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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NO. 0-12850
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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DELAWARE 13-3152648
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
200 N. WESTLAKE BOULEVARD, SUITE 202
WESTLAKE VILLAGE, CALIFORNIA 91362
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (805) 381-2700
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:
REDEEMABLE COMMON STOCK PURCHASE WARRANTS, AND COMMON STOCK, $0.01 PAR VALUE
(TITLE OF CLASS)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of
regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for the fiscal year ended December 31, 1999 were
$38,180,996.
At March 24, 2000, the issuer had 6,497,564 shares of Common Stock, $0.01
par value per share, 2,000 shares of Series A Preferred Stock, $.01 par value
per share, and 2,250 shares of Series B Preferred Stock, $.01 par value per
share issued and outstanding.
The aggregate market value of the outstanding voting and non-voting common
equity held by non-affiliates of the issuer computed by reference to the average
bid and asked price of such common equity as of March 27, 2000 was $14,282,168.
DOCUMENTS INCORPORATED BY REFERENCE
Transitional Small Business Disclosure format: Yes [ ] No [X]
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This Report contains statements that constitute "forward-looking
statements" within the meaning of Section 21E of the Exchange Act and Section
27A of the Securities Act. The words "expect", "estimate", "anticipate",
"predict", "believe" and similar expressions and variations thereof are intended
to identify forward-looking statements. Such statements appear in a number of
places in this filing and include statements regarding the intent, belief or
current expectations of Dental/Medical Diagnostic Systems, its directors or
officers with respect to, among other things (a) trends affecting the financial
condition or results of operations of Dental/Medical Diagnostic Systems and (b)
the business and growth strategies of Dental/ Medical Diagnostic Systems. The
stockholders of Dental/Medical Diagnostic Systems are cautioned not to put undue
reliance on such forward-looking statements. Such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties, and
actual results may differ materially from those projected in this Report, for
the reasons, among others, discussed in the Sections -- "Management's Discussion
and Analysis of Financial Condition and Results of Operations", and "Risk
Factors". Dental/Medical Diagnostic Systems undertakes no obligation to publicly
revise these forward-looking statements to reflect events or circumstances that
arise after the date hereof.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Dental/Medical Diagnostic Systems, Inc. ("Company") designs, develops,
assembles and markets high technology dental equipment and related consumables.
The Company's best selling product during 1999 was the tooth curing and
whitening device known as the "Apollo(TM)". The Company also markets and sells a
line of whitening gels known as "Apollo Secret(R)" for use with the Apollo(TM),
a line of composite resin materials known as "ASAP -- Accelerated Solutions for
Aesthetic Procedures," also for use with the Apollo(TM). Due to less than
expected sales, the Company discontinued the composite product line in the first
quarter of 2000. In addition, the Company manufactures and sells intraoral
camera systems, known as the "TeliCam II System," and "TeliCam Elite," and a
multi-operatory intraoral camera system, known as the "InTELInet," for use in
connection with the TeliCam II System and TeliCam Elite. In September of 1999,
the company introduced a digital dental x-ray device known as
"MPDx(TM)-MegaPixel Diagnostic System or MPDx(TM)".
The Company's current customers are dentists in the domestic and
international marketplace. The Company has also released a tooth whitening kit
for use in the home which will be sold directly to consumers. In the domestic
market, the United Kingdom and Germany, the Company sells directly to dentists.
In the international market, with the exception of the United Kingdom and
Germany, the Company sells its products through independent dealers and
distributors. The Company's products are not available through traditional
retail channels.
On February 2, 1998, the Company formed "DMDS, Ltd.," a wholly owned
subsidiary created under the laws of the United Kingdom. The Company markets its
products internationally through DMDS, Ltd.
BUSINESS STRATEGY
The Company's goal is to be a leading manufacturer and distributor of both
high technology dental devices and related consumables. 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, such as the
Company's Apollo(TM) (described below) which can cure most composite
materials in just three seconds per layer, as compared with the 10-40
seconds per layer it takes other competing brands of curing lamps, and is
able to whiten teeth in under 40 minutes. The Company plans to develop a
cordless version of the Apollo(TM) featuring a new light source technology
as well as a cordless version of the intraoral camera for customer
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release during the third quarter of 2000. The Company introduced MPDx(TM),
an innovative digital x-ray technology, into the worldwide marketplace in
September 1999. MPDx(TM) provides the thinnest sensors available and
significantly reduces the patient exposure to radiation.
Ongoing Commitment to Product Development. The Company is continually
seeking innovative technology to incorporate into its dental products. From
inception (October 23, 1995) through December 31, 1999, the Company has
devoted approximately $4.47 million to product development activities,
including approximately $1,823,000 in fiscal 1999. The dental market is
highly competitive and the Company believes that its focus on new and
improved technologies is essential if the Company is to continue to grow
and maintain a competitive position in the marketplace.
Growth Through Acquisitions and Licensing Agreements. The Company
anticipates that it will complement its internal growth, both in number of
products and sales, through acquisitions and licensing agreements and a
focus on developing and marketing new technologies for the dental practice.
The Company believes that acquisitions and licensing agreements present an
effective means of obtaining technical personnel and obtaining or expanding
technologies, products and markets. The Company continually evaluates
opportunities for acquisitions and licensing agreements.
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 opportunity
for growth. The Company increased its sales in the current year through the
introduction of new products, namely the digital x-ray device (MPDx(TM)),
and increased sales of existing products including the composite curing and
tooth whitening device (Apollo(TM)) and the related whitening consumable,
Apollo Secret(R). The Company plans to introduce a hand held version of the
Apollo(TM) and a cordless intraoral camera during the third quarter of
2000. In addition, the Company introduced a tooth whitening kit for home
use known as Apollo Secret(R) Home Whitening Kits in the first quarter of
2000. Also, in 1999, in an effort to expand international sales of its
current and future products, the Company has changed its marketing strategy
in the two biggest markets in Europe, Germany and the United Kingdom, by
acquiring the assets of the third party distributors with which the Company
previously had agreements to distribute the Company's products in those
respective countries. The Company believes that by duplicating its domestic
marketing strategy in Germany and the United Kingdom of selling directly to
dentists, the Company has increased its opportunity for revenue growth
because of the increased direct access to customers. The Company intends to
capitalize on its experienced management and sales team to increase its
domestic and international sales.
CURRENT PRODUCTS
The Apollo(TM)
On October 2, 1997, the Company purchased the assets of S.E.D. Gerant
("S.E.D."), a company organized under the laws of France. Among the acquired
assets was a patent for S.E.D.'s "Biotron" soft tissue surgery instruments. From
this technology, the Company developed the "Apollo(TM)" a unique, visible-light
curing instrument which is designed for two different applications: the
hardening of tooth-colored dental composite materials in three seconds or less
and for single appointment, in-office tooth whitening in less than forty
minutes. This safe plasma-arc lamp uses a high-frequency electrical field to
generate plasma energy, which is ideal for the fast-curing (hardening) of
photosensitive composites. The Apollo(TM) also produces light and heat which,
when used in conjunction with the Apollo Secret(R) whitening materials,
activates the whitening chemicals in the Apollo Secret(R). The result of this
activation is dramatic whitening of stained teeth. The rapid performance of the
Apollo(TM) in both hardening composite materials and whitening teeth enables an
average dental practice to save about 5 to 8 hours per month of a dentists time.
Curing Composites: Tooth-colored composite materials are one of the most
requested methods of tooth restoration (bonding) in use today. They are
delivered to the tooth in syringe-shaped tubes and then shaped into the
proper tooth contours with dental instruments. In order to cure (harden)
these paste-like materials, a visible light curing lamp (Apollo(TM)) is
used to initiate the proper chemical reaction. The hand-piece to the
Apollo(TM), which delivers the actual light source to the mouth, is a
cylindrical shaped
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instrument approximately the size of a large pen with a curved end designed
to make it easy for a dentist to be able to restore or whiten hard to reach
surface areas of teeth.
The Apollo(TM) cures most these filling materials in just three seconds per
layer compared with the 10-40 seconds per layer it takes other competing
brands of curing lamps. Most restorations require the dentist to place
multiple layers of composite material into/onto a tooth, curing each layer
separately. With the curing lamps that are still used in most dental
offices today, total curing time per tooth averages 2 minutes. The
Apollo(TM) shortens the curing time in most cases to under 9 seconds with
the same results. Composite curing is an essential aspect for the practice
of dentistry in all countries, making curing lamps a practical device for
all dental offices.
Whitening: "Power bleaching" or "Light-assisted Bleaching" is fast becoming
a sought-after dental protocol which allows the patient to leave the dental
office, in under 40 minutes, with a dramatically whitened smile. The only
alternative tooth-whitening method to the Apollo(TM) currently available
requires the patient to wear an uncomfortable custom-fitted tray filled
with unpleasant tasting whitening gels. In order to achieve dramatic
whitening results, the trays would have to be worn overnight or for several
hours a day for two to three weeks. In addition, patients often find
themselves in pain from soft-tissue contact with the caustic gel.
With the Apollo(TM), the process is much quicker. The Apollo Secret(R) gel
is simply applied to the patient's teeth without any tissue protection, as
the gel's special neutralizing component virtually eliminates any tooth or
tissue sensitivity. The dentist or dental assistant holds the Apollo(TM)
against the gel and then applies the light to each tooth for only 3
seconds. Several passes are made around all of the teeth being bleached and
40 minutes later the patient leaves the office with whitened teeth.
Because the Apollo(TM) is not a laser device, in-office tooth whitening in
less than forty minutes can be done by a dental assistant in a majority of
states in the United States. This allows the dentist to concentrate on more
complex procedures, while offering dentists an additional source of revenue
that can be generated by a dental hygienist/assistant.
In March 1998, the Company introduced this proprietary, non-laser
technology to markets outside of the US and Canada. After receiving FDA 510(k)
approval in August 1998, the Company began shipping the Apollo(TM) in the U.S.
and Canada. The Company's facility in Irvine, CA handles the manufacturing and
shipping of this product line world-wide after the France manufacturing facility
stopped manufacturing the Apollo(TM) in October of 1999.
The product's sales increased for the first three quarters after
introduction. Over the past three quarters, sales have declined due to
competition as competitor's lamps curing time became closer to the that of the
Apollo(TM). In addition, the composite material companies and several lecturing
dentists still question the curing properties of high intensity curing lamps.
The Company believes that the Apollo(TM) non-laser lamp produces faster
composite curing and in-office tooth whitening results than any other known
like-product available today, including dental lasers designed for curing. In
addition, the Company believes that as more dentists use the technology the more
acceptance it will receive from the dental industry.
On October 2, 1998, the Company entered into an agreement with Chrysalis
Dental, Inc. ("CDI") which grants to the Company the exclusive worldwide license
to make or have made, use, or sell patent pending tooth whitening products
created by CDI. Under this license, the Company has begun marketing its own line
of tooth whitening gels (Apollo Secret(R)), intended for use with the Apollo(TM)
and competing lamps.
Since the introduction of the Apollo(TM) in March 1998, and through
December 31, 1999, the Company has sold 4,928 units internationally, and 8,741
units domestically.
MPDx(TM), Digital X-ray
The Company has entered into an agreement with Suni Imaging Microsystems,
Inc. ("Suni") to develop digital x-ray technology for incorporation into a
digital x-ray system for the dental market. The Company has obtained exclusive
rights to market products to the dental market incorporating certain digital
x-ray
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technology developed by Suni. The Company introduced this product in September
1999. Suni will retain the rights to developed microchip technology underlying
the x-ray system it develops for the Company. Digital x-ray systems, including
those currently on the market, reduce radiation exposure compared to
conventional film based x-ray systems and allow dentists to view x-ray images in
real-time without the time-consuming process of film development while also
eliminating the need to use and dispose of toxic chemicals required to develop
conventional x-ray film. The Company believes that this technology will provide
improved image quality and a more comfortable sensor (the thinnest available)
for the patient at a lower price point than competitive systems. This technology
also is designed to allow database storage, electronic transmission, and recall
of images for comparison purposes.
On March 17, 1999, the Company entered into a manufacturing agreement with
Suni under which Suni has agreed to assemble, test and package the Company's
digital x-ray system incorporating the digital x-ray technology developed by
Suni for the Company. Under this agreement, which has a three year term, the
Company has guaranteed payment in full for at least 3,000 units per year and has
agreed to place orders for at least 750 units per quarter beginning in the
fourth quarter of 1999. The Company has also agreed to fulfill all of its
requirements for the x-ray product from Suni during the term of the agreement.
The Company is in the process of obtaining UL and CE approval for MPDx(TM). From
the time of its first introduction in September of 1999, an aggregate of 266
MPDx(TM) digital x-ray systems have been sold by the Company. If the Company
fails to purchase at least 750 units per quarter from Suni, the Company may lose
its exclusive right to market products to the dental market incorporating
certain digital x-ray technology developed by Suni.
The TeliCam, Intraoral Cameras
The Company's best selling product from 1996 through mid-1998 was its line
of intraoral cameras beginning with the "TeliCam I," which was introduced into
the market in February 1996. In the second quarter of 1997, the Company began
marketing the "TeliCam II System," which was developed to allow the video
interfacing of multiple examination rooms via the Company's networking system
known as "InTELInet" (described below). Currently, the Company's primary
intraoral camera is the "TeliCam Elite," which was introduced into the market
during the second quarter of 1998. The distinguishing feature that sets the
TeliCam apart from competing intraoral dental cameras is the proprietary "Teli"
CCU processor. This "frame grabber computer chip" allows the camera to capture
and "freeze" multiple video images and display them simultaneously without an
additional external device such as a computer, video recorder, or video color
printer. In addition, the Teli CCU processor incorporates an automatic light
intensity control which substantially eliminates reflection and glare from the
intraoral illumination providing clearer video images. The Company has exclusive
worldwide rights to market the Teli CCU processor to the dental market. Through
December 31, 1999, the Company had sold an aggregate of 8,833 TeliCam I, TeliCam
II and TeliCam Elite Systems to dentists throughout the United States, as well
as to several dental schools, and an aggregate of 3,328 TeliCam I, TeliCam II
and TeliCam Elite Systems internationally.
As a result of price erosion and decreasing margins caused by increased
competition from new manufacturers entering the marketplace, the Company
believes that the market for intraoral cameras has become both saturated and
less profitable, resulting in a decline in revenues from the Company's intraoral
camera products. Revenue from intraoral cameras declined from $6.6 million in
the year ended December 31, 1998 to $6.3 million in the year ended December 31,
1999, and gross margins for intraoral cameras declined from 70% in the year
ended December 31, 1998 to 35% in the year ended December 31, 1999. The Company
is currently researching new technological advancements and clinical uses for
its line of intraoral cameras.
InTELInet
In November 1996, the Company introduced its InTELInet Video Monitoring
System ("InTELInet") which creates a video-electronic information link between
different examination rooms within the same dental office. The System includes a
minimum of two intraoral video cameras, a video monitor with built-in VCR, cable
installation and a single video printer. The InTELInet System allows dentists
and their auxiliaries to conduct multiple patient video examinations at the same
time. This proprietary design allows for the use of just one central video
printer to interface with multiple operatories using cameras simultaneously.
This creates
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a cost savings and functional benefit when compared to competing dental
inter-operatory video networking systems that require expensive computers, video
printers, or capture devices for each operatory.
Due to the general absence of multiple operatory practices outside of the
United States, the InTELInet is only being marketed domestically at this time.
The InTELInet network is only compatible with DMD intraoral dental cameras. In
addition, the Company has designed the InTELInet system to be compatible with
the digital x-ray technology. From the time of its first introduction in late
November 1996, through December 31, 1999, an aggregate of 1,025 InTELInet
multiple operatory networking systems have been sold by the Company.
Product Development.
The Company intends to pursue growth through new product development and
introduction and by improving and updating its current products to respond to
competitive pressures.
On June 2, 1999 the Company entered into an agreement with Light
Technologies to develop a hand held cordless curing lamp with a new light source
technology. The Company received exclusive worldwide rights to develop and
market products developed from this technology for the dental and other medical
markets. Light Technologies will retain the rights to manufacture the product
for two years. After two years, the Company can purchase the product from the
lowest priced vendor. The Company believes that this hand held lamp will provide
faster curing times and require less maintenance than competing products. This
hand held curing lamp provides sub-second to 3 second per layer curing using
diodes. Most hand held curing lamps used today require a total curing time per
tooth of approximately 2 minutes. The diode technology works without a bulb.
Currently, curing lamps today require the replacement of the bulbs each year. If
a 510(k) Clearance, or a pre-market notification from the FDA, has then been
received the Company plans to introduce this lamp in the third quarter of 2000.
The Company believes that it will receive a 510(k) Clearance from the FDA for
this product before or during the third quarter of 2000.
On September, 1999, the Company entered into an agreement with Chrysalis
Dental, Inc. ("CDI") for the exclusive worldwide right to make or have made,
use, or sell patent pending in-home whitening kits known as Apollo Secret(R)
Home Whitening Kit products created by CDI. Under this license, the Company has
begun marketing its own line of in-home whitening kits. The Apollo Secret(R)
Home Whitening Kits use pre-filled trays and the treatments are for 15 minutes
for five days. The product does not require dentist supervision, so it can be
sold directly to the public. The Company introduced this product in the first
quarter of 2000. The other home tooth-whitening method requires the patient to
wear a more expensive and uncomfortable custom-fitted tray filled with
unpleasant tasting whitening gels. In order to achieve dramatic whitening
results, the trays would have to be worn overnight or for several hours a day
for two to three weeks.
On March 8, 2000, the Company entered into an agreement with DDM Sarl to
develop a cordless, remote controlled, high resolution, intraoral camera. The
Company has obtained exclusive worldwide rights outside of France to develop and
market products for the dental and other medical markets. The new cordless
camera features a video transmission which can be saved onto a floppy disk. The
Company believes that the camera provides better depth of field, connects to a
PC by USB port (no video boards required), and has remote freeze frame ability.
The Company is in the process of obtaining CE approval for the product. The
product has not at this time been submitted for FDA or UL approval. If a 510(k)
Clearance from the FDA and UL approval has then been obtained, the Company
currently plans to introduce this product in the third quarter of 2000. The
Company believes that it will receive a 510(k) Clearance from the FDA and UL
approval for this product before or during the third quarter of 2000.
The Company expended approximately $1,823,000, $549,000, and $1,214,000 for
research and development of its products for the fiscal years ended December 31,
1999, 1998 and 1997, respectively.
MANUFACTURING AND COMPONENT PARTS
The Company assembles and tests the Apollo(TM) curing and whitening lamps,
MPDx(TM) digital x-ray system, the TeliCam Elite video camera system and the
TeliCam II video camera system sold worldwide at its
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facility located in Irvine, California. Until its closing in October of 1999,
the assembling and testing of the Apollo(TM) for sale in Europe and the Middle
East was completed at its facility in France. With the exception of the
TeliCam's CCU processor and MPDx(TM) sensors, the Company believes that there
are multiple sources from which it may purchase the components for the
Apollo(TM) and the TeliCam Systems. The Company anticipates that the single
sources that it obtains the CCU processor component of the TeliCam System and
MPDx(TM) sensors from are capable of meeting projected demand for the
foreseeable future. Although the Company believes that, if necessary, 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 Apollo(TM), MPDx(TM) and
the TeliCam Systems.
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. 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. The Boston Marketing Distribution
Agreement is terminable by Boston Marketing if the Company fails to meet its
annual minimum purchase obligation. While the term of the BMC Distribution
Agreement expires on December 31, 2000, it may be extended by mutual agreement
of the Company and Boston Marketing for an additional five-year term. As of the
date hereof, the Company has not made a determination as to whether it will
attempt to renew this agreement. 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 in supplies of components
could extend for up to six months, which would materially adversely affect the
Company's operating results.
On March 17, 1999, the Company entered into a manufacturing agreement with
Suni under which Suni will assemble, test and package the Company's digital
x-ray system incorporating the digital x-ray technology developed by Suni for
the Company. Under the agreement, which has a three year term, the Company has
guaranteed payment in full for at least 3,000 units per year and has agreed to
place orders for at least 750 units per quarter beginning in the fourth quarter
of 1999. The Company has also agreed to fulfill all of its requirements for the
x-ray product from Suni during the term of the agreement. The company is in the
process of obtaining UL and CE approval for MPDx(TM). From the time of its first
introduction in September of 1999, an aggregate of 266 MPDx(TM) digital x-ray
systems have been sold by the Company. If the Company fails to purchase at least
750 units per quarter from Suni, the Company may lose its exclusive right to
market products to the dental market incorporating certain digital x-ray
technology developed by Suni.
On December 16, 1999, the Company entered into a manufacturing agreement
with S.E.D. under which S.E.D. was given the rights to assemble, test and
package the Company's hand-held curing light incorporating the cure lamp
developed by Light Technologies for the Company. The Company is currently
working with S.E.D. to produce a hand-held curing light that meets the Company's
specifications. While the Company believes that an acceptable device will be
manufactured, no assurance can be given that S.E.D. will be able to produce a
product which will meet the Company's specifications. Under the agreement, which
has a one year term with an option to extend the agreement, S.E.D. must
manufacture a minimum of 12,000 units per year. The Company cannot begin
shipping products under this agreement to the market until it receives 510(k)
notification. If 510(k) notification is received, the Company intends to begin
introducing the hand held light for sale worldwide in the third quarter of 2000.
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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.
MARKETING AND SALES
US Sales and Distribution. The Company's domestic sales are made by five
full-time employees who are based at corporate headquarters, and a national
field force of eighteen independent Regional Managers. The Company's full time
sales employees are generally experienced in the business of marketing and
distribution of dental products, inclusive of the TeliCam II, the TeliCam Elite
intraoral cameras, the Apollo(TM) high intensity composite curing and in-office
whitening system and related consumables, and the MPDx(TM) digital x-ray system.
The Company markets its products through direct mail solicitations, professional
publications advertising, and attendance at dental conferences. Since March 1996
the Company has run advertisements in various publications for the dental
industry on a monthly basis, and has attended in excess of 148, 127, 75, and 70
dental conferences and trade shows during 1999, 1998, 1997 and 1996,
respectively. In addition to an increase in the number of dental conferences and
trade shows attended, during fiscal 1998 the Company expanded its marketing
efforts by engaging in a more comprehensive mailing campaign and increasing
publications advertising. Starting in June 1999, the Company entered into a
consumer advertising campaign in an attempt to inform consumers of the in-office
tooth whitening alternative. The Company placed advertisements in magazines such
as People and Vogue featuring Jack and Kristina Wagner. Because these
advertisements did not produce the anticipated results, the Company discontinued
the advertising campaign in the fourth quarter of 1999. The Company has also
sold equipment and consumables to a number of dental schools including the
University of Southern California, Tufts University and the University of
California -- Los Angeles. The Company believes that these and anticipated
future dental school sales will generate additional interest in, as well as
familiarity with, the Company products at the initial stages of a dental
professional's career. With the introduction of the Apollo Secret(R) Whitening
Kits, the Company is considering using Infomericals to market the product.
International Sales and Distribution. In the international market, with the
exception of the United Kingdom and Germany, the Company sells the Apollo(TM)
and the TeliCam System through independent dealers and distributors, pursuant to
oral distribution agreements. Presently, the Company has approximately fifty
independent distributors and dealers, which cover key international markets
including, the Middle East, the Far East, Europe, Australia and Canada. The
Company's international 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 has been amended to
provide that Mr. Umezaki shall receive a 12% commission on sales made in Japan
only. The Company markets the Apollo(TM) through its wholly owned subsidiary,
DMDS, Ltd. and through its existing network of international distributors.
On March 1, 1999, DMDS, Ltd. purchased the assets of DMD Germany, an
independent company organized under the laws of Germany, for a purchase price
consisting of 100,000 shares of common stock of the Company. DMD Germany's
primary business was the sale and distribution of the Company's products in
Germany. The assets that DMDS, Ltd. purchased included the business (as a going
concern), customer lists, goodwill, the benefit of the lease and other contracts
with third parties and all other items of whatever nature owned by DMD Germany
and used in the conduct of the business of DMD Germany. The Company also entered
into an employment agreement with Ralf Muller, the General Manager of DMD
Germany.
On March 1, 1999, DMDS, Ltd. purchased the assets of Midas, Ltd., an
independent company organized under the laws of the United Kingdom, for a
purchase price consisting of 50,000 shares of common stock of the Company.
Midas, Ltd.'s primary business was the sale and distribution of the Company's
products in the United Kingdom. The assets that DMDS, Ltd. purchased include the
business (as a going concern), customer lists, goodwill, the benefit of the
lease and other contracts with third parties and all other items of whatever
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nature owned by Midas, Ltd. and used in the conduct of the business of Midas,
Ltd. The Company also entered into a non-compete agreement with Sostre NV, the
entity that has distributed the Company's products for Midas, Ltd.
TRAINING, CUSTOMER SUPPORT AND PRODUCT SERVICE
Management believes that operating the Company's products requires very
little training of dentists or other dental professionals. As part of the
Company's customer service program, the sales representative or international
distributor responsible for the sale of the TeliCam, the Telicam Elite and the
Apollo(TM) schedules an installation and training appointment when the system is
delivered. For the MPDx(TM) product, the Company has contracted with x-ray
certified technicians to perform training. In addition, the Company provides a
systems 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 DMD 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. The Company developed a program for training, customer support
and service for the products which was introduced in June 1999.
PATENTS AND PROPRIETARY RIGHTS
The Company's subsidiary, DMDS, Ltd., holds a patent in France and is
currently seeking worldwide patent protection for the Apollo(TM) system. There
can be no assurance (i) that patents outside of France will be granted for the
Apollo(TM) system, and (ii) if granted, the patents will provide adequate
protection for the Company's technologies. Protection is being sought in all of
the countries of the world in which this technology can be marketed. The Company
has an exclusive worldwide license to distribute the whitening system technology
used in Apollo Secret(R), which is the subject of a pending application for
patent in the US. The Company has established rights in the trademarks under
which it sells its lamps and consumable products and has sought to register
these trademarks with the United States Patent and Trademark Office and the
European common market.
The intellectual property rights to the TeliCam System are owned by third
parties. 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"). Also pursuant to this agreement, the Company has the
rights to use the "TeliCam" trademark.
The Company's success and ability to compete is dependent in part upon its
proprietary technology for which domestic and international patent protection is
pending. The Company's proprietary technology for the TeliCam is not protected
by any patents. Consequently, the Company relies primarily on trademark, trade
secret and copyright laws to protect this technology. Also, the Company has
implemented 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 property rights to the same extent as the
laws of the United States.
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The Company believes that its products do not infringe upon any valid
existing proprietary rights of third 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, may be covered by present insurance
policies but could, nevertheless, 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 Company sells products which are legally defined to be medical devices,
therefore, the Company is considered to be a medical device manufacturer and as
such is subject to the regulations of, among other governmental entities, the
United States Food and Drug Administration 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.
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 the Quality
System Regulation ("QSR") as well as medical device reporting ("MDR"), labeling
and other regulatory requirements. Some Class I medical devices are exempt from
the requirement of pre-market approval or clearance. Class II devices are those
devices for which safety 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 that 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) Clearance") or
approval of a PMA. Obtaining approval of a PMA application can take several
years. In contrast, the process of obtaining 510(k) 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)
Clearance procedure, while new Class III devices ordinarily enter the market via
the more rigorous PMA procedure. In general, approval of a 510(k) Clearance 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) Clearance 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 510(k) 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. FDA prohibits the
advertisement or promotion of
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any approved or cleared device for uses other than those that are stated in the
device's approved or cleared application.
The Company has already received FDA 510(k) notification allowing marketing
of the Telicam Intraoral Camera, the Apollo(TM), and MPDx(TM) and has
applications pending for a hand held cordless curing lamp and a cordless, remote
controlled, high-resolution, intraoral camera. The Company expects to receive
FDA 510(k) notification for these products prior to or during the third quarter
of 2000.
Pursuant to FDC Act 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 the QSR, which, unless the device is a Class I exempt
device, require that the Company manufacture its products and maintain its
documents in a prescribed manner with respect to issues such as design controls,
manufacturing, testing and validation 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 QSR and
MDR requirements.
In addition, the Company's facility is required to have a California
Medical Device Manufacturing License. The license is not transferrable and must
be renewed annually. Approval of the license requires that the Company be in
compliance with the FDA's QSR, labeling and MDR regulations. The Company filed a
timely application for a license to cover its manufacturing activities, and in
early March 1999 the California Department of Health Services (DHS), conducted
an inspection of the Company's facilities and found no "reportable
observations."
Generally, if the Company is in compliance with FDA and California
regulations, it may market its medical devices throughout the United States.
International sales of medical devices are also subject to the regulatory
requirements of each country. In Europe, the regulations of the European Union
require that a device have a CE mark before it can be sold in that market. The
Company has obtained a CE mark for its Apollo(TM) device and is seeking approval
from the European Union to market the new digital x-ray product. The regulatory
international 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 most 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. As of March 26, 2000, no product liability
claims have been brought against the Company. The Company maintains product
liability insurance with coverage limits of $1,000,000 per occurrence and
$11,000,000 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 twelve companies offering
intraoral camera systems that are competitive with the
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TeliCam System. The Company's dental curing and whitening device products face
competition from existing curing and whitening systems, including laser systems.
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 that 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 of these competitive pressures may have a material adverse effect on
operating results.
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 for the
TeliCam System are Patterson Dental Co., Henry Schein, Inc., Dentsply and
Ultrak. The Company's principal domestic competitors for the Apollo(TM) are Air
Techniques, Kreativ Products, American Dental Technologies and Argon Laser. The
Company's principal domestic competitors for the Apollo Secret(R) whitening
product are Kreativ Products, Ultradent Products, Discus Dental, DenMat, Shofu
Dental Corporation and American Dental Hygienics/Premier Dental. The Company's
principal domestic competitors for the ASAP composite materials are Bisco,
Jeneric/Pentron, Kerr, 3M, Dentsply/Caulk, Ultradent Products and
Heraeus/Kulzer. The Company's principal domestic competitors for the MPDx(TM)
are Schick, Dexis, and Trophy.
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 March 10, 2000, the Company had 111 full-time and 2 temporary employees,
97 in the United States, 6 in the UK, 6 in Belgium and 5 in Germany. Of the U.S.
employees, 42 were involved in production, 12 were in customer service, 25 were
in administration, 12 were engaged in sales and marketing, and 6 were involved
in engineering and research and development. Of the UK employees, 2 were in
administration and 9 were engaged in sales and marketing, and 6 were in involved
in customer service. The Company believes it has a good relationship with its
employees and none of its employees are represented by a collective bargaining
agreement.
ITEM 2. DESCRIPTION OF PROPERTIES
The corporate headquarters and principal offices of the Company are located
in Westlake Village, California, consisting of approximately 3,900 square feet
of space under a lease that expires on November 14, 2000 ("Office Lease"). The
Office Lease provides for aggregate minimum monthly rental payments of
approximately $6,200. On January 15, 1999, the Company entered into a sublease
for approximately 1,300 square feet of space adjacent to the principal offices
("Office Sublease"). The Office Sublease expires on June 30, 2000, and provides
for aggregate minimum monthly rental payments of approximately $2,500. Because
the Company felt its existing space was inadequate, on January 25, 2000, the
Company entered to a lease in Woodland Hills, California consisting of
approximately 23,800 square feet of office space (the "New Office Lease") with
the plans to move the corporate headquarters to that facility in April of 2000.
The New Office Lease expires on February 28, 2005, and provides for aggregate
minimum monthly rental payments of approximately $25,466. The Company leases a
facility in Irvine of approximately 12,000 square feet, under a lease that
expires October 31, 2000 at a rental payment of $7,560 per month to perform
these functions. On September 16, 1999, the Company entered into a lease of
approximately 5,600 square feet of additional warehouse facility adjacent to the
Irvine Facility. The lease expires on October 31, 2000, and provides for
aggregate minimum monthly rental payments of approximately $3,640. The Company
believes that the Irvine Facility and the New Office Lease will provide it with
adequate space for the next 2 years. All leases require the Company to pay
taxes, maintenance fees, insurance, and periodic rent increases based on a
published price index. The Company does not presently own, or have any current
plans to invest in, any interests in real property other than through its
leases.
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ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock and Redeemable Common Stock Purchase Warrants are
currently traded on the NASDAQ SmallCap Market under the symbols "DMDS" and
"DMDSW," respectively, and on the Boston Stock Exchange under the symbols "DMD"
and "DMDW," respectively. The following table sets forth the range of the high
and low closing prices of the Common Stock on the NASDAQ SmallCap Market 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>
REDEEMABLE
COMMON STOCK
PURCHASE
COMMON STOCK WARRANTS
-------------- --------------
PERIOD ENDED HIGH LOW HIGH LOW
------------ ----- ----- ----- -----
<S> <C> <C> <C> <C>
March 31, 1998...................................... $8.00 $5.88 $4.00 $2.69
June 30, 1998....................................... 7.50 4.00 3.50 1.50
September 30, 1998.................................. 5.50 3.63 2.13 1.13
December 31, 1998................................... 6.75 4.00 2.88 1.38
March 31, 1999...................................... 8.56 5.81 4.19 2.00
June 30, 1999....................................... 9.75 6.44 5.25 2.81
September 30, 1999.................................. 7.25 3.88 3.50 1.66
December 31, 1999................................... 4.56 2.13 1.81 0.50
</TABLE>
On March 8, 2000, the high bid and low ask prices were $2.875 and $2.50,
respectively for the Common Stock and $1.00 and $0.875, respectively, for the
Redeemable Common Stock Purchase Warrants. As of February 22, 2000, there were
204 stockholders of record and approximately 1,400 beneficial holders of common
stock.
Recent Sales of Unregistered Securities
On March 3, 2000, the Registrant sold to Esquire Trade & Finance, Inc.,
Austinvest Anstalt Balzers, AMRO International, S.A., Leval Trading and The
Keshet Fund, L.P. (the "Series B Investors") an aggregate of 2,250 shares of
Series B Exchangeable Preferred Stock (the "Series B Shares") and Warrants to
purchase up to 675,000 shares of Common Stock (the "Series B Warrants") for an
aggregate purchase price of $2.25 million. Ladenburg Thalmann & Co., Inc. acted
as placement agent for the Company in connection with this transaction and
received a fee equal to $157,500 and 5 year warrants to purchase up to 64,725
shares of Common Stock at an initial exercise price of $2.51 per share (the
"Landenburg Warrants"). The Series B Shares, the Series B Warrants and the
Landenburg Warrants were issued in reliance upon Section 4(2) of the Securities
Act of 1933 (the "Act") and Rule 506 of Regulation D promulgated thereunder.
Each Series B Share has a stated value of $1,000 per share and is
exchangeable into common stock at a price per share equal to the lesser of the
average of the closing bid prices of the common stock during the five (5)
trading day period immediately prior to the original issuance date or one
hundred percent (100%) of the Market Price on the date of exchange. If the
exchange price at the time of an exchange is less than $6.00 per share, the
Company has the option to pay the holder of the Series B Shares then being
exchanged an amount of cash equal to (i) the average of the closing bid and
asked prices on the date of the exchange, multiplied by (ii) the number of
shares of common stock that would otherwise be issuable upon exchange of the
Series B Shares then being exchanged. If (A) on or after February 23, 2003, or
(B) the average of the closing bid prices for the Company's common stock for
five (5) consecutive trading days is at least $10.00 per share and the average
trading volume for thirty (30) consecutive trading days is at least 50,000
shares, there remain issued and outstanding any Series B Shares and a
registration statement permitting the resale by the holder of the Series B
Shares the common stock into which such Series B Shares may be exchanged is then
effective,
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<PAGE> 15
the Company shall be entitled to require all holders of Series B Shares then
outstanding to exchange their Series B Shares for shares of common stock.
The Series B Investors also received the Series B Warrants to purchase an
aggregate of (i) up to 225,000 shares of Common Stock at an exercise price per
share of $2.51, exercisable at any time on or after August 24, 2000 for a period
of five (5) years and (ii) up to 450,000 shares of Common Stock at an exercise
price of $3.50 per share, exercisable at any time on or after February 29, 2000
and on or prior to the close of business on November 30, 2000. On March 3, 2000,
to induce its consent to the issuance and sale of the Series B Shares and the
Series B Warrants, the Company issued to Endeavour Capital Fund, S.A., a warrant
to purchase up to 10,000 shares of Common Stock of the Company at an initial
exercise price of $2.8125 per share, exercisable at any time on or after
February 29, 2000 and on or prior to the close of business on November 30, 2000
(the "Endeavour Warrant"). The Endeavour Warrant was issued in reliance upon
Section 4(2) of the Act and Rule 506 of Regulation D promulgated thereunder.
On November 23, 1999, the Company sold to AMRO International, S.A., The
Endeavour Capital Fund, S.A., Esquire Trade & Finance, Inc., and Austinvest
Anstalt Balzers (the "Series A Investors") an aggregate of 2,000 shares of
Series A Exchangeable Preferred Stock (the "Series A Shares"), 2,500 shares of
Common Stock (the "Common Shares") and Warrants to purchase up to 40,000 shares
of Common Stock (the "Series A Warrants") for an aggregate purchase price of $2
million. The Company did not use a placement agent in connection with its sale
of the Series A Shares. The Series A Shares, the Common Shares and the Series A
Warrants were issued in reliance upon Section 4(2) of the Act and Rule 506 of
Regulation D promulgated thereunder.
Each Series A Share has a stated value of $1,000 per share and is
exchangeable into common stock (a) prior to March 15, 2000, at $4.00 per share
and (b) on and after March 15, 2000, the lesser of $4.00 per share or the
average of the closing bid prices of the common stock during any three (3) of
the prior thirty (30) consecutive trading days selected by the holder of the
Series A Shares then being exchanged. If the exchange price at the time of an
exchange is less than $6.00 per share, the Company has the option to pay the
holder of the Series A Shares then being exchanged an amount of cash equal to
(i) the average of the closing bid and asked prices on the date of the exchange,
multiplied by (ii) the number of shares of common stock that would otherwise be
issuable upon exchange of the Series A Shares then being exchanged. If (A) on or
after November 16, 2002, or (B) at any time after March 15, 2000 the average of
the closing bid prices for the Company's common stock for twenty (20)
consecutive trading days is at least $8.00 per share and the average trading
volume for thirty (30) consecutive trading days is at least 50,000 shares, there
remain issued and outstanding any Series A Shares and a registration statement
permitting the resale by the holder of the Series A Shares the common stock into
which such Series A Shares may be exchanged is then effective, the Company shall
be entitled to require all holders of Series A Shares then outstanding to
exchange their Series A Shares for shares of common stock.
The investors also received the Series A Warrants to purchase an aggregate
of 40,000 shares of Common Stock at $2.75 per share, exercisable at any time on
or after March 15, 2000 for a period of five (5) years.
On October 15, 1999, the Company acquired the exclusive worldwide license
agreement for certain home-use tooth whitening products from Chrysalis Dental,
Inc. ("Chrysalis") through the issuance of 100,000 shares of common stock (the
"Chrysalis Shares") to certain affiliates of Chrysalis. The Chrysalis Shares
were issued in reliance upon Section 4(2) of the Act and Rule 506 of Regulation
D promulgated thereunder. The shares were registered for resale on a Form S-3
Registration Statement filed on January 18, 2000 and subsequently declared
effective.
On September 28, 1999, the Company acquired the worldwide rights, title,
and interest for certain curing light technology from Plasma X France ("Plasma
X") through the issuance of 50,000 shares of common stock (the "Plasma X
Shares"). The Plasma X Shares were issued in reliance upon Section 4(2) of the
Act and Rule 506 of Regulation D promulgated thereunder.
On March 1, 1999, DMDS, Ltd. purchased the assets of DMD Germany ("DMD
GmbH"), an independent company organized under the laws of Germany. The Company
issued 100,000 shares of its
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common stock, (the "DMD GmbH Shares"), as the consideration for the purchase of
the assets. The DMD GmbH Shares were issued in reliance upon Section 4(2) of the
Act and Rule 506 of Regulation D promulgated thereunder. The assets that DMDS,
Ltd. purchased include the business (as a going concern), customer lists,
goodwill, the benefit of the lease and other contracts with third parties and
all other items of whatever nature owned by DMD Germany and used in the conduct
of the business of DMD Germany.
On March 1, 1999, DMDS, Ltd. purchased the assets of Midas, Ltd., an
independent company organized under the laws of the United Kingdom. The Company
issued 50,000 shares of its common stock, (the "Midas Shares"), as the
consideration for the purchase of the assets. The Midas Shares were issued in
reliance upon Section 4(2) of the Act and Rule 506 of Regulation D promulgated
thereunder. The assets that DMDS, Ltd. purchased include the business (as a
going concern), customer lists, goodwill, the benefit of the lease and other
contracts with third parties and all other items of whatever nature owned by
Midas, Ltd. and used in the conduct of the business of Midas, Ltd.
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. The Company bank financing agreements impose restrictions on any
payment of dividends. The Board of Directors believes that all the Company's
earnings, if any, should be retained for the development of the Company's
business.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis should be read together with the
Consolidated Financial Statements of the Company and notes thereto incorporated
elsewhere in this Form 10-KSB.
INTRODUCTION
Dental/Medical Diagnostic Systems, Inc. designs, develops, manufactures and
sells high technology dental equipment and related consumables. The Company's
highest grossing product for the 1999 fiscal year was the tooth curing and
whitening device known as the "Apollo(TM)." The Company also markets and sells a
line of whitening products known as "Apollo Secret(R)" for use in conjunction
with the Apollo(TM), and a line of composite resin materials known as
"ASAP -- Accelerated Solutions for Aesthetic Procedures," which product line
will be discontinued in the first quarter of 2000, also for use in conjunction
with the Apollo(TM). Starting in September of 1999, the Company began marketing
and sell the MPDx(TM) digital x-ray system. In addition, the Company continues
to manufacture and sell intraoral camera systems, known as the "TeliCam II
System," and "TeliCam Elite," and a multi-operatory intraoral camera system,
known as the InTELInet, for use in connection with the TeliCam II System and
TeliCam Elite
From early 1996 to mid 1998, the Company was primarily involved in
designing, developing, manufacturing, and marketing intra-oral camera systems
referred to as "TeliCam Systems". The first shipments to customers of the
TeliCam System commenced in early February 1996.
On October 2, 1997, the Company purchased the assets of S.E.D. Gerant
("S.E.D."), a company organized under the laws of France. Among the acquired
assets was a patent for S.E.D.'s "Biotron" soft-tissue surgical device. From
this technology, the Company developed the "Apollo(TM)" a unique, visible-light
curing instrument which is designed for two different applications: the
hardening of tooth-colored dental composite materials in three seconds or less
and for single appointment, in-office tooth whitening in less than forty
minutes. This safe plasma-arc lamp uses a high-frequency electrical field to
generate plasma energy, which is ideal for the fast-curing (hardening) of
photosensitive composites. The Apollo(TM) also produces light and heat which,
when used in conjunction with the Apollo Secret(R) whitening materials,
activates the whitening chemicals in the Apollo Secret(R). The result of this
activation is dramatic whitening of stained teeth. The rapid performance of the
Apollo(TM) in both hardening composite materials and whitening teeth enables an
average dental practice to save about 5 to 8 hours per month of a dentists time.
