of obtaining such insurance
coverage against the protection afforded by such coverage. In all such
policies of liability insurance, Indemnitee shall be named as an insured in
such a manner as to provide Indemnitee the same rights and benefits as are
accorded to the most favorably insured of the Company's directors, if
Indemnitee is a director; or of the Company's officers, if Indemnitee is not
an director of the Company but is an officer; or of the Company's employees,
if Indemnitee is not a director or officer but is an employee; or of the
Company's agents, if Indemnitee is not a director, officer or employee but is
an agent. Notwithstanding the foregoing, the Company shall have no obligation
to obtain or maintain such insurance if the Company determines in good faith
that such insurance is not reasonably available, if the premium costs for
such insurance are disproportionate to the amount of coverage provided, if
the coverage provided by such insurance is limited by exclusions so as to
provide an insufficient benefit, or if Indemnitee is covered by similar
insurance maintained by a subsidiary or parent of the Company.
8. SEVERABILITY. Nothing in this Agreement is intended to require or
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court
order, to perform its obligations under this Agreement shall not constitute a
breach of this Agreement. The provisions of this Agreement shall be
severable as provided in this Section 8. If this Agreement or any portion
hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the
full extent permitted by any applicable portion of this Agreement that shall
not have been invalidated, and the balance of this Agreement not so
invalidated shall be enforceable in accordance with its terms.
9. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance
expenses to Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by Indemnitee and not by way defense, except with respect
to proceedings brought to establish or enforce a right to indemnification
under this Agreement or any other statute or otherwise as required under
Section 145 of the Delaware General Corporation Law, but such indemnification
or advancement of expenses may be provided by the Company in specific cases
if the Board of Directors has approved the initiation or bringing of such
suit;
(b) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses
incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous;
(c) INSURED CLAIMS. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) which
have been paid directly to Indemnitee by an insurance carrier
6
<PAGE>
under a policy of officers' and directors' liability insurance or other
policy of insurance maintained by the Company;
(d) CLAIMS UNDER SECTION 16(b). To indemnify Indemnitee for
expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute;
(e) UNLAWFUL CLAIMS. To indemnify Indemnitee in any manner which
is contrary to public policy or which a court of competent jurisdiction has
finally determined to be unlawful;
(f) FAILURE TO SETTLE PROCEEDING. To indemnify Indemnitee for
liabilities in excess of the total amount at which settlement reasonably
could have been made, or for any cost and/or expenses incurred by Indemnitee
following the time such settlement reasonably could have been effected, if
Indemnitee shall have unreasonably delayed, refused or failed to enter into a
settlement of any action, suit or proceeding (or investigation or appeal
thereof) recommended in good faith, in writing, by the Company; or
(g) BREACH OF EMPLOYMENT AGREEMENT. To indemnify Indemnitee for
any breach by Indemnitee of any employment agreement between Indemnitee and
the Company or any of its subsidiaries.
10. CONSTRUCTION OF CERTAIN PHRASES.
For purposes of this Agreement, references to the "Company" shall
include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees
and/or agents, so that if Indemnitee is or was a director, officer, employee
or agent of such constituent corporation, or is or was serving at the request
of such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
Indemnitee shall stand in the same position under the provisions of this
Agreement with respect to the resulting or surviving corporation as
Indemnitee would have with respect to such constituent corporation if its
separate existence had continued.
For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
service as a director, officer, employee or agent of the Company or any
subsidiary of the Company which imposes duties on, or involves services by,
such director, officer, employee or agent with respect to an employee benefit
plan, its participants, or beneficiaries; and if Indemnitee acted in good
faith and in a manner Indemnitee reasonably believed to be in the interest of
the
7
<PAGE>
participants and beneficiaries of an employee benefit plan, Indemnitee shall
be deemed to have acted in a manner "not opposed to the best interest of the
Company" as referred to in this Agreement.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Company and its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
13. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms
hereof, Indemnitee shall be entitled to be paid all court costs and expenses,
including reasonable attorneys' fees, incurred by Indemnitee with respect to
such action, unless as a part of such action, the court of competent
jurisdiction determines that each of the material assertions made by
Indemnitee as a basis for such action were not made in good faith or were
frivolous. In the event of an action instituted by or in the name of the
Company under this Agreement to enforce or interpret any of the terms of this
Agreement, Indemnitee shall be entitled to be paid all court costs and
expenses, including attorneys' fees, incurred by Indemnitee in defense of
such action (including with respect to Indemnitee's counterclaims and
cross-claims made in such action), unless as a part of such action the court
determines that each of Indemnitee's material defenses to such action were
made in bad faith or were frivolous.
14. NOTICE. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i)
if delivered by hand and receipted for by the party addressee, on the date of
such receipt, or (ii) if mailed by domestic certified or registered mail with
postage prepaid, on the third business day after the date postmarked.