On October 10, 1997, the Company entered into an agreement with Suni
Imaging Microsystems, Inc. ("Suni") to develop digital x-ray technology for
incorporation into a digital x-ray system for the dental market. The Company has
obtained exclusive rights to market products to the dental market incorporating
certain digital x-ray technology developed by Suni. 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 while eliminating the
need to use and dispose of chemicals required to develop conventional x-ray
film. The resulting MPDx(TM) digital x-ray system was introduced in September
1999.
RESULTS OF OPERATIONS
The Company derives its revenues primarily from the sale of four product
lines: TeliCam intra-oral camera systems, Apollo(TM) curing and whitening
devices, Apollo Secret(R) tooth whitening chemicals and ASAP composite materials
for use in conjunction with the Apollo(TM), which began shipping in the fourth
quarter of 1998 and second quarter of 1999, respectively, and the MPDx(TM)
digital x-ray system which began shipping at the end of the third quarter of
1999. Through December 31, 1999, the sales of Apollo Secret(R), ASAP and the
MPDx(TM) systems have been less than 15% of total sales.
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<PAGE> 18
Revenues by product line, for the fiscal years ended December 31, 1999,
1998, and 1997 are reflected in the following table:
<TABLE>
<CAPTION>
1997 % 1998 % 1999 %
----------- --- ----------- --- ----------- ---
<S> <C> <C> <C> <C> <C> <C>
Apollo(TM)............................... $ -- -- $11,125,629 58% $26,233,445 69%
TeliCam.................................. 15,367,806 96% 6,555,540 34% 6,263,014 16%
MPDx(TM)................................. -- -- -- -- 1,186,615 3%
Consumables.............................. -- -- 593,060 3% 2,605,521 7%
Other.................................... 719,402 4% 953,569 5% 1,892,401 5%
----------- --- ----------- --- ----------- ---
$16,087,208 100% $19,227,798 100% $38,180,996 100%
=========== === =========== === =========== ===
</TABLE>
Net Sales. Net sales for the fiscal years ended December 31, 1999, 1998 and
1997, were $38,180,996, $19,227,798, and $16,087,208, respectively.
Net sales for the fiscal year ended December 31, 1999 increased
approximately 99% from the prior year. Net sales for the fiscal year ended
December 31, 1998 increased approximately 19% from the fiscal year ended
December 31, 1997. Sales in 1999 are comprised primarily of the Apollo(TM),
TeliCam Systems, MPDx(TM) digital x-ray systems, and related consumables. The
increase in sales for the fiscal years ended December 31, 1999 and 1998 was
primarily due to the introduction of the Apollo(TM) and related consumables,
which began shipping in Europe during the first quarter of 1998 and in the
United States during the third quarter of 1998, offset in 1998 by reduced
TeliCam sales both domestically and internationally resulting from weaker demand
and increased competition as the market for intraoral cameras matured. In
addition, the increase in sales for the fiscal year ended December 31, 1999 is
also due to a lesser extent, to the introduction of the MPDx(TM) digital x-ray
system in September 1999. The Company expects the decline in TeliCam sales to
continue into the future. No assurance can be given that the Apollo(TM) sales
will continue to offset the reduced TeliCam sales in the future.
Cost of Sales. Cost of sales for the fiscal years ended December 31, 1999,
1998 and 1997, were $22,144,868, or 58% of net sales, and $9,820,882, or 51% of
net sales, and $10,234,206, or 64% of net sales, respectively. Cost of sales,
both on an absolute dollar basis and as a percentage of net sales, increased
from 1998 to 1999 primarily due to a decrease in the margin on the TeliCam
resulting from increased market saturation and a write down of inventory value
to net estimated realizable value during the fiscal year ended December 31,
1999. The Company wrote down $805,771 of certain inventory as part of its
ongoing assessment of its needs and the estimated net realizability of the
inventory. Excluding the effect of the fourth quarter writedowns, cost of sales
was 56% of net sales in 1999. Cost of sales, both on an absolute dollar basis
and as a percentage of net sales, decreased from 1997 to 1998 primarily due to
more favorable margins on the Apollo(TM), which represented 58% of net sales for
the year. The Company expects that the margins on the sale of the TeliCams will
continue to shrink, and thus the cost of sales of the TeliCams as a percentage
of TeliCam net sales will increase in the future.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses totaled $19,659,552, or 51% of net sales, $8,764,910, or
46% of net sales, and $6,031,066, or 37% of net sales, for the fiscal years
ended December 31, 1999, 1998, and 1997, respectively. The absolute dollar
increases in this expense category from year to year are primarily attributed to
a combination of increased sales commissions resulting from increased sales
volumes, increased salaries and legal expenses associated with the Company's
growth, and increased marketing costs resulting from enhanced marketing efforts.
The increase in selling, general and administrative expenses as a percentage of
net sales from 1998 to 1999 is due to the increase in salaries and employee
benefits and increased advertising and marketing costs resulting from the
introduction of the MPDx(TM) digital x-ray which began selling late in the third
quarter, and enhanced marketing efforts on our other products. Salaries and
employee benefits increased from $2,300,048 in 1998 to $5,024,413 in 1999, and
advertising and marketing costs increased from $2,256,179 in 1998 to $6,702,775
in 1999. The remaining increase in selling, general, and administrative expenses
consisted primarily of increased commissions of $1,563,049. The increase in
selling, general and administrative expenses as a percentage of net sales from
1997 to 1998 can be attributed to the cost of expanding the Company's work force
in anticipation of future growth.
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<PAGE> 19
In early 1999 the Company introduced a composite resin material known as
"ASAP -- Accelerated Solutions for Aesthetic Procedures," for use in conjunction
with the Apollo(TM) into the consumable product line. Due to the high cost of
advertising and lack of related sales volume, the Company decided to discontinue
selling and marketing the composite material during the first quarter of 2000;
however, composites will continue to be sold until the current inventory has
been depleted. Fourth quarter sales and cost of goods sold for the composites
were $412,082 and $171,247; respectively. Fourth quarter operating costs
relating to the composites totaled $901,951, or 2% of net sales, of which
$763,925 was for advertising which are included in sales, general and
administrative expenses.
Research and Development. Research and development expenses totaled
$1,823,003, or 5% of net sales, $549,304, or 3% of net sales and $1,213,766, or
8% of net sales, for the fiscal years ended December 31, 1999, 1998, and 1997,
respectively. The increase in research and development expenses from fiscal 1998
to fiscal 1999 is due to continued development of the MPDx(TM) digital x-ray
which began shipping late in the third quarter, and the development of a new
cordless camera and a hand-held curing light. Both the decrease in research and
development expenses for fiscal 1998 as compared to fiscal 1997, both on an
absolute dollar basis and as a percentage of net sales, is primarily attributed
to $875,000 of fees paid to Suni Imaging Microsystems, Inc. to fund the
development of the digital x-ray technology for incorporation into systems for
the dental market during the fiscal year ended December 31, 1997. The Company
expects research and development expenses to increase in future periods, as it
continues to pursue the development of new technologies. See "Risk Factors -- As
a result of the decline in sales of the TeliCam, our future depends on our
ability to develop and introduce new products."
Nonrecurring Charges. Nonrecurring charges of $566,893 in 1999 consist of
the costs incurred with respect to a secondary offering, which was abandoned in
the third quarter of 1999. Nonrecurring charges of $256,250 in 1997 consist of
costs to acquire exclusive distribution rights of an independent distributor.
Interest and Other Income. Interest and other income totaled $434,321,
$195,532, and $205,818 for the fiscal years ended December 31, 1999, 1998, and
1997. The interest income in 1999 is primarily attributable to the interest
earned by investing available cash in a short-term management account through
Imperial Bank and Comerica Bank. The income from 1997 and 1998 is attributed to
the interest earned by investing the net proceeds of both the May 1997 secondary
offering and the March 1998 debt placement in a short-term management account
through Comerica Securities.
Interest Expense. Interest expense totaled $1,055,813, $1,739,693 and
$138,576 for the fiscal years ended December 31, 1999, 1998, and 1997,
respectively. This expense category includes interest paid on capital lease
obligations, on bridge notes, on notes payable to related parties, and on the
12% Senior Subordinated Notes. Both the substantial increase in fiscal 1998 and
the decrease in fiscal 1999 are primarily due to the accrued interest and the
amortization of the debt discount on the $4.5 million of Senior Subordinated
Notes, which was repaid in January 1999 with proceeds from the new credit
facility with Imperial Bank.
Amortization of debt issuance cost totaled $64,519, $235,484, and $76,431
for the fiscal years ended December 31, 1999, 1998, and 1997, respectively. This
represents the amortization of the issuance costs incurred in connection with
the Bridge Notes issued in November 1996 and the 12% Senior Subordinated Notes
issued in March 1998. These costs were amortized over the term of the Notes. The
Company repaid the Bridge Notes out of the proceeds of the May 1997 secondary
offering. In addition, the Senior Subordinated Notes were repaid in January 1999
out of the proceeds of the Company's new credit facility with Imperial Bank.
Net Loss. Net loss for the fiscal year ended December 31, 1999 totaled
$6,727,638, or $1.15 per share. Net loss for the fiscal year ended December 31,
1998 totaled $1,816,702, or $0.35 per share. Net loss for the fiscal year ended
December 31, 1997 totaled $2,044,729, or $0.47 per share.
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<PAGE> 20
CAPITAL RESOURCES AND LIQUIDITY
For the fiscal year ended December 31, 1999, the Company used net cash of
$7,382,404 in operations as compared to $3,781,610 used in 1998. Accounts
receivable increased from $3,757,865 at December 31, 1998 to $5,756,048 at
December 31, 1999, primarily as a result of the increase in sales in the fourth
quarter. Accounts payable and accrued liabilities totaling $6,765,718 at
December 31, 1999 increased from $3,653,831 at the prior year-end period
primarily due to increased inventory purchases. Inventory levels increased
approximately $2.3 million to accommodate the introduction of the digital x-ray
system.
Cash used in investing activities was $604,000 in 1999 compared to $971,000
used in 1998. Capital expenditures for the year ended December 31, 1999 were
approximately $604,000, with approximately $78,000 spent for the purchase of
furniture and fixtures and approximately $317,000 spent for computer equipment
with the remainder consisting of equipment, tooling and software acquisitions.
Capital expenditures were approximately $722,000 in 1998. In addition, cash used
in investing activities in 1998 included the acquisition of intangible assets of
approximately $304,000.
Cash provided by financing activities was approximately $8.9 million in
1999 as compared to $4.7 million in 1998. The increase resulted from the
issuance of equity securities resulting in net proceeds of approximately $6.9
million offset by a reduction in outstanding borrowings as further discussed
below.
On January 4, 1999, we replaced our credit agreements with our previous
lender, Comerica, with a $6,950,000 facility with Imperial Bank. The Imperial
facility comprises a $2,500,000 fixed rate non-revolving line of credit due May
31, 2000; a $4,000,000 variable rate revolving line of credit due May 31, 2000;
and a $450,000 variable interest rate loan repayable in 16 monthly installments.
The facilities are collateralized by our assets. We intend to use the credit
facilities, when needed, for working capital, capital expenditures and general
corporate purposes. On January 21, 1999, we borrowed against the Imperial
facility to repay the balance owing on the Comerica capital credit line of
$343,890 plus accrued interest of $1,120. On January 25, 1999, we borrowed
against the Imperial facility to repay the $4,500,000 12% Senior Subordinated
Notes plus accrued interest of $189,000. At December 31, 1999, $6,702,593 was
outstanding under the Imperial facility. In March 2000, Imperial Bank extended
the repayment terms on the facility such that the Company is required to repay;
the outstanding fixed rate non-revolving line of credit in installments of
$100,000 commencing March 31, 2000 through April 30, 2001 with the balance due
on May 31, 2001; the $4,000,000 term loan on May 31, 2001, and the variable
interest rate loan on May 31, 2001. In connection with the extension the Company
is required to pay additional interest and issue warrants to purchase up to
75,000 shares of common stock to the Bank. These warrants have an initial
exercise price of $2.50 and are exercisable for a period of seven years.
On July 16, 1999 we raised approximately $5,000,000 in additional capital
by selling 901,000 shares of common stock to eight investors. The shares were
issued in a private placement and were then subsequently registered for resale
on a Form S-3 Registration Statement filed on July 23, 1999 and subsequently
declared effective.
On November 23, 1999 we sold an aggregate of 2,000 shares of Series A
Exchangeable Preferred Stock, 2,500 shares of Common Stock and Warrants to
purchase up to 40,000 shares of Common Stock. The Company received $2,000,000 in
gross proceeds less costs of $100,000.
On February 29, 2000 we sold an aggregate of 2,250 shares of Series B
Exchangeable Preferred Stock, B-1 Warrants to purchase up to 225,000 shares of
Common Stock and B-2 Warrants to purchase up to 450,000 shares of common stock.
The Company received $2,250,000 in gross proceeds less placement agent fees and
costs of $157,500.
As of the end of March 2000, minimum purchase obligations under the BMC
Agreement and the purchase obligations under the Suni Manufacturing Agreement,
are the only significant future commitments which will be financed by cash from
continuing operations.
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<PAGE> 21
Based on our working capital at December 31, 1999, and subsequent sale of
preferred stock together with the extended maturity date of our credit facility,
we believe we have sufficient resources to fund working capital requirements for
the next twelve months.
YEAR 2000 ISSUE
The Year 2000 problem arises from the inability of information systems, and
other time and date sensitive products and systems, to properly recognize and
process date-sensitive information or system failures. The Year 2000 issue has
an impact on both information technology systems and non-information technology
systems, such as its manufacturing systems and physical facilities including,
but not limited to, security systems and utilities.
To date, the Company has not experienced a material Year 2000 problem
relating to its information technology or non-information technology systems and
has not been informed of any Year 2000 problem relating to the information
technology or non-information technology systems of its vendors or customers
that could have a material adverse effect on the results of operations,
liquidity or financial condition of the Company. During the year ended December
31, 1999, the Company did not spend a material amount to assess the Year 2000
compliance of its information technology and non-information technology systems
and that of its material vendors. The Company does not intend to make further
assessments of the Year 2000 problem and does not anticipate incurring any
additional expenses related to the Year 2000 problem.
FUTURE ACCOUNTING REQUIREMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). SFAS 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of the derivatives are recorded each period in current earnings or
other comprehensive income, depending on whether a derivative is designed as
part of a hedge transaction and, if it is, the type of hedge transaction. SFAS
133 is effective for fiscal years beginning after June 15, 2000. The Company
does not anticipate that the adoption of this new standard will have a material
effect on our earnings or our financial position, but we will continue to
evaluate the impact of SFAS 133.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements," which provides the SEC's views on applying generally accepted
accounting principles to selected revenue recognition issues. The Company is
presently evaluating the impact, if any, that this may have on the Company's
revenue recognition policy.
RISK FACTORS
WE HAVE A LIMITED OPERATING HISTORY UPON WHICH TO EVALUATE OUR LIKELIHOOD OF
SUCCESS.
We have only manufactured and distributed our TeliCam systems since October
1995 and manufactured and distributed our Apollo(TM) since March 1998 and we
began manufacturing and distributing our digital x-ray systems in September
1999. Therefore, we have a limited relevant operating history upon which to
evaluate the likelihood of our success. Factors such as the risks, expenses and
difficulties frequently encountered in the operation and expansion of a
relatively new business and the development and marketing of new products must
be considered in evaluating the likelihood of success of our company.
WE HAVE A HISTORY OF LOSSES AND ACCUMULATED DEFICIT AND THIS TREND OF LOSSES MAY
CONTINUE IN THE FUTURE.
For the period from October 23, 1995 to March 2, 1996, we incurred a net
loss of $1,625,213. For the fiscal year ended December 31, 1997 we had a net
loss of $2,044,729, for the fiscal year ended December 31, 1998 we had a net
loss of $1,816,702, and for the fiscal year ended December 31, 1999 we had a net
loss of $6,727,638. At December 31, 1999, our accumulated deficit was
$12,077,131. Our ability to obtain and sustain profitability will depend, in
part, upon the successful marketing of our existing products and the successful
and
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<PAGE> 22
timely introduction of new products. We can give no assurances that we will
achieve profitability or, if achieved, that we will sustain profitability.
FLUCTUATION IN QUARTERLY RESULTS MAY RESULT IN DECLINES IN OUR STOCK PRICE.
Certain quarterly influences may affect our business. Sales 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 our business will experience lower sales in the summer months as a
consequence of holiday vacations and a lesser number of trade shows. These
fluctuations could result in significant fluctuations, including significant
declines in our stock price.
ONE OF OUR PRIMARY PRODUCTS HAS HAD A SIGNIFICANT DECLINE IN SALES AND IF THIS
DECLINE CONTINUES WE MAY NOT BE ABLE TO ACHIEVE PROFITABILITY.
The TeliCam systems, together with related products such as the InTELInet
system, and the Apollo(TM) have been our primary products and have made up a
substantial portion of our revenue. We believe that the market for intraoral
cameras, such as the TeliCam systems, is a market that has declined. TeliCam
systems sales have recently been at or below levels of prior comparable periods,
a trend that we expect to continue.
AS A RESULT OF DECLINING INTRAORAL CAMERA MARKET, OUR FUTURE DEPENDS ON OUR
ABILITY TO DEVELOP AND INTRODUCE NEW PRODUCTS.
As a result of the decline in the intraoral camera market, our future
depends upon our ability to increase demand for our other products and our
ability to develop and successfully introduce new products to make up for the
diminished sales of the Telicam systems. Development of new product lines is
risk intensive and 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.
Also, the medical and dental device industry is characterized by rapid
technological change. As technological changes occur in the marketplace, we may
have to modify our products in order to become or remain competitive or ensure
that our products do not become obsolete. If we fail to anticipate or respond in
a cost-effective and timely manner to government requirements, market trends or
customer requirements, or if there are any significant delays in product
development or introduction, this could have a material adverse effect on our
business.
WE WILL NEED ADDITIONAL MONEY TO FINANCE RESEARCH AND DEVELOPMENT OF NEW
PRODUCTS.
We anticipate that we will need additional money during fiscal 2000 to
finance research and development requirements for new products. We are currently
exploring alternatives to fulfill these requirements, but cannot assure you that
additional financing will be available when needed or that, if available, it
will be on terms favorable to us. If needed funds are not available, we may be
required to limit or forego the development of new products, which could have a
material adverse effect on our business, operating results and financial
condition. If we raise needed funds through the sale of additional shares of our
common stock or securities convertible into shares of our common stock it may
result in dilution to current stockholders.
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<PAGE> 23
WE SUBSTANTIALLY DEPEND UPON THIRD PARTIES FOR SEVERAL CRITICAL ELEMENTS OF OUR
BUSINESS, INCLUDING THE DEVELOPMENT AND LICENSING FOR DISTRIBUTION OF OUR
PRODUCTS AND IF THESE THIRD PARTIES DO NOT DELIVER WE MAY BE FORCED TO LIMIT
OPERATIONS.
We are dependent upon third party developers and suppliers for the
development and manufacture of all of the components used in our dental
equipment and for the development and manufacture of our consumable products.
Outside of updating our current products, we do not develop any of our
technology. Instead of developing technology, we continually seek out third
parties that own new and innovative technology that they may be willing to
license to us or develop into new dental products under a development agreement.
We have had problems in the past obtaining a marketable product from companies
with whom we had entered into a licensing arrangement. We entered into a
licensing agreement with Ion Laser Technology under which ILT was unable to
develop a product in accordance with the delivery schedule established by our
agreement that met our specifications; as a result, we were forced to find an
alternative product to that which we had contracted with ILT.
IF WE DO NOT MAKE CERTAIN REQUIRED MINIMUM ROYALTY PAYMENTS TO SUNI, WE WILL
LOSE OUR EXCLUSIVE RIGHTS TO THE DIGITAL X-RAY TECHNOLOGY DEVELOPED FOR US BY
SUNI.
In order to maintain our rights to be the exclusive dental licensee of the
digital x-ray technology developed by Suni, our agreement with Suni requires us
to make minimum royalty payments to Suni, and we must purchase a significant
amount of certain products manufactured by Suni. The royalty payments began
coming due when products incorporating the developed technology were introduced
to the market. We cannot guarantee that we will be able to make the minimum
royalty payments required to maintain our rights to be the exclusive
distributor, nor can we guarantee that we will be able to purchase the amount of
products that are required to maintain our right to be the exclusive
distributor. If we do not make the required royalty payments, Suni will be able
to license the developed technology to our competitors, or grant an exclusive
license to a competitor, which could have a material adverse effect on our
operating results and financial condition.
THE GOVERNMENT EXTENSIVELY REGULATES OUR PRODUCTS AND FAILURE TO COMPLY WITH
APPLICABLE REGULATIONS COULD RESULT IN FINES, SUSPENSIONS, SEIZURE ACTIONS,
PRODUCT RECALLS, INJUNCTIONS AND CRIMINAL PROSECUTIONS.
The United States Food and Drug Administration, as well as state and
foreign agencies, regulate almost all aspects of our medical devices including:
- entry into the marketplace;
- design;
- testing;
- manufacturing procedures;
- reporting of complaints;
- labeling; and
- promotional activities.
Under the Federal Food, Drug, and Cosmetic Act, FDA has the authority to
control the introduction of new products into the marketplace. Unless
specifically exempted by the agency, medical devices enter the marketplace
through either FDA clearance of premarket approval application or FDA approval
of an application for 510k clearance. FDA conducts periodic inspections to
assure compliance with its regulations. The Company has applications pending for
a hand held cordless curing lamp and a cordless, remote controlled,
high-resolution, intraoral camera. The Company expects to receive FDA 510(k)
notification for these products prior to or during the third quarter of 2000.
Any delay in receipt of FDA 510(k) notification for these products will delay
our ability to market and sell these products and could allow our competitors to
develop and introduce competing products.
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<PAGE> 24
Unless specifically exempted by FDA's regulations, we will need to file a
510k submission or PMA application for any new products developed in the future
including any new products using digital x-ray technology. The process of
obtaining a clearance or approval can be time-consuming and expensive.
Compliance with FDA's regulatory requirements can be expensive and time
consuming. We do not guarantee that the required regulatory approvals or
clearances will be obtained. Any approval or clearance obtained from FDA may
include significant limitations on the use of the medical device which is the
subject of the approval or clearance. We cannot market a medical device if
needed FDA approval or clearance is not granted. Inability to obtain such
approval or clearance could result in a delay or suspension of the manufacture
and sale of affected medical devices. Any such delay or suspension would have a
material adverse effect on our business. In addition, changes in existing
regulations or the adoption of new regulations could make regulatory compliance
by us more difficult in the future. The failure to obtain the required
regulatory clearances or to comply with applicable regulations could result in
one or more of the following:
- fines;
- delays or suspensions of device clearances;
- seizure actions;
- mandatory recalls;
- injunction action; and
- criminal prosecution.
THE LOSS OF OUR CHIEF EXECUTIVE OFFICER COULD RESULT IN THE LOSS OF A
SIGNIFICANT PORTION OF OUR BUSINESS BECAUSE OF HIS PERSONAL RELATIONSHIPS IN THE
INDUSTRY.
Our success is highly dependent upon our Chairman of the Board and Chief
Executive Officer, Robert H. Gurevitch. Unlike larger companies, we rely heavily
on a small number of officers to conduct a large portion of our business. The
loss of service of Robert H. Gurevitch along with the loss of his numerous
contacts and relationships in the industry would have a material adverse effect
on our business. We have entered into an Employment Agreement with Robert H.
Gurevitch under which he has agreed to render services to us until September 30,
2002. We have obtained "key person" life insurance on Mr. Gurevitch in the
amount of $2,000,000, of which we are the sole beneficiary, but there can be no
assurance that the proceeds of such insurance will be sufficient to offset the
loss to us in the event of his death.
NONE OF OUR PRODUCTS HAVE SIGNIFICANT PROTECTION FROM PATENTS, AND THEREFORE,
THEY MAY NOT BE ADEQUATELY PROTECTED FROM COPYING BY COMPETITORS.
Our future success and ability to compete is dependent in part upon our
proprietary technology used in the Apollo(TM). The Apollo(TM) is currently only
protected by a patent in France. Patent protection is being sought in all of the
countries of the world in which this technology can be marketed. There can be no
assurance that patents outside of France will be granted for the Apollo(TM)
systems, and, if granted, the patents will provide adequate protection for the
Company's technologies. Consequently, we rely primarily on trademark, trade
secret and copyright laws to protect our technology. However, there can be no
assurance that third parties will not try to copy our products. In addition,
many foreign countries' laws may not protect us from improper use of our
proprietary technology overseas. We may not have adequate remedies if our
proprietary rights are breached and therefore a breach of our proprietary rights
could have a material adverse effect on our financial condition.
ISSUANCE OF PREFERRED STOCK MAY HAVE THE EFFECT OF PREVENTING A CHANGE OF
CONTROL.
We have authorized 1,000,000 shares of preferred stock, which may be issued
by the Board of Directors with certain rights not granted to the holders of
common stock. Issuance of such preferred stock, depending upon the terms and the
rights thereof, may have the effect of delaying, deterring or preventing a
change in control.
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<PAGE> 25
WE ARE SUSCEPTIBLE TO PRODUCT LIABILITY SUITS AND IF A LAWSUIT IS BROUGHT
AGAINST US IT COULD RESULT IN US HAVING TO PAY LARGE LEGAL EXPENSES AND/OR
JUDGMENTS.
Although we have not yet had any product liability claims, because of the
nature of the medical/dental device industry, there can be no assurance that we
will not be subject to such claims in the future. Our products come into contact
with more vulnerable areas of the human body, such as the mouth, tongue, teeth
and gums, and, therefore, the sale and support of dental products makes us
susceptible to the risk of such claims. A successful product liability claim or
claim arising as a result of use of our products brought against us, or the
negative publicity brought up by such claim, could have a material adverse
effect upon our business. We maintain product liability insurance with coverage
limits of $1,000,000 per occurrence and $11,000,000 per year. While we believe
that we maintain adequate insurance coverage, we do not guarantee that the
amount of insurance will be adequate to satisfy claims made against us in the
future, or that we will be able to obtain insurance in the future at
satisfactory rates or in adequate amounts.
OUR RECENT SALES OF SERIES A AND B EXCHANGEABLE PREFERRED STOCK, COMMON STOCK
AND WARRANTS TO PURCHASE COMMON STOCK MAY RESULT IN SUBSTANTIAL DILUTION TO OUR
COMMON SHAREHOLDERS.
On November 23, 1999 we sold an aggregate of 2,000 shares of Series A
Exchangeable Preferred Stock ($2 million face value), 2,500 shares of Common
Stock and Warrants to purchase up to 40,000 shares of Common Stock. On March 3,
2000 we sold an aggregate of 2,250 shares of Series B Exchangeable Preferred
Stock ($2.25 million face value) and Warrants to purchase up to 675,000 shares
of Common Stock.
Prior to March 15, 2000, holders of Series A Exchangeable Preferred Stock
could exchange their shares into common stock at $4.00 per share based upon a
stated value of $1,000 per share of Series A Exchangeable Preferred Stock. On
and after March 15, 2000, holders of Series A Exchangeable Preferred Stock may
exchange their shares for shares of common stock at the lesser of $4.00 per
share or the average of the closing bid prices of the common stock during any
three (3) of the prior thirty (30) consecutive trading days selected by the
holder of the Series A Exchangeable Preferred Stock then being exchanged. As a
result, the holders will likely be in a position to exchange their shares for
shares of common stock at a discount to the then current trading price of our
common stock.
Holders of Series B Exchangeable Preferred Stock may exchange their shares
into common stock at a price per share equal to the lesser of the average of the
closing bid prices of the common stock during the five (5) trading day period
immediately prior to the original issuance date or one hundred percent (100%) of
the Market Price on the date of exchange. As a result, the holders of Series B
Exchangeable Preferred Stock may be in a position to exchange their shares of
common stock at a discount to the then current trading price of our common
stock.
The conversion price of our Series A Preferred Stock and Series B Preferred
Stock is variable and may dilute the price of our common stock. Each Series A
Share has a stated value of $1,000 per share and is exchangeable into common
stock (a) prior to March 15, 2000, at $4.00 per share and (b) on and after March
15, 2000, the lesser of $4.00 per share or the average of the closing bid prices
of the common stock during any three (3) of the prior thirty (30) consecutive
trading days selected by the holder of the Series A Shares then being exchanged.
Each Series B Share has a stated value of $1,000 per share and is exchangeable
into common stock at a price per share equal to the lesser of the average of the
closing bid prices of the common stock during the five (5) trading day period
immediately prior to the original issuance date or one hundred percent (100%) of
the Market Price on the date of exchange. If the trading price of our common
25
<PAGE> 26
stock declines, the number of shares of Common Stock into which the Series A
Preferred Stock and Series B Preferred Stock may exchange will increase. The
following table illustrates this effect:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON NUMBER OF SHARES OF COMMON
STOCK INTO WHICH 2,000 SHARES OF STOCK INTO WHICH 2,250 SHARES OF PERCENTAGE OF
ASSUMED SERIES A PREFERRED STOCK MAY SERIES B PREFERRED STOCK MAY OUTSTANDING SHARES OF
EXCHANGE PRICE EXCHANGE EXCHANGE COMMON STOCK
- -------------- ----------------------------------- ----------------------------------- ---------------------
<S> <C> <C> <C>
$2.75 727,273 818,182 23.8%
2.50 800,000 900,000 26.2%
2.25 888,889 1,000,000 29.1%
2.00 1,000,000 1,125,000 32.7%
</TABLE>
WE REQUIRE STOCKHOLDER APPROVAL OR AN ADDITIONAL CASH PAYMENT FOR WHICH WE DO
NOT CURRENTLY HAVE SUFFICIENT FUNDS AND MUST SEEK ADDITIONAL FINANCING.
Under the rules and regulations of the Nasdaq Stock Market, we require
stockholder approval to issue 20% or more of our outstanding common stock in a
single transaction. Because the rate at which the Series A Preferred Stock and
Series B Preferred Stock exchange into common stock fluctuates, it is possible
that the number of shares of common stock into which the Series A Preferred
Stock or Series B Preferred Stock may exchange could exceed 20%. We have agreed
with the purchasers of the Series A Preferred Stock and the Series B Preferred
Stock that we will seek stockholder approval of these issuances at the 2000
Annual Meeting of Stockholders. Prior to receiving stockholder approval, or if
stockholder approval is not obtained, any attempted exchange of shares of Series
A Preferred Stock or Series B Preferred Stock in excess of 19.9% of the
outstanding common stock of the Company must be paid in cash to the holder of
the Series A Preferred Stock or Series B Preferred Stock. Because, in connection
with the sale of shares of Series B Preferred Stock, we issued warrants to
purchase up to 675,000 shares of common stock (10% of our then outstanding
common stock), if we do not receive stockholder approval of the Series B
transaction we will likely have to honor the exchange of a significant number of
shares of Series B Preferred Stock in cash. We do not currently have sufficient
funds to honor the exchange of a significant number of shares of Series A
Preferred Stock or Series B Preferred Stock in cash., and any efforts by the
holders of Series A Preferred Stock or Series B Preferred Stock to receive cash
in exchange for shares of Series A Preferred Stock or Series B Preferred Stock
could have a material adverse effect on our liquidity and financial condition.
If we are obligated to honor the exchange of shares of Series A Preferred Stock
or Series B Preferred Stock in cash, we would likely have to obtain considerable
financing to fulfill the obligation. We cannot guarantee that such financing
will be available or, if available, that it can be obtained on terms
satisfactory to us or on terms favorable to the holders of our common stock.
A DECREASE IN THE PRICE OF OUR COMMON STOCK COULD INCREASE SHORT SALES OF OUR
COMMON STOCK BY THIRD PARTIES WHICH COULD RESULT IN FURTHER REDUCTIONS IN THE
PRICE OF OUR COMMON STOCK.
Exchange of shares of our Series A Preferred Stock or Series B Preferred
Stock into common stock at a discount to the market price of our common stock
could result in reductions in the market price of our common stock. Downward
pressure on the price of our common stock could encourage short sales of our
common stock by third parties. Material amounts of short selling could place
further downward pressure on the market price for our common stock. A short sale
is a sale of stock that is not owned by the seller. The seller borrows the stock
for delivery at the time of the short sale, and buys back the stock when it is
necessary to return the borrowed shares. If the price of the stock declines
between the time the seller sells short the stock and the time the seller
subsequently repurchases the stock, the seller will realize a profit.
IF THE TRADING PRICE OF OUR COMMON STOCK FALLS BELOW $1.00, WE MAY BE DELISTED
FROM THE NASDAQ STOCK MARKET AND THE BOSTON STOCK EXCHANGE.
The closing sale price of our Common Stock on March 24, 2000 was $2.41 per
share. Under the rules and regulations of the Nasdaq Stock Market and the Boston
Stock Exchange, to maintain listing on the Nasdaq Small Cap Market and the
Boston Stock Exchange we must maintain a trading price per share of more than
26
<PAGE> 27
$1.00. If the trading price per share of our common stock falls below $1.00, we
may be delisted from the Nasdaq Small Cap Market and the Boston Stock Exchange.
If we were delisted from the Nasdaq Small Cap Market and the Boston Stock
Exchange, trading in our common stock, if any, would have to be conducted in the
over-the-counter market in so-called "pink sheets" or, if then available, the
OTC Bulletin Board. As a result, the holders of our common stock would find it
more difficult to dispose of, or to obtain accurate quotations as to the market
value of, our common stock.
If our Common Stock is delisted from trading on Nasdaq and the Boston Stock
Exchange and the trading price is less than $5.00 per share, trading in our
Common Stock would also be subject to the requirements of Rule 15g-9 promulgated
under the Securities Exchange Act of 1934. Under such rule, broker/dealers who
recommend these low-priced securities to persons other than established
customers and accredited investors must satisfy special sales practice
requirements, including a requirement that they make an individualized written
suitability determination for the purchaser and receive the purchaser's written
consent prior to the transaction. The Securities Enforcement Remedies and Penny
Stock Reform Act of 1990 also requires additional disclosure in connection with
any trades involving a stock defined as a penny stock (generally any equity
security not traded on an exchange or quoted on Nasdaq that has a market price
of less than $5.00 per share, subject to certain exceptions), including the
delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated with the penny stock
market. These requirements would likely severely limit the market liquidity of
our Common Stock and the ability of our shareholders to dispose of their shares,
particularly in a declining market.
A LARGE VOLUME OF SALES OF OUR COMMON STOCK RESULTING FROM THE EXCHANGE OF
SHARES OF SERIES A AND B EXCHANGEABLE PREFERRED STOCK AND/OR THE EXERCISE OF
WARRANTS MAY RESULT IN DOWNWARD PRESSURE OR INCREASED VOLATILITY IN THE TRADING
PRICE OF OUR COMMON STOCK.
Because we have agreed to register for resale the 2,500 shares of Common
Stock and the shares of Common Stock issuable upon exchange or exercise of the
Series A and B Exchangeable Preferred Stock and the Warrants, the holders
thereof may sell without regard to any volume restrictions, including the volume
restrictions set forth in Rule 144 promulgated under the Securities Act of 1933.
As a result, sales by the holders of Series A and B Exchangeable Preferred Stock
and the Warrants could lead to an excess supply of shares of our Common Stock
being sold which could, in turn, result in downward pressure or increased
volatility in the trading price of our Common Stock.
IF WE FAIL TO TIMELY EFFECT AN EXCHANGE OF SERIES A AND B EXCHANGEABLE PREFERRED
STOCK FOR SHARES OF COMMON STOCK, WE MAY BE LIABLE FOR SIGNIFICANT LIQUIDATED
DAMAGES.
We have agreed to effect an exchange of Series A and B Exchangeable
Preferred Stock into Common Stock within four (4) trading days of receipt of a
notice from a holder of Series A or B Exchangeable Preferred Stock requesting an
exchange. If we fail to effect an exchange of Series A Exchangeable Preferred
Stock into Common Stock within four (4) trading days of receipt of a valid
notice, we have agreed to pay to the holder of Series A and B Exchangeable
Preferred Stock requesting the exchange liquidated damages in an amount equal to
$100 per day for the first ten (10) days and $200 per day thereafter for each
$5,000 in liquidation preference amount then being exchanged. An obligation to
pay these liquidated damages could have a material adverse effect on our
liquidity and cash flows.
27
<PAGE> 28
ITEM 7. FINANCIAL STATEMENTS
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... 29
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... 30
Consolidated Statements of Operations for the Fiscal Years
ended December 31, 1999, 1998 and 1997.................... 31
Consolidated Statements of Stockholders' Equity for the
Fiscal Years ended December 31, 1999, 1998 and 1997....... 32
Consolidated Statements of Cash Flows for the Fiscal Years
ended December 31, 1999, 1998 and 1997.................... 33
Consolidated Statements of Comprehensive Loss for the Fiscal
Years ended December 31, 1999, 1998 and 1997.............. 34
Notes to Consolidated Financial Statements.................. 35
</TABLE>
28
<PAGE> 29
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Dental/Medical Diagnostic Systems, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity, cash flows
and comprehensive loss present fairly, in all material respects, the financial
position of Dental/Medical Diagnostic Systems, Inc. and its subsidiaries (the
"Company") at December 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999, in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Woodland Hills, CA
March 17, 2000 except for the
subsequent event described
in Note 10, as to which the
date is March 23, 2000
29
<PAGE> 30
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Current assets
Cash and cash equivalents................................. $ 4,615,501 $ 3,941,305
Accounts receivable, less allowance for returns and
doubtful accounts of $448,081 and $20,975 at December
31, 1999 and 1998...................................... 5,756,048 3,757,865
Inventories............................................... 7,835,377 5,559,751
Prepaid expenses and other current assets................. 1,226,199 1,332,427
Debt issuance costs, net of accumulated amortization...... -- 64,516
------------ -----------
Total current assets.............................. 19,433,125 14,655,864
Property and equipment, net of accumulated depreciation... 1,302,758 996,940
Intangible assets, net of accumulated amortization........ 2,031,521 798,437
Loans to related parties.................................. 70,000 70,000
Other assets.............................................. 988,458 49,119
------------ -----------
Total assets...................................... $ 23,825,862 $16,570,360
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations.............. $ 18,670 $ 22,440
Current portion of long term debt......................... 122,320 4,277,505
Line of credit............................................ 1,000,000 114,630
Accounts payable.......................................... 4,514,639 2,413,767
Accrued liabilities....................................... 2,251,079 1,240,064
Customer deposits......................................... 205,102 60,833
------------ -----------
Total current liabilities......................... 8,111,810 8,129,239
Borrowings under line of credit........................... -- 229,260
Long term notes payable................................... 5,702,593 --
Capital lease obligations................................. -- 22,935
Other long term liabilities............................... -- 15,061
------------ -----------
13,814,403 8,396,495
Commitments and contingencies (Note 12)
Mandatory redeemable preferred stock, stated value $1,000
per share; 2,000 shares issued and outstanding at December
31, 1999 (liquidation value of $2,000,000)................ 1,816,343 --
Stockholders' equity:
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; 6,497,564 and 5,255,694 shares issued and
outstanding at December 31, 1999 and 1998.............. 64,975 52,556
Additional paid in capital................................ 20,535,345 13,469,597
Accumulated deficit....................................... (12,077,131) (5,349,493)
Cumulative translation adjustment......................... (328,073) 1,205
------------ -----------
Total stockholders' equity........................ 8,195,116 8,173,865
------------ -----------
Total liabilities and stockholders' equity........ $ 23,825,862 $16,570,360
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
30
<PAGE> 31
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales........................................... $38,180,996 $19,227,798 $16,087,208
Cost of sales....................................... 22,144,868 9,820,882 10,234,206
----------- ----------- -----------
Gross profit...................................... 16,036,128 9,406,916 5,853,002
Selling, general and administrative expense......... 19,659,552 8,764,910 6,031,066
Research and development expense.................... 1,823,003 549,304 1,213,766
Non-recurring charge................................ 566,893 __-- 256,250
----------- ----------- -----------
Operating (loss) income........................... (6,013,320) 92,702 (1,648,080)
Interest and other income........................... (434,321) (195,532) (205,818)
Interest expense.................................... 1,055,813 1,739,693 138,576
Amortization of debt issuance costs................. 64,519 235,484 76,431
----------- ----------- -----------
Loss before income taxes and extraordinary item..... (6,699,331) (1,686,943) (1,657,269)
Provision for income taxes.......................... 28,307 129,759 153,311
----------- ----------- -----------
Loss before extraordinary item...................... (6,727,638) (1,816,702) (1,810,580)
Extraordinary loss on early extinguishment of debt
(net of tax benefit of $143,511).................. -- -- (234,149)
----------- ----------- -----------
Net loss.................................. $(6,727,638) $(1,816,702) $(2,044,729)
=========== =========== ===========
Basic and diluted loss per share before
extraordinary item................................ $ (1.15) $ (.35) $ (.42)
Basic and diluted loss per share after extraordinary
item.............................................. $ (1.15) $ (.35) $ (.47)
Basic and diluted weighted average number of
shares............................................ 5,839,416 5,151,614 4,341,498
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
31
<PAGE> 32
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE
------------------- PAID IN ACCUMULATED TRANSLATION
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT TOTAL
--------- ------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996..................... 2,985,537 $29,855 $ 2,695,832 $ (1,488,062) $ -- $ 1,237,625
Issuance of common stock for cash, net of
issuance costs............................. 2,120,000 21,200 8,509,192 -- -- 8,530,392
Exercise of stock options.................... 10,240 102 8,910 -- -- 9,012
Amortization of deferred
compensation............................... -- -- 57,850 -- -- 57,850
Net loss..................................... -- -- -- (2,044,729) -- (2,044,729)
--------- ------- ----------- ------------ --------- -----------
Balance, December 31, 1997..................... 5,115,777 51,157 11,271,784 (3,532,791) -- 7,790,150
Issuance of common stock for distribution
rights..................................... 100,000 1,000 461,500 -- -- 462,500
Issuance of warrants with Senior Subordinated
Notes...................................... -- -- 1,619,755 -- -- 1,619,755
Exercise of stock options.................... 39,917 399 116,558 -- -- 116,957
Net loss..................................... -- -- -- (1,816,702) -- (1,816,702)
Translation adjustment....................... -- -- -- -- 1,205 1,205
--------- ------- ----------- ------------ --------- -----------
Balance, December 31, 1998..................... 5,255,694 52,556 13,469,597 (5,349,493) 1,205 8,173,865
Issuance of common stock and warrants in
connection with preferred stock offering... 2,500 25 83,632 -- -- 83,657
Issuance of common stock for cash, net of
issuance costs............................. 901,000 9,010 4,960,767 -- -- 4,969,777
Issuance of common stock for acquisitions.... 150,000 1,500 1,142,250 -- -- 1,143,750
Issuance of common stock for acquisition of
technology and distribution rights......... 150,000 1,500 611,000 -- -- 612,500
Issuance of stock options to non-employees... -- -- 89,437 -- -- 89,437
Exercise of stock options and warrants....... 38,370 384 178,662 -- -- 179,046
Net loss..................................... -- -- -- (6,727,638) -- (6,727,638)
Translation adjustment....................... -- -- -- -- (329,278) (329,278)
--------- ------- ----------- ------------ --------- -----------
Balance, December 31, 1999..................... 6,497,564 $64,975 $20,535,345 $(12,077,131) $(328,073) $ 8,195,116
========= ======= =========== ============ ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
32
<PAGE> 33
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(6,727,638) $(1,816,702) $(2,044,729)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization........................... 779,365 338,462 16,562
Amortization of debt issue costs........................ 64,516 235,484 76,431
Amortization of debt discount........................... 348,435 1,271,790 --
Allowance for returns and doubtful accounts............. 427,174 -- (86,428)
Inventory write down.................................... 1,005,772 156,620 29,205
Extraordinary item...................................... -- -- 377,660
Amortization of deferred compensation................... -- -- 57,850
Deferred taxes.......................................... -- -- 90,000
Deferred rent........................................... (15,061) 4,009 (3,046)
Common stock and stock options issued for services...... 89,437 -- --
Changes in operating assets and liabilities:
Accounts receivable.................................. (2,490,970) (1,782,471) (722,742)
Inventories.......................................... (3,297,867) (2,818,298) (1,412,400)
Prepaid expenses and other current assets............ 92,539 (941,706) (180,509)
Other assets......................................... (939,339) 442,831 (449,680)
Accounts payable..................................... 2,088,891 889,808 433,080
Accrued liabilities and income taxes payable......... 1,048,073 220,725 538,430
Customer deposits.................................... 144,269 17,838 9,388
----------- ----------- -----------
Net cash used by operating activities.............. (7,382,404) (3,781,610) (3,270,928)
----------- ----------- -----------
Cash flows from investing activities:
Loans to related parties.................................. -- 56,000 (126,000)
Purchase of intangible assets............................. -- (304,494) (86,950)
Purchase of property and equipment........................ (603,804) (722,056) (284,082)
----------- ----------- -----------
Net cash used in investing activities.............. (603,804) (970,550) (497,032)
----------- ----------- -----------
Cash flows from financing activities:
Borrowings from revolving line of credit.................. 4,000,000 343,890 --
Net proceeds from issuance of notes payable............... 2,953,890 4,625,509 --
Payment of debt issuance costs............................ -- (300,000) --
Repayment of notes payable................................ (5,095,186) -- --
Repayment of bridge loan.................................. -- -- (1,600,000)
Repayments on borrowings to related parties............... -- (45,030) (227,936)
Principal payments on capital lease obligations........... (26,705) (17,839) (21,282)
Issuance of common stock through exercise of options and
warrants................................................ 179,046 116,957 9,012
Issuance of common stock.................................. 4,969,777 -- 8,530,392
Issuance of mandatory redeemable preferred stock.......... 1,900,000 -- --
----------- ----------- -----------
Net cash provided by financing activities.......... 8,880,822 4,723,487 6,690,186
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents...................................... 894,614 (28,673) 2,922,226
Effect of exchange rate changes on cash and cash
equivalents............................................... (220,418) (11,084) --
Cash and cash equivalents, beginning of period.............. 3,941,305 3,981,062 1,058,836
----------- ----------- -----------
Cash and cash equivalents, end of period.................... $ 4,615,501 $ 3,941,305 $ 3,981,062
=========== =========== ===========
Supplemental cash flow information:
Interest paid............................................. $ 455,215 $ 310,615 $ 281,693
Income taxes paid......................................... 48,840 17,553 50,279
Supplemental schedule of non-cash investing and financing
activities:
Issuance of common stock for acquisition of businesses.... $ 1,143,750 $ -- $ --
Issuance of common stock for acquisition of intangible
assets.................................................. 612,500 462,500 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
33
<PAGE> 34
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE FISCAL YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net loss............................................ $(6,727,638) $(1,816,702) $(2,044,729)
Other comprehensive income (loss):
Foreign currency translation adjustment........... (329,278) 1,205 --
----------- ----------- -----------
Comprehensive loss.................................. $(7,056,916) $(1,815,497) $(2,044,729)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
34
<PAGE> 35
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The Company designs, develops, manufactures and sells high technology
dental equipment and operates in one industry segment. The Company's primary
existing product emphasis is on the manufacture and sale of a tooth curing and
whitening device known as the "Apollo(TM)." The Company also markets and sells a
line of whitening products known as "Apollo Secret(R)" for use in conjunction
with the Apollo(TM), and in the second quarter of 1999 introduced a line of
composite resin materials known as "ASAP -- Accelerated Solutions for Aesthetic
Procedures." In the first quarter of 2000 it was decided to discontinue the ASAP
product line. In addition, the Company continues to manufacture and sell
intraoral camera systems, known as the "TeliCam II System," and "TeliCam Elite,"
and a multi-operatory intraoral camera system, known as the InTELInet, for use
in connection with the TeliCam II System and TeliCam Elite." In the third
quarter of 1999, the Company introduced the MPDx(TM) digital x-ray system.
On February 2, 1998 the Company formed "DMDS, Ltd." a wholly owned
subsidiary created under the laws of the United Kingdom. DMDS, Ltd. holds the
assets acquired in 1997 from S.E.D. Gerant, a company organized under the laws
of France. In addition, the Company is marketing certain of its new products
internationally through DMDS, Ltd.
On March 1, 1999, DMDS, Ltd. purchased the assets of DMD Germany, an
independent company organized under the laws of Germany, for a purchase price
consisting of 100,000 shares of common stock of the Company. Also, on March 1,
1999, DMDS, Ltd. purchased the assets of Midas, Ltd., an independent company
organized under the laws of the United Kingdom, for a purchase price consisting
of 50,000 shares of common stock of the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of DMDS and its
wholly owned subsidiaries. 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 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
four product families. 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.
35
<PAGE> 36
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Revenue Recognition
The Company recognizes revenue from the sales of systems and supplies at
the time of shipment, net of an allowance for estimated sales returns. The
Company generally warranties 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
with respect to leasehold improvements and capital leases over 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 and tooling.......................... 3 years
</TABLE>
Patents, Trademarks and Other Intangibles
Patents, trademarks and other intangibles are carried at cost less
accumulated amortization which is calculated on a straight-line basis over the
estimated useful lives of the assets, ranging from five to 15 years.
Long-Lived Assets
The carrying value of long-lived assets is periodically reviewed by
management, and impairment losses, if any, are recognized when the expected
non-discounted future operating cash flows derived from such assets are less
than their carrying values.
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 fiscal years ended December 31, 1999, 1998
and 1997, were $6,702,775, $2,256,179, and $1,528,203, respectively. Prepaid
advertising and promotion costs at December 31, 1999 and 1998 were $541,489 and
$376,316, respectively.
Research and Development Costs
Costs related to research and development are expensed as incurred.
36
<PAGE> 37
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 currently 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 trade accounts receivable.
Also, at various times throughout the year, cash balances are maintained in
excess of Federally insured deposit limits.
For the fiscal years ended December 31, 1999, 1998 and 1997 international
customers accounted for 45%, 40%, and 24% of sales, respectively. At December
31, 1999 and 1998, international customers accounted for approximately 82% and
78% of accounts receivable, respectively. No customer accounted for more than
10% of revenues in any of the periods presented. Five customers accounted for
43% of the Company's accounts receivable at December 31, 1999.
The Company performs ongoing credit evaluations of its customers' financial
condition and generally does not require collateral. Estimated credit losses and
returns have been provided for in the financial statements.
The majority of the Company's current customers consist of dental
professionals and independent distributors. 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.
Computation of Earnings Per Share
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
128; "Earnings Per Share" for the year ended December 31, 1997, and has reported
earnings per common share for all periods presented in accordance with the new
standard. Net income (loss) per common share is computed by dividing net income
(loss) by the weighted average number of shares of common stock outstanding
during the period. Net income (loss) per common share assuming dilution is
computed by dividing net income (loss) by the weighted average number of shares
of common stock outstanding plus the number of additional common
37
<PAGE> 38
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
shares that would have been outstanding if all dilutive potential common shares
had been issued, using the treasury stock method unless antidilutive. For the
years ended December 31, 1999, 1998, and 1997 potential common shares related to
1,268,979, 891,806, and 600,881 stock options, respectively, and 4,339,844,
4,300,000, and 4,300,000, stock warrants, respectively, are excluded from the
computation because their effect is antidilutive.
Comprehensive Income
In January 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 establishes standards for reporting and displaying comprehensive
income and its components (revenues, expenses, gains and losses) in financial
statements. SFAS 130 requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be reported in
a financial statement that is displayed with the same prominence as other
financial statements.
No tax effect has been allocated to the foreign currency translation
adjustment for the periods presented.
The following is a reconciliation of accumulated other comprehensive income
balance for the year ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
--------- ------
<S> <C> <C>
Beginning balance............................... $ 1,205 $ --
Current period change........................... (329,278) 1,205
--------- ------
Ending balance.................................. $(328,073) $1,205
========= ======
</TABLE>
Foreign Currency
Financial statements of foreign subsidiaries are translated in to US
dollars using the exchange rate at the balance sheet date for assets and
liabilities and a weighted average exchange rate for each period for revenues,
expenses, gains and losses. The effect of unrealized exchange rate fluctuations
on translating foreign currency assets and liabilities into US dollars are
accumulated as a separate component of shareholders' equity. Gains (losses)
resulting from foreign currency transactions are included in the statement of
operations and amounted to ($119,824), ($69,726) and $0 for the years ended
December 31, 1999, 1998 and 1997, respectively.
Reclassifications
Certain prior year balances have been reclassified to conform with current
year presentation.
Future Accounting Requirements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). SFAS 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of the derivatives are recorded each period in current earnings or
other comprehensive income, depending on whether a derivative is designed as
part of a hedge transaction and, if it is, the type of hedge transaction. SFAS
133 is effective for fiscal years beginning after June 15, 2000. The Company
does not anticipate that the adoption of this new standard will have a material
effect on our earnings or our financial position, but we will continue to
evaluate the impact of SFAS 133.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements," which provides the SEC's views on applying
38
<PAGE> 39
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
generally accepted accounting principles to selected revenue recognition issues.
The Company is presently evaluating the impact, if any, that this may have on
the Company's revenue recognition policy.
3. RELATED PARTY TRANSACTIONS
On May 27, 1997, the Company loaned Dewey Perrigo, Vice President of Sales
of the Company, and Andrea Niemiec-Perrigo, an employee of the Company, $126,000
for the purpose of buying a home. The Promissory Notes evidencing such loans
bear interest at prime plus .25% (8.0% at December 31, 1998), and are due and
payable on November 30, 2002. On August 19, 1998, a principal payment of $56,000
and an interest payment of $6,152 were made leaving a loan balance of $70,000.
4. INVENTORIES
Inventories consisted of the following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Raw materials............................................... $3,446,566 $2,313,810
Work in process............................................. 1,092,058 874,002
Finished goods.............................................. 3,296,753 2,371,939
---------- ----------
$7,835,377 $5,559,751
========== ==========
</TABLE>
5. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following at
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Prepaid advertising and industry trade show fees............ $ 541,489 $ 376,316
Prepaid royalties........................................... 100,000 --
Prepaid inventory........................................... -- 220,219
VAT recoverable............................................. -- 321,254
Other....................................................... 584,710 414,638
---------- ----------
$1,226,199 $1,332,427
========== ==========
</TABLE>
6. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1999 and
1998:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Equipment and software, including $88,250 and $112,853 of
capitalized leases at December 31, 1999 and 1998.......... $1,392,629 $1,128,919
Furniture and fixtures...................................... 625,579 295,360
Leasehold improvements...................................... 52,723 47,251
---------- ----------
2,070,931 1,471,530
Less accumulated depreciation and amortization, including
$70,067 and $45,142 relating to capitalized leases at
December 31, 1999 and 1998................................ (768,173) (474,590)
---------- ----------
$1,302,758 $ 996,940
========== ==========
</TABLE>
39
<PAGE> 40
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INTANGIBLE ASSETS
Intangible assets consisted of the following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Patents and trademarks...................................... $ 384,523 $ 395,905
Excess cost over fair value of assets acquired.............. 1,115,338 --
License agreements.......................................... 875,000 462,500
Acquired technology......................................... 200,000 --
---------- ----------
2,574,861 858,405
Less accumulated amortization............................... (543,340) (59,968)
---------- ----------
$2,031,521 $ 798,437
========== ==========
</TABLE>
On October 2, 1998, the Company acquired the exclusive worldwide license
agreement for certain tooth whitening products from Chrysalis Dental, Inc.
through the issuance of 100,000 shares of common stock valued at $462,500.
On March 1, 1999, the Company issued 150,000 shares of common stock for the
purchase of DMD Germany and Midas Limited, resulting in $1,115,338 of excess
cost over estimated fair value of assets acquired.
On September 28, 1999, the Company acquired worldwide rights, title, and
interest for certain curing light technology from Plasma X France through the
issuance of 50,000 shares of common stock valued at $200,000.
On October 15, 1999, the Company acquired the exclusive worldwide license
agreement for certain home-use tooth whitening products from Chrysalis Dental,
Inc. through the issuance of 100,000 shares of common stock valued at $412,500.
8. OTHER ASSETS
Other assets consisted of the following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Prepaid royalties........................................... $ 575,000 $ --
Deposits.................................................... 69,347 49,119
Other....................................................... 344,111 --
---------- ----------
$ 988,458 $ 49,119
========== ==========
</TABLE>
40
<PAGE> 41
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. ACCRUED LIABILITIES
Accrued liabilities consisted of the following at December 31, 1999 and
1998:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Accrued purchase receipts................................... $ 623,571 $ --
Accrued commissions......................................... 516,064 362,019
Accrued royalties........................................... 169,334 --
Accrued salaries, wages, and payroll taxes.................. 156,992 84,661
Accrued advertising......................................... 125,535 78,983
Accrued vacation............................................ 103,578 64,225
Accrued warranty............................................ 90,813 85,000
Accrued income taxes payable................................ 15,302 124,452
Accrued interest............................................ -- 161,488
Deferred revenue............................................ -- 32,866
Accrued other............................................... 449,890 246,370
---------- ----------
$2,251,079 $1,240,064
========== ==========
</TABLE>
10. BORROWINGS UNDER LINE OF CREDIT AND NOTES PAYABLE
On July 1, 1997, the Company finalized a credit agreement with Comerica
Bank ("Comerica") extending up to a $2,000,000 line of credit to the Company,
collateralized 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 bore interest at the rate of prime plus .25% per
annum (8.00% at December 31, 1998). All borrowings under the facility were
subject to a formula based, generally, on accounts receivable and inventory. No
amounts were outstanding under this line of credit at December 31, 1998.
On December 10, 1997, the Company finalized a second agreement with
Comerica Bank ("Comerica") extending up to a $500,000 line of credit to the
Company for capital expenditures, collateralized by a first priority interest in
the Company's assets. The credit facility bore interest at a rate of prime plus
.5% per annum (8.25% at December 31, 1998). The line expired on December 10,
1998, at which time the principal balance began to amortize over a thirty-six
(36) month period. Borrowings were at 80% of the capital expenditure. At
December 31, 1998, $343,890 was outstanding under this line of credit. The
outstanding balance was repaid in full in 1999.
On January 4, 1999, the Company replaced its credit agreements with
Comerica with a $6,950,000 facility with Imperial Bank ("Imperial"). The
Imperial facility comprises of a $2,500,000 fixed rate non-revolving line of
credit due May 31, 2000 of which $1,766,000 bears interest of 9.0% at December
31, 1999 and $734,000 bears interest of 8.01% at December 31, 1999; a $4,000,000
variable rate revolving line of credit loan due May 31, 2000 bearing interest of
9.0% at December 31, 1999; and a $450,000 variable interest rate loan repayable
in 16 monthly installments through May 31, 2000 bearing interest of 9.25% at
December 31, 1999. The facilities are collateralized by the assets of the
Company. The credit facility also requires the Company to comply with certain
financial and non-financial covenants. The Company intends to use the credit
facilities, when needed, for working capital, capital expenditures and general
corporate purposes. On January 21, 1999, the Company borrowed against the
Imperial facility to repay the balance owed to Comerica capital credit line of
$343,890 plus accrued interest of $1,120. On January 25, 1999, the Company
borrowed against the Imperial facility to repay the $4,500,000 12% Senior
Subordinated Notes plus accrued interest of $189,000. At December 31, 1999,
$2,400,000, $4,000,000, and $302,593 was outstanding under the fixed rate
non-revolving line of credit, the variable revolving line of credit, and the
variable rate loan, respectively. The Company was in violation of certain
financial covenants at December 31, 1999 for which it received a waiver.
41
<PAGE> 42
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On March 23, 2000, the Company amended its facility with Imperial Bank to
modify certain of its financial covenants and to extend the repayment terms.
Under this amendment, the fixed rate non-revolving line of credit is due in
monthly installments of $100,000 commencing March 31, 2000 until April 30, 2001
with the balance due on May 31, 2001. Interest under this line of credit
increased to 10.0% per annum. The $4,000,000 variable rate revolving line of
credit and the variable rate loan repayment dates were extended to May 31, 2001,
with no principal payments required at any earlier dates. The interest rate
under the variable rate revolving line of credit was amended to 0.5% plus the
bank's index rate. In addition, the Company granted the bank 75,000 warrants at
an exercise price of $2.50 per share. The financial statements reflect the
amended repayment terms. The maturity period is as follows:
<TABLE>
<S> <C>
2000..................................... $1,000,000
2001..................................... 5,702,593
----------
$6,702,593
==========
</TABLE>
11. NOTES PAYABLE:
Notes payable consisted of the following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------- ----------
<S> <C> <C>
$4,500,000 12% Senior Subordinated Notes due March 19, 1999,
net of unamortized discount of $348,435................... $ -- $4,151,565
Notes payable to certain individuals bearing interest at 12%
at December 31, 1998. Due on demand prior to December
2000...................................................... 122,320 125,940
-------- ----------
$122,320 $4,277,505
======== ==========
</TABLE>
12. COMMITMENTS AND CONTINGENCIES
Leases
As of December 31, 1999 the Company leases four facilities under operating
leases that expire in 2000 of which two will not be renewed. On January 25,
2000, the Company leased a fifth facility under an operating lease that expires
in 2005. 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 that
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 $196,000, $189,000, and $132,000 for the
fiscal years ended December 31, 1999, 1998 and 1997, respectively. Two of the
facility leases are guaranteed by Robert H. Gurevitch, Chief Executive Officer
and Chairman of the Board of the Company.
42
<PAGE> 43
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The aggregate liability for future rentals under lease agreements with
noncancelable lease terms in excess of one year as of December 31, 1999, is
summarized as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDED DECEMBER 31 LEASES LEASES
---------------------- ------- ----------
<S> <C> <C>
2000........................................................ $19,956 $ 424,394
2001........................................................ -- 305,592
2002........................................................ -- 314,760
2003........................................................ -- 324,203
2004........................................................ -- 333,929
------- ----------
19,956 $1,702,878
======= ==========
Less amounts representing:
Interest.................................................. 1,286
Current portion........................................... 18,670
-------
Long term portion........................................... $ --
=======
</TABLE>
Distribution Agreements
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. 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. The Boston Marketing 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.
On October 10, 1997, the Company entered into an agreement with Suni
Imaging Microsystems, Inc. ("Suni") to develop digital x-ray technology for
incorporation into systems for the dental market. The Company has obtained
exclusive rights to market products to the dental market incorporating certain
digital x-ray technology developed by Suni. Suni will retain the rights to
developed microchip technology underlying the x-ray system it develops for the
Company.
Under the agreement with Suni, the Company was required to pay a non
refundable fee of $875,000 to Suni to develop technology for a digital x-ray
system for the dental market. This non-refundable fee was charged to research
and development expense during the year ended December 31, 1997. If the initial
prototype developed subsystem was not accepted by the Company, the fee was not
refundable to the Company and the Company was under no obligation to pay any
additional development fees or financial penalties to Suni. If the initial
prototype subsystem was accepted by the Company, upon acceptance of the final
prototype subsystem, the Company was obligated to pay an additional development
fee of $375,000 which can be offset against future royalty payments. Under the
terms of the agreement, the Company will also be required to pay a per unit
royalty on each licensed product sold. During 1999, the Company accepted the
final prototype subsystem.
On March 17, 1999, the Company entered into a manufacturing agreement with
Suni under which Suni will assemble, test and package the Company's digital
x-ray system incorporating the digital x-ray technology
43
<PAGE> 44
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
developed by Suni for the Company. Under the agreement, which has a three year
term, the Company has guaranteed payment in full for at least 3,000 units per
year and has agreed to place orders for at least 750 units per quarter. The
Company has also agreed to fulfill all of its requirements for the x-ray product
from Suni during the term of the agreement. The Company paid $200,000 in fees
offsettable against future royalty payments.
On October 2, 1998, the Company entered into an agreement with Chrysalis
Dental, Inc. to acquire the exclusive worldwide license agreement for certain
new tooth whitening products ("New Products"). Pursuant to the terms of the
agreement the Company is required to pay minimum annual royalties during the
term of the agreement. Should the Company fail to make the minimum annual
royalty payments after December 31, 2000, the Company shall have the option to
convert the exclusive agreement to a non-exclusive agreement and thereafter
forego payment of the minimum annual royalties. The Company is also required to
pay specified royalties on the net sales of the New Products by the Company in
excess of the minimum payments.
On September 29, 1999, the Company entered into another agreement with
Chrysalis Dental, Inc. to acquire the exclusive worldwide license agreement for
certain additional tooth whitening products ("New Products"). Pursuant to the
terms of the agreement the Company is required to pay minimum annual royalties
during the first three years of the agreement. Should the Company fail to make
the minimum annual royalty payments after December 31, 2000, the Company shall
have the option to convert the exclusive agreement to a non-exclusive agreement
and thereafter forego payment of the minimum annual royalties. The Company is
also required to pay specified royalties on the net sales of the New Products by
the Company in excess of the minimum payments.
13. CAPITAL TRANSACTIONS
On May 14, 1997, the Company closed a secondary offering of 2,070,000
shares of common stock. Each share of common stock included one redeemable
warrant to purchase one share of common stock at a purchase price of $5.00. This
offering resulted in gross proceeds of $10,350,000 less expenses of
approximately $2,075,858 for net proceeds of approximately $8,274,142. In
addition, the underwriter to the secondary offering received an option to
purchase 180,000 shares of common stock and/or 180,000 warrants at a purchase
price of $4.95 per share and $0.55 per warrant.
On September 17, 1997, the Company issued 50,000 shares of Common Stock to
DMD NV, the Company's licensed exclusive distributor of the TeliCam system in
Europe, in exchange for termination of DMD NV's exclusive distribution rights in
Europe. The market value of the Common Stock issued was $256,250.
On March 2, 1998, the Company entered into an agreement with accredited
investors and institutional purchasers for the private placement (the "Debt
Placement") of its 12% Senior Subordinated Notes due 1999, and 450,000 warrants
(the "1998 Warrants"). The Debt Placement was consummated on March 19, 1998. The
1998 Warrants are (i) exercisable commencing on May 15, 1998, and for five years
thereafter for the purchase of one share of Common Stock per Warrant; and (ii)
at an exercise price of $5.812 per share. The Senior Subordinated Notes (i) bear
interest payable semi-annually at a rate of 12% per annum; (ii) mature on the
first anniversary of the date of issuance; and (iii) may be repaid by the
Company prior to maturity at one hundred and two (102%) percent of the amount of
the unpaid principal plus interest due as of the date of repayment. As a result
of the warrant issuance, the Senior Subordinated Notes were discounted by
$1,620,225, which was amortized over the term of the Notes. On January 27, 1999,
the Company repaid the Senior Subordinated Notes, in full.
44
<PAGE> 45
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On July 16, 1999, we raised approximately $5,000,000 through the issuance
of 901,000 shares of Common Stock to eight investors. The shares were issued in
a private placement and were then registered for resale on a Form S-3
Registration Statement filed on July 23, 1999 and subsequently declared
effective.
On November 23, 1999 we sold an aggregate of 2,000 shares of Series A
Exchangeable Preferred Stock, 2,500 shares of Common Stock and Warrants to
purchase up to 40,000 shares of Common Stock. The Company received $2,000,000 in
gross proceeds less costs of approximately $100,000. The net proceeds of the
offering of $1,900,000 were allocated based on the relative fair value to the
mandatory redeemable preferred stock ($1,816,343) and to the common stock and
warrants ($83,657). Prior to March 15, 2000, holders of Series A Exchangeable
Preferred Stock may exchange their shares into common stock at $4.00 per share
based upon a stated value of $1,000 per share of Series A Exchangeable Preferred
Stock. On and after March 15, 2000, holders of Series A Exchangeable Preferred
Stock may exchange their shares for shares of common stock at the lesser of
$4.00 per share or the average of the closing bid prices of the common stock
during any three (3) of the prior thirty (30) consecutive trading days selected
by the holder of the Series A Shares then being exchanged. The preferred stock
will mandatorily convert to common stock after (i) the third anniversary from
the date of issuance; or (ii) if after 122 days from the date of issuance, the
average closing bid price of the Company's common stock for twenty consecutive
days is at least $8.00 (and trading volume exceeds specified limits) the Company
is required to demand conversion at the exchange price above. The Company may
redeem the preferred stock at any time upon the earlier of (i) a public
offering, as defined, or (ii) six months after the original issuance date at a
price equal to 140% of the stated value plus accrued and unpaid dividends,
unless the closing bid price is less than the market price, as defined, on date
of issuance in which case the redemption price shall be at 125% of the stated
value. The Preferred Stock will receive $40 in dividends per year with payments
due quarterly. The Stock Warrants are exercisable into an aggregate 40,000
shares of Common Stock at a purchase price of $2.749 per share through March 15,
2005.
14. STOCK OPTIONS AND WARRANTS
In March 1997, the Company's Board of Directors approved the "1997 Stock
Incentive Plan." Under the plan, incentive stock options and non-statutory stock
options may be granted to employees, directors, and consultants to purchase a
specified number of shares of common stock at a price not less than the fair
market value on the date of grant and for a term not to exceed 10 years. Options
for employees generally vest over a period of 5 years. The maximum number of
shares authorized for grants of options under the 1997 Stock Incentive Plan at
December 31, 1999 is 1,200,000.
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages but
does not require companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to continue to account
for stock based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Accordingly, no compensation expense
has been recognized for the Company's stock based compensation plans. Had
compensation costs for the Company's stock option plan been determined
45
<PAGE> 46
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
based upon the methodology prescribed under SFAS No. 123, the Company's net loss
would approximate the pro forma amounts below:
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
----------- -----------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
Net loss.................................................. $(6,727,638) $(7,199,832)
Net loss per share (basic and diluted).................... $ (1.15) $ (1.23)
YEAR ENDED DECEMBER 31, 1998:
Net loss.................................................. $(1,816,702) $(2,215,967)
Net loss per share (basic and diluted).................... $ (.35) $ (.43)
YEAR ENDED DECEMBER 31, 1997:
Net loss.................................................. $(2,044,729) $(2,180,726)
Net loss per share (basic and diluted).................... $ (.47) $ (.50)
</TABLE>
The pro forma amounts above were computed using the Black-Scholes option
pricing model with the following assumptions for 1999, 1998 and 1997: (i)
risk-free interest rate of 6.00%, 4.82% and 6.33%, respectively (ii) expected
option life of 5 years, (iii) forfeiture rate of 0, (iv) expected volatility of
80.3%, 72.6% and 68.73%, respectively and (v) no expected dividends.
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
1996.
A summary of the status of the Company's stock options as of December 31,
1999, 1998, 1997 and 1996, and the changes during the years ended December 31,
1999, 1998 and 1997, is presented below:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED AVERAGE
NUMBER OF OPTION GRANT DATE
SHARES EXERCISE PRICE FAIR VALUE
--------- ---------------- ----------------
<S> <C> <C> <C>
Options outstanding at December 31,
1996................................... 139,943 $2.63
Granted................................ 471,691 3.79 $2.71
Canceled............................... (513) 2.95
Exercised.............................. (10,240) .88
---------
Options outstanding at December 31,
1997................................... 600,881 3.63
Granted................................ 362,950 4.20 $2.67
Canceled............................... (32,108) 4.85
Exercised.............................. (39,917) 2.93
---------
Options outstanding at December 31,
1998................................... 891,806 4.15
Granted................................ 454,150 3.61 $2.34
Canceled............................... (38,763) 5.67
Exercised.............................. (38,214) 4.68
---------
Options outstanding at December 31,
1999................................... 1,268,979 3.97
=========
Options exercisable at December 31,
1999................................... 507,560 3.95
Options available for future grant..... 149,700
</TABLE>
46
<PAGE> 47
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------------- -------------------------------------
NUMBER OUTSTANDING WEIGHTED AVERAGE NUMBER OUTSTANDING
RANGE OF AT DECEMBER 31, REMAINING WEIGHTED AVERAGE AT DECEMBER 31, WEIGHTED AVERAGE
EXERCISE PRICE 1999 CONTRACTUAL LIFE EXERCISE PRICE 1999 EXERCISE PRICE
- -------------- ------------------ ---------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
$0.88 - 2.93 415,757 6.03 years $2.15 174,261 $2.33
$4.00 - 4.50 439,850 8.02 years $4.06 152,430 $4.05
$5.00 - 5.875 352,872 7.98 years $5.28 165,869 $5.21
$6.44 - 8.50 60,500 9.31 years $7.75 15,000 $7.81
--------- -------
1,268,979 507,560
========= =======
</TABLE>
The following is a summary of warrants outstanding at December 31, 1999:
<TABLE>
<CAPTION>
NUMBER OF
COMMON SHARES UNDER WARRANTS EXERCISE PRICE EXPIRATION DATE
---------------------------- -------------- -----------------
<S> <C> <C> <C>
450,000 $5.81 May 15, 2003
180,000 5.55 May 14, 2002
2,069,844 5.00 May 14, 2002
1,600,000 5.00 November 27, 2002
40,000 2.75 November 23, 2004
---------
4,339,844
=========
</TABLE>
15. INCOME TAXES
The income tax expense for the fiscal years ended December 31, 1999, 1998
and 1997 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- --------
<S> <C> <C> <C>
Current:
Federal........................................... $ -- $ -- $113,299
State............................................. 1,600 1,600 40,012
Foreign........................................... 26,707 128,159 --
------- -------- --------
28,307 129,759 153,311
Deferred:
Federal........................................... -- -- --
State............................................. -- -- --
------- -------- --------
Total..................................... $28,307 $129,759 $153,311
======= ======== ========
</TABLE>
The Company's effective tax rate for the fiscal years ended December 31,
1999, 1998 and 1997 differs from the statutory federal income tax rate as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Tax provision at the statutory rate......................... (34.0)% (34.0)% (34.0)%
Nondeductible expenses...................................... 0.3 -- 2.0
State taxes, net of federal benefit......................... (5.6) (7.1) (6.0)
Research and development credit............................. -- -- (5.0)
Valuation allowance......................................... 40.3 43.2 52.0
Foreign taxes............................................... -- 2.3 --
Other....................................................... (1.0) 3.3 0.3
----- ----- -----
--% 7.7% 9.3%
===== ===== =====
</TABLE>
47
<PAGE> 48
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of the net deferred taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Deferred Tax Assets:
Inventory reserves........................ $ 194,000 $ 64,600 $ 39,000
Warranty accrual.......................... 39,000 33,900 33,000
Allowance for returns and doubtful
accounts............................... 169,700 8,300 20,700
Net operating loss carryforwards.......... 4,182,000 1,625,000 1,029,700
Research and development credits.......... 132,900 171,800 100,000
Accrued vacation.......................... 44,300 25,600 24,100
Fixed assets.............................. 40,300 (7,800) 31,400
Intangible assets......................... (139,600) (127,000) --
State tax credits......................... (349,000) (111,500) --
Other..................................... 153,300 81,500 17,100
Valuation allowance....................... (4,466,900) (1,764,400) (1,295,000)
----------- ----------- -----------
$ -- $ -- $ --
=========== =========== ===========
</TABLE>
As a result of the Company's recent loss history, a valuation allowance has
been recorded for the full amount of the Company's net deferred tax assets.
The Company has federal tax and state NOL carryforwards of $9.7 million and
$9.7 million, respectively, which begin to expire in 2017 and 2002,
respectively.
17. EXTRAORDINARY ITEM
On May 14, 1997, the Company repaid the $1,600,000 principal amount Bridge
Notes in connection with the Company's Offering. An extraordinary charge of
$234,149 (net of tax benefit of $143,511) was incurred for the early
extinguishment of those notes.
18. NON-RECURRING CHARGES
During the fiscal year ended December 31, 1999, the Company has a
non-recurring charge of $566,893 for costs related to an abandoned secondary
offering.
On September 17, 1997, the Company repurchased the exclusive distribution
rights of its products into the European market from an independent distributor
for 50,000 shares of common stock. This resulted in a non-recurring charge of
$256,250.
19 SEGMENT INFORMATION
The Company operates in one segment -- dental medical equipment which, at
December 31, 1999, comprised four main products: TeliCam Systems -- an intraoral
camera and dental networking system; Apollo(TM) tooth whitening and curing
system; other accessories including the Apollo Secret(R) whitening product and
ASAP composite materials; and MPDx(TM) digital x-ray systems. Accordingly no
separate segment information is provided other than Enterprise Wide disclosures
as required by SFAS No. 131.
48
<PAGE> 49
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following are sales by product lines for the year ended December 31,
1999, 1998, and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
TeliCam..................................... $ 6,263,014 $ 6,555,540 $15,367,806
Apollo(TM).................................. 26,233,445 11,125,629 --
MPDx(TM).................................... 1,186,615 -- --
Consumables................................. 2,605,521 593,060 --
Other....................................... 1,892,401 953,569 719,402
----------- ----------- -----------
$38,180,996 $19,227,798 $16,087,208
=========== =========== ===========
</TABLE>
The Company ships products from its operations in the US and Europe. The
following are sales by its US and European locations for the years ended
December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Sales by geography:
United States............................... $26,548,072 $13,182,354 $16,087,208
Europe...................................... 11,632,924 6,045,444 --
----------- ----------- -----------
$38,180,996 $19,227,798 $16,087,208
=========== =========== ===========
</TABLE>
The following is long-lived asset information by geographic area as of
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------- --------
<S> <C> <C>
Long Lived assets:
United States............................................... $ 949,223 $866,950
Europe...................................................... 353,535 129,990
---------- --------
$1,302,758 $996,940
========== ========
</TABLE>
20. FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of 1999, as a result of the Company's
reassessment of its business plan and related impact upon its inventory
requirements, the Company recorded a charge of $805,771 to cost of sales to
reduce the carrying amount of certain inventory to its estimated net realizable
value. In addition, after performing a thorough assessment of the collectibility
of its outstanding accounts receivable following a recent change in not
requiring sales to individual dentists to be paid via credit cards, the Company
increased its allowance for bad debts by $382,106 in the fourth quarter.
21. SUBSEQUENT EVENTS
On February 29, 2000 the Company sold an aggregate of 2,250 shares of
Series B Exchangeable Preferred Stock, B-1 Warrants to purchase up to 225,000
shares of Common Stock and B-2 Warrants to purchase up to 450,000 shares of
common stock. The Company received $2,250,000 in gross proceeds less costs of
$157,500. The holders of Series B Exchangeable Preferred Stock may exchange
their shares for shares of common stock at the average of the closing bid prices
of the common stock during any five (5) of the prior thirty (30) consecutive
trading days selected by the holder of the Series B Shares then being exchanged.
The Preferred Stock will receive $30 in dividends per year with payments due
quarterly. The B-1 Warrants are exercisable into an aggregate 225,000 shares of
common stock at a purchase price of $2.7188 per share. The B-2 Warrants are
exercisable into an aggregate 450,000 shares of common stock at a purchase price
of $3.50 per share.
49
<PAGE> 50
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 9.DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
The information required in Item 9, is hereby incorporated by reference to
the Company's definitive Proxy Statement to be filed with the Securities and
Exchange Commission for the 2000 Annual Meeting of its Stockholders ("Proxy
Statement").
ITEM 10. EXECUTIVE COMPENSATION
The information required in Item 10 is hereby incorporated by reference to
the Registrant's Proxy Statement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in Item 11 is hereby incorporated by reference to
the Registrant's Proxy Statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in Item 12 is hereby incorporated by reference to
the Registrant's Proxy Statement.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------- --------------------
<S> <C>
1.1 Form of Underwriting Agreement.(1)
1.2 Form of Underwriter's Purchase Option granted to M.H.
Meyerson & Co., Inc.(1)
2.1 Dental/Medical Diagnostic Systems, Inc. 1997 Stock Incentive
Plan.(2)
3.1 Amended and Restated Certificate of Incorporation of the
Registrant.(2)
3.2 Bylaws of the Registrant.(2)
4.1 Specimen Stock Certificate of the Registrant.(1)
4.2 Form of Warrant Agreement between American Stock Transfer &
Trust Company and the Registrant and form of Warrant
Certificate.(3)
10.1 Agency Agreement dated as of October 23, 1996, by and
between the Registrant and M.H. Meyerson & Co., Inc.(4)
10.2 Form of Registration Rights Agreement Letter, dated January
31, 1997, from Registrant to those certain purchasers of the
Registrant's Common Stock listed on the Schedule thereto.(2)
10.3 Commitment Letter, dated February 13, 1997, from Comerica
Bank confirming the existence of a secured line of credit
for the Registrant.(2)
10.4 Employment Agreement, dated as of October 1, 1996, entered
into by the Registrant and Robert H. Gurevitch.(4)
10.5 Employment Agreement, dated as of October 1, 1996, entered
into by the Registrant and Dewey Perrigo.(4)
10.6 Distribution Agreement, dated as of October 1, 1996, between
the Registrant and Boston Marketing Company, Ltd., as
amended.(2)
10.7 Promissory Note, dated February 1, 1996, between the
Registrant and Robert H. Gurevitch.(2)
</TABLE>
50
<PAGE> 51
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------- --------------------
<S> <C>
10.8 Promissory Note, dated February 15, 1996, made by the
Registrant in favor of Robert H. Gurevitch.(2)
10.9 Extension of Promissory Note, dated November 5, 1996,
between the Registrant and Robert H. Gurevitch.(4)
10.10 Form of Indemnification Agreement and Schedule of
Indemnified Parties.(3)
10.11 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.(2)
10.12 Agreement between the Registrant and DMD NV dated as of
September 30, 1997.(6)
10.13 Agreement between the Registrant and Suni Imaging
Microsystems, Inc. dated October 10, 1997.(7)
10.14 Extension of automatic termination provisions of agreement
between the Registrant and Suni Imaging Microsystems, Inc.,
dated November 11, 1997.(7)
10.15 Purchase Agreement by and among the Registrant and the
purchasers named therein with respect to the sale and
purchase of an aggregate of $4,500,000 aggregate principal
amount of the Registrant's 12% Senior Subordinated Notes due
1999, and Warrants dated as of March 2, 1998.(7)
10.16 Form of 12% Senior Subordinated Note due 1999.(7)
10.17 Form of Common Stock Purchase Warrant.(7)
10.18 Revolving Credit Loan and Security Agreement between the
Registrant and Comerica Bank-California, dated as of
December 10, 1997.(7)
10.19 Variable Rate-Single Payment Note of the Company in form of
Comerica Bank-California, dated as of December 10, 1997.(7)
10.20 First modification to Variable Rate-Single Payment Note,
between the Company and Comerica Bank-California, dated as
of December 24, 1997.(7)
10.21 Exclusive License Agreement, by and between the Registrant
and Chrysalis Dental, Inc., dated as of October 2, 1998.*(8)
10.22 Agreement for the Sale of the Seller's Business and Assets,
by and among the Registrant, Fadi Nahab and DMDS Ltd., dated
March 1, 1999.(8)
10.23 Agreement for the Sale of the Seller's Business and Assets,
by and among DMD Gmbh, Ralf Muller and DMDS Ltd., dated
March 1, 1999.(8)
10.24 Credit Agreement between the Registrant and Imperial Bank,
dated as of January 4, 1999.(8)
10.25 Standard Office Lease, between the Company and Frank F.
Parker (with addendum), dated as of August 8, 1997, for
16722 Millikan Avenue, Irvine, CA.(8)
10.26 Second Addendum to Standard Office Lease, between the
Company and Frank F. Parker, dated July 29, 1998, for 16722
Millikan Avenue, Irvine, CA.(8)
10.27 Suni-DMD Manufacturing, Assembly & Test Services Agreement,
by and between Registrant and Suni Imaging Microsystems,
Inc., dated as of March 17, 1999.*(8)
10.28 Contract between DMDS Ltd. and DDM SARL, dated as of March
8, 2000.
10.29 Exclusive License Agreement, by and between the Registrant
and Chrysalis, Inc., dated as of October 28, 1999.
10.30 First addendum to Exclusive License Agreement dated
September 29, 1999, by and between the Registrant and
Chrysalis Dental, Inc., dated as of November 15, 1999.
10.31 Letter of Intent for Exclusive License Agreement, by and
between the Registrant and Chrysalis Dental, Inc., dated as
of September 16, 1998.
10.32 First addendum to Exclusive License Agreement dated
September 16, 1998, by and between the Registrant and
Chrysalis Dental, Inc. and Den-Pak, LLC, dated as of August
12, 1999.
10.33 Stock Purchase Agreement, by and between the Registrant and
Chrysalis Dental, Inc., dated as of October 2, 1998.
</TABLE>
51
<PAGE> 52
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------- --------------------
<S> <C>
10.35 Contract about a manufacturing relationship related to the
partial manufacturing of a product called "LED Light" (or
Apollo-E-Light), by and between the Registrant and Francois
Duret.
10.36 License Agreement, by and between DMDS Ltd. and Francois
Duret.
10.37 Standard Industrial/Commercial Single Tenant Lease, between
the Registrant and Frank F. Parker, dated September 15,
1999, for 1540 S. Lyon Street, Santa Ana, CA.
10.38 Standard Industrial Lease, between the Registrant and AKA
Enterprises, dated January 25, 2000, for 6416 Variel Avenue,
Woodland Hills, CA.
10.39 Services Agreement by and between the Registrant and Shoebox
Entertainment, dated April 27, 1999.
10.40 Advertising Agreement by and between the Registrant and Jack
Wagner and Kristina Wagner, dated June 24, 1999.
10.41 Exchangeable Preferred Stock and Warrants Purchase
Agreement, by and among the Registrant and the several
investors set forth therein, dated as of October 25,
1999.(9)
10.42 Certificate of Designations, Preferences and Rights of
Series A Exchangeable Preferred Stock of the Registrant as
filed November 16, 1999.(9)
10.43 Form of Stock Purchase Warrant, dated as of October 25,
1999.(9)
10.44 Registration Rights Agreement, dated as of October 25, 1999,
by and among the Registrant and the several investors set
forth therein.(9)
10.45 Exchangeable Preferred Stock and Warrants Purchase
Agreement, by and among the Registrant and the several
investors set forth therein, dated as of February 24, 2000.
10.46 Certificate of Designations, Preferences and Rights of
Series B Exchangeable Preferred Stock of the Registrant, as
filed March 3, 2000.
10.47 Form of B-1 Stock Purchase Warrant, dated as of February 24,
2000.
10.48 Form of B-2 Stock Purchase Warrant, dated as of February 24,
2000.
10.49 Registration Rights Agreement, dated as of February 24,
2000, by and among the Registrant and the several investors
set forth therein.