Addresses for notice to either party are as shown on the signature page of
this Agreement, or as subsequently modified by written notice.
15. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of
California for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement and agree that any action
instituted under this Agreement shall be brought only in the state courts of
the State of California, or in Federal courts located in such State.
16. CHOICE OF LAW. This Agreement shall be governed by and its
provisions construed in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
8
<PAGE>
a Delaware corporation, as the Company
By: _____________________________
Name:________________________
Title:_______________________
Notice Address:
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
200 North Westlake Boulevard, Suite 202
Westlake Village, California 91362
AGREED TO AND ACCEPTED:
INDEMNITEE:
__________________________________
__________________________________
Notice Address:
__________________________________
__________________________________
__________________________________
9
<PAGE>
Schedule of Parties to Indemnification Agreement
The following officers and directors have or will enter into an
indemnification agreement with the Company:
Robert H. Gurevitch
Ronald E. Wittman
Marvin H. Kleinberg
Merle Roberts
Dewey Perrigo
10
<PAGE>
EXHIBIT 10.40
May 31, 1996
Dear
This letter will confirm that the Board of Directors of Edudata have approved
shares of stock options at $1.00 per share in your name to be issued prior to
the 15th of June, 1996. These shares will vest at 20% per year over a
five-year period and will be fully vested on March 3, 2001.
Best regards,
Robert H. Gurevitch
Chairman of Edudata Corporation
RHG:bjs
<PAGE>
Schedule of Recipients
of Notice of Vesting Letters
Number of Exercise Full Vesting
Name Vested Shares Price Date
---- ------------- -------- ------------
1. Merle Roberts 25,000 $1.00 8/28/01
2. Steve Gonzales 25,000 $1.00 8/28/01
3. Paul Tzeng 25,000 $1.00 8/28/01
4. Fred Kinley 100,000 $1.00 7/02/01
5. Dewey Perrigo 100,000 $1.00 7/02/01
6. Neil Magneson 10,000 $1.00 3/03/01
7. Scott Cote' 20,000 $1.00 3/03/01
8. Dennis Braunston 10,000 $1.00 3/03/01
9. Tom Herndon 10,000 $1.00 3/03/01
10. Jim Arden 5,000 $1.00 3/03/01
11. Hank Rhodes 5,000 $1.00 3/03/01
12. Clancy Scott 10,000 $1.00 3/03/01
13. Bob Stern 10,000 $1.00 3/03/01
14. Alan Miller 15,000 $1.00 3/03/01
<PAGE>
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE
Dental/Medical Diagnostic Systems, Inc. and Subsidiaries
For the Ten-Month Period Ended December 31, 1996
NET INCOME PER SHARE
WAS CALCULATED AS FOLLOWS:
Primary:
Net income $ 137,151
==========
Weighted average common shares outstanding 2,893,298
Incremental shares under stock options and warrants
computed under the treasury stock method using
the average market price during the period 125,915
----------
Weighted average common shares and common share
equivalents outstanding 3,019,213
==========
Net income per share $0.05
=====
Fully Diluted:
Net income $ 137,151
==========
Weighted average common shares outstanding 2,893,298
Incremental shares under stock options and warrants
under the treasury stock method using market price
at the end of the period if higher than the average
market price 146,722
----------
Weighted average common shares and common share
equivalents outstanding 3,040,020
==========
Net income per share $0.05
=====
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF
REGISTRANT
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF
REGISTRANT
---------------
Bavarian Dental Instruments, Inc.,
a California close corporation
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2 of
our report dated January 31, 1997, (bearing the legend dated February 25, 1997)
on our examinations of the financial statements of Dental/Medical Diagnostic
Systems, Inc. and Subsidiaries. We also consent to the reference to our firm
under the caption "Experts."
Coopers & Lybrand L.L.P.
Los Angeles, California
February 27, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> MAR-03-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,058,836
<SECURITIES> 0
<RECEIVABLES> 1,158,444
<ALLOWANCES> 146,699
<INVENTORY> 1,513,075
<CURRENT-ASSETS> 4,028,907
<PP&E> 464,902
<DEPRECIATION> 71,324
<TOTAL-ASSETS> 4,718,441
<CURRENT-LIABILITIES> 1,772,433
<BONDS> 0
0
0
<COMMON> 29,885
<OTHER-SE> 1,207,740
<TOTAL-LIABILITY-AND-EQUITY> 4,718,441
<SALES> 11,673,102
<TOTAL-REVENUES> 11,673,102
<CGS> 6,685,464
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,683,203
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 88,714
<INCOME-PRETAX> 215,721
<INCOME-TAX> 78,570
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 137,151
<EPS-PRIMARY> 0
<EPS-DILUTED> .05
</TABLE>