10.50 Third amendment to promissory note in the principal amount
of $2,500,000 and fifth amendment to credit agreement and
waiver, dated as of March 23, 2000, by and between the
Registrant and Imperial Bank.
21.1 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
24.1 Power of Attorney (included in signature page attached to
this Form 10-K/SB).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* The Registrant has requested Confidential Treatment of portions of the
referenced exhibit.
(1) Incorporated by reference to exhibits to Pre-effective Amendment No. 1 to
the Registration Statement on Form SB-2 of the Registrant filed on April 7,
1997 (File No. 333-22507).
(2) Incorporated by reference to exhibits to the Registrant's Registration
Statement on Form SB-2 filed on February 28, 1997 (File No. 333-22507).
(3) Incorporated by reference to exhibits to Pre-effective Amendment No. 2 to
the Registrant's Registration Statement on Form SB-2 filed on April 30 (File
No. 333-22507).
(4) Incorporated by reference to exhibits to the Registrant's Report on Form
10-QSB, dated November 30, 1996.
(5) Incorporated by reference from the Registrant's Report on Form 8-K, dated
March 1,1996.
(6) Incorporated by referenced from exhibits to the Registrant's Report on Form
10-QSB dated September 30, 1997.
(7) Incorporated by reference to exhibits to Registrant's Report on Form 10-KSB
for the fiscal year ended December 31, 1997.
52
<PAGE> 53
(8) Incorporated by reference to exhibits to the Registrant's Report on Form
10-KSB for the fiscal year ended December 31, 1998.
(9) Incorporated by reference to exhibits to Registrant's Current Report on Form
8-K dated November 23, 1999, filed on December 8, 1999.
(b) REPORTS ON FORM 8-K.
Current Report on Form 8-K dated November 23, 1999, filed on December 8,
1999.
53
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Report on Form 10KSB
to be signed on its behalf by the undersigned thereunto duly authorized in the
City of Los Angeles and State of California on the 29th day of March, 2000.
DENTAL/MEDICAL DIAGNOSTIC
SYSTEMS, INC.
By: /s/ ROBERT H. GUREVITCH
-------------------------------------
Robert H. Gurevitch
Chairman and Chief Executive Officer
Each person whose signature appears below constitutes and appoints Robert
H. Gurevitch, and each of them, as his true and lawful attorneys-in-fact and
agents with full power of substitution and resubstitution, for him and his name,
place and stead, in any and all capacities, to sign any or all amendments to
this Annual Report on Form 10KSB and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the foregoing, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or either of them, or
their substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Report has been signed below by the following persons in the capacities and
on the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ROBERT H. GUREVITCH Chairman, Chief Executive March 29, 2000
- -------------------------------------------------------- Officer, and Director
Robert H. Gurevitch
/s/ JACK D. PRESTON Executive Vice-President March 29, 2000
- -------------------------------------------------------- and Director
Jack D. Preston
/s/ STEPHEN F. ROSS Chief Financial Officer, March 29, 2000
- -------------------------------------------------------- Principal Accounting Officer
Stephen F. Ross
/s/ MARVIN H. KLEINBERG Director March 29, 2000
- --------------------------------------------------------
Marvin H. Kleinberg
/s/ JOHN A. KHADEMI Director March 29, 2000
- --------------------------------------------------------
John A. Khademi
</TABLE>
54
<PAGE> 55
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------- --------------------
<S> <C>
1.1 Form of Underwriting Agreement.(1)
1.2 Form of Underwriter's Purchase Option granted to M.H.
Meyerson & Co., Inc.(1)
2.1 Dental/Medical Diagnostic Systems, Inc. 1997 Stock Incentive
Plan.(2)
3.1 Amended and Restated Certificate of Incorporation of the
Registrant.(2)
3.2 Bylaws of the Registrant.(2)
4.1 Specimen Stock Certificate of the Registrant.(1)
4.2 Form of Warrant Agreement between American Stock Transfer &
Trust Company and the Registrant and form of Warrant
Certificate.(3)
10.1 Agency Agreement dated as of October 23, 1996, by and
between the Registrant and M.H. Meyerson & Co., Inc.(4)
10.2 Form of Registration Rights Agreement Letter, dated January
31, 1997, from Registrant to those certain purchasers of the
Registrant's Common Stock listed on the Schedule thereto.(2)
10.3 Commitment Letter, dated February 13, 1997, from Comerica
Bank confirming the existence of a secured line of credit
for the Registrant.(2)
10.4 Employment Agreement, dated as of October 1, 1996, entered
into by the Registrant and Robert H. Gurevitch.(4)
10.5 Employment Agreement, dated as of October 1, 1996, entered
into by the Registrant and Dewey Perrigo.(4)
10.6 Distribution Agreement, dated as of October 1, 1996, between
the Registrant and Boston Marketing Company, Ltd., as
amended.(2)
10.7 Promissory Note, dated February 1, 1996, between the
Registrant and Robert H. Gurevitch.(2)
10.8 Promissory Note, dated February 15, 1996, made by the
Registrant in favor of Robert H. Gurevitch.(2)
10.9 Extension of Promissory Note, dated November 5, 1996,
between the Registrant and Robert H. Gurevitch.(4)
10.10 Form of Indemnification Agreement and Schedule of
Indemnified Parties.(3)
10.11 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.(2)
10.12 Agreement between the Registrant and DMD NV dated as of
September 30, 1997.(6)
10.13 Agreement between the Registrant and Suni Imaging
Microsystems, Inc. dated October 10, 1997.(7)
10.14 Extension of automatic termination provisions of agreement
between the Registrant and Suni Imaging Microsystems, Inc.,
dated November 11, 1997.(7)
10.15 Purchase Agreement by and among the Registrant and the
purchasers named therein with respect to the sale and
purchase of an aggregate of $4,500,000 aggregate principal
amount of the Registrant's 12% Senior Subordinated Notes due
1999, and Warrants dated as of March 2, 1998.(7)
10.16 Form of 12% Senior Subordinated Note due 1999.(7)
10.17 Form of Common Stock Purchase Warrant.(7)
10.18 Revolving Credit Loan and Security Agreement between the
Registrant and Comerica Bank-California, dated as of
December 10, 1997.(7)
10.19 Variable Rate-Single Payment Note of the Company in form of
Comerica Bank-California, dated as of December 10, 1997.(7)
10.20 First modification to Variable Rate-Single Payment Note,
between the Company and Comerica Bank-California, dated as
of December 24, 1997.(7)
10.21 Exclusive License Agreement, by and between the Registrant
and Chrysalis Dental, Inc., dated as of October 2, 1998.*(8)
10.22 Agreement for the Sale of the Seller's Business and Assets,
by and among the Registrant, Fadi Nahab and DMDS Ltd., dated
March 1, 1999.(8)
</TABLE>
55
<PAGE> 56
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------- --------------------
<S> <C>
10.23 Agreement for the Sale of the Seller's Business and Assets,
by and among DMD Gmbh, Ralf Muller and DMDS Ltd., dated
March 1, 1999.(8)
10.24 Credit Agreement between the Registrant and Imperial Bank,
dated as of January 4, 1999.(8)
10.25 Standard Office Lease, between the Company and Frank F.
Parker (with addendum), dated as of August 8, 1997, for
16722 Millikan Avenue, Irvine, CA.(8)
10.26 Second Addendum to Standard Office Lease, between the
Company and Frank F. Parker, dated July 29, 1998, for 16722
Millikan Avenue, Irvine, CA.(8)
10.27 Suni-DMD Manufacturing, Assembly & Test Services Agreement,
by and between Registrant and Suni Imaging Microsystems,
Inc., dated as of March 17, 1999.*(8)
10.28 Contract between DMDS Ltd. and DDM SARL, dated as of March
8, 2000.
10.29 Exclusive License Agreement, by and between the Registrant
and Chrysalis, Inc., dated as of October 28, 1999.
10.30 First addendum to Exclusive License Agreement dated
September 29, 1999, by and between the Registrant and
Chrysalis Dental, Inc., dated as of November 15, 1999.
10.31 Letter of Intent for Exclusive License Agreement, by and
between the Registrant and Chrysalis Dental, Inc., dated as
of September 16, 1998.
10.32 First addendum to Exclusive License Agreement dated
September 16, 1998, by and between the Registrant and
Chrysalis Dental, Inc. and Den-Pak, LLC, dated as of August
12, 1999.
10.33 Stock Purchase Agreement, by and between the Registrant and
Chrysalis Dental, Inc., dated as of October 2, 1998.
10.35 Contract about a manufacturing relationship related to the
partial manufacturing of a product called "LED Light" (or
Apollo-E-Light), by and between the Registrant and Francois
Duret.
10.36 License Agreement, by and between DMDS Ltd. and Francois
Duret.
10.37 Standard Industrial/Commercial Single Tenant Lease, between
the Registrant and Frank F. Parker, dated September 15,
1999, for 1540 S. Lyon Street, Santa Ana, CA.
10.38 Standard Industrial Lease, between the Registrant and AKA
Enterprises, dated January 25, 2000, for 6416 Variel Avenue,
Woodland Hills, CA.
10.39 Services Agreement by and between the Registrant and Shoebox
Entertainment, dated April 27, 1999.
10.40 Advertising Agreement by and between the Registrant and Jack
Wagner and Kristina Wagner, dated June 24, 1999.
10.41 Exchangeable Preferred Stock and Warrants Purchase
Agreement, by and among the Registrant and the several
investors set forth therein, dated as of October 25,
1999.(9)
10.42 Certificate of Designations, Preferences and Rights of
Series A Exchangeable Preferred Stock of the Registrant as
filed November 16, 1999.(9)
10.43 Form of Stock Purchase Warrant, dated as of October 25,
1999.(9)
10.44 Registration Rights Agreement, dated as of October 25, 1999,
by and among the Registrant and the several investors set
forth therein.(9)
10.45 Exchangeable Preferred Stock and Warrants Purchase
Agreement, by and among the Registrant and the several
investors set forth therein, dated as of February 24, 2000.
10.46 Certificate of Designations, Preferences and Rights of
Series B Exchangeable Preferred Stock of the Registrant, as
filed March 3, 2000.
10.47 Form of B-1 Stock Purchase Warrant, dated as of February 24,
2000.
10.48 Form of B-2 Stock Purchase Warrant, dated as of February 24,
2000.
10.49 Registration Rights Agreement, dated as of February 24,
2000, by and among the Registrant and the several investors
set forth therein.
10.50 Third amendment to promissory note in the principal amount
of $2,500,000 and fifth amendment to credit agreement and
waiver, dated as of March 23, 2000, by and between the
Registrant and Imperial Bank.
</TABLE>
56
<PAGE> 57
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------- --------------------
<S> <C>
21.1 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
24.1 Power of Attorney (included in signature page attached to
this Form 10-K/SB).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* The Registrant has requested Confidential Treatment of portions of the
referenced exhibit.
(1) Incorporated by reference to exhibits to Pre-effective Amendment No. 1 to
the Registration Statement on Form SB-2 of the Registrant filed on April 7,
1997 (File No. 333-22507).
(2) Incorporated by reference to exhibits to the Registrant's Registration
Statement on Form SB-2 filed on February 28, 1997 (File No. 333-22507).
(3) Incorporated by reference to exhibits to Pre-effective Amendment No. 2 to
the Registrant's Registration Statement on Form SB-2 filed on April 30 (File
No. 333-22507).
(4) Incorporated by reference to exhibits to the Registrant's Report on Form
10-QSB, dated November 30, 1996.
(5) Incorporated by reference from the Registrant's Report on Form 8-K, dated
March 1,1996.
(6) Incorporated by referenced from exhibits to the Registrant's Report on Form
10-QSB dated September 30, 1997.
(7) Incorporated by reference to exhibits to Registrant's Report on Form 10-KSB
for the fiscal year ended December 31, 1997.
(8) Incorporated by reference to exhibits to the Registrant's Report on Form
10-KSB for the fiscal year ended December 31, 1998.
(9) Incorporated by reference to exhibits to Registrant's Current Report on Form
8-K dated November 23, 1999, filed on December 8, 1999.
57
<PAGE> 1
EXHIBIT 10.28
CONTRACT
[This is an English translation of a contract originally executed in French.]
The Company, DMDS, Ltd., which headquarters are established 9831 Deurle, Xavier
De Cocklaan 68/4, Belgium, is represented by Mr. Guy DeVreese, designated
hereafter D.M.D.S.
And
The Company, DDM SARL, Which headquarters are established at 78460 Choisel, 24
Route de la Magnarnerie, France designated hereafter DDM.
It has been stated as follows:
This Contract deals with the manufacturing as well as the distribution of
dental cameras comprising a wireless handpiece. The term of "camera" utilized
in this contract designates only this product. The technical data relative to
these cameras are resumed in the attached document in the Appendix. This
Appendix is an integral part of the contract.
Provision 1: Right of Distribution
Per the present Contract, DDM grants, by exclusive title to D.M.D.S., which
accepts the right to buy and to distribute the wireless cameras that DDM
develops and manufactures.
DDM cannot sell or distribute these cameras to any third party either
distributor or user except on the French market.
This Contract is concluded without limit in time and is valid worldwide (except
for the French market).
Provision 2: Royalties
As compensation, D.M.D.S. will pay [*] for each camera sold with a minimum of
[*] for the first year, which corresponds to the manufacture of 2,000 (two
thousand) cameras.
The amounts due will be billed by DDM at the delivery time of the cameras.
D.M.D.S. will pay the amounts of these bills.
DDM will not receive royalties on the products sold by its commercial network.
*CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
1
<PAGE> 2
Provision 3: Production Cost
The direct product cost (including salary costs) relative to the manufacture of
the cameras will be charged to D.M.D.S.
The exact amount of these costs will be transmitted by DDM to D.M.D.S., which is
engaged in the payment of these costs, at the presentation of the bill when the
cameras are delivered and not any supplementary cost will be charged to D.M.D.S.
The parts necessary to the manufacture of these cameras will be administered
and purchased by DDM and billed to D.M.D.S. "au franc le franc", with payment
terms identical to those which DDM gets from its vendors.
Provision 4: Amortization
Not included in the production costs are all the indirect costs such as
investment connected to the production plant (machinery). This stays at the
charge of DDM.
The shipping cost of the parts necessary to the manufacture will be at the
charge of DDM.
Provision 5: Transfer of Production
It is agreed between the parties that there is a possibility that DMDS will be
in charge of the production of the wireless cameras for the North American
market. If D.M.D.S. chooses this option, DDM promises to collaborate with
D.M.D.S. (meaning to provide the documentation, the manufacturing instructions,
the existing information relating to the production of the wireless cameras),
so that D.M.D.S. could continue the production of these cameras.
For this doing, D.M.D.S. must inform, by all means agree by the parties, the
company DDM, at least three months in advance.
However, the royalties will continue to be paid to DDM by D.M.D.S.
Provision 6: Nullity
The nullity of one clause (or provision) will not be of nature to annul the
entire contract. In such hypothesis, the parties are engaged to negotiate in
good faith for the conclusion of a new clause replacing the void clause.
2
<PAGE> 3
Provision 7: The End of the Contract
The parties will be able to end the contract using a registered mail. However,
the end of the contract will be effective only three months after the registered
mail.
Provision 8: Miscellaneous
The present agreement is compliant to the Belgian law.
Only the Belgian jurisdictions will be competent to know all litigation
relating to the execution or to the interpretation of the present agreement.
Made in Paris on the 8 March 2000 in two copies, each of the parties
acknowledges the receipt of its copy.
3
<PAGE> 4
DMDS -- CALL FOR FUNDS 1ST PORTION OF PRODUCTION
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT HT UNITS TOTAL HT
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
</TABLE>
[*]
*CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
<PAGE> 1
EXHIBIT 10.29
EXCLUSIVE LICENSE AGREEMENT
THIS EXCLUSIVE LICENSE AGREEMENT ("Agreement") is by and between DENTAL
MEDICAL DIAGNOSTIC SYSTEMS, INC. ("DMD") a corporation having a principal place
of business in Westlake Village, California and Chrysalis, Inc. ("CI") a Utah
corporation having a principal place of business in Salt Lake City, Utah and is
effective as of the date first written below.
WHEREAS CI has created new and improved tooth whitening products which can
be utilized without a gingival dam for home-use, or use in a dental office,
which may utilize a dental tray ("New Home-use Whitening Products");
WHEREAS DMD is desirous of acquiring the exclusive world wide rights to
market, sell, distribute the New Home-use Whitening Products; and
WHEREAS CI has represented to DMD that said New Home-use Whitening
Products are secret and proprietary to CI and that patent protection is being
sought for the inventions embodied in said New Home-use Whitening Products:
THEREFORE the parties agree as follows:
I. GRANT OF LICENSE AND RIGHT OF FIRST REFUSAL
1.1 CI hereby grants DMD the exclusive world wide license to market, sell
and distribute the New Home-use Whitening Products under pending applications
for Letters Patent or Letters Patent maturing therefrom including continuations,
continuations-in-part, divisionals thereof, as well as any and all proprietary
trade secret information, whether in the United States of America or in
countries foreign to the Unites States of America.
1.2 Any improvements to New Home-use Whitening Products sought or
suggested by DMD shall be funded by DMD and shall automatically be made part
of this Agreement subject to the same royalty schedule set forth herein. Any
improvement to the New Home-use Whitening Products made independently by CI
may be licensed to DMD under a separate agreement subject to a royalty schedule
set forth therein. CI shall not, without the express consent and approval of
DMD, develop new or related technology and market it competitive with the
technology licensed herein without giving DMD the right of first refusal to
exclusively market, sell and distribute the
-1-
<PAGE> 2
new or related technology. CI may, however, in its discretion, conduct ongoing
research and development. For any such competitive technology, DMD, in its
absolute discretion, may exercise such right of first refusal and determine not
to market, sell or distribute such new technology during the period that DMD
enjoys the exclusive rights granted herein.
1.3 In the event that CI develops an improvement and DMD determines not to
exploit the improvement, CI shall be entitled to file for, receive, and maintain
Letters Patent covering such improvement and make, have made, import, market,
sell and distribute such improvements.
1.4 DMD shall be responsible to ensure that appropriate patent and
trademark notices, numbers and/or registrations be prominently placed on
appropriate product, product packaging, product literature and any other
materials associated with the products manufactured under this Agreement.
II. CONSIDERATION AND PAYMENT
2.1 As and for consideration for the license granted herein DMD will:
a. provide to CI [*] shares of the registered free trading DMD
stock;
b. pay to CI an annual minimum royalty of [*] for the first three
years; and
c. pay to CI earned royalty of [*] of the customary sales price on
the transfer of all New Home-use Whitening Products kits for
over-the-counter purchase, in-office use or distribution by
dentists. If however, five years from the date of the agreement
have elapsed and no Letters Patent have issued covering the New
Home-use Whitening Products and no application for Letters Patent
is then pending, the royalty rate
will drop to [*] and
*CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
-2-
<PAGE> 3
d. purchase all of DMD's requirements for the New Home-Use
Whitening Products for resale or distribution from CI or
its designated manufacture,
and:
i. DMD shall pay [*] including packaging, for
each New Home-use Whitening Products kit
(including Home-use Whitenings for a 5-day,
over-the-counter home-use whitening of upper
and lower arches, i.e., (10) Home-use
Whitenings) per whitening kit), F.O.B.,
Salt Lake City, Utah; and
ii. DMD shall pay [*] including package, for
each New Home-use Whitening Products kit
(including Home-use Whitenings for a 5-day,
in-office use or dentist-dispensed home-use
whitening of upper and lower arches, i.e.,
(10) Home-use Whitenings) per whitening
kit), F.O.B., Salt Lake City, Utah.
2.2 DMD shall deliver stock certificates for the shares of stock of
section 2.1.a upon execution of this Agreement.
2.3 Earned royalties shall be credited against minimum royalties and to
the extent that earned royalties in any quarter fail to exceed the minimum, the
minimum shall be paid. Earned royalties in excess of the quarterly minimum shall
be credited against future minimums.
2.5 Earned and minimum royalties are due and payable within thirty
(30) days after the close of each quarter.
2.6 Payment of royalties shall be in United States Dollars.
*CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
-3-
<PAGE> 4
III. EXPORTING
3.1 DMD shall be responsible for compliance with all export and import
regulations and laws, both foreign and domestic, and payment of any related
taxes of any government or governing body related to DMD's export or import,
marketing, sales and distribution of product under this Agreement. DMB shall
comply with the export regulations of the U.S. Department of Commerce,
including but not limited to any restrictions on the exchange of know-how and
other information provided under this Agreement. DMD hereby gives its assurance
to CI that DMD will not knowingly, unless prior authorization is properly
obtained from the U.S. Office of Export Control, and if necessary from CI,
re-export directly or indirectly any technical data received from CI under this
Agreement, and will not export directly the product of such technical data to
any restricted countries as said countries may be listed, from time to time, by
the U.S. Government and agencies thereof.
IV. TERM AND TERMINATION
4.1 The initial term of this agreement shall be twenty years, commencing
on the tenth day following the receipt of prototypes for testing, receipt of
which is acknowledged. If, prior to the tenth day after receipt of the received
prototypes DMD elects to forego entering into this agreement, DMD must give CI
such notice in writing before the expiration of the tenth day. DMD, upon ninety
(90) days notice, shall have the option to renew this agreement for an
additional term.
4.2 After December 31, 2000, should DMD fail to pay any installment of
any the minimum royalty when due, CI shall have the option to immediately
convert the exclusive license granted herein into a non-exclusive license to
license to market, sell and distribute the New Home-use Whitening Products for
an earned royalty only and shall be excused of any further obligation of a
minimum royalty.
-4-
<PAGE> 5
V. CONSULTING OBLIGATIONS OF DR. ANDERSON AND FRANK MCNEIL
5.1 The principal investigators and inventors of the New Home-use
Whitening Products [Illegible] are Dr. [Illegible] Anderson and Frank McNeil
[Illegible] reasonable notice. DMD shall compensate inventor(s) at his customary
and usual rate and shall pay all reasonable costs and expenses in connection
therewith.
VI. RECORD KEEPING AND AUDITS
6.1 DMD shall maintain books and records adequate to verify royalties
earned or owed hereunder. Within thirty days after the close of each quarter,
DMD shall submit a report certified by an officer setting forth the number of
transfer of New Home-use Whitening Products kits for the quarter and the
royalty due. Such report shall be accompanied by a payment (if any) of earned
royalties due and owing or a payment of the minimum quarterly royalty.
6.2 CI shall have the right to audit DMD's books and records to verify the
accuracy of the reports through a qualified representative at the expense of
CI. Such audit may be conducted no more often than twice yearly on reasonable
notice. In the event that the audit determines a discrepancy in favor of CI in
an amount greater than 10% of the amount reported, the discrepancy shall be paid
within 30 days and the cost of the audit shall be borne by DMD.
VII. DISPUTES
7.1 All disputes shall be referred to a forum of alternative dispute
resolution including, but not limited to arbitration under the Code of Civil
Procedure of the State of California. The laws of the State of Utah or
California shall be applied and jurisdiction of such shall be either California
or Utah.
-5-
<PAGE> 6
7.2 In the event of an accusation of breach, the party accused of breach
shall be informed in writing of the circumstances considered to be a breach and
such accused party shall have forty-five days within which to cure or propose an
acceptable plan to cure. No action to enforce this agreement shall be taken
until after such period has elapsed.
7.3 In the event of breach of the terms of this Agreement or a failure
to cure or propose an acceptable plan after an accusation of breach, CI may
terminate this license with sixty (60) days written notice.
VIII. NOTICE
8.1 All notices required to be given shall be sent by facsimile or
e-mail with a written confirmation by first class certified mail, return
receipt requested. Notice shall be deemed given when the transmission of the
facsimile or e-mail is confirmed. The notices shall be sent to:
CI:
Dr. Alan Anderson
Chrysalis, Inc.
11322 South O'Henry Road
Salt Lake City, Utah 84070
Phone: (801) 572-5921
with a copy to:
Todd E. Zenger
P.O. Box 11203
Salt Lake City, Utah 84147
e-mail: [email protected]
DMD:
Stephen F. Ross, CFO
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
200 N. Westlake Blvd. #202
Westlake Village, CA 91363
Facsimile: (805) 374-1966
e-mail [email protected]
-6-
<PAGE> 7
with a copy to:
MARVIN H. KLEINBERG
KLEINBERG & LERNER LLP
2049 Century Park E. #1080
Los Angeles, CA 90067
Facsimile: (510) 557-1540
e-mail: [email protected]
or at a new or different address provided to either party by the other.
IX. WARRANTIES AND REPRESENTATIONS
9.1 To the best of CI's knowledge, the making, using or selling of the
New Home-use Whitening Products, if used in the manner taught by CI's patent
disclosure documents, does not infringe the known intellectual property rights
of any third party. If DMD wishes to defend against any allegations of
infringement of third party rights, CI agrees to cooperate with DMD in the
defense. If a license is required to permit DMD to continue to market, sell and
distribute the New Home-use Whitening Products, any royalty that must be paid
shall be deducted from the earned royalty otherwise due CI, but in no event
shall the royalty earned by CI fall below 4%. To the extent possible, DMD will
seek insurance coverage and will tender any defense to an insurer affording
coverage.
9.2 To the best of CI's knowledge, the making, using or selling of the
New Home-use Whitening Products, if used in the manner taught by CI's patent
disclosure documents is safe and effective and does not cause lasting pain or
damage to users. If DMD defends itself or CI against any personal injury claims
arising out of use of the New Home-use Whitening Products, CI agrees to
cooperate with DMD in the defense. DMD will obtain product liability insurance
coverage including coverage of the New Home-use Whitening Products and will
tender any defense to an insurer affording coverage.
-7-
<PAGE> 8
X. PATENT INFRINGEMENT BY OTHERS
10.1 DMD shall have the initial exclusive right and option at its expense,
to institute infringement or other appropriate legal actions against alleged
prospective or actual infringers under the patent laws of the relevant
jurisdiction and to retain all monetary recovery received therefrom. Any
recovery of lost profits or lost sales less costs and expenses of litigation
shall be deemed a transfer of New Home-use Whitening Products kits upon which an
earned royalty is due and payable to CL. Such earned royalty is to be paid to
CI within sixty (60) days of receipt of any monetary judgment payment.
10.2 In the event DMD declines to institute infringement or other
appropriate legal action against alleged prospective or actual infringers within
ninety (90) days after receiving a written notice or request to do so from CI.
CI shall have the right and option to take whatever action it deems appropriate
and retain all recoveries and DMD agrees to permit joinder of DMD in any legal
action at the request of CI for purposes of jurisdiction or obtaining complete
relief all at CI's expense.
XI. GENERAL PROVISIONS
11.1 This Agreement represents the entire understanding of the parties. No
modification, amendment or waiver shall be binding without the written consent
of the parties.
11.2 If any provision of this Agreement shall for any reason be adjudged
by any tribunal to be invalid or unenforceable, such judgment shall not affect
impair or invalidate the remainder of this Agreement but shall be confined in
its operation to the provision of this Agreement directly involved in the
controversy in which such judgment shall have been rendered.
11.3 The obligations under this Agreement shall not be assigned by DMD
without the express written consent of CI, except in the case of a transaction
under the terms of which substantially all of the assets of DMD are being
transferred.
-8-
<PAGE> 9
11.4 This Agreement may be executed in multiple original counterparts,
each of which shall be deemed to be an original but all of which shall
constitute the same agreement.
Date: September ___, 1999
CHRYSALIS, INC.
/s/ ALAN H. ANDERSON
----------------------------------
ALAN H. ANDERSON, D.D.S.
DENTAL MEDICAL DIAGNOSTIC SYSTEMS, INC.
/s/ STEPHEN F. ROSS
----------------------------------
STEPHEN F. ROSS
-9-
<PAGE> 1
EXHIBIT 10.30
FIRST ADDENDUM TO
EXCLUSIVE LICENSE AGREEMENT
FOR HOME USE TECHNOLOGY
THIS FIRST ADDENDUM TO EXCLUSIVE LICENSE AGREEMENT is by and between
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC., ("DMD") a corporation having a
principal place of business in Westlake Village, California and CHRYSALIS
DENTAL, INC., a corporation having a principal place of business in Salt Lake
City, Utah ("CDI").
WHEREAS DMD and CDI entered into an Exclusive License Agreement for
Home-use technology dated September 29, 1999 ("Home-use Agreement"); and
WHEREAS DMD and CDI are desirous of adding certain terms as an addendum to
the terms of the Home-use Agreement:
THEREFORE the parties agree as follows:
I. GRANT OF LICENSE AND RIGHT OF FIRST REFUSAL
Add paragraph 1.5 as follows:
"1.5 In the event CDI or its designated manufacturer is unable to fill
DMD's requirements as set forth in paragraph 2.1d ("CDI Inability"), CDI shall
ensure implementation of Backup Manufacturing by a third party of the New
Home-use Whitening Products. Backup Manufacturing shall mean (1) to identify a
subcontractor of CDI, a third party manufacturer, within eight weeks of CDI's
Inability and to whom all necessary licenses, technology and know-how required
to manufacture New Home-use Whitening Product can be provided, or after eight
weeks to manage and control manufacture by a subcontractor identified by DMD,
and/or (2) to ensure that DMD's requirements for New Home-use Whitening Products
are met within one hundred and twenty days. As soon as CDI has renewed or
greater manufacturing capability so as to be able to fill DMD's requirements.
CDI may phase out or terminate Backup Manufacturing.
<PAGE> 2
II. CONSIDERATION AND PAYMENT
Add paragraph 2.1d. iii. as follows as consideration for the
addition of paragraph 1.5:
"iii. the price set forth in paragraphs 2.1d. i-ii shall be
adjusted from time-to-time during the term of the Home-use Agreement for
reasonable increases in cost of materials, of production or of labor, or, for
reasonable cost-of-living increases. Adjustment(s) in price pursuant to this
subparagraph shall not alone constitute a basis for invoking the contingency of
paragraph 1.5. If New Home-use Whitening Products are manufactured by an entity
other than CDI or CDI's designee, DMD shall nevertheless continue to pay the
royalties of sections 2.1b and 2.1e. to CDI."
XI. GENERAL PROVISIONS
11.5 In no event shall CDI Inability be caused (1) by DMD placing an
order more than fifty percent greater than the average of the previous six
months; (2) by any other act or request of DMD related to changes in product
packaging necessitating product redesign or configuration or the purchase of
different manufacturing equipment; (3) by any act or inability of a third party
supplier of materials to supply materials, including, but not limited to
embargoes, strikes, transportation strikes, government restrictions on trade,
and the like; or (4) any act of God or force majeure, any of which cause delays
or impedes manufacturing or delivery and which cause would equally delay or
impede manufacturing or delivery by another.
Date: November 15, 1999
CHRYSALIS DENTAL, INC. DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
/s/ ALAN H. ANDERSON /s/ ROBERT H. GUREVITCH
- ------------------------------ ----------------------------------
ALAN H. ANDERSON, D.D.S. ROBERT H. GUREVITCH, CEO
-2-
<PAGE> 1
EXHIBIT 10.31
LETTER OF INTENT FOR
EXCLUSIVE LICENSE AGREEMENT
THIS LETTER OF INTENT FOR EXCLUSIVE LICENSE AGREEMENT is by and between
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC., ("DMD") a corporation having a
principal place of business in Westlake Village, California and CHRYSALIS
DENTAL, INC., ("CDI") a corporation having a principal place of business in
Salt Lake City, Utah, and is effective as of the date first written below.
WHEREAS CDI has created new and improved tooth whitening products which can be
utilized without a gingival dam for use in a dental office and a product for
home use, ("New Products");
WHEREAS DMD is desirous of acquiring the exclusive world wide rights to market,
sell, distribute, make or have made said New Products; and
WHEREAS CDI has represented to DMD that said New Products are secret and
proprietary to CDI and that patent protection is being sought for the
inventions embodied in said New Products;
THEREFORE the parties agree as follows:
I. GRANT OF LICENSE AND RIGHT OF FIRST REFUSAL
1.1 CDI hereby grants to DMD the exclusive world wide license to
make or have made, use, or sell said New Products under any and all
applications for Letters Patent or Letters Patent maturing therefrom, including
continuations, continuations-in-part, divisionals
<PAGE> 2
thereof, as well as any and all proprietary trade secret information, whether
in the United States of America or in countries foreign to the United States of
America.
1.2 Any improvements of New Products made independently by CDI shall
automatically be included in this Agreement and subject to the same royalty
schedule set forth herein. Any improvements sought or suggested by DMD shall be
funded by DMD CDI shall not, without the express consent and approval of DMD,
develop new or related technology and market it competitive with the technology
licensed herein. CDI may, however, in its discretion, conduct ongoing research
and development. CDI hereby grants DMD a right of first refusal to license the
new or related technology. For any such competitive technology, DMD, in its
absolute discretion, may exercise such right of first refusal and determine not
to use, sell, make, market, or seek intellectual property protection for such
technology during the period that DMD enjoys the exclusive rights granted
herein.
1.3 In the event that CDI develops an Improvement and DMD determines not
to exploit the Improvement, although CDI shall be entitled to file for, receive,
and maintain Letters Patent covering such improvement.
1.5 DMD shall be responsible to ensure that appropriate patent and
trademark notices, numbers and/or registrations be prominently place on
appropriate product, product packaging, product literature and any other
materials associated with the products manufactured under this agreement.
II. COMPENSATION AND PAYMENT
2.1 As and for compensation for the license granted herein, DMD will
grant to CDI:
a. 100,000 shares of the common stock of DMD;
-2-
<PAGE> 3
b. an advance against royalties of $[*];
c. an annual minimum royalty of $[*]; and
d. an earned royalty of [*] on the net sales of the New Products;
subject to the terms and conditions set forth below. If, however, five years
from the date of the agreement have elapsed and no Letters Patent have issued
covering the New Products and no application for Letters Patent is then
pending, the royalty rate will drop to [*].
2.2 DMD shall transmit the 100,000 shares to CDI in the form of an
unregistered certificate upon DMD's acceptance of this Agreement. DMD will take
all appropriate steps to register the shares with or at the time of DMD's 1998
annual statement.
2.3 DMD shall pay CDI [*] a nonrefundable advance at the time of
execution of this Agreement and the balance of [*] upon acceptance of the
Agreement by DMD.
2.4 The minimum annual royalty for the first year shall extend over a
period of fifteen (15) months but not past December 31, 1999, commencing on the
date that DMD first ships New Products to a non-affiliated purchaser and shall
be paid thirty days after the close of the first quarter following said first
shipment. Thereafter, the minimum royalty shall be payable in quarterly
installments, due and payable thirty days after the close of each quarter.
2.5 Minimum royalties shall be credited against earned royalties and, to
the extent that earned royalties in any quarter fail to exceed the minimum, any
shortfall shall be carried over into succeeding quarter so that earned
royalties in any quarter shall be reduced by any carried forward shortfall.
Earned royalties in excess of the quarterly minimum shall be credited against
future minimums.
2.6 Earned royalties are due and payable within thirty (30) days after
the close of each quarter after the advance royalty of [*] has been
recouped.
* Confidential information omitted and filed separately with the Securities and
Exchange Commission.
-3-
<PAGE> 4
2.7 "Net sales" for the purposes of computing earned royalties shall be
equal to gross sales less freight, taxes, discounts actually taken, returns and
credits.
2.8 Payment of royalties shall be in United States dollars.
III. EXPORTING
3.1 DMD shall be responsible for compliance with all export and import
regulation and payment of any related taxes of any government or governing body
related to DMD's manufacture, marketing, sales and distribution of product
under this Agreement. In order for CDI to comply with the export regulations of
the US Department of Commerce and to facilitate the exchange of know-how and
other information pursuant to this Agreement, DMD hereby gives its assurance to
CDI that DMD will not knowingly, unless prior authorization is obtained from
CDI and the U.S. Office of Export Control, re-export directly or indirectly any
technical data received from CDI under this Agreement, and will not export
directly the product of such technical data to any countries as said countries
may be listed, from time to time, by the U.S. Government and agencies thereof.
IV. TERM AND TERMINATION
4.1 This agreement is conditioned upon the acceptance by DMD, after a due
diligence investigation of no more than seven working days (7) days from the
execution of this Agreement, of the adequacy of any pending applications for
Letters Patent and specific approval thereof as well as a review of the
clinical trial material and experimental data, if requested.
4.2 The initial term of this agreement shall be twenty years. DMD, upon
ninety (90) days notice, shall have the option to renew this agreement for an
additional term.
-4-
<PAGE> 5
4.3 After December 31, 2000, should DMD fail to pay any installment of
the minimum royalty when due, DMD shall have the option to convert the
exclusive license granted herein into a non-exclusive license to license to
make or have made, use, or sell said New Products for an earned royalty, only
and shall be excused of any further obligation of a minimum royalty.
V. CONSULTING OBLIGATIONS OF DR. ANDERSON
5.1 The principal investigator and primary inventor of the New Products
is Dr. Alan H. Anderson ("AHA"), who is also a principal in CDI.
5.2 AHA shall make himself available for consultation and promotion on
reasonable notice. DMD shall compensate AHA at his customary and usual rate and
shall pay all reasonable costs and expenses in connection therewith.
VI. RECORD KEEPING AND AUDITS
6.1 DMD shall maintain books and records adequate to verify royalties
earned hereunder. Within thirty days after the close of each quarter, (except
for the first quarter) DMD shall submit a report certified by an officer
setting forth the net sales for the quarter and the royalty due. Such report
shall be accompanied by a payment (if any) of earned royalties due and owing
and a payment of the minimum quarterly royalty for the following quarter.
6.2 CDI shall have the right to audit DMD's books and records to verify
the accuracy of the reports through a qualified representative at the expense
of CDI. Such audit may be conducted no more often than once yearly on
reasonable notice. In the event that the audit determines a discrepancy in
favor of CDI in an amount greater than 10% of the amount reported, the
discrepancy shall be paid within 30 days and the cost of the audit shall be
borne by DMD
-5-
<PAGE> 6
VII. DISPUTES
7.1 All disputes shall be referred to a forum of alternative dispute
resolution including, but not limited to arbitration under the Code of Civil
Procedure of the State of California. The laws of the State of California shall
be applied and jurisdiction of such shall be limited to the state of California.
7.2 In the event of an accusation of breach, the party accused of breach
shall be informed in writing of the circumstances considered to be a breach and
such accused party shall have forty-five days within which to cure or propose
an acceptable plan to cure. No action to enforce this agreement shall be taken
until after such period has elapsed.
7.3 In the event of breach of the terms of this Agreement, other than the
obligation to pay minimum royalties after December 31, 2000, or a failure to
cure or propose an acceptable plan after an accusation of breach, CDI may
terminate this license with sixty (60) days written notice.
VIII. NOTICE
8.1 All notices required to be given shall be sent by facsimile or e-mail
with a written confirmation by first class certified mail, return receipt
requested. Notice shall be deemed given when the transmission of the facsimile
or e-mail is confirmed. The notices shall be sent to:
CDI:
Dr. Alan H. Anderson
CHRYSALIS DENTAL, INC.
11322 South O'Henry Road
Sandy, UT 84070
Facsimile: (801) 523 8967
e-mail: [email protected]
-6-
<PAGE> 7
with a copy to:
Todd Zenger, Esq.,
Kirton & McConkie
60 East South Temple Street, Ste. 1800
Salt Lake City, Utah 84111
Facsimile: (801) 321 4893
e-mail: [email protected]
DMD:
Stephen F. Ross, CFO
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
200 N. Westlake Blvd., #202
Westlake Village, CA 91363
Facsimile: (805) 374 1966
e-mail: [email protected]
with a copy to:
MARVIN H. KLEINBERG
KLEINBERG & LERNER, LLP
2049 Century Park E. #1080
Los Angles, CA 90067
Facsimile: (310) 577 1540
e-mail: [email protected]
IX. WARRANTIES AND REPRESENTATIONS
9.1 To the best of CDI's knowledge, the making, using or selling of the
New Products, if used in the manner taught by CDI's patent disclosure
documents, does not infringe the known intellectual property rights of any
third party. If DMD wishes to defend, CDI agrees to cooperate with DMD in the
defense. If a license is required to permit DMD to continue to make, use or sell
the New Products, any royalty that must be paid shall be deducted from the
earned royalty otherwise due CDI, but in no event shall the royalty earned by
CDI fall below [*]. To the extent possible, DMD will seek insurance coverage and
will tender any defense to an insurer affording coverage.
9.2 To the best of CDI's knowledge, the making, using or selling of the
New Products, if used in the manner taught by CDI's patent disclosure
documents, is safe and effective
[*] Confidential information omitted and filed separately with The Securities
and Exchange Commission
-7-
<PAGE> 8
and does not cause lasting pain or damage to users. If DMD defends CDI, CDI
agrees to cooperate with DMD in the defense. To the extent possible, DMD will
obtain product liability insurance coverage including coverage of the New
Products and will tender any defense to an insurer affording coverage.
X. PATENT INFRINGEMENT BY OTHERS
10.1 DMD shall have the initial exclusive right and option, at its
expense, to institute infringement or other appropriate legal actions against
alleged prospective or actual infringers under the patent laws of the relevant
jurisdiction, and to retain all monetary recovery received therefrom. Any
recovery of lost profits or lost sales less costs and expenses of litigation
shall be deemed a part of Net Sales upon which an earned royalty is due and
payable. Such earned royalty is to be paid to CDI within sixty (60) days of
receipt of any monetary judgment payment.
10.2 In the event DMD declines to institute infringement or other
appropriate legal action against alleged prospective or actual infringers
within ninety (90) days after receiving a written notice or request to do so
from CDI, CDI shall have the right and option to take whatever action it deems
appropriate and retain all recoveries, and DMD agrees to permit joinder of DMD
in any legal action at the request of CDI for purposes of jurisdiction or
obtaining complete relief, all at CDI's expense.
XI. GENERAL PROVISIONS
11.1 This Agreement represents the entire understanding of the
parties. No modification, amendment or waiver shall be binding without the
written consent of the parties.
-8-
<PAGE> 9
11.2 If any provision of this Agreement shall for any reason by
adjudged by any tribunal to be invalid or unenforceable, such judgment shall
not affect, impair or invalidate the remainder of this Agreement but shall be
confined in its operation to the provision of this Agreement directly involved
in the controversy in which such judgment shall have been rendered.
11.3 This shall not be assigned by DMD without the express written
consent of CDI except in the case of a transaction under the terms of which,
substantially all of the assets of DMD are being transferred.
11.4 This Agreement may be executed in counterparts, each of which
shall be deemed to be an original but all of which shall constitute the same
agreement.
Date: September 16, 1998
CHRYSALIS DENTAL, INC.
/s/ ALAN H. ANDERSON
- -----------------------------
ALAN H. ANDERSON, D.D.S.
President
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
/s/ ROBERT H. GUREVITCH
- -----------------------------
ROBERT H. GUREVITCH
CEO
-9-
<PAGE> 1
Exhibit 10.32
FIRST ADDENDUM TO
EXCLUSIVE LICENSE AGREEMENT
THIS FIRST ADDENDUM TO EXCLUSIVE LICENSE AGREEMENT ("Addendum 1") is by
and between DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC., ("DMD") a corporation
having a principal place of business in Westlake Village, California and
CHRYSALIS DENTAL, INC., a corporation having a principal place of business in
Salt Lake City, Utah ("CDI"), and its affiliate Den-Pak, LLC, a Utah company
having a principal place of business in Salt Lake City, Utah (CDI and Den-Pak
collectively referred to as "Den-Pak").
WHEREAS DMD and CDI entered into an Exclusive License Agreement dated
September 16, 1998 ("Agreement"); and
WHEREAS DMD and CDI are desirous of adding an addendum to the terms of the
Agreement relative to a newly developed gel whitening composition;
THEREFORE the parties agree as follows;
A. GRANT OF LICENSE AND CONSIDERATION
i. Den-Pak hereby grants to DMD the exclusive world wide license to make
or have made, use, or sell a new gel whitening composition ("Gel Product")
developed by Den-Pak under any and all applications for Letters Patent or
Letters Patent maturing therefrom, including continuations,
continuations-in-part, divisionals thereof, as well as any and all proprietary
trade secret information, whether in the United States of America or in
countries foreign to the United States of America, subject to section Biii of
this Addendum 1.
B. COMPENSATION AND PAYMENT
i. As and for consideration for the license granted herein, DMD will
provide to Den-Pak;
a. [*] for development costs;
b. an earned royalty of [*] of the customary sales price on the
transfer of all Gel Product kits after the first three kits provided without
charge, if any, to any purchaser of a light from DMD. If, however, five years
from the date of the agreement have elapsed and no
*CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
<PAGE> 2
Letters Patent have issued covering the New Products and no application for
Letters Patent is then pending, the royalty rate will drop to [*].
ii. DMD shall pay Den-Pak the development cost upon execution of
this Agreement.
iii. In consideration for the above terms, DMD agrees to purchase all
of DMD's requirements for the Gel Product from Den-Pak for resale or
distribution separately or in light kits. DMD shall pay Den-Pak [*] per
whitening kit, F.O.B., Salt Lake City, Utah.
Date: August 12, 1999
DEN-PAK
----------------------------------------------
ALAN H. ANDERSON, D.D.S.
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
/s/ ROBERT H. GUREVITCH
-----------------------------------------------
ROBERT H. GUREVITCH, CEO
*CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
-2-
<PAGE> 1
EXHIBIT 10.33
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "AGREEMENT") is made and entered into
as of the 2nd day of October, 1998 by and between Dental/Medical Diagnostic
Systems, Inc., a Delaware corporation, ("DMD" or the "COMPANY"), and Chrysalis
Dental, Inc. ("CHRYSALIS") on the following terms and conditions:
1. PURCHASE AND SALE OF STOCK. On the terms and subject to the
conditions set forth in this Agreement, DMD agrees to sell and deliver to
Chrysalis, and Chrysalis agrees to purchase and acquire from DMD, 100,000
shares of the Common Stock of the Company, par value $0.01 per share (the
"SHARES"), free and clear of any and all liens, claims and encumbrances of any
kind.
2. CONSIDERATION. The consideration for the Shares (the "PURCHASE
PRICE") consists of an exclusive world wide license to a tooth whitening
formula designed and developed by Chrysalis, as provided for in that certain
Licenses Agreement, by and between the Company and Chrysalis, dated October 2,
1998.
3. THE CLOSING. The closing (the "CLOSING") of the purchase and sale of
the Shares shall take place on October 2, 1998 at the offices of Chrysalis
Dental, Inc., 11322 South O'Henry Road, Sandy, UT 84070. All documents and
other deliveries at the Closing may be exchanged by mail. The date of the
Closing is referred to herein as the Closing Date.
4. REPRESENTATIONS AND WARRANTIES OF CHRYSALIS. Chrysalis represents and
warrants to the Company as follows:
4.1 It understands an investment in the Shares involves a high
degree of risk, and it is able to bear the risk of an entire loss of the
investment, it has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of an investment
in the Shares.
4.2 It understands that the Shares have not been registered under
the Securities Act or under any state securities laws. It is familiar with the
provisions of the Securities Act and Rule 144 thereunder and understands that
the restrictions on transfer placed on the Shares may result in it being
required to hold the Shares for a certain period of time.
4.3 It is acquiring the Shares for its own account, and not as a
nominee or agent for others, and not with a view to resale or distribution of
any part thereof, and it has no present intention of selling or distributing
the Shares.
4.4 It is, and each of its shareholders is, an "accredited" investor
for purposes of Regulation D promulgated by the Securities and Exchange
Commission under the Securities Act of 1933.
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<PAGE> 2
4.5 It believes that it has received all the information it
considers necessary or appropriate for deciding whether to purchase the Shares,
and it has had an opportunity to ask questions and receive answers from the
Company and its officers and directors regarding the business, prospects and
financial condition of the Company.
4.6 It agrees not to sell, assign, transfer or otherwise dispose of
(collectively, "Transfer") any of the Shares except pursuant to an effective
registration statement under the Securities Act or an exemption from
registration. As a further condition to any such Transfer, except in the event
that such Transfer is made pursuant to an effective registration statement
under the Securities Act, if in the reasonable opinion of counsel to the
Company any Transfer of the Shares by the contemplated transferee thereof would
not be exempt from the registration and prospectus delivery requirements of the
Securities Act, the Company may require the contemplated transferee to furnish
the Company with an investment letter setting forth such information and
agreements as may be reasonably requested by the Company to ensure compliance
by such transferee with the Securities Act.
4.7 Each certificate evidencing the Shares will bear the following
legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") OR STATE SECURITIES LAWS AND NO TRANSFER
OF THESE SECURITIES MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, OR (B) PURSUANT TO AN EXEMPTION THEREFROM
WITH RESPECT TO WHICH THE COMPANY MAY, UPON REQUEST, REQUIRE A SATISFACTORY
OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER IS EXEMPT FROM THE
REQUIREMENTS OF THE ACT."
5. REGISTRATION RIGHTS
5.1 Registration Procedures and Expenses. DMD shall use commercially
reasonable efforts to effect the registration of the Shares on Form S-3 under
the Securities Act within six months of the date hereof by performing the
following:
5.1.1 DMD shall use all best efforts to cause to be prepared
and filed with the Commission a registration statement with respect to the
Shares, and use all reasonable efforts to cause such registration statement to
become and remain effective for a period of not less than twelve months
following the effective date of such registration statement or, if shorter,
until all of the Shares have been sold.
5.1.2 DMD shall cause to be prepared and filed with the
Commission such amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to update and
keep such registration statement effective for the period set forth in Section
5.1.1. above and to comply with the provisions of the Securities Act with
respect to the sale of all securities covered by such registration statement.
Notwithstanding anything else to the contrary contained herein, neither DMD or
any of its affiliates
2
<PAGE> 3
shall be required to disclose any confidential information concerning pending
acquisitions not otherwise required to be disclosed.
5.1.3 DMD shall cause to be furnished to Chrysalis such
number of copies of the final prospectus as Chrysalis may reasonably request in
order to facilitate the sale of the Shares. Chrysalis shall comply with all
prospectus delivery requirements under the Securities Act. It shall be a
condition to DMD's obligations to effect registration of the Shares that
Chrysalis and others participating in such registration provide DMD and any
underwriter identified by Chrysalis, with all material facts including, without
limitation, furnishing such certificates, questionnaires and legal opinions as
may be required by DMD or such underwriter concerning such participating
sellers and the Shares to be registered which are reasonably required to be
stated in the registration statement or in the prospectus or are otherwise
required in connection with the offering.
5.1.4 Allocation of Expenses. All expenses incurred by DMD or
its affiliates in complying with this Section, including, without limitation,
all registration and filing fees, printing expenses, and fees and disbursements
of counsel for DMD and its affiliates, are herein called Registration Expenses.
All selling commissions applicable to the sales of the Shares and all fees and
disbursements of counsel for Chrysalis are herein called Selling Expenses. DMD
will pay all Registration Expenses in connection with registration pursuant to
this Section 5.1. All Selling Expenses in connection with such registration
shall be borne by Chrysalis.
6. REPRESENTATIONS AND WARRANTIES OF DMD.
6.1 Organization, Standing and Corporate Power. DMD is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, with adequate corporate power and authority to
own its properties and carry on its business as presently conducted. DMD has
the corporate power to enter into, execute and deliver this Agreement and the
agreements referred to herein and to consummate the transactions contemplated
hereby and thereby.
6.2 Execution, Delivery and Performance. The execution, delivery
and performance of this Agreement and the other agreements referred to herein
and the consummation of the transactions contemplated hereby and thereby have
been or will prior to the Closing be duly authorized by the Board of Directors
of DMD, and DMD has taken all other actions required by law, its Articles of
Incorporation and its Bylaws in order to consummate the transactions
contemplated by this Agreement and the other agreements referred to herein.
This Agreement and the other agreements referred to herein constitute the valid
and binding obligations of DMD and are enforceable in accordance with their
respective terms, except as enforceability may be subject to or limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally.
6.3 Authorized and Outstanding Stock. The Shares, when issued in
accordance with the provisions of this Agreement, will be duly authorized and
validly issued and fully paid and nonassessable and, assuming the accuracy of
Chrysalis' representations and warranties contained elsewhere herein, will be
issued in compliance with federal securities laws.
3
<PAGE> 4
7. MISCELLANEOUS.
7.1 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns. No party other than DMD may assign any of its rights, or delegate
any of its duties or obligation, under this Agreement without the prior written
consent of the other parties, and any such purported assignment or delegation
shall be void ab initio. Notwithstanding the foregoing, DMD, its affiliates,
and its successors and assigns, may assign its rights and delegate its duties
to any successor entity resulting from any liquidation, merger, consolidation,
reorganization, or transfer of all or substantially all of the assets or stock
of DMD.
7.2 Notices. All notices, demands and other communications
(collectively, "Notices") given or made pursuant to this Agreement shall be in
writing and shall be deemed to have been duly given if sent by registered or
certified mail, return receipt requested, postage and fees prepaid, by
overnight service with a nationally recognized "next day delivery company such
as Federal Express or United Parcel Service, by facsimile transmission, or
otherwise actually delivered to the following addresses:
(a) if to DMD:
Dental/Medical Diagnostic Systems, Inc.
200 North Westlake Boulevard, Suite 202
Westlake Village, California 91362
Fax No. (805) 374-2137
Attn: Robert H. Gurevitch
(b) if to Chrysalis:
Chrysalis Dental, Inc.
11322 South O'Henry Road
Sandy, Utah 84070
Attention: Dr. Alan H. Anderson
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 two business days from the date of deposit in the United
States, unless sooner received and any notice sent by overnight service as
provided above shall be deemed to have been duly given the next business day
from the date of deposit with the service. Any of the parties to this Agreement
may from time to time change its address for receiving notices by giving
written notice thereof in the manner set forth above.
7.3 Amendment Waiver. No provision of this Agreement may be waived
unless in writing signed by all of the parties to this Agreement, and the
waiver of any one provision of this Agreement shall not be deemed to be a
waiver of any other provision. This Agreement may be amended only by written
agreement executed by all of the parties to this Agreement.
4
<PAGE> 5
7.4 Dispute Resolution. Any dispute or claim arising hereunder shall
be settled by arbitration. Any party may commence arbitration by sending a
written notice of arbitration to the other party. The notice will state the
dispute with particularity. The arbitration hearing shall be commenced thirty
(30) days following the date of delivery of notice of arbitration by one party
to the other, by the American Arbitration Association ("AAA") as arbitrator.
The arbitration shall be conducted in Los Angeles, California in accordance
with the commercial arbitration rules promulgated by AAA, and each party shall
retain the right to cross-examine the opposing party's witnesses, either
through legal counsel, expert witnesses or both. The decision of the arbitrator
shall be final, binding and conclusive on all parties (without any right of
appeal therefrom) and shall not be subject to judicial review. As part of his
decision, the arbitrator may allocate the cost of arbitration, including fees
of attorneys and experts, as he or she deems fair and equitable in light of all
relevant circumstances. Judgment on the award rendered by the arbitrator may be
entered in any court of competent jurisdiction.
7.5 Governing Law. This Agreement shall be governed by and construed
both as to validity and performance and enforced in accordance with the laws of
the State of California without giving effect to the choice of law principles
thereof.
7.6 Remedies Cumulative. Each of the various rights, powers and
remedies shall be deemed to be cumulative with, and in addition to, all the
rights, powers and remedies which DMD may have hereunder or under applicable
law relating hereto or to the subject matter hereof, and the exercise or
partial exercise of any such right, power or remedy shall constitute neither an
exclusive election thereof nor a waiver of any other such right, power or
remedy.
7.7 Headings. The section and subsection headings contained in this
Agreement are included for convenience only and form no part of the agreement
between the parties.
7.8 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be or become
prohibited or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
7.9 Expenses. Each party shall pay its own costs, expenses,
including without limitation, the fees and expenses of their respective counsel
and financial advisors.
7.10 Entire Agreement. This Agreement, including the other agreements
and schedules to be entered into in connection with the transactions
contemplated by the License Agreement constitutes and embodies the entire
understanding and agreement of the parties hereto relating to the subject
matter hereof and there are no other agreements or understandings, written or
oral, in effect between the parties relating to such subject matter except as
expressly referred to herein.
<PAGE> 6
IN WITNESS WHEREOF, this Stock Purchase Agreement has been executed as of
the date first set forth above.
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
200 North Westlake Boulevard, Suite 202
Westlake Village, California 91362
By: /s/ [SIGNATURE ILLEGIBLE]
--------------------------------------
Its: C.F.O.
-------------------------------------
CHRYSALIS DENTAL, INC.
11322 South O'Henry Road
Sandy, Utah 84070
By: /s/ [SIGNATURE ILLEGIBLE]
---------------------------------------
Its: President
--------------------------------------
<PAGE> 1
EXHIBIT 10.35
CONTRACT ABOUT A MANUFACTURING RELATIONSHIP RELATED TO
THE PARTIAL MANUFACTURING OF A PRODUCT CALLED "LED LIGHT"
(OR APOLLO-E-LIGHT)
Note: The partial manufacturing is related to the contract between L.T.I.
France and DMDS-US)
1. This contract is made and agreed for by:
DMDS USA INC, 200 N. Westlake Blvd., Suite 202, Westlake Village, CA
91362, USA with registration number ....... here represented by Robert
Gurevitch, President of the Company and duly powered to act in the way of
this contract, on one side -- party one;
Francois Duret, Chateau de Tarailhan, 11560 Fleury d'Aude, France, here
signing in his own name and in name of a French company in constitution
(name: SED-R or another, company form: societe anonyme simple -- starting
share capital: 250 000 FF) on the other side -- party two
It is agreed what follows:
2. Both parties enter into a manufacturing relationship for the partial
manufacturing of a product defined as L.E.D. light or (Apollo-E-Light).
However, it is clearly understood that this contract and the resulting
manufacturing relationship will only be valid after the written approval
from party one relating to a functional prototype of the L.E.D. light.
Prototype which must have the technical and commercial qualification as
pointed out by party one to party two.
Regarding the here into mentioned required qualifications, more specific
details are explained in annexes 1 and 2 of this contract.
3. The manufacturing relationship will be organized and will follow the basic
rules as determined below:
4. Party two will manufacture the LED light (or new Apollo-E-Light) under the
conditions and specifications set by party one. Party two will manufacture
for the only exclusive account of party one, excluding in that way and
automatically all other goals, aims or reasons to manufacture the L.E.D.
light. (F.I. For the account of a third party). The interpretation of this
strict exclusivity is based on the industrial property related to the
entire product L.E.D. light, property belonging to DMDS-USA.
On the other side, party one is granting worldwide manufacturing
exclusivity (manufacturing only as mentioned and described in this contract
and its annexes). Furthermore, this contract is agreed for one-
1
<PAGE> 1
Exhibit 10.36
LICENSE AGREEMENT GRANTING THE AUTHORIZATION TO
MANUFACTURE PARTIALLY THE PRODUCT CALLED L.E.D. LIGHT
(OR APOLLO-E-LIGHT)
1. This contract is made and agreed for by:
DMDS Co. Ltd. UK, Pantile, Whistley Green, Hurst, Berks RG10 OES, UNITED
KINGDOM with registration number 3505875 here represented by Guy DeVreese,
duly empowered for acting in this contract -- party one;
Francois Duret, Chateau de Tarailhan, 11560 Fleury d'Aude, France, acting
for a company in constitution -- party two:
It is agreed what follows:
2. Party one is granting the license for manufacturing partially the L.E.D.
light, under conditions as described in the attached manufacturing
contract, price of the license will be [*].
3. Party two will pay the license fee in eight quarterly terms of [*]
(two years period).
4. The license right and the payment terms will be subject to next condition:
- A minimum production of 24,000 lights in the two year period.
DMDS Ltd. UK Francois Duret
Guy DeVresse
*CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
<PAGE> 1
EXHIBIT 10.37
[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE -- GROSS
(DO NOT USE THIS FORM FOR MULTI-TENANT PROPERTY)
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes
only, September 15, 1999 is made by and between FRANK F. PARKER ("LESSOR") and
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC., A DELAWARE CORPORATION ("LESSEE"),
(collectively the "PARTIES," or individually a "PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known by the street address of 1540 S. Lyon St., Santa Ana, CA 92705, located
in the County of ORANGE, State of CALIFORNIA, and generally described as
(describe briefly the nature of the property) A CONCRETE TILT UP INDUSTRIAL
BUILDING OF APPROXIMATELY 5,600 SQUARE FEET AS SHOWN DEPICTED ON THE SITE PLAN
ATTACHED HERETO AS EXHIBIT "A" ("PREMISES"). (See Paragraph 2 for further
provisions.)
1.3 TERM: zero (0) years and ten (10) months ("ORIGINAL TERM")
commencing December 1, 1999 ("COMMENCEMENT DATE") and ending October 31, 2000
("EXPIRATION DATE"). (See Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION: See Addendum Paragraph ("EARLY POSSESSION
DATE"). (See Paragraphs 3.2 and 3.3 for further provisions.)
1.5 BASE RENT: $3,640.00 per month ("BASE RENT"), payable on the
FIRST day of each month commencing December 1, 1999. (See Paragraph 4 for
further provisions.)
[ ] If this box is checked, there are provisions in this Lease for the Base Rent
to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $3,640.00 as Base Rent for the
period December 1, 1999 through December 31, 1999.
1.7 SECURITY DEPOSIT: $3,640.00 ("SECURITY DEPOSIT"). (See Paragraph
5 for further provisions.)
1.8 PERMITTED USE: GENERAL OFFICE, WAREHOUSE AND ASSEMBLY OF DENTAL
CAMERAS AND EQUIPMENT AND RELATED USES. (See Paragraph 6 for further
provisions.)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY." $ None is the
"Base Premium." (See Paragraph 8 for further provisions.)
1.10 REAL ESTATE BROKERS: The following real estate brokers
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
None represents
[X] Lessor exclusively ("LESSOR'S BROKER");
[ ] both Lessor and Lessee, and
None represents
[X] Lessee exclusively ("LESSEE'S BROKER"); both Lessee and
Lessor. (See Paragraph 15 for further provisions.)
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to
be guaranteed by None ("GUARANTOR"). (See Paragraph 37 for further provisions.)
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 53 and Exhibits ______________________ None, all of which
constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby
leases from Lessor, the Premises, for the term, at the rental, and upon all of
the terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental, is an approximation which Lessor
and Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean
and free of debris on the Commencement Date and warrants to Lessee that the
existing plumbing, fire sprinkler system, lighting, air conditioning, heating,
and loading doors, if any, in the Premises, other than those constructed by
Lessee, shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within sixty
(60) days after the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE.
Lessor warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a) made or to
be made by Lessee. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it
has been advised by the Brokers to satisfy itself with respect to the condition
of the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the
Premises for Lessee's intended use, (b) that Lessee has made such investigation
as it deems necessary with reference to such matters and assumes all
responsibility therefor as the same relate to Lessee's occupancy of the
Premises and/or the term of this Lease, and (c) that neither Lessor, nor any of
Lessor's agents, has made any oral or written representations or warranties
with respect to the said matters other than as set forth in this Lease.
2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
this Paragraph 2 shall be of no force or effect if immediately prior to the
date set forth in Paragraph 1.1 Lessee was the owner or occupant of the
Premises. In such event, Lessee shall, at Lessee's sole cost and expense,
correct any non-compliance of the Premises with said warranties.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original term
of this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this
Lease, however, shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
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3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee as agreed herein by the Early Possession
Date if one is specified in Paragraph 1.4, or, if no Early Possession Date is
specified, by the Commencement Date, Lessor shall not be subject to any
liabilities 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, Lessor shall not, except as otherwise provided herein be obligated to pay
rent or perform any other obligation of Lessee under the terms of this Lease
until Lessor delivers possession of the Premises to Lessee. If possession of the
Premises is not delivered to Lessee within sixty (60) days after the
Commencement Date, Lessee may, at its option, by notice in writing to Lessor
within ten (10) days thereafter, cancel this Lease, in which event the Parties
shall be discharged from all obligations hereunder; provided, however, that if
such written notice by Lessee is not received by Lessor within said ten (10) day
period, Lessee's right to cancel this Lease shall terminate and be of no further
force or effect. Except as may be otherwise provided, and regardless of when the
term actually commences, if possession is not tendered to Lessee when required
by this Lease and Lessee does not terminate this Lease, as aforesaid, the period
free of the obligation to pay Base Rent, if any, that Lessee would otherwise
have enjoyed shall run from the date of delivery of possession and continue for
a period equal to what Lessee would otherwise have enjoyed the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor at its address stated herein or to such other persons or
at such other addresses as Lessor may from time to time designate in writing to
Lessee.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof the
Security Deposit set forth in Paragraph 1.7 as security for Lessee's faithful
performance of Lessee's obligations under this Lease. If Lessee fails to pay
Base Rent or other rent or charges due hereunder, or otherwise Defaults under
this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain all
or any portion of said Security Deposit for the payment of any amount due Lessor
or to reimburse or compensate Lessor for any liability, cost, expense, loss or
damage (including attorneys' fees) which Lessor may suffer or incur by reason
thereof. If Lessor uses or applies all or any portion of said Security Deposit,
Lessee shall within ten (10) days after written request therefor deposit moneys
with Lessor sufficient to restore said Security Deposit to the full amount
required by this Lease. Any time the Base Rent increases during the term of this
Lease, Lessee shall, upon written request from Lessor, deposit additional moneys
with Lessor sufficient to maintain the same ratio between the Security Deposit
and the Base Rent as those amounts are specified in the Basic Provisions. Lessor
shall not be required to keep all or any part of the Security Deposit separate
from its general accounts. Lessor shall, at the expiration or earlier
termination of the term hereof and after Lessee has vacated the Premises, return
to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's
interest herein), that portion of the Security Deposit not used or applied by
Lessor. Unless otherwise expressly agreed in writing by Lessor, no part of the
Security Deposit shall be considered to be held in trust, to bear interest or
other increment for its use, or to be prepayment for any moneys to be paid by
Lessee under this Lease.
6. USE
6.1 USE. Lessee shall use and occupy the Premises only for the purposes
set forth in Paragraph 1.8, or any other use which is comparable thereto, and
for not other purpose. Lessee shall not use or permit the use of the Premises in
a manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of or causes damage to, neighboring premises or properties. Lessor
hereby agrees to not unreasonably withhold or delay its consent to any written
request by Lessee, Lessees assignees or subtenants, and by prospective assignees
and subtenants of the Lessee, its assignees and subtenants, for a modification
of said permitted purpose for which the premises may be used or occupied, so
long as the same will not impair the structural integrity of the improvements on
the Premises, the mechanical or electrical systems therein, is not significantly
more burdensome to the Premises and the improvements thereon, and is otherwise
permissible pursuant to this Paragraph 6. If Lessor elects to withhold such
consent, Lessor shall within five (5) business days give a written notification
of same, which notice shall include an explanation of Lessor's reasonable
objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. the term "HAZARDOUS SUBSTANCE" as
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, wither by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products, by-products or fractions thereof. Lessee
shall not engage in any activity in, on or about the Premises which constitutes
a Reportable Use (as hereinafter defined) of Hazardous Substance without the
express prior written consent of Lessor and compliance in a timely manner (as
Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph
6.3). "REPORTABLE USE" shall mean (i) the installation or use of any above or
below ground storage tank, (ii) the generation, possession, storage use,
transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority. Reportable Use shall
also include Lessee's being responsible for the presence in, on or about the
Premises of a Hazardous Substance with respect to which any Applicable Law
required that a notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing, Lessee may, without
Lessor's prior consent, but in compliance with all Applicable Law, use any
ordinary and customary materials reasonably required to be used by Lessee in the
normal course of Lessee's business permitted on the Premises, so long as such
use is not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor to
any liability therefor. In addition, Lessor may (but without any obligation to
do so) condition its consent to the use or presence of any Hazardous Substance,
activity or storage tank by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonably discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefrom or therefor, including, but
not limited to, the installation (and removal on or before Lease expiration or
earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting from
same, has come to be located in, on, under or about the Premises, other than as
previously consented to by Lessor, Lessee shall immediately give written notice
of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any
statement, report, notice, registration, application, permit, business plan,
license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses involving the Premises.
(c) LESSEE'S INDEMNIFICATION. Lessee shall indemnify, protect, defend
and hold Lessor, its agents, employees, lenders and ground lessor, if any, and
the Premises, harmless from and against any and all loss of rents and/or
damages, liabilities, judgments, costs, claims, liens, expenses, penalties,
permits and attorney's and consultant's fees arising out of or involving any
Hazardous Substance or storage tank brought onto the Premises by or for Lessee.
Lessee's obligations under this Paragraph 6 shall include, but not be limited
to, the effects of any contamination or injury to person, property or the
environment created by Lessee, and the cost of investigation (including
consultant's and attorney's fees and testing), removal, remediation, restoration
and/or abatement thereof, or of any contamination therein involved, and shall
survive the expiration or earlier termination of this Lease. No termination,
cancellation or release agreement entered into by Lessor and Lessee shall
release Lessee from its obligations under this Lease with respect to Hazardous
Substance or storage tanks, unless specifically so agreed by Lessor in writing
at the time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this
Lease, Lessee shall, at Lessee's sole cost and expense, fully, diligently and in
a timely manner, comply with all "Applicable Law," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee shall,
within five (5) days after receipt of Lessor's written request, provide Lessor
with copies of all documents and information, including, but not limited to,
permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in the
case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs and expenses of such
inspections. EXCEPT FOR SUCH CONDITIONS WHICH ARE SUBJECT TO LESSOR'S
INDEMNIFICATION AS PROVIDED IN PARAGRAPH 56 OF THE ADDENDUM TO THIS LEASE.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's
warranty as to condition), 2.3 (Lessor's warranty as to compliance with
covenants, etc),
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7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all
times, keep the Premises and every part thereof in good order, condition and
repair, (whether or not such portion of the Premises requiring repair, or the
means of repairing the same, are reasonably or readily accessible to Lessee, and
whether or not the need for such repairs occurs as a result of Lessee's use, any
prior use, the elements or the age of such portion of the Premises), including,
without limiting the generality of the foregoing, all equipment or facilities
serving the Premises, such as plumbing, electrical, lighting facilities,
boilers, fired or unfired pressure vessels, fire sprinkler and/or standpipe and
hose or other automatic fire extinguishing system, including fire alarm and/or
smoke detection systems and equipment, fire hydrants, fixtures, walls (interior
and exterior), ceilings, floors, windows, doors, plate glass, skylights,
landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks
and parkways located in, on, about, or adjacent to the Premises, but excluding
foundations, the exterior roof and the structural aspects of the Premises.
Lessee shall not cause or permit any Hazardous Substance to be spilled or
released in, on, under or about the Premises (including through the plumbing or
sanitary sewer system) and shall promptly, at Lessee's expense, take all
investigatory and/or remedial action reasonably recommended, whether or not
formally ordered or required, for the cleanup of any contamination of, and for
the maintenance, security and/or monitoring of, the Premises, the elements
surrounding same, or neighboring properties, that was caused or materially
contributed to by Lessee, or pertaining to or involving any Hazardous Substance
and/or storage tank brought onto the Premises by or for Lessee. Lessee, in
keeping the Premises in good order, condition and repair, shall exercise and
perform good maintenance practices. Lessee's obligations shall include
restorations, replacements or renewals when necessary to keep the Premises and
all improvements thereon or a part thereof in good order, condition and state of
repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and maintain
contracts, with copies to Lessor, in customary form and substance for, and with
contractors specializing and experienced in, the inspection, maintenance and
service of the following equipment and improvements, if any, located on the
Premises: (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation
systems, (v) drain maintenance and (vi) asphalt and parking lot maintenance.
7.2 LESSOR'S OBLIGATIONS. Upon receipt of written notice of the need for
such repairs and subject to Paragraph 13.5, Lessor shall at Lessor's expense,
keep the foundations, exterior roof and structural aspects of the Premises in
good order, and repair. Lessor shall not, however, be obligated to paint the
exterior surface of the exterior walls or to maintain the windows, doors or
plate glass or the interior surface of exterior walls. Lessor shall not, in any
event, have any obligation to make any repairs until Lessor receives written
notice of the need for such repairs. It is the intention of the Parties that
the terms of this Lease govern the respective obligations of the Parties as to
maintenance and repair of the Premises. Lessee and Lessor expressly waive the
benefit of any statute now or hereafter in effect to the extent it is
inconsistent with the terms of this Lease with respect to, or which affords
Lessee the right to make repairs at the expense of Lessor or to terminate this
Lease by reason of, any needed repairs.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS"
is used in this Lease to refer to all carpeting, window coverings, air lines,
power panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "TRADE FIXTURES" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "ALTERATIONS"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "LESSEE
OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as Alterations
and/or Utility Installations made by Lessee that are not yet owned by Lessor as
defined in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior
written consent. Lessee may, however, make non-structural Utility Installations
to the interior of the Premises (excluding the roof), as long as they are not
visible from the outside, do not involve puncturing, relocating or removing the
roof or any existing walls, and the cumulative cost thereof during the term of
this Lease as extended does not exceed $25,000.
(b) CONSENT. Any Alterations or Utility Installations that Lessee shall
desire to make and which require the consent of the Lessor shall be presented
to Lessor in written form with proposed detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all
applicable permits required by governmental authorities, (ii) the furnishing of
copies of such permits together with a copy of the plans and specifications for
the Alteration or Utility Installation to Lessor prior to commencement of the
work thereon, and (iii) the compliance by Lessee with all conditions of said
permits in a prompt and expeditious manner. Any Alterations or Utility
Installations by Lessee during the term of this Lease shall be done in a good
and workmanlike manner, with good and sufficient materials, and in compliance
with all Applicable Law. Lessee shall promptly upon completion thereof furnish
Lessor with as-built plans and specifications therefor. Lessor may (but without
obligation to do so) condition its consent to any requested Alteration or
Utility Installation that costs $10,000 or more upon Lessee's providing Lessor
with a lien and completion bond in an amount equal to one and one-half times
the estimated cost of such Alteration or Utility Installation and/or upon
Lessee's posting an additional Security Deposit with Lessor under Paragraph 36
hereof.
(c) INDEMNIFICATION. 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 on the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense defend and protect itself, Lessor
and the Premises against the same and shall pay and satisfy any such adverse
judgment that may be rendered thereon before the enforcement thereof against the
Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor
a surety bond satisfactory to Lessor in an amount equal to one and one-half
times the amount of such contested lien claim or demand, indemnifying Lessor
against liability for the same, as required by law for the holding of the
Premises free from the effect of such lien or claim. In addition, Lessor may
require Lessee to pay Lessor's attorney's fees and costs in participating in
such action if Lessor shall decide it is to its best interest to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain
upon and be surrendered by Lessee with the Premises.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date, with
all of the improvements, parts and surfaces thereof clean and free of debris
and in good operating order, condition and state of repair, ordinary wear and
tear excepted. "ORDINARY WEAR AND TEAR" shall not include any damage or
deterioration that would have been prevented by good maintenance practice or by
Lessee performing all of its obligations under this Lease. Except as otherwise
agreed or specified in writing by Lessor, the Premises, as surrendered, shall
include the Utility Installations. The obligation of Lessee shall include the
repair of any damage occasioned by the installation, maintenance or removal of
Lessee's Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good service practice. Lessor's Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee subject to its obligation to
repair and restore the Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUM INCREASES.
(a) Lessee shall pay to Lessor any insurance cost increase
("INSURANCE COST INCREASE") occurring during the term of this Lease. "INSURANCE
COST INCREASE" is defined as any increase in the actual cost of the insurance
required under Paragraph 8.2(b) and 8.3(b). ("REQUIRED INSURANCE"), over and
above the Base Premium, as hereinafter defined, calculated on an annual basis.
"INSURANCE COST INCREASE" shall include, but not be limited to, increases
resulting from the nature of Lessee's occupancy, any act or omission of Lessee,
requirements of the holder of a mortgage or deed of trust covering the
Premises, increased valuation of the Premises, and/or a premium rate increase.
If the parties insert a dollar amount in Paragraph 1.9, such amount shall be
considered the "BASE PREMIUM." In lieu thereof, if the Premises have been
previously occupied, the "BASE PREMIUM" shall be the annual premium applicable
to the most recent occupancy. If the Premises have never been occupied, the
"BASE PREMIUM" shall be the lowest annual premium reasonably obtainable for the
Required Insurance as of the commencement of the Original Term, assuming the
most nominal use possible of the Premises. In no event, however, shall Lessee
be responsible for any portion of the premium cost attributable to liability
insurance coverage in excess of $1,000,000 procured under Paragraph 8.2(b)
(Liability Insurance Carried By Lessor).
(b) Lessee shall pay any such Insurance Cost increase to Lessor
within thirty (30) days after receipt by Lessee of a copy of the premium
statement or other reasonable evidence of the amount due. If the insurance
policies maintained hereunder cover other property besides the Premises, Lessor
shall also deliver to Lessee a statement of the amount of such Insurance Cost
increase attributable only to the Premises showing in reasonable detail the
manner in which such amount was computed. Premiums for policy periods
commencing prior to, or extending beyond, the term of this Lease shall be
prorated to coincide with the corresponding Commencement or Expiration of the
Lease term.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an "Additional Insured-Managers or Lessors of Premises",
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Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not
contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this
Lease as an "insured contract" for the performance of Lessee's indemnity
obligations under this Lease. The limits of said insurance required by this
Lease ?? as carried by Lessee shall not, however, limit the liability of Lessee
nor relieve Lessee of any obligation hereunder. All insurance to be carried by
Lessee shall be primary to and not contributory with any similar insurance
carried by Lessor, whose insurance shall be considered excess insurance only.
(b) CARRIED BY LESSOR. In the event Lessor is the insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a),
above in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The insuring Party shall obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds
of trust or ground leases on the Premises ("LENDER(S)"), insuring loss or damage
to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time, or
the amount required by Lenders, but in no event more than the commercially
reasonable and available insurable value thereof if, by reason of the unique
nature or age of the improvements involved, such latter amount is less than full
replacement cost. Lessee Owned Alterations and Utility Installations shall be
insured by Lessee under Paragraph 8.4. If the coverage is available and
commercially appropriate, such policy or policies shall insure against all risks
of direct physical loss or damage (except the perils of flood and/or earthquake
unless required by a Lendor), including coverage for an additional cost
resulting from debris removal and reasonable amounts of coverage for the
enforcement of any ordinance or law regulating the reconstruction or replacement
if any undamaged sections of the Premises required to be demolished or removed
by reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss, but not including plate glass insurance.
Said policy or policies shall also contain as agreed valuation provision in lieu
of any coinsurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located.
(b) RENTAL VALUE. Lessor shall, in addition, obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and Lender(s), insuring the loss of the full rental
and other charges payable by Lessee to Lessor under this Lease for one (1) year
(including all real estate taxes, insurance costs, and any scheduled rental
increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period.
(c) ADJACENT PREMISES. If the Premises are part of a larger
building, or if the Premises are part of a group of buildings owned by Lessor
which are adjacent to the Premises, the Lessee shall pay for any increase in
the premiums for the property insurance of such building or buildings if same
increase is caused by Lessee's acts, omissions, use or occupancy of the
Premises.
(d) TENANT'S IMPROVEMENTS. Since Lessor is the insuring Party,
the Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
lessor's option by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Lessee Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by the Insuring Party under Paragraph 8.3. Such insurance shall be for
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for the
replacement of personal property or the restoration of Lessee Owned Alterations
and Utility Installation. Lessee shall be the Insuring Party with respect to the
insurance required by this Paragraph 8.4 and shall provide Lessor with written
evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders Rating"
of at least B+, V, or such other rating as may be required by a Lender having a
lien on the Premiss, as set forth in the most current issue of "Best's Insurance
Guide." Lessee shall not do or permit to be done anything which shall invalidate
the insurance policies referred to in this Paragraph 8. Lessee shall cause to be
delivered to Lessor certified copies of, or certificate evidencing the existence
and amounts of, the insurance, and with the additional insureds, required under
Paragraph 8.2(a) and 8.4. No such policy shall be cancelable or subject to
modification except after thirty (30) days prior written notice to Lessor.
Lessee shall at least thirty (30) days prior to the expiration of such policies,
furnish Lessor with evidence of renewals or "insurance binders" evidencing
renewals thereof, or Lessor may order such insurance and charge the cost thereof
to Lessee, which amount shall be payable by lessee to Lessor upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor ("Waiving Party") each hereby release and relieve
the other, and waive their entire right to recover damages (whether in contract
or in tort) against the other, for loss of or damage to the Waiving Party's
property arising out of or incident to the perils required to be insured against
under Paragraph 8. The effect of such releases and waivers of the right to
recover damages shall not be limited by the amount of insurance carried or
required, or by any deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, lessor's master or ground lessor, partners and
Lendors, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employee or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether or not (in the case of claims made against Lessor) litigated and/or
reduced to judgment, and whether well founded or not, in case any action or
proceeding be brought against lessor by reason of any of the foregoing matters,
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.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. EXCEPT FOR LESSOR'S NEGLIGENCE
AND/OR BREACH OF EXPRESS WARRANTIES, Lessor shall not be liable for injury or
damage to the person or goods, wares, merchandise or other property of Lessee,
Lessee employees, contractors, invitees, customers, or any other person in or
about the Premises, whether such damage or injury is caused by or results from
fire, steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, fire sprinklers, wires appliances ,
plumbing, air conditioning or lighting fixtures, or from any other cause,
whether the said injury or damage results from conditions arising upon the
Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. EXCEPT FOR Lessor's negligence or breach of this
Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to
the improvements on the Premises, other than Lessee Owned Alteration and
Utility installations, the repair cost of which damage or destruction is less
than 50% of the then Replacement Cost of the Premises immediately prior to such
damage or destruction, excluding from such calculation the value of the land
and Lessee Owned Alterations and Utility Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction
to the Premises, other than Lessee Owned Alterations and Utility Installations
the repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a), irrespective of any deductible amounts
of coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinance or laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by a
Hazardous Substance as defined in Paragraph 6.2(a). In, on, or under the
Premises.
9.2 PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage that is
an insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect. Notwithstanding the foregoing, if the required insurance
was not in force or the insurance proceeds are not sufficient to effect such
repair, the insuring Party shall promptly contribute the shortage in proceeds as
and when required to complete said repairs. In the event however, the shortage
in proceeds was due to the fact that, by reason of the unique nature of the
improvements, full replacement cost insurance coverage was not commercially
reasonable and available, Lessor shall have no obligation to pay for the
shortage in insurance proceeds or to fully restore the unique aspects of the
Premises unless Lessee provides Lessor with the funds to cover same, or adequate
assurance thereof, within ten (10) days following receipt of written notice of
such shortage and request therefor. If Lessor receives said funds or adequate
assurance thereof within said ten (10) day period, the party responsible for
making the repairs shall complete them as soon as reasonably possible and this
Lease shall remain in full force and effect. If Lessor does not receive such
funds or assurance within said period. Lessor may nevertheless elect by written
notice to Lessee within ten (10) days thereafter to make such restoration and
repair as is commercially reasonable with Lessor paying any shortage in
proceeds, in which case this Lease shall remain in full force and effect. If in
such case Lessor does not so elect, then this Lease shall terminate sixty (60)
days following the occurrence of the damage of destruction. Unless otherwise
agreed, Lessee shall in no event have any right to reimbursement from Lessor for
any funds contributed by Lessee to repair
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any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.?
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act Lessee
(in which event Lessee shall make the repairs at Lessee's expense and this
Lease shall continue in full force and effect, but subject to Lessor rights
under Paragraph 13), 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 receipt by Lessor of knowledge the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease,
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
repair of such damage totally at Lessee's expense and without reimbursement
from Lessor. Lessee shall provide Lessor with the required funds or
satisfactory assurance thereof within thirty (30) days following Lessee's said
commitment. In such event this Lease shall continue in full force and effect,
and Lessor shall proceed to make such repairs as soon as reasonably possible
and the required funds are available. If Lessee does not give such notice and
provide the funds or assurance thereof within the times specified above this
Lease shall terminate as of the date specified in Lessor's notice of
termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by an
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the
damage or destruction is an Insured Loss or was caused by a negligent or
willful act of Lessee. In the event, however, that the damage or destruction
was caused by Lessee, Lessor shall have the right to recover Lessor's damages
from Lessee except as released and waived in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor may,
at Lessor's option, terminate this Lease effective sixty (60) days following
the date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within thirty (30) days after the date of occurrence
of such damage. Provided, however, if Lessee at that time has an exercisable
option to extend this Lease or to purchase the Premises, then Lessee may
preserve this Lease by, within twenty (20) days following the occurrence of the
damage, or before the expiration of the time provided in such option for its
exercise, whichever is earlier ("Exercised Period"), (ii) exercising such
option and (ii) providing Lessor with any shortage in insurance proceeds (or
adequate assurance thereof) needed to make the repairs. If Lessee duly
exercises such option during said Exercise Period and provides Lessor with
funds (or adequate assurance thereof) to cover any shortage in insurance
proceeds, Lessor shall, at Lessor's expense repair such damage as soon as
reasonably possible and this Lease shall continue in full force and effect. If
Lessee fails to exercise such option and provide such funds or assurance during
said Exercise Period, then Lessor may at Lessor's option terminate this Lease
as of the expiration of said sixty (60) day period following the occurrence of
such damage by giving written notice to Lessee of Lessor's election to do so
within ten (10) days after the expiration of the Exercise Period,
notwithstanding any term or provision in the grant of option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage -- Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, Insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, Insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises
within ninety (90) days after such obligation shall accrue, Lessee may, at any
time prior to the commencement of such repair or restoration, give written
notice to Lessor and to any Lenders of which Lessee has actual notice of
Lessee's election to terminate this Lease on a date not less than sixty (60)
days following the giving of such notice. If Lessee gives such notice to Lessor
and such Lenders and such repair or restoration is not commenced within thirty
(30) days after receipt of such notice, this Lease shall terminate as of the
date specified in said notice. If Lessor or a Lender commences the repair or
restoration of the Premises within thirty (30) days after receipt of such
notice, this Lease shall continue in full force and effect. "Commence" as used
in this Paragraph shall mean either the unconditional authorization of the
preparation of the required plans, or the beginning of the actual work on the
Premises, whichever first occurs.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefore (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Law and this Lease shall continue in full force and effect, but subject to
Lessor's rights under Paragraph 12), Lessor may at Lessor's option either (i)
Investigate and remediate such Hazardous Substance Condition, if required, as
soon as reasonably possible at Lessor's expense, in which event this Lease
shall continue in full force and effect, or (ii) if the estimated cost to
investigate and remediate such condition exceeds twelve (12) times the then
monthly Base Rent or $100,000, whichever is greater, give written notice to
Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the giving of
such notice. In the event Lessor elects to give such notice of Lessor's
intention to terminate this Lease. Lessee shall have the right within ten (10)
days after the receipt of such notice to give written notice to Lessor of
Lessee's commitment to pay for the investigation and remediation of such
Hazardous Substance Condition totally at Lessee's expense and without
reimbursement from Lessor except to the extent of an amount equal to twelve
(12) times the then monthly Base Rent or $100,000, whichever is greater. Lessee
shall provide Lessor with the funds required of Lessee or satisfactory
assurance thereof within thirty (30) days following Lessee's said commitment.
In such event this Lease shall continue in full force and effect, and Lessor
shall proceed to make such investigation and remediation as soon as reasonably
possible and the required funds are available. If Lessee does not give such
notice and provide the required funds or assurance thereof within the times
specified above, this Lease shall terminate as of the date specified in
Lessor's notice of termination. If a Hazardous Substance Condition occurs for
which Lessee is not legally responsible, there shall be abatement of Lessee's
obligations under this Lease to the same extent as provided in Paragraph 9.6(a)
for a period of not to exceed twelve (12) months.
9.8 TERMINATION -- ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance Base Rent and any other advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's Security
Deposit as has not been, or is not then required to be, used by Lessor under
the terms of this Lease.
9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 (a) PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises; provided, however, that
Lessee shall pay, in addition to rent, the amount, if any, by which Real
Property Taxes applicable to the Premises increase over the fiscal tax year
during which the Commencement Date occurs ("Tax Increase"). Subject to
Paragraph 10.1(b), payment of any such Tax Increase shall be made by Lessee
within thirty (30) days after receipt of Lessor's written statement selling
forth the amount due and the computation thereof. Lessee shall promptly furnish
Lessor with satisfactory evidence that such taxes have been paid. If any such
taxes to be paid by Lessee shall cover any period of time prior to or after the
expiration or earlier termination of the term hereof, Lessee's share of such
taxes shall be equitably prorated to cover only the period of time within the
tax fiscal year this Lease is in effect, and Lessor shall reimburse Lessee for
any overpayment after such proration.
(b) ADVANCE PAYMENT. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Tax Increase to be paid in advance
to Lessor by Lessee, either: (i) in a lump sum amount equal to the amount due,
at least twenty (20) days prior to the applicable delinquency date, or (ii)
monthly in advance with the payment of the Base Rent. If Lessor elects to
require payment monthly in advance, the monthly payment shall be that equal
monthly amount which, over the number of months remaining before the month in
which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated Tax Increase to be paid. When the actual amount of the
applicable Tax Increase is known, the amount of such equal monthly advance
payment shall be adjusted as required to provide the fund needed to pay the
applicable Tax Increase before delinquency. If the amounts paid to Lessor by
Lessee under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Tax Increase as the same becomes due, Lessee
shall pay to Lessor, upon Lessor's demand, such additional sums as are
necessary to pay such obligation. All moneys paid to Lessor under this
Paragraph may be intermingled with other moneys of Lessor and shall not bear
interest. In the event of a Breach by Lessee in the performance of the
obligations of Lessee under this Lease, then any balance of funds paid to
Lessor under the provisions of this Paragraph may, subject to proration as
provided in Paragraph 10.1(a), at the option of Lessor, be treated as an
additional Security Deposit under Paragraph 5.
(c) ADDITIONAL IMPROVEMENTS. Notwithstanding Paragraph 10.1(a)
hereof, Lessee shall pay to Lessor upon demand therefor the entirety of any
increase in Real Property Taxes assessed by reason of Alterations or Utility
Installations placed upon the Premises by Lessee or at Lessee's request.
10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "Real
Property Taxes" 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 upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or
federal government, or any school, agricultural, sanitary, fire, street,
drainage or other improvement district thereof, levied against any legal or
equitable interest of Lessor in the Premises or in the real property of which
the Premises are a part, Lessor's right to rent or other income therefrom,
and/or Lessor's business of leasing the Premises. The term "Real Property
Taxes" shall also include any tax, fee, levy, assessment or charge, or any
increase therein, imposed by reason of events occurring, or changes in
applicable law taking effect, during the term of this Lease, including but not
limited to a change in the ownership of the Premises or in the improvements
thereon, the execution of this Lease, or any modification, amendment or
transfer thereof, and whether or not contemplated by the Parties.
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10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with Lessor's real property,
Lessee shall pay 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 or, at Lessor's option, as provided in Paragraph 10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"ASSIGNMENT") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer, on a cumulative basis, of
fifty percent (50%) or more of the voting control of Lessee shall constitute a
change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than fifty percent (50%) of such Net
Worth of Lessee as it was represented to Lessor at the time of the execution by
Lessor of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as it exists immediately prior to said transaction or
transactions constituting such reduction, at whichever time said Net Worth of
Lessee was or is greater, shall be considered an assignment of this Lease by
Lessee to which Lessor may reasonably withhold its consent. "NET WORTH OF
LESSEE" for purposes of this Lease shall be the net worth of Lessee (excluding
any guarantors) established under generally accepted accounting principles
consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to
fair market rental value or one hundred ten percent (110%) of the Base Rent then
in effect, whichever is greater. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any Index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index applicable to the
time of such adjustment, and (iii) all fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of 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 sublease.
(d) In the event of any Default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
any one else responsible for the performance of the Lessee's obligations under
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.
(e) Each request for consent to an assignment or subletting shall
be in writing, accompanied by information relevant to Lessor's determination as
to the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including but not limited to the intended use
and/or required modification of the Premises, if any, together with a
non-refundable deposit of $1,000 or ten percent (10%) of the current monthly
Base Rent, whichever is greater, as reasonable consideration for Lessor's
considering and processing the request for consent. Lessee agrees to provide
Lessor with such other or additional information and/or documentation as may be
reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed,
for the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.1(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased to an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
amount required to establish such Security Deposit a condition to Lessor's
consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment
or subletting, may require that the amount and adjustment structure of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment structure for property similar to the Premises as then constituted.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. 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 of all or a portion
of the Premises 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 Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, 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 Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right or claim against
said sublessee, or, until the Breach has been cured, against Lessor, for any
such rents and other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee 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 the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior Defaults
or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach
by Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The sublessee
shall have a right of reimbursement and offset from and against Lessee for any
such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default,
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and that Lessor may include the cost of such services and costs in said notice
as rent due and payable to cure said Default. A "Default" is defined as a
failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A "Breach"
is defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable grace
period, shall entitle Lessor to pursue the remedies set forth in Paragraphs 13.2
and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy same,
or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure by
Lessee to make any payment of Base Rent or any other monetary payment required
to be made by Lessee hereunder, whether to Lessor or to a third party, as and
when due, the failure by Lessee to provide Lessor with reasonable evidence of
insurance or surety bond required under this Lease, or the failure of Lessee to
fulfill any obligation under this Lease which endangers or threatens life or
property, where such failure continues for a period of three (3) days following
written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure by
Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with applicable law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the recission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease
if required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements) or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf
of Lessor to Lessee; provided, however, that if the nature of Lessee's Default
is such that more than thirty (30) days are reasonably required for its cure,
then it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by
lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. Section 101 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; provided,
however, in the event that any provision of this subparagraph (e) is contrary to
any applicable law, such provision shall be of no force or effect, and not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to Lessor
by Lessee or any Guarantor of Lessee's obligations hereunder was materially
false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurance or security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the guarantors that existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or obligation
of Lessee under this Lease, within ten (10) days after written notice to Lessee
(or in case of an emergency, without notice), Lessor may at its option (but
without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required
bonds, insurance policies, or governmental licenses, permits or approvals. The
costs and expenses of any such performance by Lessor shall be due and payable
by Lessee to Lessor upon invoice therefor. If any check given to Lessor by
Lessee shall not be honored by the bank upon which it is drawn, Lessor at its
option, may require all future payments to be made under this Lease by Lessee
to be made only by cashier's check. In the event of a Breach of this Lease by
Lessee, as defined in Paragraph 13.1, with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease and the term hereof shall terminate and Lessee
shall immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee: (i) the worth at the time of
the award of the unpaid rent which had been earned at the time of termination;
(ii) the worth at the time of 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 the Lessee proves could have been
reasonably avoided; (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 the Lessee proves could be reasonably
avoided; and (iv) any other amount necessary to compensate Lessor for all the
detriment proximately caused by the 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 the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of the leasing commission paid by Lessor applicable to the unexpired
term of this Lease. The worth at the time of award of the amount referred to in
provision (iii) of the prior sentence shall be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent (1%). Efforts by Lessor to mitigate damages
caused by Lessee's Default or Breach of this Lease shall not waive Lessor's
right to recover damages under this Paragraph. If termination of this Lease is
obtained through the provisional remedy of unlawful detainer, Lessor shall have
the right to recover in such proceeding the unpaid rent and damages as are
recoverable therein, or Lessor may reserve therein the right to recover all or
any part thereof in a separate suit for such rent and/or damages. If a notice
and grace period required under subparagraphs 13.1(b), (c) or (d) was not
previously given, a notice to pay rent or quit, or to perform or quit, as the
case may be, given to Lessee under any statute authorizing the forfeiture of
leases for unlawful detainer shall also constitute the applicable notice for
grace period purposes required by subparagraphs 13.1(b), (c) or (d). In such
case, the applicable grace period under subparagraphs 13.1(b), (c) or (d) and
under the unlawful detainer statute shall run concurrently after the one such
statutory notice, and the failure of Lessee to cure the Default within the
greater of the two such grace periods shall constitute both an unlawful
detainer and a Breach of this Lease entitling Lessor to the remedies provided
for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination of
Lessee's right to possession shall not relieve Lessee from liability under any
indemnity provisions of this Lease as to matters occurring or accruing during
the term hereof or by reason of Lessee's occupancy of the Premises.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee to
Lessor of rent and 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 upon Lessor by
the terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within five (5) 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 six percent (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 or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive Installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by the holders of any ground lease, mortgage or deed of trust covering the
Premises whose name and address shall have been furnished Lessee in writing for
such purpose, of written notice specifying wherein such obligation of Lessor has
not been performed; provided, however, that if the nature of Lessor's obligation
is such that more than thirty (30) days after such notice are reasonably
required for its performance, then Lessor shall not be in breach of this Lease
if performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.
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14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise 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. If more than ten percent (10%) of the floor area of the
Premises, or more than twenty-five percent (25%) of the land area not occupied
by any building, is taken by condemnation. Lessee may, at Lessee's option, to be
exercised in writing within ten (10) days after Lessor shall have given Lessee
written notice of such taking (or in the absence of such notice, within ten (10)
days after the condemning authority shall have taken possession) 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 Base Rent shall be reduced in the same proportion as the
rentable floor area of the Premises taken bears to the total rentable area of
the building located on the Premises. No reduction of Base Rent shall occur if
the only portion of the Premises taken is land on which there is no building.
Any award for the taking of all or any part of the Premises 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 compensation separately awarded to Lessee for Lessee's relocation
expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is
not terminated by reason of such condemnation, Lessor shall to the extent of its
net severance damages received, over and above the legal and other expenses
incurred by Lessor in the condemnation matter, 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 be responsible for
the payment of any amount in excess of such net severance damages required to
complete such repairs.
15. BROKER'S FEE.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this
Lease.
15.2 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 written agreement between Lessor and
said Brokers (or in the event there is no separate written agreement between
Lessor and said Brokers, the sum of $0) for brokerage services rendered by said
Brokers to Lessor in this transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor
further agrees that: (a) If Lessee exercises any Option (as defined in Paragraph
39.1) or any Option subsequently granted which is substantially similar to an
Option granted to Lessee in this Lease, or (b) if Lessee acquires any rights to
the Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or (c) if Lessee remains in possession of the Premises,
with the consent of Lessor, after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an interest, or
(e) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then as to any of said transactions, Lessor shall pay
said Brokers a fee in accordance with the schedule of said Brokers in effect at
the time of the execution of this Lease.
15.4 Any buyer or transferee or 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 Broker shall be a
third party beneficiary of the provisions of this Paragraph 15 to the extent of
its interest in any commission arising from this Lease and may enforce that
right directly against Lessor and its successors.
15.5 Lessee or Lessor each represent and warrant to the other that it has
had no dealings with any person, firm, broker or finder (other than the Brokers,
if any named in Paragraph 1.10) in connection with the negotiation of this Lease
and/or the consummation of the transaction contemplated hereby, and that no
broker or other person, firm or entity other than said named Brokers is entitled
to any commission or finder's fee in connection with said transaction. Lessee
and Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against 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 including any costs, expenses,
attorneys' fees reasonably incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including dual agencies, indicated in Paragraph 1.10.
16. TENANCY STATEMENT.
16.1 Each Party (as "RESPONDING PARTY") shall within ten (10) days after
written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "TENANCY STATEMENT" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, only
part thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises, or, if this
is a sublease, of the Lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. This invalidity of any provision of this Lease, as designated
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written 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 the purpose of mailing or delivering notices to
Lessee. 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 written notice
to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received on
a Sunday or legal holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof. 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 or similar
act by Lessee, or be constituted as the basis of an estoppel to enforce the
provision or provisions of this Lease requiring such consent. Regardless of
Lessor's knowledge of a Default or Breach at the time of accepting rent, the
acceptance of rent by Lessor shall not be a waiver of any preceding Default or
Breach by Lessee of any provision hereof, other than the failure of Lessee to
pay the particular rent so accepted. Any payment given Lessor by Lessee may be
accepted by Lessor on account of moneys or damages due Lessor, notwithstanding
any qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
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. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
PAGE 8
<PAGE> 9
26. NO RIGHTS TO HOLDOVER. Lessee has no rights to retain possession of the
Premises or any part thereof beyond the Premises or any part there of beyond the
expiration or earlier termination of this Lease.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, whereever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be
governed by the laws of the State in which the Premises are located. Any
litigation between the Parties hereto concerning this Lease shall be initiated
in the county in which the Premises are located
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all
renewals, modifications, consolidations, replacements and extensions, thereof.
Lessee agrees that the Lenders holding any such Security Device shall have no
duty, liability or obligation to perform any of the obligation of Lessor under
this Lease, but that in the event of Lessor's default with respect to an such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the
cure of said default before invoking any remedies Lessee may have by reason
thereof. If any Lender shall elect to have this Lease and/or any Option granted
hereby superior to the lien of its Security Device and shall give written
notice thereof to Lessee, this Lease and such Options shall be deemed prior to
such Security Device, notwithstanding the relative dates of the documentation
or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of the foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to the acquisition of ownership, (ii) be subject to any offsets or
defenses which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from
the Lender that Lessee's possession and this Lease, including any options to
extend the term hereof, will not be disturbed so long as Lessee is not in
Breach hereof and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided , however,
that, upon written request form Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in an such proceeding action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in the
same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term "Prevailing Party" shall
include, without limitation, a Party or Broker who substantially obtains or
defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorney's fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, 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 or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the
same to prospective purchasers, lenders, or lessees, and making such
alternations, repairs, improvements or additions to the Premises or to the
building of which they are a part, as Lessor may reasonably deem necessary.
Lessor may at any time place on or about the Premises or building any ordinary
"For Sale" signs and Lessor may at any time during the last one hundred twenty
(120) days of the term hereof place on or about the Premises any ordinary "For
Lease" signs. All such activities of Lessor shall be without abatement of rent
or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises 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.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that
Lessee may, with Lessor's prior written consent, install (but not on the roof)
such signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations.
Trade Fixtures and Alterations). Unless otherwise expressly agreed therein.
Lessor reserves all rights to the use of the roof ad the right to install, and
all revenues form the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(a) (applicable to assignment or subletting). Lessor may as a
condition to considering any such request by Lessee, required that Lessee
deposit with Lessor an amount of money (in addition to the Security Deposit held
under Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor
will incur in considering and responding to Lessee's request. Except as
otherwise provided, any unused portion of said deposit shall be refunded to
Lessee without interest. Lessor's consent to any act, assignment of this Lease
or subletting of the Premises by Lessee shall not constitute an acknowledgement
that no Default or Breach by Lessee of this Lease exists, nor shall such consent
be deemed a waiver of any then existing Default or Breach, except as may be
otherwise specifically stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is herein
given.
37. GUARANTOR.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11,
the form of the guaranty to be executed by each such Guarantor shall be in the
form most recently published by the American Industrial Real Estate Association,
and each said Guarantor shall have the same obligations as Lessee under this
Lease, including but not limited to the obligation to provide the Tenancy
Statement and Information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a)
evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signature of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) a Tenancy Statement or (d) written
confirmation that the guaranty is still in effect.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right 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 or the right of first offer to lease other property of Lessor (c) the
right to purchase the Premises, or the right of first refusal to purchase the
Premises, or the right of first offer to purchase the Premises, or the right to
purchased 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 TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof,
and cannot be voluntarily or involuntarily assigned or exercised by any person
or entity other than said original Lessee while the original Lessee
PAGE 9
<PAGE> 10
is in full and actual possession of the Premises and without the intention of
thereafter assigning or subletting. The Options, if any, herein granted to
Lessee are not assignable, either as a part of an assignment of this Lease or
separately or apart therefrom, and no Option may be separated from this Lease
in any manner, 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 Options to extend or renew this Lease have been validly
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 period commencing with the giving of any notice of Default under
Paragraph 13.1 and continuing until the noticed Default is cured, or (ii)
during the period of time any monetary obligation due Lessor from Lessee is
unpaid (without regard to whether notice thereof is given Lessee), or (iii)
during the time Lessee is in breach of this Lease, or (iv) in the event that
Lessor has given to Lessee three (3) or more notices of Default under Paragraph
13.1, whether or not the Defaults are cured, during the twelve (12) month
period immediately preceding the exercise of the Option.
(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 or 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)
Lessor gives to Lessee three (3) or more notices of Default under Paragraph
13.1 during any twelve (12) month period, whether or not the Defaults are
cured, or (iii) if Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for
the management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred
in connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, 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 agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if
more than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE 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 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 HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE
ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN
CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED
SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
<TABLE>
<S> <C>
Executed at 16722 Milliken Irvine CA Executed at: 16722 Milliken Irvine
------------------------------- --------------------------------
On: 11-17-99 On: 11-17-99
---------------------------------------- -----------------------------------------
By LESSOR: By LESSEE
Frank Parker Dental/Medical Diagnostic Systems Inc.
- ------------------------------------------- --------------------------------------------
A Delaware Corporation
- ------------------------------------------- --------------------------------------------
By: /s/ FRANK PARKER By: /s/ ROBERT GUREVITCH
---------------------------------------- -----------------------------------------
Name Printed: Frank Parker Name Printed: Robert Gurevitch
------------------------------ -------------------------------
Title: Owner Title: CEO-Chairman
------------------------------------- --------------------------------------
By: By:
---------------------------------------- -----------------------------------------
Name Printed: Name Printed:
------------------------------ -------------------------------
Title: Title:
------------------------------------- --------------------------------------
Address: 2923 S. Pullman St Address: 200 N Westlake Blvd
----------------------------------- ------------------------------------
Santa Ana, CA 92405 Westlake Village, CA 91362
----------------------------------- ------------------------------------
Telephone: 949 660-8014 Fax 949 660-8016 Telephone: 805 381-2700 Fax 805 374-1966
---- --------- ---- --------- --- -------- ----- --------
</TABLE>
PAGE 10
<PAGE> 11
[A.I.R. LOGO]
OPTION(S) TO EXTEND
ADDENDUM TO
STANDARD LEASE
DATE
-------------------------------------------------------------
BY AND BETWEEN (LESSOR) FRANK F. PARKER
------------------------------------------
(LESSEE) DENTAL/MEDICAL DIAGNOSTICS SYSTEMS, INC.
------------------------------------------
PROPERTY ADDRESS:
------------------------------------------------
Paragraph
----
A. OPTION(S) TO EXTEND:
Lessor hereby grants to Lessee the option to extend the term of this
Lease for 2 additional 12 months period(s) commencing when the prior term
expires upon each and all of the following terms and conditions:
(i) Lessee gives to Lessor, and Lessor actually receives on a date which is
prior to the date that the option period would commence (if exercised) by at
least 3 and not more than 5 months, a written notice of the exercise of the
option(s) to extend this Lease for said additional term(s), time being of
essence. If said notification of the exercise of said option(s) is (are) not so
given and received, the option(s) shall automatically expire; said option(s)
may (if more than one) only be exercised consecutively;
(ii) The provisions of paragraph 39, including the provision relating to
default of Lessee set forth in paragraph 39.4 of this Lease are conditions of
this Option;
(iii) All of the terms and conditions of this Lease except where specifically
modified by this option shall apply;
(iv) The monthly rent for each month of the option period shall be calculated
as follows, using the method(s) indicated below:
(Check Method(s) to be Used and Fill in Appropriately)
[X] II. MARKET RENTAL VALUE ADJUSTMENT(S) (MRV) TO BE USED FOR THE SECOND
OPTION PERIOD ONLY
(a) On (Fill in MRV Adjustment Date(s): November 1, 2001
--------------------------------
- -------------------------------------------------------------------------------
the monthly rent payable under paragraph 1.5 ("Base Rent") of the attached
Lease shall be adjusted to the "Market Rental Value" of the property as follows:
1) Four months prior to the Market Rental Value (MRV) Adjustment
Date(s) described above, Lessor and Lessee shall meet to establish an agreed
upon new MRV for the specified term. If agreement cannot be reached, then:
OPTION(S) TO EXTEND
Page 1 of 2
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the
most current form: American Industrial Real Estate Association, 345
South Figueroa Street, Suite M-1, Los Angeles, CA 90071. (213) 687-8777,
Fax No. (213) 687-8616.
<PAGE> 12
Addendum to Standard Industrial/Commercial Single-Tenant Lease-Gross,
Dated September 15th 1999
By and Between Frank F. Parker, as Lessor and
Dental/Medical Diagnostic Systems, Inc.,
For The Premises Located At
1540 S. Lyon St. Santa Ana, CA 92705
49. MAINTENANCE; REPAIRS: AMENDS PARAGRAPH 7
The provisions of paragraph 7 notwithstanding, lessor shall maintain and repair
the HVAC systems to the premises.
50. NOTICES: AMENDS PARAGRAPH 23
For the purposes of all notices given under the Lease, the address of the
Lessor and the Lessee shall be as follows, or such places as the parties may
from time to time designate by notice:
If to Lessor: Frank F. Parker
2923 S. Pullman Avenue
Santa Ana, CA 92705
FAX: 949/660-8016
If to Lessee: Dental/Medical Diagnostic Systems, Inc.
200 N. Westlake Blvd., Ste. 202
Westlake Village, CA 91362
FAX: 805/374-1966
With a Copy to:
Dental/Medical Diagnostic Systems, Inc.
16722 Millikan Avenue
Irvine, CA 92606
FAX: 949/756-1799
51. (SEE ATTACHED OPTIONS TO EXTEND.)
52. LESSOR'S INDEMNIFICATION: AMENDS PARAGRAPH 6.2
(d) Lessor and its successors and assigns shall indemnify, defend,
reimburse and hold Lessee, its employees and lenders harmless from and
against any and all damages as a result of hazardous substances on, in,
around or under the Premises prior to the commencement date or which are
caused by negligence or intentional acts of Lessor, it's agents or
employees. Lessor's obligations shall include, but not be limited to, the
cost of investigation, removal, remediation, restoration and/or abatement,
and shall survive the expiration or termination of this Lease.
53. DMD shall pay $12,000.00 for a new air conditioning system for the
building. All cost related to air conditioning in excess of $12,000.00
shall be at the owner's expense. DMD shall make the payment upon
completion of the air conditioning system work or upon building
availability for occupancy, whichever date is later.
LESSOR: LESSEE:
Frank F. Parker Dental Medical Diagnostic Systems, Inc.
By: /s/ FRANK F. PARKER By: /s/ ROBERT H. GUREVITCH
-------------------------- --------------------------
Frank F. Parker Robert H. Gurevitch
Title: Owner Title: CEO-Chairman
Date: 11-17-99 Date: 11-17-99
------------------------ ------------------------
<PAGE> 1
Exhibit 10.38
STANDARD INDUSTRIAL LEASE - NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO "A.I.R."]
1. PARTIES. This Lease, dated, for reference purposes only, January 25, 2000,
is made by and between AKA Enterprises, a California limited partnership
(herein called "Lessor") and Dental/Medical Diagnostic Systems, Inc., a Delaware
corporation (herein called "Lessee").
2. PREMISES. 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, that
certain real property situated in the County of Los Angeles, State of
California, commonly known as 6416 Variel Avenue, Woodland Hills, CA and
described as a single-story concrete tilt-up building of approximately 23,800
square feet together with all contiguous parking spaces as shown on Exhibit A
attached hereto.
Said real property including the land and all improvements therein, is
herein called "the Premises".
3. TERM.
3.1 TERM. The term of this Lease shall be for Sixty (60) months
commencing on March 1, 2000 and ending on February 28, 2005 unless sooner
terminated pursuant to any provision hereof.
3.2 DELAY IN POSSESSION. Notwithstanding said commencement date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date, 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 until possession of the Premises is tendered to Lessee;
provided, however, that if Lessor shall not have delivered possession of the
Premises within sixty (60) days from said commencement date, Lessee may, at
Lessee's option, by notice in writing to Lessor within ten (10) days
thereafter, cancel this Lease, in which event the parties shall be discharged
from all obligations hereunder; provided further, however, that if such written
notice of Lessee is not received by Lessor within said ten (10) day period,
Lessee's right to cancel this Lease hereunder shall terminate and be of no
further force or effect.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions hereof,
such occupancy shall not advance the termination date.
4. RENT. Lessee shall pay to Lessor as rent for the Premises, monthly
payments of $25,466.00, in advance, on the first day of each month of the term
hereof. Lessee shall pay Lessor upon the execution hereof $__________ as rent
for [See Paragraph 48.] Rent for any period during the term hereof which is for
less than one month shall be a pro rata portion of the monthly installment.
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.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
$25,466.00 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 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 or 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 hereinabove
stated and Lessee's failure to do so shall be a material breach of this Lease.
If the monthly rent shall, from time to time, increase during the term of this
Lease, Lessee shall thereupon deposit with Lessor additional security deposit
so that the amount of security deposit held by Lessor shall at all times bear
the same proportion to current rent as the original security deposit bears to
the original monthly rent set forth in paragraph 4 hereof. Lessor shall not be
required to keep said deposit separate from its general accounts. If Lessee
performs all of Lessee's obligations hereunder, said deposit, or so much
thereof as has not theretofore 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.
6. USE.
6.1 USE. The Premises shall be used and occupied only for general offices
and warehouse for the assembly and distribution of medical/dental equipment,
and other related uses or any other use which is reasonably comparable and for
no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in its state
existing on the date that the Lease term commences, but without regard to the
use for which Lessee will use the Premises, does not violate any covenants or
restrictions of record, or any applicable building code, regulation or
ordinance in effect on such Lease term commencement date. In the event it is
determined that this warranty has been violated, then it shall be the
obligation of the Lessor, after written notice from Lessee, to promptly, at
Lessor's sole cost and expense, rectify any such violation. In the event Lessee
does not give to Lessor written notice of the violation of this warranty within
six months from the date that the Lease term commences, the correction of same
shall be the obligation of the Lessee at Lessee's sole cost. The warranty
contained in this paragraph 6.2(a) shall be of no force or effect if, prior to
the date of this Lease, Lessee was the owner or occupant of the Premises, and,
in such event, Lessee shall correct any such violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a), Lessee shall, at
Lessee's expense, comply promptly with all applicable statutes, ordinances,
rules, regulations, orders, covenants and restrictions of record, and
requirements in effect during the term or any part of the term hereof,
regulating the use by Lessee of the Premises. Lessee shall not use nor permit
the use of the Premises in any manner that will tend to create waste or a
nuisance or, if there shall be more than one tenant in the building containing
the Premises, shall tend to disturb such other tenants.
6.3 CONDITION OF PREMISES. See Paragraph 49.
(a) Lessor shall deliver the Premises to Lessee clean and free of
debris on Lease commencement date (unless Lessee is already in possession) and
Lessor further warrants to Lessee that the plumbing, lighting, air
conditioning, heating, and loading doors in the Premises shall be in good
operating condition on the Lease commencement date. In the event that it is
determined that this warranty has been violated, then it shall be the
obligation of Lessor, after receipt of written notice from Lessee setting forth
with specificity the nature of the violation, to promptly, at Lessor's sole
cost, rectify such violation. Lessee's failure to give such written notice to
Lessor within thirty (30) days after the Lease commencement date shall cause
the conclusive presumption that Lessor has complied with all of Lessor's
obligations hereunder. The warranty contained in this paragraph 6.3(a) shall be
of no force or effect if prior to the date of this Lease, Lessee was the owner
or occupant of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby
accepts the Premises 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 covenants or restrictions of record, and accepts this Lease subject
thereto and all matters disclosed thereby and by any exhibits attached hereto.
Lessee acknowledges that neither Lessor nor Lessor's agent has made any
representation or warranty as to the present or future suitability of the
Premises for the conduct of Lessee's business.
7. MAINTENANCE, REPAIR AND ALTERATIONS. See Paragraph 50.
7.1 LESSEE'S OBLIGATIONS. Lessee shall keep in good order, condition and
repair the Premises and every part thereof, structural and nonstructural,
(whether or not such portion of the Premises requiring repair, or the means of
repairing the same are reasonably or readily accessible to Lessee, and whether
or not the need for such repairs occurs as a result of Lessee's use, any prior
use, the elements or the age of such portion of the Premises) including,
without limiting the generality of the foregoing, all plumbing, heating, air
conditioning, ventilating, electrical, lighting facilities and equipment
within the Premises, fixtures, walls (interior and exterior), foundations,
ceilings, roofs (interior and exterior), floors, windows, doors, plate glass
and skylights located within the Premises, and all landscaping, driveways,
parking lots, fences and signs located on the Premises and sidewalks and
parkways adjacent to the Premises.
7.2 SURRENDER. On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same
condition as when received, ordinary wear and tear excepted, clean and free of
debris. Lessee shall repair any damage to the Premises occasioned
NET
(C) American Industrial Real Estate Association 1980
<PAGE> 2
by the installation or removal of Lessee's trade fixtures, furnishings and
equipment. Notwithstanding anything to the contrary otherwise stated in this
Lease, Lessee shall leave the air lines, power panels, electrical distribution
systems, lighting fixtures, space heaters, air conditioning, plumbing and
fencing on the premises in good operating condition.
7.3 LESSOR'S RIGHTS. If Lessee fails to perform Lessee's obligations under
this Paragraph 7, or under any other paragraph of this Lease, Lessor may at its
option (but shall not be required to) enter upon the Premises after ten (10)
days' prior written notice to Lessee (except in the case of an emergency, in
which case no notice shall be required), perform such obligations on Lessee's
behalf and put the same in good order, condition and repair, and the cost
thereof together with interest thereon at the maximum rate then allowable by
law shall become due and payable as additional rental to Lessor together with
Lessee's next rental installment.
7.4 LESSOR'S OBLIGATIONS. See Paragraph 50.
7.5 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, or Utility Installations in, on or about
the Premises, except for nonstructural alterations not exceeding $2,500 in
cumulative costs during the term of this Lease. In any event, whether or not in
excess of $2,500 in cumulative cost, Lessee shall make no change or alteration
to the exterior of the Premises nor the exterior of the building(s) on the
Premises without Lessor's prior written consent. As used in this Paragraph 7.5
the term "Utility Installation" shall mean carpeting, window coverings, air
lines, power panels, electrical distribution systems, lighting fixtures, space
heaters, air conditioning, plumbing, and fencing. Lessor may require that Lessee
remove any or all of said alterations, improvements, additions or Utility
Installations at the expiration of the term, and restore the Premises to their
prior condition. 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, Lessor may require
that Lessee remove any or all of the same.
(b) Any alterations, Improvements, additions or Utility Installations in,
or about the Premises that Lessee shall desire to make and which requires the
consent of the Lessor shall be presented to Lessor in written form, with
proposed detailed plans. If Lessor shall give its consent, the consent shall be
deemed conditioned upon Lessee acquiring a permit to do so from appropriate
governmental agencies, the furnishing of a copy thereof to Lessor prior to the
commencement of the work and the compliance by Lessee of 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 mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of
any work in the Premises, and Lessor shall have the right to post notices of
non-responsibility in or on the Premises as provided by law. 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 the Lessor or the Premises, upon the
condition that if Lessor shall require, Lessee shall furnish to Lessor a surety
bond satisfactory to Lessor in an amount equal to such contested lien claim or
demand indemnifying Lessor against liability for the same and holding the
Premises as free from the effect of such lien or claim. In addition, Lessor may
require Lessee to pay Lessor's attorneys fees and costs in participating in
such action if Lessor shall decide it is to its best interest to do so.
(d) Unless Lessor requires their removal, as set forth in Paragraph
7.5(a), all alterations, improvements, additions and Utility Installments
(whether or not such Utility Installments constitute trade fixtures of Lessee),
which may be made on the Premises, shall become the property of Lessor and
remain upon and be surrendered with the Premises at the expiration of the term.
Notwithstanding the provisions of this Paragraph 7.5(d), Lessee's machinery and
equipment, other than that which is affixed to the Premises so that it cannot
be removed without material damage to the Premises, shall remain the property
of Lessee and may be removed by Lessee subject to the provisions of Paragraph
7.2.
8. INSURANCE INDEMNITY.
8.1 INSURING PARTY. As used in this Paragraph 8, the term "insuring
party" shall mean the party who has the obligation to obtain the Property
Insurance required hereunder. The insuring party shall be designated in
Paragraph 46 hereof. In the event Lessor is the insuring party, Lessor shall
also maintain the liability insurance described in paragraph 8.2 hereof, in
addition to, and not in lieu of, the insurance required to be maintained by
Lessee under said paragraph 8.2, but Lessor shall not be required to name
Lessee as an additional insured on such policy. Whether the insuring party is
the Lessor or the Lessee, Lessee shall as additional rent for the Premises, pay
the cost of all insurance required hereunder except for that portion of the
cost attributable to Lessor's liability insurance coverage in excess of
$2,000,000 per occurrence. If Lessor is the insuring party Lessee shall, within
ten (10) days following demand by Lessor, reimburse Lessor for the cost of the
insurance so obtained.
8.2 LIABILITY INSURANCE. Lessee shall, at Lessee's expense obtain and keep
in force during the term of this Lease a policy of Combined Single Limit, Bodily
injury and Property Damage insurance insuring Lessor and Lessee against any
liability arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto. Such insurance shall be a combined
single limit policy in an amount not less than $1,000,000 per occurrence. The
policy shall insure performance by Lessee of the indemnity provision of this
Paragraph 8. The limits of said insurance shall not, however, limit the
liability of Lessee hereunder.
8.3 PROPERTY INSURANCE.
(a) The insuring party shall obtain and keep in force during the term
of this Lease a policy or policies of insurance covering loss or damage to the
Premises, in the amount of the full replacement value thereof, as the same may
exist from time to time, which replacement value is now $1,350,000, but in no
event less than the total amount required by Lenders having liens on the
Premises, against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, flood (in the event same is
required by a lender having a lien on the Premises), and special extended perils
("all risk" as such term is used in the insurance industry). Said insurance
shall provide for payment of loss thereunder to Lessor or to the holders of
mortgages or deeds of trust on the Premises. The insuring party shall, in
addition, 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 real estate taxes and insurance
costs for said period. A stipulated value or agreed amount endorsement deleting
the coinsurance provision of the policy shall be procured with said insurance as
well as an automatic increase in insurance endorsement causing the increase in
annual property insurance coverage by 2% per quarter. If the insuring party
shall fail to procure and maintain said insurance the other party may, but shall
not be require to, procure and maintain the same, but at the expense of Lessee.
If such insurance coverage has a deductible clause, the deductible amount shall
not exceed $1,000 per occurrence, and Lessee shall be liable for such deductible
amount.
(b) If the Premises are part of a larger building, or if the Premises
are part of a group of buildings owned by Lessor which are adjacent to the
Premises, then Lessee shall pay for any increase in the property insurance of
such other buildings if said increase is caused by Lessee's acts, omissions, use
or occupancy of the Premises.
(c) If the Lessor is the insuring party the Lessor will not insure
Lessee's fixtures, equipment or tenant improvements unless the tenant
improvements have become a part of the Premises under paragraph 7, hereof. But
if Lessee is the insuring party the Lessee shall insure its fixtures, equipment
and tenant improvements.
8.4 INSURANCE POLICIES. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least B plus, or such
other rating as may be required by a lender having a lien on the Premises, as
set forth in the most current issue of "Best's Insurance Guide". The insuring
party shall deliver to the other party copies of policies of such insurance or
certificates evidencing the existence and amounts of such insurance with loss
payable clauses as required by this paragraph 8. No such policy shall be
cancellable or subject to reduction of coverage or other modification except
after thirty (30) days' prior written notice to Lessor. If Lessee is the
insuring party Lessee shall, at least thirty (30) days prior to the expiration
of such policies, furnish Lessor with renewals or "binders" thereof, or Lessor
may order such insurance and charge the cost thereof to Lessee, which amount
shall be payable by Lessee upon demand. Lessee shall not do or permit to be
done anything which shall invalidate the insurance policies referred to in
Paragraph 8.3. If Lessee does or permits to be done anything which shall
increase the cost of the insurance policies referred to in Paragraph 8.3, then
Lessee shall forthwith upon Lessor's demand reimburse Lessor for any additional
premiums attributable to any act or omission or operation of Lessee causing
such increase in the cost of insurance. If Lessor is the insuring party, and if
the insurance policies maintained hereunder cover other improvements in
addition to the Premises, Lessor shall deliver to Lessee a written statement
setting forth the amount of any such insurance cost increase and showing in
reasonable detail the manner in which it has been computed.
8.5 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils insured against
under paragraph 8.3, which perils occur in, on or about the Premises, whether
due to the negligence of Lessor or Lessee or their agents, employees,
contractors and/or invitees. Lessee and Lessor shall, upon obtaining the
policies of insurance required hereunder, give notice to the insurance carrier
or carriers that the foregoing mutual waiver of subrogation is contained in
this Lease.
8.6 INDEMNITY.* Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Premises, 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
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
negligence of the Lessee, or any of Lessee's agents, contractors, or employees,
and from and against all costs, attorney's fees, expenses and liabilities
incurred in the defense of any such claim or any action or proceeding brought
thereon; and in case any action or proceeding be brought against Lessor by
reason of any such claim, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel satisfactory to Lessor. Lessee, as a material
part of the consideration to Lessor, hereby assumes all risk of damage to
property or injury to persons, in, upon or about the Premises arising from any
cause and Lessee hereby waives all claims in respect thereof against Lessor.
8.7 EXEMPTION TO 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 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, 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 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 the said damage or injury results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to
Lessee. Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the building in which the Premises are
located.
* Except for Lessor's gross negligence, or willful misconduct or that of its
employees, agents or contractors.
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9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Partial Damage" shall herein mean damage or destruction
to the Premises to the extent that the cost of repair is less than 50% of the
then replacement cost of the Premises. "Premises Building Partial Damage" shall
herein mean damage or destruction to the building of which the Premises are a
part to the extent that the cost of repair is less than 50% of the then
replacement cost of such building as a whole.
(b) "Premises Total Destruction" shall herein mean damage or
destruction to the Premises to the extent that the cost of repair is 50% or more
of the then replacement cost of the Premises. "Premises Building Total
Destruction" shall herein mean damage or destruction to the building of which
the Premises are a part to the extent that the cost of repair is 50% or more of
the then replacement cost of such building as a whole.
(c) "Insured Loss" shall herein mean damage or destruction which was
caused by an event required to be covered by the insurance described in
paragraph 8.
9.2 PARTIAL DAMAGE -- INSURED LOSS. Subject to the provisions of
paragraphs 9.4, 9.5 and 9.8, 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
Premises Partial Damage or Premises Building Partial Damage, then Lessor shall,
at Lessor's expense, repair such damage, but not Lessee's fixtures, equipment or
tenant improvements unless the same have become a part of the Premises pursuant
to Paragraph 7.5 hereof as soon as reasonably possible and this Lease shall
continue in full force and effect. Notwithstanding the above, if the Lessee is
the insuring party, and if the insurance proceeds received by Lessor are not
sufficient to effect such repair, Lessor shall give notice to Lessee of the
amount required in addition to the insurance proceeds to effect such repair.
Lessee shall contribute the required amount to Lessor within ten days after
Lessee has received notice from Lessor of the shortage in the insurance. When
Lessee shall contribute such amount to Lessor, Lessor shall make such repairs as
soon as reasonably possible and this Lease shall continue in full force and
effect. Lessee shall in no event have any right to reimbursement for any such
amounts so contributed.
9.3 PARTIAL DAMAGE -- UNINSURED LOSS. Subject to the provisions of
Paragraphs 9.4, 9.5 and 9.6, 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 Partial 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), Lessor may at Lessor's option
either (i) repair such damage as soon at 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 the event
Lessor elects to give such notice of Lessor's intention to cancel and terminate
this Lease, Lessee shall have the right within ten (10) days after the receipt
of such notice to give written notice to Lessor of Lessee's intention to repair
such damage at Lessee's expense, without reimbursement from Lessor, in which
event this Lease shall continue in full force and effect, and Lessee shall
proceed to make such repairs as soon as reasonably possible. If Lessee does not
give such notice within such 10-day period this Lease shall be cancelled and
terminated as of the date of the occurrence of such damage.
9.4 TOTAL DESTRUCTION. If at any time during the term of this Lease there
is damage, whether or not an insured Loss, (including destruction required by
any authorized public authority), which falls into the classification of
Premises Total Destruction or Premises Building Total Destruction, this Lease
shall automatically terminate as of the date of such total destruction.
9.5 DAMAGE NEAR END OF TERM.
(a) If at any time during the last six months of the term of this
Lease there is damage, whether or not an insured Loss, which falls within the
classification of Premises Partial Damage, 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 9.5(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 20 days after the occurrence of an insured
Loss falling within the classification of Premises Partial Damage during the
last six months of the term of this Lease. If Lessee duly exercises such option
during said 20 day period, Lessor shall, at Lessor's expense, repair such damage
as soon as reasonably possible and this Lease shall continue in full force and
effect. If Lessee fails to exercise such option during said 20 day period, then
Lessor may at Lessor's option terminate and cancel this Lease as of the
expiration of said 20 day period by giving written notice to Lessee of Lessor's
election to do so within 10 days after the expiration of said 20 day period,
notwithstanding any term or provision in the grant of option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in paragraphs 9.2 or 9.3, and
Lessor or Lessee repairs or restores the Premises pursuant to the provisions of
this Paragraph 9, the rent payable hereunder for the period during which such
damage, repair or restoration continues shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired. Except for 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
under the provisions of this Paragraph 9 and shall not commence such repair or
restoration within 90 days after such obligations shall accrue, 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 of such
repair or restoration. In such event this Lease shall terminate as of the date
of such notice.
9.7 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.
9.8 WAIVER. Lessor and Lessee waive the provisions of any statutes 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. Lessee shall pay to Lessor the real property tax,
as defined in paragraph 10.2, applicable to the Premises during the term of
this Lease. All such payments shall be made at least ten (10) days prior to the
delinquency date of such payment. Lessee shall promptly furnish Lessor with
satisfactory evidence that such taxes have been paid. If any such taxes paid by
Lessee shall cover any period of time prior to or after the expiration of the
term hereof, Lessee's share of such taxes shall be equitably prorated to cover
only the period of time within the tax fiscal year during which this Lease
shall be in effect, and Lessor shall reimburse Lessee to the extent required.
If Lessee shall fail to pay any such taxes, Lessor shall have the right to pay
the same, in which case Lessee shall repay such amount to Lessor with Lessee's
next rent installment together with interest at the maximum rate then allowable
by law.
10.2 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 Premises by any authority having the direct or
indirect power to tax, including any city, 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
Premises or in the real property of which the Premises are a part, as against
Lessor's right to rent or other income therefrom, and as against Lessor's
business of leasing the Premises. 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 hereinbefore included within the definition of "real property tax," or
(iii) which is imposed for a service or right not charged prior to June 1,
1978, or, if previously charged, has been increased since June 1, 1978, or (iv)
which is imposed as a result of a transfer, either partial or total, of Lessor's
interest in the Premises or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such transfer,
or (v) which is imposed by reason of this transaction, any modifications or
changes hereto, or any transfers hereof.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the real property taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information 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. When possible,
Lessee shall cause said trade fixtures, furnishing, equipment and all other
personal property to be assessed and billed separately from the real property
of Lessor.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee
within 10 days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all trash, exterminator, water, gas, heat,
light, power, telephone and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion to be
determined by Lessor of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING. SEE PARAGRAPH 52.
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 of any part of Lessee's interest in this 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 breach of
this Lease.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by
or is under common control with Lessee, or to any corporation resulting from
the merger or consolidation with Lessee, or to any person or entity which
acquired all the assets of Lessee as a going concern of the business that is
being conducted on the Premises, provided that said assignee assumes, in full,
the obligations of Lessee under this Lease. Any such assignment shall not, in
any way, affect or limit the liability of Lessee under the terms of this Lease
even if after such assignment or subletting the terms of this Lease are
materially changed or altered without the consent of Lessee, the consent of
whom shall not be necessary.
12.3 NO RELEASE OF LESSEE. Regardless of Lessor's consent, no subletting
or assignment shall release Lessee of Lessee's obligation or alter the primary
liability of Lessee to pay the rent and to perform all other obligations to be
performed by Lessee hereunder. The acceptance of rent by Lessor from any other
person shall not be deemed to be a waiver by Lessor or any provision hereof.
Consent to one assignment or subletting shall not be deemed consent to any
subsequent assignment or subletting. In the event of default by any assignee of
Lessee or any successor of Lessee, in the performance of any of the terms
hereof, Lessor may proceed directly against Lessee without the necessity of
exhausting remedies against said assignee. Lessor may consent to subsequent
assignments or subletting of this Lease or amendments or modifications to this
Lease with assignees
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of Lessee, without notifying Lessee, or any successor of Lessee, and without
obtaining its or their consent thereto and such action shall not relieve Lessee
of liability under this Lease.
12.4 ATTORNEY'S FEES. 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 attorneys fees incurred in connection
therewith, such attorneys fees not to exceed $350.00 for each such request.
13. DEFAULTS; REMEDIES.
13.1 DEFAULTS. The occurrence of any one or more of the following events
shall constitute a material default and breach of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) 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 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.
(c) 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 described in paragraph (b) above, where such failure
shall continue for a period of 30 days after written notice hereof from Lessor
to Lessee; provided, however, that if the nature of Lessee's default is such
that more than 30 days are reasonably required for its cure, then Lessee shall
not be deemed to be in default if Lessee commenced such cure within said 30-day
period and thereafter diligently prosecutes such cure to completion.
(d)(i) The making by Lessee of any general arrangement or assignment
for the benefit of creditors; (ii) Lessee becomes a "debtor" as defined in 11
U.S.C. Section 101 or any successor statute thereto (unless, in the case of a
petition filed against Lessee, the same is dismissed within 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 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 30 days. Provided, however, in the
event that any provision of this paragraph 13.1(d) is contrary to any
applicable law, such provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given to
Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any
successor in interest of Lessee or any guarantor of Lessee's obligation
hereunder, and any of them, was materially false.
13.2 REMEDIES. In the event of any such material default or breach by
Lessee, Lessor may at any time thereafter, with or without notice or demand and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such default or breach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee all damages incurred by Lessor
by reason of Lessee's default including, but not limited to, the cost of
recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorney's
fees, and any real estate commission actually paid; the worth at the time of
award by the court having jurisdiction thereof of the amount by which the
unpaid rent for the balance of the term after the time of such award exceeds
the amount of such rental loss for the same period that Lessee proves could be
reasonably avoided; that portion of the leasing commission paid by Lessor
pursuant to Paragraph 15 applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have abandoned the
Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent
as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located. Unpaid installments of rent and other unpaid monetary obligations of
Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
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 prosecutes the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and 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 Premises. Accordingly, if any
installment of rent 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. In the event that a late
charge is payable hereunder, whether or not collected, for three (3)
consecutive installments of rent, then rent shall automatically become due and
payable quarterly in advance, rather than monthly, notwithstanding paragraph 4
or any other provision of this Lease to the contrary.
13.5 IMPOUNDS. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) installments of rent or any other
monetary obligation of Lessee under the terms of this Lease, Lessee shall pay
to Lessor, if Lessor shall so request, in addition to any other payments
required under this Lease, a monthly advance installment, payable at the same
time as the monthly rent, as estimated by Lessor, for real property tax and
insurance expenses on the Premises which are payable by Lessee under the terms
of this Lease. Such fund shall be established to insure payment when due,
before delinquency, of any or all such real property taxes and insurance
premiums. If the amounts paid to Lessor by Lessee under the provisions of this
paragraph are insufficient to discharge the obligations of Lessee to pay such
real property taxes and insurance premiums as the same become due, Lessee shall
pay to Lessor, upon Lessor's demand, such additional sums necessary to pay such
obligations. All moneys paid to Lessor under this paragraph may be intermingled
with other moneys of Lessor and shall not bear interest. In the event of a
default in the obligations of Lessee to perform under this Lease, then any
balance remaining from funds paid to Lessor under the provisions of this
paragraph may, at the option of Lessor, be applied to the payment of any
monetary default of Lessee in lieu of being applied to the payment of real
property tax and insurance premiums.
14. CONDEMNATION. If the Premises or any portion thereof 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. If more than 10% of the floor area of the
building on the Premises, or more than 25% of the land area of the Premises
which is not occupied by any building, is taken by condemnation. Lessee may, at
Lessee's option, to be exercised in writing only within ten (10) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within ten (10) days after the condemning authority shall have
taken possession) 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 shall be reduced in the
proportion that the floor area of the building taken bears to the total floor
area of the building situated on the Premises. No reduction of rent shall occur
if the only area taken is that which does not have a building located thereon.
Any award for the taking of all or any part of the Premises 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 award for loss of or damage to Lessee's trade fixtures and removable
personal property. In the event that 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.
16. ESTOPPEL CERTIFICATE.
(a) Lessee shall at any time upon not less than ten (10) days' prior
written notice from Lessor execute, acknowledge and deliver to Lessors
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 Lessee's knowledge, any uncured
defaults on the part of Lessor hereunder, or specifying such defaults if any
are claimed. Any such statement amy be conclusively relied upon by any
prospective purchaser or encumbrancer of the Premises.
(b) At Lessor's option, Lessee's failure to deliver such statement
within such time shall be a material breach of this Lease or shall be
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conclusive upon Lessee (i) that this Lease is in full force and effect, without
modification except as may be represented by Lessor, (ii) that there are no
uncured defaults in Lessor's performance, and (iii) that not more than one
month's rent has been paid in advance or such failure may be considered by
Lessor as a default by Lessee under this Lease.
(c) If Lessor desires to finance, refinance, or sell the Premises,
or any part thereof, Lessee hereby agrees to deliver to any lender or purchaser
designated by lessor such financial statements of Lessee as may be reasonably
required by such lender or purchaser. Such statements shall include the past
three years' financial statements of Lessee. All such financial statements
shall be received by Lessor and such lender or purchaser in confidence and
shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners at the time in question of the fee title or a lessee's interest
in a ground lease of the Premises, 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 invalidly 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 from the date due. 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.
21. ADDITIONAL RENT. Any monetary obligations of Lessee to Lessor under the
terms of this Lease shall be deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENT. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
agreement or 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 employees 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 said Premises 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 except as
otherwise specifically stated in 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 mail, and if
given personally or by mail, shall be deemed sufficiently given if addressed to
Lessee or to Lessor at the address noted below the signature of the respective
parties, as the case may be. 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 or 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 Lessor's 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 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, but all options and rights
of first refusal, 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 wherein the Premises are located.
30. SUBORDINATION.
(a) This Lease, at Lessor's option, shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation or security now or
hereafter placed upon the real property of which the Premises are a part and to
any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this Lease prior to the
lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to Lessee, this Lease shall be deemed prior to such mortgage,
deed of trust, or ground lease, whether this Lease is 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 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 10 days after written demand shall constitute
a material default by Lessee hereunder, 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. ATTORNEY'S FEES. If either party or the broker named herein brings an
action to enforce the terms hereof or declare rights hereunder, the prevailing
party in any such action, on trial or appeal, shall be entitled to his
reasonable attorney's fees to be paid by the losing party as fixed by the
court. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purpose of inspecting the same,
showing the same to prospective purchasers, lenders, or lessees and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part as Lessor may deem necessary or desirable.
Lessor may at any time place on or about the Premises 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, all without
rebate of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises 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.
34. SIGNS. Lessee shall not place any sign upon the Premises without Lessor's
prior written consent except that Lessee shall have the right, without the
prior permission of Lessor to place ordinary and usual for rent or sublet signs
thereon.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or 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 paragraph 33 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.
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
Premises.
39. OPTIONS.
39.1 DEFINITION. As used in this paragraph the word "Options" 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 property of Lessor or the right of first offer to lease
other property of Lessor; (3) the right or option to purchase the Premises, or
the right of first refusal to purchase the Premises, or the right of first offer
to purchase the Premises 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.
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39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease are
personal to Lessee and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any person or entity other than Lessee, provided,
however, the Option may be exercised by or assigned to any Lessee Affiliate as
defined in paragraph 12.2 of this Lease. The Options herein granted to Lessee
are not assignable separate and apart from this Lease.
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(b) or 13.1(c) and continuing until the default 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) continuing until the
obligation is paid, or (iii) at any time after an event of default described in
paragraphs 13.1(a), 13.1(d), or 13.1(e) (without any necessity of Lessor to
give notice of such default to Lessee), or (iv) in the event that Lessor has
given to Lessee three or more notices of default under paragraph 13.1(b), where
a late charge has become payable under paragraph 13.4 for each of such
defaults, or paragraph 13.1(c), whether or not the defaults are cured, during
the 12 month period prior to the time that Lessee intends to exercise the
subject Option.
(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 or 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 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(c) within 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, or (iii) Lessee
commits a default described in paragraph 13.1(a), 13.1(d) or 13.1(e) (without
any necessity of Lessor to give notice of such default to Lessee), or (iv)
Lessor gives to Lessee three or more notices of default under paragraph
13.1(b), where a late charge becomes payable under paragraph 13.4 for each
such default, or paragraph 13.1(c), whether or not the defaults are cured.
40. MULTIPLE TENANT BUILDING. In the event that the Premises are part of a
larger building or group of buildings then Lessee agrees that it will abide by,
keep and observe all reasonable rules and regulations which Lessor may make
from time to time for the management, safety, care, and cleanliness of the
building and grounds, the parking of vehicles and the preservation of good
order therein as well as for the convenience of other occupants and tenants of
the building. The violations of any such rules and regulations shall be deemed
a material breach of this Lease by Lessee.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable
to Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of Lessee, its agents and
invitees from the acts of third parties.
42. EASEMENTS. 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 breach of this Lease.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one party to the other under the
provisions hereof, the party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said party
to pay such sum or any part thereof, said party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
44. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she 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.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. INSURING PARTY. The insuring party under this lease shall be the LESSOR.
47. ADDENDUM. Attached hereto is an addendum or addenda containing paragraphs
48 through 55 which constitutes 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 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 HIS 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 OR THE TRANSACTION RELATING
THERETO; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
THE PARTIES HERETO HAVE EXECUTED THIS LEASE AT THE PLACE ON THE DATES SPECIFIED
IMMEDIATELY ADJACENT TO THEIR RESPECTIVE SIGNATURES.
<TABLE>
<S> <C>
Executed at Tarzana, CA AKA ENTERPRISES, A CALIFORNIA
------------------------------- LIMITED PARTNERSHIP
On: 2/14/00 By /s/ RICHARD L. ARONOFF
---------------------------------------- --------------------------------------
RICHARD L. ARONOFF, GENERAL PARTNER
Address: 19921 Turnberry Drive By /s/ LEONARD KOLOD
----------------------------------- -------------------------------------
Tarzana, CA 91356 LEONARD KOLOD, GENERAL PARTNER
-----------------------------------
Executed at Westlake Village, CA "LESSOR" (Corporate seal)
-------------------------------
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
On: 2/11/00 A DELAWARE CORPORATION
----------------------------------------
Address: 6416 Variel Avenue By /s/ ROBERT H. GUREVITCH
----------------------------------- --------------------------------------
Woodland Hills, CA 91367 ROBERT H. GUREVITCH, PRESIDENT & CEO
-----------------------------------
By /s/ STEPHEN F. ROSS
--------------------------------------
STEPHEN F. ROSS, CFO
"LESSEE" (Corporate seal)
</TABLE>
For these forms write or call the American Industrial Real Estate Association,
350 South Figueroa St., Los Angeles, CA 90071. (213) 687-8777
<PAGE> 7
ADDENDUM TO STANDARD INDUSTRIAL LEASE - NET DATED JANUARY 25, 2000 BY AND
BETWEEN AKA ENTERPRISES, AS LESSOR, AND DENTAL/MEDICAL DIAGNOSTIC SYSTEMS,
INC., AS LESSEE, FOR THE PROPERTY COMMONLY KNOWN AS 6416 VARIEL AVENUE,
WOODLAND HILLS, CALIFORNIA.
48. BASE RENT ADJUSTMENT
Commencing March 1, 2001, the Rent as set forth in Paragraph 4 of this
Lease shall be increased as of March 1 of each year during the Term of this
Lease for the following twelve months period to reflect any increase in the
cost of living. Cost of living adjustments shall be calculated on the basis
of changes in the Consumer Price Index published by the United States
Department of Labor, Bureau of Labor Statistics ("All Items" Index for all
Urban Consumers in the Los Angeles / Anaheim / Riverside Metropolitan area,
1982-1984=100)(the Index). Such adjustment shall be made by increasing the
Rent payable under Paragraph 4 of this Lease by the percentage that the
most recent December Index has increased from the December 1999 Index. In
no event shall said increase be less than a minimum of three percent (3%)
per annum or exceed a maximum of five percent (5%) per annum.
In the event the Index shall not be published or shall have been
discontinued, the most nearly comparable index shall be substituted
therefore.
49. CONDITION OF PREMISES
Notwithstanding anything to the contrary in Paragraph 6.3(a), it is the
intent of the parties hereto that, prior to the commencement of this Lease,
the Lessor, at Lessor's expense ("Tenant Improvement Cost"), shall:
A. Office Area:
(i) Demolish unneeded existing office improvements, rework
existing partitions, and construct new offices in the
western portion of the Premises, making those ceiling, wall
and door changes described on Exhibit "A".
(ii) Pursuant to Exhibit "A", flooring within the Office Area,
will be replaced with new flooring of Lessee's choice. The
floor covering allowance is $1.50 per square foot (installed
with rubber cove base) including the removal of the existing
flooring.
(iii) Provide interior glass next to the doors of private offices,
where possible.
(iv) Rework ducts and grills to provide adequate air conditioning
distribution.
(v) The Office Area will be painted in colors of Lessee's choice
(maximum of 3 colors). All doors will be painted to match.
(vi) All damaged, stained, broken and soiled ceiling tiles will
be replaced.
(vii) Install energy efficient fluorescent lighting with parabolic
reflectors.
B. Open Office Ceiling:
(i) Install a new, high, ceiling in the large open portion of
the office area.
(ii) Distribute natural light from an existing skylight and
additional glass at the western building entry through the
Open Office Ceiling area.
(iii) Add indirect lighting into the Open Office Ceiling area.
C. Warehouse Area:
(i) Remove any/or all existing wall partitions, including any
unneeded restrooms in the warehouse area.
(ii) Remove all existing ceiling (tiles & grid), lights, air
conditioning ductwork, communication wiring, etc.
(iii) Remove the existing vinyl tile floor covering and clean glue
from the concrete slab. Repair cracks as required.
(iv) Construct a demising wall (slab or roof) to separate the
warehouse from the office area.
(v) Insulate the under-side of the roof and revamp the air
conditioning to provide air distribution.
(vi) Install 20HD warehouse lighting fixtures.
(vii) Paint the interior walls of the warehouse.
D. Restrooms:
(i) Expand the existing men's restrooms, matching existing
finishes.
(ii) Paint existing restrooms that remain on Exhibit "A".
(iii) Only replace fixtures or partitions where the existing ones
are beyond repair.
(iv) Install a janitor sink at the eastern wall of the men's
restroom.
(v) Any cracked floor tiles will be replaced and the flooring
will be clean and have a uniform appearance.
1
<PAGE> 8
ADDENDUM TO STANDARD INDUSTRIAL LEASE -- NET DATED JANUARY 25, 2000 BY AND
BETWEEN AKA ENTERPRISES, AS LESSOR, AND DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.,
AS LESSEE, FOR THE PROPERTY COMMONLY KNOWN AS 6416 VARIEL AVENUE, WOODLAND
HILLS, CALIFORNIA.
E. Other (not necessarily prior to Lease commencement):
(i) The exterior of the Building will be painted by Lessor.
(ii) The parking area contiguous to the Building will be freshly
sealed and striped.
(iii) The skylight lenses will be cleaned and, if cracked, be
replaced.
(iv) The UPS electrical system existing in the Premises prior to
the commencement of the Lease will be removed.
Notwithstanding anything in Paragraph 7.2 to the contrary, all improvements
existing within the Premises at the commencement of the Lease shall be
considered standard for the Building.
50. MAINTENANCE AND REPAIRS
This Paragraph 50 replaces Paragraph 7.4 LESSOR'S OBLIGATIONS in its
entirety.
A. Notwithstanding the provisions of Paragraphs 7.1 and 7.2, except for
maintenance or repairs occasioned by the negligence or willful
misconduct of Lessee, its agents or invitees, Lessor shall be
obligated to maintain and repair the following at Lessor's expense:
(i) The foundations, exterior structural walls and the
structural portions of the roof of the Premises.
(ii) The sanitary sewer main-line to the front of the building,
or replacements thereto.
B. Notwithstanding the provisions of Paragraphs 7.1 and 7.2, except for
problems caused by Lessee's negligence or willful misconduct, Lessor,
at Lessee's expense, shall be obligated to maintain and repair:
(i) The (exterior) roof in a watertight condition, free from
debris, with proper drainage. Lessor will provide this
maintenance free of charge through May 31, 2001; after that
date, Lessee's maximum liability for roof maintenance shall
be One Thousand Dollars ($1,000) in any 12-month period.
(ii) The landscaping of the Premises will be maintained in a neat
& clean condition. Plants will be replaced, if necessary.
Annual tree-trimming, spraying and seeding is included.
(iii) The exterior paint of the Premises will be maintained in a
neat & clean condition. Graffiti will be removed and the
effects of normal wear & tear will be repaired.
C. Notwithstanding anything in Paragraphs 6 or 7 to the contrary, except
for problems caused by Lessee's negligence or willful misconduct,
Lessor, at Lessor's sole cost and expense, and in a timely manner,
shall perform all maintenance of, repairs to or replacements of HVAC
systems. However, Lessor shall not be required to increase the
capacity, or adjust the balance (except for the initial need to
engineer the flow or balance of the HVAC units) of the HVAC units that
serve the Premises. In compensation for this service, Lessee shall pay
Lessor Eight Hundred Thirty-three Dollars ($833) per month (in
addition to the monthly rent specified in Paragraph 4) for the entire
Term of the Lease.
51. ESTIMATED OPERATING EXPENSES
Pursuant to Paragraph 21, Lessee shall pay to Lessor on the first day of
each month of the Term hereof (in addition to the monthly rent specified in
Paragraph 4), monthly payments of Three Thousand Three Hundred Dollars
($3,300.00), to be credited toward Lessee's share of the actual cost of
Real Property Taxes and Property Insurance.
52. RESTRICTIONS ON ASSIGNMENT AND SUBLETTING
Notwithstanding anything in Paragraph 12 to the contrary, if the Lessee
requests, in writing, the Lessor's consent to an assignment, transfer,
mortgage, encumbrance, license or sublease, of the Premises to anyone other
than a Lessee Affiliate per Paragraph 12.2, the Lessor, at its option, may
cancel this Lease as of the effective date of the requested assignment,
transfer, mortgage, encumbrance, license or sublease. If the Lessor shall
elect to cancel this Lease, the term, tenancy and occupancy of the Premises
under this Lease, shall cease and terminate as if the requested
cancellation date was the termination date of the Lease.
2
<PAGE> 9
ADDENDUM TO STANDARD INDUSTRIAL LEASE -- NET DATED JANUARY 25, 2000 BY
AND BETWEEN AKA ENTERPRISES, AS LESSOR, AND DENTAL/MEDICAL DIAGNOSTIC
SYSTEMS, INC., AS LESSEE, FOR THE PROPERTY COMMONLY KNOWN AS 6416 VARIEL
AVENUE, WOODLAND HILLS, CALIFORNIA.
53. OPTION TO EXTEND
A. Provided that Lessee is in possession of the Premises and is not
in default under the terms, covenants and conditions of this
Lease, Lessee shall have the option to extend the term of the
Lease from March 1, 2005 through February 28, 2010. The exercise
of this option shall be in writing and delivered to Lessor no
earlier than twelve (12) months and no later than six (6) months
prior to the time the option period would commence if the option
were exercised, time being of the essence. If said notification
of the exercise of said option is not so given and received,
this option shall automatically expire.
B. If this option is exercised, all provisions of the Lease shall
continue; provided, however, that the monthly rent payable
commencing March 1, 2005, shall be at a fair market value rental
and determined as follows, but shall not be less than the rent
due February 1, 2005;
C. Lessor and Lessee shall have twenty (20) days after the date of
Lessee's notice to Lessor of its exercise of the option to
extend in which to agree on the monthly rent to be payable for
the period March 1, 2005 through February 28, 2010. If Lessor
and Lessee agree on the monthly rent for said period, they shall
immediately execute an amendment to this Lease stating the
monthly rent payable for such period, and such amendment shall
be attached to this Lease and become a part hereof. If the
Lessor and Lessee are unable to agree on the monthly rent for
such period within said twenty (20) days, then within ten (10)
days after the expiration of such twenty (20) day period, Lessor
and Lessee, at their costs and by giving notice to the other
party shall each appoint a real estate appraiser/broker with at
least five (5) years full-time appraisal experience in the
Warner Center area of Woodland Hills to appraise and set the
monthly rent for the period from March 1, 2005 through February
28, 2010. If either party does not appoint an appraiser within
ten (10) days after the other party has given notice of the name
of its appraiser, the single appraiser appointed shall be the
sole appraiser and shall set the monthly rent for such term. If
the two appraisers are appointed as aforesaid, they shall meet
promptly and attempt to set the monthly rent for the stated
period. If they are unable to agree within twenty (20) days
after the appointment of the second appraiser, the two
appraisers shall, within five (5) days after the last day
provided for the two appraisers to set the monthly rent, elect a
third appraiser meeting the aforesaid qualifications. Within ten
(10) days after the appointment of the third appraiser, the
third appraiser shall set the monthly rent for the period from
March 1, 2005 through February 28, 2010.
54. HAZARDOUS MATERIALS
A. Lessee shall not cause or permit any Hazardous Material to be
brought upon, kept or used in or about the Industrial Center by
Lessee, its agents, employees, contractors or invitees, without
the prior written consent of Lessor (which Lessor shall not
withhold as long as Lessee demonstrates to Lessor's satisfaction
that such Hazardous Material is necessary or useful to Lessee's
business and will be used, kept and stored in a manner that
complies with all laws relating to any such Hazardous Material
so brought upon or used or kept in or about the Industrial
Center). If Lessee breaches the obligations stated in the
preceding sentence, or if the presence of Hazardous Material on
the Industrial Center caused or permitted by Lessee results in
contamination of the Industrial Center, or if contamination of
the Industrial Center by Hazardous Material otherwise occurs for
which Lessee is legally liable to Lessor for damage resulting
therefrom, then Lessee shall indemnify, defend and hold Lessor
harmless from and against any and all claims, judgments,
damages, penalties, fines, costs, liabilities or losses
(including without limitation, diminution in value of the
Industrial Center, damages for the loss or restriction on use of
rentable or usable space or of any amenity of the Industrial
Center, damages arising from any adverse impact on developing or
marketing the Industrial Center, and sums paid in settlement of
claims, attorneys' fees, consultant fees and expert fees) which
arise during or after the term of the Lease as a result of such
contamination. This indemnification of Lessor by Lessee
includes, without limitation, costs incurred in connection with
any investigation of site conditions of any cleanup, remedial,
removal or restoration work required by any federal, state or
local governmental agency or political subdivision because of
Hazardous Material present in the soil or ground water. Without
limiting the foregoing, if the presence of any Hazardous
Material on the Industrial Center caused or permitted by Lessee
results in any contamination of the Industrial Center, Lessee
shall promptly take all actions at its sole expense as are
necessary to return the Industrial Center to the condition
existing prior to the introduction of any such Hazardous
Material; provided that Lessor's approval of such actions shall
first be obtained.
B. As used herein, the term "Hazardous Material" means any
hazardous or toxic substance, material or waste which is or
becomes regulated by any local governmental authority, the State
of California or the United States Government. The term
"Hazardous Material" includes, without limitation, any material
or substance which is:
(i) defined as a "hazardous waste," "extremely hazardous
waste" or "restricted hazardous waste" under Sections
25115, 25117 or 25122.7, or listed pursuant to Section
25140, of
3
<PAGE> 10
ADDENDUM TO STANDARD INDUSTRIAL LEASE -- NET DATED JANUARY 25, 2000 BY AND
BETWEEN AKA ENTERPRISES, AS LESSOR, AND DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.,
AS LESSEE, FOR THE PROPERTY COMMONLY KNOWN AS 6416 VARIEL AVENUE, WOODLAND
HILLS, CALIFORNIA.
the California Health and Safety Code, Division 20,
Chapter 6.5 (Hazardous Waste Control Law),
(ii) defined as a "hazardous substance" under Section 25316
of the California Health and Safety Code, Division 20,
Chapter 6.8 (Carpenter-Presley-Tanner Hazardous Substance
Account Act),
(iii) defined as a "hazardous material," "hazardous substance"
or "hazardous waste" under Section 25501 of the
California Health and Safety Code, Division 20, Chapter
6.95 (Hazardous Materials Release Response Plans and
Inventory),
(iv) defined as a "hazardous substance" under Section 25281
of the California Health and Safety Code, Division 20,
Chapter 6.7 (Underground Storage of Hazardous
Substances),
(v) petroleum,
(vi) asbestos,
(vii) listed under Article 9 or defined as hazardous or
extremely hazardous pursuant to Article 11 of Title 22
of the California Administrative Code, Division 4,
Chapter 20,
(viii) designated as a "hazardous substance" pursuant to
Section 311 of the Federal Water Pollution Control Act
(33 U.S.C. Section 1317),
(ix) listed under Article 9 or defined as hazardous or
extremely hazardous pursuant to Article 11 of Title
22 of the California Administrative Code, Division 4,
Chapter 20,
(x) designated as a "hazardous substance" pursuant to
Section 311 of the Federal Water Pollution Control Act
(33 U.S.C. Section 1317),
(xi) defined as a "hazardous substance" pursuant to Section
1004 of the Federal Resource Conservation and Recovery
Act, 42 U.S.C. Section 6901 et seq. (42 U.S.C. Section
6903), or
(xii) defined as a "hazardous substance" pursuant to Section
101 of the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601
et seq. (42 U.S.C. Section 9601).
C. At the termination of occupancy, Lessor will require from Lessee an
inspection of the Premises for hazardous materials made by a company
licensed to provide such inspections. Such inspection shall not alter
any of the other requirements of this Lease.
D. The provisions of subparagraphs "B" and "C" above shall survive the
termination of this Lease. No release of obligations under this Lease
shall be deemed a release of Lessee's obligations relating to
Hazardous Material, unless said release specifically refers to this
Paragraph 54. The Lessee's obligations under this Paragraph 54, at
Lessor's option, may be severed from this Lease, and suit brought by
Lessor independent of suit brought on any other obligation of this
Lease.
55. WARNER CENTER SPECIFIC PLAN
As the premises are located within the boundaries of the City of Los
Angeles' Warner Center Specific Plan, adopted in June, 1993, Lessee agrees
to abide by those Traffic Demand Management ("TDM") requirements that
apply to Lessee, as they are required of the building and of the Lessor,
including, but without being limited to, requirements for carpooling,
employees' parking fees, and joining and paying dues to the local
carpooling association ("TMO").
LESSOR: LESSEE:
AKA ENTERPRISES, DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.,
A CALIFORNIA LIMITED PARTNERSHIP A DELAWARE CORPORATION
By: /s/ RICHARD L. ARONOFF By: /s/ ROBERT H. GUREVITCH
----------------------------------- -------------------------------------
Richard L. Aronoff, General Partner Robert H. Gurevitch, President & CEO
By: /s/ LEONARD KOLOD By: /s/ STEPHEN F. ROSS
----------------------------------- -------------------------------------
Leonard Kolod, General Partner Stephen F. Ross, CFO
4
<PAGE> 11
6416 VARIEL AVENUE
23,800 SQUARE FEET
[BUILDING LAYOUT]
EXHIBIT A1
<PAGE> 12
6416 VARIEL AVENUE
23,800 SQUARE FEET
[BUILDING LAYOUT]
EXHIBIT A2
<PAGE> 1
EXHIBIT 10.39
AGREEMENT
This agreement is made by and between SHOEBOX ENTERTAINMENT, a California
General Partnership (hereinafter "SE") and DENTAL/MEDICAL DIAGNOSTIC SYSTEMS,
INC., a California Corporation (hereinafter "DMD").
PURPOSE AND CONSIDERATION
DMD shall pay SE consideration in the amount of Twenty Five Thousand
Dollars ($25,000.00) in exchange for SE's services of negotiating, arranging,
and securing the services and likenesses of JACK WAGNER and KRISTINA WAGNER
(hereinafter collectively "Talent") for a full day photography session at a
time and place specified by DMD and acceptable to Talent between April 26, 1999
and April 30, 1999 for the purpose of endorsing a DMD product line.
DMD shall pay SE the sum of $25,000.00 upon execution of this agreement.
The terms of Talent's subject engagement shall be specified in a separate
written agreement entered into between DMD and Talent.
INDEMNIFICATION
DMD shall indemnify, defend, and hold harmless SE, its officers,
directors, employees, agents and representatives against all liability,
demands, claims, costs, losses, damages, recoveries, settlements, and expenses
(including interest, penalties, attorneys fees, accounting fees, expert witness
fees, costs, and expenses) incurred by SE, known or unknown, contingent or
otherwise, directly or indirectly arising from or related to DMD products.
NON-APPLICATION OF MORALITY CLAUSE
Breach of any morality clause which DMD and Talent may execute in their
separate written agreement, shall not affect any rights of SE under this
agreement, including but not limited to, SE's right to receive and retain the
$25,000.00 compensation for service performed as provided herein.
FUTURE ENGAGEMENTS
In recognition of the substantial goodwill which SE has painstakingly
built into its relationship with Talent, and further recognizing the
contemplated future engagement of Talent for additional endorsement of DMD
products, DMD agrees to exclusively employ the service of SE in negotiating,
arranging, and facilitating the availability of Talent. DMD shall not contact
Talent directly for arrangement
<PAGE> 2
of such future engagements and shall direct such requests to SE, or SE's
successors, or assignees.
SEVERABILITY
If a court or an arbitrator of competition jurisdiction holds any
provision of the agreement to be illegal, unenforceable, or invalid in whole or
in part for any reason, the validity and enforceability of the remaining
provisions, or portions of them, will not be affected, unless an essential
purpose of this agreement would be defeated by the loss of the illegal,
unenforceable, or invalid provision.
GOVERNING LAW
This agreement, and any issues or disputes arising from the relationship
between the parties to this agreement, shall be governed by the laws of the
State of California, applicable to contracts made and performed entirely
therein.
ENTIRE AGREEMENT
This agreement constitutes the final, complete and exclusive statement of
the terms of the agreement between the parties and supersedes all prior and
contemporaneous understandings or agreements of the parties with regard to the
subject matter of this agreement. No party has been induced to enter into this
agreement by, nor is any party relying on, any representation or warranty
outside those expressly set forth in this agreement.
IN WITNESS WHEREOF, the parties hereto have executed this agreement as of
April 27, 1999.
Shoebox Entertainment ("SE) Dental/Medical Diagnostic Systems, Inc.
A California General Partnership A California Corporation ("DMD")
By: /s/ DAVID GOLDSTEIN By: /s/ STEVE ROSS
--------------------------- ---------------------------
David Goldstein Steve Ross, C.F.O.
General Partner ---------------------------
(Name)
An authorized Corporate Officer,
By: /s/ PIERRE A. STEELE Director, Employee or Agent
---------------------------
Pierre A. Steele
General Partner
<PAGE> 1
EXHIBIT 10.40
[DMD DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. LOGO]
June 24, 1999
Jack Wagner and Kristina Wagner agree to appear in the two (2) following
advertisements for Dental/Medical Diagnostic Systems, Inc. in exchange for
fifteen thousand dollars ($15,000).
Big Screen Spectacular -- Our ad will be featured on the giant British Airways'
video screen in Times Square for one week. The 18 x 24-ft. LED screen is
located at 1 Times Square (42nd Street and Broadway). We will have a 10-second
clip on the screen five times an hour, 18 hours a day for one full week between
mid-September and mid-October or in summary, 90 times a day or 630 times a week.
Vogue Bus Co-Brand -- Dental/Medical Diagnostic Systems, Inc. will have ten
buses in New York City for one month, which will display five advertising image
panels placed on 20-foot, full color, super-king size bus posters.
Agreed to:
/s/ JACK WAGNER /s/ KRISTINA WAGNER
- ----------------------------------- -----------------------------------
Jack Wagner Kristina Wagner
/s/ STEPHEN F. ROSS
- ----------------------------------- -----------------------------------
Stephen F. Ross
VP & Chief Financial Officer
Dental/Medical Diagnostic Systems, Inc.
<PAGE> 1
EXHIBIT 10.45
EXCHANGEABLE PREFERRED STOCK AND WARRANTS PURCHASE AGREEMENT
BETWEEN
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
AND
THE INVESTORS SIGNATORY HERETO
EXCHANGEABLE PREFERRED STOCK AND WARRANTS PURCHASE AGREEMENT dated as of
February 24, 2000 (the "Agreement"), between the Investors signatory hereto
(each an "Investor" and together the "Investors"), and Dental/Medical Diagnostic
Systems, Inc., a corporation organized and existing under the laws of the State
of Delaware (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investors,
and the Investors shall purchase in the aggregate, (i) up to $2,750,000 Stated
Value of Exchangeable Preferred Stock (as defined below) and (ii) Warrants (as
defined below) to purchase up to 275,000 shares of the Common Stock (as defined
below) at 100% of the Market Price on the Closing Date for such Common Stock and
Warrants to purchase up to 550,000 shares of the Common Stock at $3.50.
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) ("Section 4(2)") and/or 4(6) of the United States Securities Act
and/or Regulation D ("Regulation D") and the other rules and regulations
promulgated thereunder (the "Securities Act"), and/or upon such other exemption
from the registration requirements of the Securities Act as may be available
with respect to any or all of the investments in securities to be made
hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. "Capital Shares" shall mean the Common Stock and any shares of any
other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of earnings and assets of the Company.
Section 1.2. "Capital Shares Equivalents" shall mean any securities, rights, or
obligations that are convertible into or exchangeable for or give any right to
subscribe for any Capital Shares of the Company or any Warrants, options or
other rights to subscribe for or purchase Capital Shares or any such convertible
or exchangeable securities.
Section 1.3. "Certificate of Designations" shall mean the Certificate of
Designations setting forth the terms of the Exchangeable Preferred Stock in the
form of Exhibit A hereto.
Section 1.4. "Closing" shall mean the closing of the purchase and sale of the
Exchangeable Preferred Stock and Warrants pursuant to Section 2.1.
1
<PAGE> 2
Section 1.5. "Closing Date" shall mean the date on which all conditions to the
Closing have been satisfied (as defined in Section 2.1 (b) hereto) and the
Closing shall have occurred.
Section 1.6. "Common Stock" shall mean the Company's common stock, $0.01 par
value per share.
Section 1.7. "Damages" shall mean any loss, claim, damage, judgment, penalty,
deficiency, liability, costs and expenses (including, without limitation,
reasonable attorney's fees and disbursements and reasonable costs and expenses
of expert witnesses and investigation).
Section 1.8. "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in the Registration Rights Agreement.
Section 1.9. "Escrow Agent" shall have the meaning set forth in the Escrow
Agreement.
Section 1.10. "Escrow Agreement" shall mean the Escrow Agreement in
substantially the form of Exhibit D hereto executed and delivered
contemporaneously with this Agreement.
Section 1.11. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
Section 1.12. "Exchange Shares" shall mean the shares of Common Stock issuable
upon exchange of the Exchangeable Preferred Stock and any shares of Common Stock
issued as dividends upon the Exchangeable Preferred Stock.
Section 1.13. "Exchangeable Preferred Stock" shall mean the up to $2,750,000
Stated Value (2,750 shares) of Series B Exchangeable Preferred Stock, as
described in the Certificate of Designations to be issued to the Investors
pursuant to this Agreement.
Section 1.14. "Legend" shall mean the legend set forth in Section 9.1.
Section 1.15. "Market Price" on any given date shall mean the average of any
three (3) closing bid prices on the Principal Market (as reported by Bloomberg
L.P.) of the Common Stock selected by the Investor during the thirty (30)
Trading Day period ending on the Trading Day immediately prior to the date for
which the Market Price is to be determined.
Section 1.16. "Material Adverse Effect" shall mean any effect on the business,
operations, properties, prospects, stock price or financial condition of the
Company that is material and adverse to the Company and its subsidiaries and
affiliates, taken as a whole, and/or any condition, circumstance, or situation
that would prohibit or otherwise interfere with the ability of the Company to
enter into and perform any of its obligations under this Agreement, the
Registration Rights Agreement, the Escrow Agreement, the Certificate of
Designations or the Warrants in any material respect.
Section 1.17. "Outstanding" when used with reference to shares of Common Stock
or Capital Shares (collectively the "Shares"), shall mean, at any date as of
which the number of such Shares is to be determined, all issued and outstanding
Shares, and shall include all such Shares issuable in respect of outstanding
scrip or any certificates representing fractional interests in such Shares;
provided, however, that "Outstanding" shall not mean any such Shares then
directly or indirectly owned or held by or for the account of the Company.
Section 1.18. "Person" shall mean an individual, a corporation, a partnership, a
limited liability company, an association, a trust or other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
2
<PAGE> 3
Section 1.19. "Principal Market" shall mean the American Stock Exchange, the New
York Stock Exchange, the NASDAQ National Market, or the NASDAQ Small-Cap Market,
whichever is at the time the principal trading exchange or market for the Common
Stock, based upon share volume.
Section 1.20. "Purchase Price" shall mean the Stated Value per share of
Exchangeable Preferred Stock, as defined in the Certificate of Designations.
Section 1.21. "Registrable Securities" shall mean the Exchange Shares and the
Warrant Shares until (i) the Registration Statement has been declared effective
by the SEC, and all Exchange Shares and Warrant Shares have been disposed of
pursuant to the Registration Statement, (ii) all Exchange Shares and Warrant
Shares have been sold under circumstances under which all of the applicable
conditions of Rule 144 (or any similar provision then in force) under the
Securities Act ("Rule 144") are met, (iii) all Exchange Shares and Warrant
Shares have been otherwise transferred to holders who may trade such shares
without restriction under the Securities Act, and the Company has delivered a
new certificate or other evidence of ownership for such securities not bearing a
restrictive legend or (iv) such time as, in the opinion of counsel to the
Company, all Exchange Shares and Warrant Shares may be sold without any time,
volume or manner limitations pursuant to Rule 144(k) (or any similar provision
then in effect) under the Securities Act.
Section 1.22. "Registration Rights Agreement" shall mean the agreement regarding
the filing of the Registration Statement for the resale of the Registrable
Securities, entered into between the Company and the Investor as of the Closing
Date in the form annexed hereto as Exhibit C.
Section 1.23. "Registration Statement" shall mean a registration statement on
Form S-3 (if use of such form is then available to the Company pursuant to the
rules of the SEC and, if not, on such other form promulgated by the SEC for
which the Company then qualifies and which counsel for the Company shall deem
appropriate, and which form shall be available for the resale by the Investors
of the Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement, the Registration Rights Agreement and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investor of the Registrable Securities under
the Securities Act.
Section 1.24. "Regulation D" shall have the meaning set forth in the recitals of
this Agreement.
Section 1.25. "SEC" shall mean the Securities and Exchange Commission.
Section 1.26. "Section 4(2)" and "Section 4(6)" shall have the meanings set
forth in the recitals of this Agreement.
Section 1.27. "Securities Act" shall have the meaning set forth in the recitals
of this Agreement.
Section 1.28. "SEC Documents" shall mean the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1998 and each report, proxy
statement or registration statement filed by the Company with the SEC pursuant
to the Exchange Act or the Securities Act since the filing of such Annual Report
through the date hereof, and shall include each Company press release which is
specifically identified in the Disclosure Letter referenced in the preamble to
Article IV.
Section 1.29. "Shares" shall have the meaning set forth in Section 1.16.
Section 1.30. "Stated Value" shall have the meaning set forth in the Certificate
of Designations.
Section 1.31. "Trading Day" shall mean any day during which the Principal Market
shall be open for business.
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Section 1.32. "Warrants" shall mean the Warrants substantially in the form of
Exhibit B-1 to be issued to the Investors hereunder at the rate of one Warrant
for each $10.00 invested in the Closing, exercisable at the Market Price on the
Closing Date (the "B-1 Warrants") and the Warrants substantially in the form of
Exhibit B-2 to be issued to the Investors hereunder at the rate of one B-2
Warrant for each $5.00 invested in the Closing, exercisable at $3.50 per share
(the "B-2 Warrants").
Section 1.33. "Warrant Shares" shall mean all shares of Common Stock or other
securities issued or issuable pursuant to exercise of the Warrants.
ARTICLE II
PURCHASE AND SALE OF EXCHANGEABLE PREFERRED STOCK AND WARRANTS
Section 2.1. Investment.
(a) Upon the terms and subject to the conditions set forth herein, the
Company agrees to sell, and the Investors agree, severally and not jointly, to
purchase the Exchangeable Preferred Stock together with the Warrants at the
Purchase Price. On the Closing Date, the Investors shall purchase up to Two
Million Seven Hundred Fifty Thousand Dollars ($2,750,000) Stated Value (2,750
shares), but in no event less than One Million Five Hundred Thousand $1,500,000
Stated Value (1,500 shares), of Exchangeable Preferred Stock as follows:
(i) Upon execution and delivery of this Agreement, each
Investor shall deliver to the Escrow Agent immediately
available funds in their proportionate amount of the
Purchase Price as set forth on the signature pages hereto,
and the Company shall deliver the Exchangeable Preferred
Stock certificates and the Warrants to the Escrow Agent,
in each case to be held by the Escrow Agent pursuant to
the Escrow Agreement.
(ii) Upon satisfaction of the conditions set forth in Section
2.1(b), the Closing ("Closing") shall occur at the offices
of the Escrow Agent at which the Escrow Agent (x) shall
release the Exchangeable Preferred Stock and the Warrants
to the Investors and (y) shall release the Purchase Price,
pursuant to the terms of the Escrow Agreement.
(b) The Closing is subject to the satisfaction, or waiver by the party
to be benefited thereby, of the following conditions:
(i) acceptance and execution by the Company and by the
Investors, of this Agreement and all Exhibits hereto;
(ii) delivery into escrow by each Investor of immediately
available funds in the amount of the Purchase Price of the
Exchangeable Preferred Stock, and the Warrants, as more
fully set forth in the Escrow Agreement (as a condition to
the Company's obligations);
(iii) all representations and warranties of the Investors
contained herein shall remain true and correct as of the
Closing Date (as a condition to the Company's
obligations);
(iv) all representations and warranties of the Company
contained herein shall remain true and correct as of the
Closing Date and the Disclosure Letter shall reveal no
Material Adverse Effect (as a condition to the Investors'
obligations);
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(v) the Company shall have obtained all permits and
qualifications required by any state for the offer and
sale of the Exchangeable Preferred Stock and Warrants, or
shall have the availability of exemptions therefrom;
(vi) the sale and issuance of the Exchangeable Preferred Stock
and the Warrants hereunder, and the proposed issuance by
the Company to the Investors of the Common Stock
underlying the Exchangeable Preferred Stock and the
Warrants upon the exchange or exercise thereof shall be
legally permitted by all laws and regulations to which the
Investors and the Company are subject and there shall be
no ruling, judgment or writ of any court prohibiting the
transactions contemplated by this Agreement;
(vii) delivery of the original fully executed Exchangeable
Preferred Stock certificates and Warrants certificates to
the Escrow Agent;
(viii) delivery to the Escrow Agent of an opinion of Troop
Steuber Pasich Reddick & Tobey, LLP, counsel to the
Company, in the form of Exhibit E hereto;
(ix) delivery to the Escrow Agent of the Irrevocable
Instructions to Transfer Agent in the form attached hereto
as Exhibit F;
(x) delivery to the Escrow Agent of the Registration Rights
Agreement; and
(xi) delivery to the Escrow Agent of the written agreements of
each officer and director of the Company addressed to the
Investors, agreeing to vote all shares of Common Stock
over which they have voting control in favor of a
shareholder proposal permitting the issuance of a number
of Exchange Shares in excess of 19.9% of the number of
shares of Common Stock issued and outstanding on the
Closing Date.
Section 2.2. Liquidated Damages.(a) The Company understands that a delay in the
issuance of the Exchange Shares beyond four (4) Trading Days after delivery by
an Investor of an Exchange Notice could result in economic loss to the Investor.
As compensation to the Investor for such loss, the Company agrees to pay late
payments to the Investor for late issuance of shares of Common Stock upon
exchange in accordance with the following schedule (where "No. Trading Days
Late" is defined as the number of Trading Days beyond four (4) Trading Days from
the date of receipt by the Company of the Exchange Notice):
<TABLE>
<CAPTION>
No. Trading Days Late Late Payment For Each
$5,000 of Liquidation Preference
Amount Being Exchanged
----------------------- ---------------------------------
<S> <C>
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 + $200 for each Trading Day
Late beyond 10 days
</TABLE>
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<PAGE> 6
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Nothing herein shall limit the Investor's right to
pursue injunctive relief and/or actual damages for the Company's failure to
issue and deliver Common Stock to the Investor, including, without limitation,
the Investor's actual losses occasioned by any "buy-in" of Common Stock
necessitated by such late delivery. Furthermore, in addition to any other
remedies which may be available to the Investor, in the event that the Company
fails for any reason to effect delivery of such shares of Common Stock within
five Trading Days the date of receipt of the Exchange Notice, the holder will be
entitled to revoke the relevant Exchange Notice by delivering a notice to such
effect to the Company whereupon the Company and the holder shall each be
restored to their respective positions immediately prior to delivery of such
Exchange Notice.
The parties hereto acknowledge and agree that the sums payable pursuant to the
foregoing paragraph and pursuant to the Registration Rights Agreement shall
constitute liquidated damages and not penalties. The parties further acknowledge
that (a) the amount of loss or damages likely to be incurred is incapable or is
difficult to precisely estimate, (b) the amounts specified in such Sections bear
a reasonable proportion and are not plainly or grossly disproportionate to the
probable loss likely to be incurred by the Investors in connection with the
failure by the Company to timely cause the registration of the Registrable
Securities and (c) the parties are sophisticated business parties and have been
represented by sophisticated and able legal and financial counsel and negotiated
this Agreement at arm's length.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Each Investor, severally and not jointly, represents and warrants to the Company
that:
Section 3.1. Intent. The Investor is entering into this Agreement for its own
account and not with a view to or for sale in connection with any distribution
of the Common Stock. The Investor has no present arrangement (whether or not
legally binding) at any time to sell the Exchangeable Preferred Stock, the
Warrants, any Exchange Shares or Warrant Shares to or through any person or
entity except in compliance with the Securities Act or an exemption therefrom;
provided, however, that by making the representations herein, the Investor does
not agree to hold such securities for any minimum or other specific term and
reserves the right to dispose of the Exchange Shares and Warrant Shares at any
time in accordance with federal and state securities laws applicable to such
disposition.
Section 3.2. Sophisticated Investor. The Investor is a sophisticated investor
(as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited investor
(as defined in Rule 501 of Regulation D), and Investor has such experience in
business and financial matters that it has the capacity to protect its own
interests in connection with this transaction and is capable of evaluating the
merits and risks of an investment in the Exchangeable Preferred Stock, the
Warrants and the underlying Common Stock. The Investor acknowledges that an
investment in the Exchangeable Preferred Stock, the Warrants and the underlying
Common Stock is speculative and involves a high degree of risk.
Section 3.3. Authority. This Agreement and each agreement attached as an Exhibit
hereto which is required to be executed by Investor has been duly authorized and
validly executed and delivered by the Investor and is a valid and binding
agreement of the Investor enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section 3.4. Not an Affiliate. The Investor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
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Section 3.5. Absence of Conflicts. The execution and delivery of this Agreement
and each agreement which is attached as an Exhibit hereto and executed by the
Investor in connection herewith, and the consummation of the transactions
contemplated hereby and thereby, and compliance with the requirements hereof and
thereof by the Investor, will not violate any law, rule, regulation, order,
writ, judgment, injunction, decree or award binding on Investor or (a) violate
any provision of any indenture, instrument or agreement to which Investor is a
party or is subject, or by which Investor or any of its assets is bound; (b)
conflict with or constitute a material default thereunder; (c) result in the
creation or imposition of any lien pursuant to the terms of any such indenture,
instrument or agreement, or constitute a breach of any fiduciary duty owed by
Investor to any third party; or (d) require the approval of any third-party
(which has not been obtained) pursuant to any material contract, agreement,
instrument, relationship or legal obligation to which Investor is subject or to
which any of its assets, operations or management may be subject.
Section 3.6. Disclosure; Access to Information. The Investor has received all
documents, records, books and other publicly available information pertaining to
Investor's investment in the Company that have been requested by the Investor.
The Company is subject to the periodic reporting requirements of the Exchange
Act, and the Investor has reviewed copies of all SEC Documents deemed relevant
by Investor.
Section 3.7. Manner of Sale. At no time was Investor presented with or solicited
by or through any leaflet, public promotional meeting, television advertisement
or any other form of general solicitation or advertising.
Section 3.8. No Brokers. The Investor has not employed any investment banker,
broker, finder, or intermediary in connection with the transactions contemplated
by this Agreement who will seek a fee from the Company. The Investor agrees to
indemnify and hold harmless the Company from and against any and all liabilities
to any person claiming brokerage commissions or finder's fees on account of
services purported to have been rendered on behalf of the Investor in connection
with this Agreement or the transactions contemplated hereby.
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<PAGE> 8
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and Warrants to the Investors that, except as set forth
in a Disclosure Letter prepared by the Company and delivered to the Investor
concurrent with the execution of this Agreement (which Disclosure Letter may be
updated by the Company at any time prior to Closing) (the "Disclosure Letter"):
Section 4.1. Organization of the Company. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of
Delaware and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted. The Company does not have any
subsidiaries and does not own more that fifty percent (50%) of or control any
other business entity except as set forth in the SEC Documents. The Company is
duly qualified and is in good standing as a foreign corporation to do business
in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify would not have a Material Adverse Effect.
Section 4.2. Authority. (i) The Company has the requisite corporate power and
corporate authority to enter into and perform its obligations under this
Agreement, the Registration Rights Agreement, the Escrow Agreement, and the
Warrants and to issue the Exchangeable Preferred Stock, the Exchange Shares, the
Warrants and the Warrant Shares pursuant to their respective terms, (ii) the
execution, issuance and delivery of this Agreement, the Registration Rights
Agreement, the Escrow Agreement, the Certificate of Designations, the
Exchangeable Preferred Stock certificates and the Warrants by the Company and
the consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required, and (iii) this Agreement, the Registration Rights Agreement, the
Escrow Agreement, the Exchangeable Preferred Stock certificates and the Warrants
have been duly executed and delivered by the Company and at the Closing shall
constitute valid and binding obligations of the Company enforceable against the
Company in accordance with their terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application. The Company has duly and
validly authorized and reserved for issuance shares of Common Stock sufficient
in number for the exchange of the Exchangeable Preferred Stock and for the
exercise of the Warrants. The Company understands and acknowledges the
potentially dilutive effect to the Common Stock of the issuance of the Exchange
Shares. The Company further acknowledges that its obligation to issue Exchange
Shares upon exchange of the Exchangeable Preferred Stock and Warrant Shares upon
exercise of the Warrants in accordance with this Agreement and the Certificate
of Designations is absolute and unconditional regardless of the dilutive effect
that such issuance may have on the ownership interests of other stockholders of
the Company and notwithstanding the commencement of any case under 11 U.S.C.
Section 101 et seq. (the "Bankruptcy Code"). The Company shall not seek judicial
relief from its obligations hereunder except pursuant to the Bankruptcy Code. In
the event the Company is a debtor under the Bankruptcy Code, the Company hereby
waives to the fullest extent permitted any rights to relief it may have under 11
U.S.C. Section 362 in respect of the exchange of the Exchangeable Preferred
Stock and the exercise of the Warrants. The Company agrees, without cost or
expense to the Investors, to take or consent to any and all action necessary to
effectuate relief under 11 U.S.C. Section 362.
Section 4.3. Capitalization. The authorized capital stock of the Company
consists of 20,000,000 shares of Common Stock, $0.01 par value per share, of
which 6,394,998 shares are issued and outstanding as of September 30, 1999 and
1,000,000 shares of preferred stock, par value $0.01 per share, 2,000 of which
have
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<PAGE> 9
been designated series A and are issued and outstanding prior to the Closing.
The Company has duly and validly designated 2,750 shares of its preferred stock
as Series B Exchangeable Preferred Stock. Except for (i) outstanding options and
warrants as set forth in the SEC Documents and (ii) as set forth in the
Disclosure Schedule, there are no outstanding Capital Shares Equivalents nor any
agreements or understandings pursuant to which any Capital Shares Equivalents
may become outstanding. The Company is not a party to any agreement granting
registration or anti-dilution rights to any person with respect to any of its
equity or debt securities. All of the outstanding shares of Common Stock of the
Company have been duly and validly authorized and issued and are fully paid and
non-assessable.
Section 4.4. Common Stock. The Company has registered its Common Stock pursuant
to Section 12(b) or (g) of the Exchange Act and is in full compliance with all
reporting requirements of the Exchange Act, and the Company is in compliance
with all requirements for the continued listing or quotation of its Common
Stock, and such Common Stock is currently listed or quoted on, the Principal
Market. As of the date hereof, the Principal Market is the Nasdaq SmallCap
Market and the Company has not received any notice regarding, and to its
knowledge there is no threat, of the termination or discontinuance of the
eligibility of the Common Stock for such listing.
Section 4.5. SEC Documents. The Company has made available to the Investors true
and complete copies of the SEC Documents. The Company has not provided to the
Investors any information that, according to applicable law, rule or regulation,
should have been disclosed publicly prior to the date hereof by the Company, but
which has not been so disclosed. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act, and
rules and regulations of the SEC promulgated thereunder and the SEC Documents
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the SEC
Documents complied in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto at the time of such
inclusion. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial position
of the Company as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited interim
statements, to normal year-end audit adjustments). Neither the Company nor any
of its subsidiaries has any material indebtedness, obligations or liabilities of
any kind (whether accrued, absolute, contingent or otherwise, and whether due or
to become due) that would have been required to be reflected in, reserved
against or otherwise described in the financial statements or in the notes
thereto in accordance with GAAP, which was not fully reflected in, reserved
against or otherwise described in the financial statements or the notes thereto
included in the SEC Documents or was not incurred in the ordinary course of
business consistent with the Company's past practices since the last date of
such financial statements.
Section 4.6. Exemption from Registration; Valid Issuances. Subject to the
accuracy of the Investors' representations in Article III, the sale of the
Exchangeable Preferred Stock, the Exchange Shares, the Warrants and the Warrant
Shares will not require registration under the Securities Act and/or any
applicable state securities law. When issued and paid for in accordance with the
Warrants and validly exchanged in accordance with the terms of the Exchangeable
Preferred Stock, the Exchange Shares and the Warrant Shares will be duly and
validly issued, fully paid, and non-assessable. Neither the sales of the
Exchangeable Preferred Stock, the Exchange Shares, the Warrants or the Warrant
Shares pursuant to, nor the Company's performance of its obligations under, this
Agreement, the Registration Rights Agreement, the Escrow Agreement, the
Certificate of Designations or the Warrants will (i) result in the creation or
imposition by the Company of any liens, charges, claims or other encumbrances
upon the Exchangeable Preferred Stock, the
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<PAGE> 10
Exchange Shares, the Warrants or the Warrant Shares or, except as
contemplated herein, any of the assets of the Company, or (ii) entitle the
holders of Outstanding Capital Shares to preemptive or other rights to subscribe
for or acquire the Capital Shares or other securities of the Company. The
Exchangeable Preferred Stock, the Exchange Shares, the Warrants and the Warrant
Shares shall not subject the Investors to personal liability to the Company or
its creditors by reason of the possession thereof.
Section 4.7. No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates nor, to the knowledge
of the Company, any person acting on its or their behalf (i) has conducted or
will conduct any general solicitation (as that term is used in Rule 502(c) of
Regulation D) or general advertising with respect to the sale of the
Exchangeable Preferred Stock or the Warrants, or (ii) made any offers or sales
of any security or solicited any offers to buy any security under any
circumstances that would require registration of the Exchangeable Preferred
Stock, the Exchange Shares, the Warrants or the Warrant Shares under the
Securities Act.
Section 4.8. No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby, including without limitation the issuance of and payment of
dividends upon the Exchangeable Preferred Stock, the Exchange Shares, the
Warrants and the Warrant Shares do not and will not (i) result in a violation of
the Company's Certificate of Incorporation or By-Laws or (ii) conflict with, or
constitute a material default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument, or any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company is a party, or (iii) result in a violation of any
federal, state or local law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations) applicable to the
Company or by which any material property or asset of the Company is bound or
affected, nor is the Company otherwise in violation of, conflict with or default
under any of the foregoing (except in each case for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not have, individually or in the aggregate, a Material Adverse Effect). The
business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental entity, except for possible
violations that either singly or in the aggregate would not have a Material
Adverse Effect. The Company is not required under any Federal, state or local
law, rule or regulation to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency in order
for it to execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Exchangeable Preferred Stock or the Warrants in
accordance with the terms hereof (other than any SEC, Principal Market or state
securities filings that may be required to be made by the Company subsequent to
the Closing, any registration statement that may be filed pursuant hereto, and
any shareholder approval required by the rules applicable to companies whose
common stock trades on the Principal Market); provided that, for purposes of the
representation made in this sentence, the Company is assuming and relying upon
the accuracy of the relevant representations and agreements of the Investors
herein.
Section 4.9. No Material Adverse Change. Since September 30, 1999, no Material
Adverse Effect has occurred or exists with respect to the Company, except as
disclosed in the SEC Documents.
Section 4.10. No Undisclosed Events or Circumstances. Since September 30, 1999,
no material event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, which has not been publicly announced or disclosed in the SEC
Documents.
Section 4.11. No Integrated Offering. Other than pursuant to an effective
registration statement under the Securities Act, or pursuant to the issuance or
exercise of employee stock options, or pursuant to its discussion with the
Investors in connection with the transactions contemplated hereby, the Company
has not issued, offered or sold the Exchangeable Preferred Stock, the Warrants
or any shares of Common Stock
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<PAGE> 11
(including for this purpose any securities of the same or a similar class as the
Exchangeable Preferred Stock, the Warrants or Common Stock, or any securities
exchangeable into or exercisable for the Exchangeable Preferred Stock or Common
Stock or any such other securities) within the six-month period next preceding
the date hereof, and the Company shall not permit any of its directors, officers
or affiliates directly or indirectly to take, any action (including, without
limitation, any offering or sale to any Person of the Exchangeable Preferred
Stock, Warrants or shares of Common Stock), so as to make unavailable the
exemption from Securities Act registration being relied upon by the Company for
the offer and sale to Investors of the Exchangeable Preferred Stock (and the
Exchange Shares) or the Warrants (and the Warrant Shares) as contemplated by
this Agreement.
Section 4.12. Litigation and Other Proceedings. Except as disclosed in the SEC
Documents, there are no lawsuits or proceedings pending or, to the knowledge of
the Company, threatened, against the Company or any subsidiary, nor has the
Company received any written or oral notice of any such action, suit, proceeding
or investigation, which could reasonably be expected to have a Material Adverse
Effect. Except as set forth in the SEC Documents, no judgment, order, writ,
injunction or decree or award has been issued by or, to the knowledge of the
Company, requested of any court, arbitrator or governmental agency which could
result in a Material Adverse Effect.
Section 4.13. No Misleading or Untrue Communication. The Company and, to the
knowledge of the Company, any person representing the Company, or any other
person selling or offering to sell the Exchangeable Preferred Stock or the
Warrants in connection with the transaction contemplated by this Agreement, have
not made, at any time, any oral communication in connection with the offer or
sale of the same which contained any untrue statement of a material fact or
omitted to state any material fact necessary in order to make the statements, in
the light of the circumstances under which they were made, not misleading.
Section 4.14. Material Non-Public Information. The Company has not disclosed to
the Investors any non-public information it believes to be material that (i) if
disclosed, would reasonably be expected to have a material effect on the trading
price of the Common Stock and (ii) according to applicable law, rule or
regulation, should have been disclosed publicly by the Company prior to the date
hereof but which has not been so disclosed.
Section 4.15. Insurance. The Company and each subsidiary maintains property and
casualty, general liability, workers' compensation, environmental hazard,
personal injury and other similar types of insurance with financially sound and
reputable insurers that is adequate, consistent with industry standards and the
Company's historical claims experience. The Company has not received notice
from, and has no knowledge of any threat by, any insurer (that has issued any
insurance policy to the Company) that such insurer intends to deny coverage
under or cancel, discontinue or not renew any insurance policy presently in
force.
Section 4.16. Tax Matters.
(a)The Company and each subsidiary has filed all Tax Returns which it is
required to file under applicable laws; all such Tax Returns are true and
accurate and has been prepared in compliance with all applicable laws; the
Company has paid all Taxes due and owing by it or any subsidiary (whether or not
such Taxes are required to be shown on a Tax Return) and have withheld and paid
over to the appropriate taxing authorities all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third parties; and since December 31, 1998, the charges, accruals and
reserves for Taxes with respect to the Company (including any provisions for
deferred income taxes) reflected on the books of the Company are adequate to
cover any Tax liabilities of the Company if its current tax year were treated as
ending on the date hereof.
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(b) No claim has been made by a taxing authority in a jurisdiction where
the Company does not file tax returns that the Company or any subsidiary is or
may be subject to taxation by that jurisdiction. There are no foreign, federal,
state or local tax audits or administrative or judicial proceedings pending or
being conducted with respect to the Company or any subsidiary; no information
related to Tax matters has been requested by any foreign, federal, state or
local taxing authority; and, except as disclosed above, no written notice
indicating an intent to open an audit or other review has been received by the
Company or any subsidiary from any foreign, federal, state or local taxing
authority. There are no material unresolved questions or claims concerning the
Company's Tax liability. The Company (A) has not executed or entered into a
closing agreement pursuant to Section 7121 of the Internal Revenue Code or any
predecessor provision thereof or any similar provision of state, local or
foreign law; or (B) has not agreed to or is required to make any adjustments
pursuant to Section 481 (a) of the Internal Revenue Code or any similar
provision of state, local or foreign law by reason of a change in accounting
method initiated by the Company or any of its subsidiaries or has any knowledge
that the IRS has proposed any such adjustment or change in accounting method, or
has any application pending with any taxing authority requesting permission for
any changes in accounting methods that relate to the business or operations of
the Company. The Company has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Internal Revenue Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Internal Revenue Code.
(c) The Company has not made an election under Section 341(f) of the
Internal Revenue Code. The Company is not liable for the Taxes of another person
that is not a subsidiary of the Company under (A) Treas. Reg. Section 1.1502-6
(or comparable provisions of state, local or foreign law), (B) as a transferee
or successor, (C) by contract or indemnity or (D) otherwise. The Company is not
a party to any tax sharing agreement. The Company has not made any payments, is
obligated to make payments or is a party to an agreement that could obligate it
to make any payments that would not be deductible under Section 280G of the
Internal Revenue Code.
(d) For purposes of this Section 4.16:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign, or
other income, gross receipts, ad valorem, franchise, profits,
sales or use, transfer, registration, excise, utility,
environmental, communications, real or personal property, capital
stock, license, payroll, wage or other withholding, employment,
social security, severance, stamp, occupation, alternative or
add-on minimum, estimated and other taxes of any kind whatsoever
(including, without limitation, deficiencies, penalties,
additions to tax, and interest attributable thereto) whether
disputed or not.
"Tax Return" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and
including any amendment thereof.
Section 4.17. Property. Neither the Company nor any of its subsidiaries owns any
real property. Each of the Company and its subsidiaries has good and marketable
title to all personal property owned by it, free and clear of all liens,
encumbrances and defects except such as do not materially affect the value of
such property and do not materially interfere with the use made and proposed to
be made of such property by the Company; and to the Company's knowledge any real
property and buildings held under lease by the Company as tenant are held by it
under valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and intended to be made of such
property and buildings by the Company.
Section 4.18. Intellectual Property. Each of the Company and its subsidiaries
owns or possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, trademark applications, trade
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names, service marks, copyrights, copyright applications, licenses, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) and other similar rights and
proprietary knowledge (collectively, "Intangibles") necessary for the conduct of
its business as now being conducted. To the Company's knowledge, except as
disclosed in the SEC Documents neither the Company nor any of its subsidiaries
is infringing upon or in conflict with any right of any other person with
respect to any Intangibles. Except as disclosed in the SEC Documents, no adverse
claims have been asserted by any person to the ownership or use of any
Intangibles and the Company has no knowledge of any basis for such claim.
Section 4.19. Internal Controls and Procedures. The Company maintains books and
records and internal accounting controls which provide reasonable assurance that
(i) all transactions to which the Company or any subsidiary is a party or by
which its properties are bound are executed with management's authorization;
(ii) the recorded accounting of the Company's consolidated assets is compared
with existing assets at regular intervals; (iii) access to the Company's
consolidated assets is permitted only in accordance with management's
authorization; and (iv) all transactions to which the Company or any subsidiary
is a party or by which its properties are bound are recorded as necessary to
permit preparation of the financial statements of the Company in accordance with
U.S. generally accepted accounting principles.
Section 4.20. Payments and Contributions. Neither the Company, any subsidiary,
nor any of its directors, officers or, to its knowledge, other employees has (i)
used any Company funds for any unlawful contribution, endorsement, gift,
entertainment or other unlawful expense relating to political activity; (ii)
made any direct or indirect unlawful payment of Company funds to any foreign or
domestic government official or employee; (iii) violated or is in violation of
any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any bribe, rebate, payoff, influence payment, kickback or other similar
payment to any person with respect to Company matters.
Section 4.21. No Misrepresentation. The representations and warranties of the
Company (when read in conjunction with the Disclosure Letter) contained in this
Agreement, any schedule, annex or exhibit hereto, do not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
ARTICLE V
COVENANTS OF THE INVESTORS
Each Investor, severally and not jointly, covenants with the Company
that:
Section 5.1. Compliance with Law. The Investor's trading activities with respect
to shares of the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and rules
and regulations of the Principal Market on which the Company's Common Stock is
listed.
Section 5.2. No Short Sales. The Investor and its affiliates shall not engage in
short sales of the Company's Common Stock (as defined in applicable SEC and NASD
rules) so long as the Investor holds any unconverted shares of Exchangeable
Preferred Stock.
Section 5.3. No Sales Prior to May 15, 2000. The Investor shall not sell any
Exchange Shares prior to May 15, 2000, regardless of whether the Effective Date
shall have occurred prior to such date.
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ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1. Registration Rights. The Company shall cause the Registration
Rights Agreement to remain in full force and effect and the Company shall comply
in all material respects with the terms thereof.
Section 6.2. Reservation of Common Stock. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to issue the Exchange Shares and the Warrant Shares
pursuant to any exchange of the Exchangeable Preferred Stock or exercise of the
Warrants. The number of shares so reserved from time to time, as theretofore
increased or reduced as hereinafter provided, may be reduced by the number of
shares actually delivered pursuant to any exchange of the Exchangeable Preferred
Stock or exercise of the Warrants and the number of shares so reserved shall be
increased or decreased to reflect potential increases or decreases in the Common
Stock that the Company may thereafter be obligated to issue by reason of
adjustments to the Warrants.
Section 6.3. Listing of Common Stock. The Company hereby agrees to maintain the
listing of the Common Stock on a Principal Market, and as soon as reasonably
practicable following the Closing to list the Exchange Shares and the Warrant
Shares on the Principal Market. The Company further agrees, if the Company
applies to have the Common Stock traded on any other Principal Market, it will
include in such application the Exchange Shares and the Warrant Shares, and will
take such other action as is necessary or desirable in the opinion of the
Investors to cause the Exchange Shares and Warrant Shares to be listed on such
other Principal Market as promptly as possible. The Company will take all action
to continue the listing and trading of its Common Stock on a Principal Market
(including, without limitation, maintaining sufficient net tangible assets) and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market and shall provide
Investors with copies of any correspondence to or from such Principal Market
which questions or threatens delisting of the Common Stock, within three (3)
Trading Days of the Company's receipt thereof, until the Investors have disposed
of all of their Registrable Securities. The Company agrees to present a proposal
for stockholder approval at the next annual meeting of stockholders to permit
the Company to issue a number of Exchange Shares and Warrant Shares which is in
excess of 19.9% of the number of the Company's issued and outstanding shares of
Common Stock on the Closing Date, with the recommendation of the Board of
Directors that such proposal be approved, unless at the date of such meeting,
less than two percent (2%) of the Exchangeable Preferred Stock remains issued
and outstanding. If such proposal is not approved, the Company shall either (i)
voluntarily de-list its Common Stock from any Principal Market which requires
such approval or (ii) redeem any un-exchanged Exchangeable Preferred Stock
pursuant to Section 7 of the Certificate of Designations, within five (5)
Trading Days of such vote.
Section 6.4. Exchange Act Registration. The Company will cause its Common Stock
to continue to be registered under Section 12(b) or (g) of the Exchange Act,
will use its best efforts to comply in all respects with its reporting and
filing obligations under the Exchange Act, and will not take any action or file
any document (whether or not permitted by the Exchange Act or the rules
thereunder) to terminate or suspend such registration or to terminate or suspend
its reporting and filing obligations under said Act until the Investors have
disposed of all of their Registrable Securities.
Section 6.5. Legends. The certificates evidencing the Registrable Securities
shall be free of legends, except as set forth in Article IX.
Section 6.6. Corporate Existence; Conflicting Agreements. The Company will take
all steps necessary to preserve and continue the corporate existence of the
Company. The Company shall not enter into any
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agreement, the terms of which agreement would restrict or impair the right or
ability of the Company to perform any of its obligations under this Agreement or
any of the other agreements attached as exhibits hereto or under the Certificate
of Designations.
Section 6.7. Consolidation; Merger. The Company shall not, at any time after the
date hereof, effect any merger or consolidation of the Company with or into, or
a transfer of all or substantially all of the assets of the Company to, another
entity (a "Consolidation Event") unless the resulting successor or acquiring
entity (if not the Company) assumes by written instrument or by operation of law
the obligation to deliver to the Investors such shares of stock and/or
securities as the Investors are entitled to receive pursuant to this Agreement
and the Certificate of Designations.
Section 6.8. Issuance of Exchangeable Preferred Stock and Warrant Shares. The
sale of the Exchangeable Preferred Stock and the Warrants and the issuance of
the Warrant Shares pursuant to exercise of the Warrants and the Exchange Shares
upon exchange of the Exchangeable Preferred Stock shall be made in accordance
with the provisions and requirements of Section 4(2), 4(6) or Regulation D and
any applicable state securities law. The Company shall make any necessary SEC
and "blue sky" filings required to be made by the Company in connection with the
sale of the Securities to the Investors as required by all applicable laws, and
shall provide a copy thereof to the Investors promptly after such filing.
Section 6.9. Limitation on Future Financing. The Company agrees that it will not
enter into any sale of its securities for cash at a discount to the then-current
bid price of its Common Stock until 180 days after the effective date of the
Registration Statement except for any sales (i) of Common Stock for gross
proceeds of up to $4,000,000 at a discount of up to 10% or any equity line of
credit, (ii) pursuant to any underwritten public offering of Common Stock and/or
warrants to purchase Common Stock, (iii) pursuant to any presently existing
employee benefit plan which plan has been approved by the Company's
stockholders, (iv) pursuant to any compensatory plan for a full-time employee or
key consultant, (v) pursuant to a private placement in which the purchasers are
not given any registration rights, (vi) pursuant to any transaction with The
Endeavour Capital Fund, S.A., or (vii) with the prior approval of a majority in
interest of the Investors, which will not be unreasonably withheld, in
connection with a strategic partnership or other business transaction, the
principal purpose of which is not simply to raise money. Further, the Investors
shall have a right of first offer, exercisable within five (5) Trading Days of
notice from the Company setting forth the principal terms of any such
transaction, to elect to participate, pro-rata, in such subsequent transaction
in the case of (i) and (v) above.
Section 6.10. Pro-Rata Redemption. The Company agrees that if it shall mandate
the exchange of any of the Exchangeable Preferred Stock, that it shall make such
exchange pro-rata among all Investors in proportion their respective initial
purchases of such securities pursuant to this Agreement.
ARTICLE VII
SURVIVAL; INDEMNIFICATION
Section 7.1. Survival. The representations and warranties (when read in
conjunction with the Disclosure Letter) and covenants made by each of the
Company and each Investor in this Agreement, the annexes, schedules and exhibits
hereto and in each instrument, agreement and certificate entered into and
delivered by them pursuant to this Agreement, shall survive the Closing and the
consummation of the transactions contemplated hereby. In the event of a breach
or violation of any of such representations, warranties or covenants, the party
to whom such representations, warranties or covenants have been made shall have
all rights and remedies for such breach or violation available to it under the
provisions of this Agreement, irrespective of any investigation made by or on
behalf of such party on or prior to the Closing Date.
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Section 7.2. Indemnity. (a) The Company hereby agrees to indemnify and hold
harmless the Investors, their respective Affiliates and their respective
officers, directors, partners and members (collectively, the "Investor
Indemnitees"), from and against any and all Damages, and agrees to reimburse the
Investor Indemnitees for all reasonable out-of-pocket expenses (including the
reasonable fees and expenses of legal counsel), in each case promptly as
incurred by the Investor Indemnitees and to the extent arising out of or in
connection with:
(i) any misrepresentation, omission of fact or breach of any of
the Company's representations or warranties (when read in conjunction
with the Disclosure Letter) contained in this Agreement, the annexes,
schedules or exhibits hereto or any instrument, agreement or certificate
entered into or delivered by the Company pursuant to this Agreement; or
(ii) any failure by the Company to perform in any material
respect any of its covenants, agreements, undertakings or obligations
set forth in this Agreement, the annexes, schedules or exhibits hereto
or any instrument, agreement or certificate entered into or delivered by
the Company pursuant to this Agreement; or
(iii) any action instituted against the Investors, or any of
them, by any stockholder of the Company who is not an Affiliate of an
Investor, with respect to any of the transactions contemplated by this
Agreement.
(b) Each Investor, severally and not jointly, hereby agrees to indemnify
and hold harmless the Company, its Affiliates and their respective officers,
directors, partners and members (collectively, the "Company Indemnitees"), from
and against any and all Damages, and agrees to reimburse the Company Indemnitees
for reasonable all out-of-pocket expenses (including the reasonable fees and
expenses of legal counsel), in each case promptly as incurred by the Company
Indemnitees and to the extent arising out of or in connection with any
misrepresentation, omission of fact, or breach of any of the Investor's
representations or warranties contained in this Agreement, the annexes,
schedules or exhibits hereto or any instrument, agreement or certificate entered
into or delivered by the Investor pursuant to this Agreement.
Section 7.3. Notice. Promptly after receipt by either party hereto seeking
indemnification pursuant to Section 7.2 (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party from whom indemnification pursuant to Section
7.2 is being sought (the "Indemnifying Party") of the commencement thereof; but
the omission to so notify the Indemnifying Party shall not relieve it from any
liability that it otherwise may have to the Indemnified Party, except to the
extent that the Indemnifying Party is actually prejudiced by such omission or
delay. In connection with any Claim as to which both the Indemnifying Party and
the Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees,
out-of-pocket costs and expenses, (y) the Indemnified Party reasonably shall
have concluded that representation of the Indemnified Party and the Indemnifying
Party by the same legal counsel would not be appropriate due to actual or, as
reasonably determined by legal counsel to the Indemnified Party, potentially
differing interests between such parties in the conduct of the defense of such
Claim, or if there may be legal defenses available to the Indemnified Party that
are in addition to or disparate from those available to the Indemnifying Party,
or (z) the Indemnifying Party shall have failed to employ legal counsel
reasonably satisfactory to the Indemnified Party within a reasonable period of
time after notice of the commencement of such Claim. If the Indemnified Party
employs separate
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legal counsel in circumstances other than as described in clauses (x), (y) or
(z) above, the fees, costs and expenses of such legal counsel shall be borne
exclusively by the Indemnified Party. Except as provided above, the Indemnifying
Party shall not, in connection with any Claim in the same jurisdiction, be
liable for the fees and expenses of more than one firm of legal counsel for the
Indemnified Party (together with appropriate local counsel). The Indemnifying
Party shall not, without the prior written consent of the Indemnified Party
(which consent shall not unreasonably be withheld), settle or compromise any
Claim or consent to the entry of any judgment that does not include an
unconditional release of the Indemnified Party from all liabilities with respect
to such Claim or judgment.
Section 7.4. Direct Claims. In the event one party hereunder should have a claim
for indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association as set forth in
Article X. Judgment upon any award rendered by any arbitrators may be entered in
any court having competent jurisdiction thereof.
ARTICLE VIII
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
Section 8.1. Due Diligence Review. Subject to Section 8.2, the Company shall
make available for inspection and review by the Investors, advisors to and
representatives of the Investors (who may or may not be affiliated with the
Investors and who are reasonably acceptable to the Company), any underwriter
participating in any disposition of the Registrable Securities on behalf of the
Investors pursuant to the Registration Statement, any such registration
statement or amendment or supplement thereto or any blue sky, Nasdaq or other
filing, all SEC Documents and other filings with the SEC, and all other publicly
available corporate documents and properties of the Company as may be reasonably
necessary for the purpose of such review, and cause the Company's officers,
directors and employees to supply all such publicly available information
reasonably requested by the Investors or any such representative, advisor or
underwriter in connection with such Registration Statement (including, without
limitation, in response to all questions and other inquiries reasonably made or
submitted by any of them), prior to and from time to time after the filing and
effectiveness of the Registration Statement for the sole purpose of enabling the
Investors and such representatives, advisors and underwriters and their
respective accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of the Registration
Statement.
Section 8.2. Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose non-public information it believes to
be material to the Investors, advisors to or representatives of the Investors
unless prior to disclosure of such information the Company identifies such
information as being non-public information and provides the Investors, such
advisors and representatives with the opportunity to accept or refuse to accept
such non-public information for review. Other than disclosure of any comment
letters received from the SEC staff with respect to the Registration Statement,
the Company may, as a condition to disclosing any non-public information
hereunder, require the Investors' advisors and representatives to enter into a
confidentiality agreement in form and content reasonably satisfactory to the
Company and the Investors.
(b) Nothing herein shall require the Company to disclose material
non-public information to the Investors or their advisors or representatives,
provided, however, that notwithstanding anything herein to the contrary, the
Company will, as hereinabove provided, promptly notify the advisors and
representatives of the Investors and, if any, underwriters, of any event or the
existence of any circumstance (without any obligation
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to disclose the specific event or circumstance) of which it becomes aware,
constituting material non-public information (whether or not requested of the
Company specifically or generally during the course of due diligence by such
persons or entities), which, if not disclosed in the prospectus included in the
Registration Statement would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated therein in order
to make the statements, therein in light of the circumstances in which they were
made, not misleading. Nothing contained in this Section 8.2 shall be construed
to mean that such persons or entities other than the Investors (without the
written consent of the Investors prior to disclosure of such information as set
forth in Section 8.2(a)) may not obtain non-public information in the course of
conducting due diligence in accordance with the terms of this Agreement and
nothing herein shall prevent any such persons or entities from notifying the
Company of their opinion that based on such due diligence by such persons or
entities, that the Registration Statement contains an untrue statement of a
material fact or omits a material fact required to be stated in the Registration
Statement or necessary to make the statements contained therein, in light of the
circumstances in which they were made, not misleading.
ARTICLE IX
LEGENDS; TRANSFER AGENT INSTRUCTIONS
Section 9.1. Legends. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legend or equivalent
(the "Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED
OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM SUCH REGISTRATION.
Section 9.2. Transfer Agent Instructions. Upon the execution and delivery
hereof, the Company is issuing to the transfer agent for its Common Stock (and
to any substitute or replacement transfer agent for its Common Stock upon the
Company's appointment of any such substitute or replacement transfer agent)
instructions substantially in the form of Exhibit F hereto. Such instructions
shall be irrevocable by the Company from and after the date hereof or from and
after the issuance thereof to any such substitute or replacement transfer agent,
as the case may be.
Section 9.3. No Other Legend or Stock Transfer Restrictions. No legend other
than the one specified in Section 9.1 has been or shall be placed on the share
certificates representing the Registrable Securities and no instructions or
"stop transfer orders," "stock transfer restrictions," or other restrictions
have been or shall be given to the Company's transfer agent with respect thereto
other than as expressly set forth in this Article IX.
Section 9.4. Investors' Compliance. Notwithstanding anything contained in this
Agreement to the contrary, each Investor shall comply with all applicable
federal and state securities laws upon resale of the Common Stock.
ARTICLE X
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CHOICE OF LAW; ARBITRATION
Section 10.1. Governing Law/Arbitration. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made in New York by persons domiciled in New York City and without
regard to its principles of conflicts of laws. Any dispute under this Agreement
shall be submitted to arbitration under the American Arbitration Association
(the "AAA") in New York City, New York, and shall be finally and conclusively
determined by the decision of a board of arbitration consisting of three (3)
members (hereinafter referred to as the "Board of Arbitration") selected
according to the rules governing the AAA. The Board of Arbitration shall meet on
consecutive business days in New York City, New York, and shall reach and render
a decision in writing (concurred in by a majority of the members of the Board of
Arbitration) with respect to the amount, if any, which the losing party is
required to pay to the other party in respect of a claim filed. In connection
with rendering its decisions, the Board of Arbitration shall adopt and follow
the laws of the State of New York unless the matter at issue is the corporation
law of the company's state of incorporation, in which event the corporation law
of such jurisdiction shall govern such issue. To the extent practical, decisions
of the Board of Arbitration shall be rendered no more than thirty (30) calendar
days following commencement of proceedings with respect thereto. The Board of
Arbitration shall cause its written decision to be delivered to all parties
involved in the dispute. Any decision made by the Board of Arbitration (either
prior to or after the expiration of such thirty (30) calendar day period) shall
be final, binding and conclusive on the parties to the dispute, and entitled to
be enforced to the fullest extent permitted by law and entered in any court of
competent jurisdiction. The Board of Arbitration shall be authorized and is
hereby directed to enter a default judgment against any party failing to
participate in any proceeding hereunder within the time periods set forth in the
AAA rules. The non-prevailing party to any arbitration (as determined by the
Board of Arbitration) shall pay the expenses of the prevailing party, including
reasonable attorney's fees, in connection with such arbitration. Any party shall
be entitled to obtain injunctive relief from a court in any case where such
relief is available. The non-prevailing party to any injunctive proceeding (as
determined by the court) shall pay the expenses of the prevailing party,
including reasonable attorney's fees, in connection with such injunctive
proceeding.
ARTICLE XI
ASSIGNMENT
Section 11.1. Assignment. Neither this Agreement nor any rights of the Investors
or the Company hereunder may be assigned by either party to any other person.
Notwithstanding the foregoing, (a) the provisions of this Agreement shall inure
to the benefit of, and be enforceable by, any permitted transferee of any of the
Exchangeable Preferred Stock or Warrants purchased or acquired by any Investor
hereunder with respect to the Exchangeable Preferred Stock or Warrants held by
such person, and (b) upon the prior written consent of the Company, which
consent shall not unreasonably be withheld or delayed, each Investor's interest
in this Agreement may be assigned at any time, in whole or in part, to any other
person or entity (including any Affiliate of the Investor) who agrees to make
the representations and warranties contained in Article III and who agrees to be
bound by the terms of this Agreement.
ARTICLE XII
NOTICES
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Section 12.1. Notices. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) hand delivered, (ii) deposited
in the mail, registered or certified, return receipt requested, postage prepaid,
(iii) delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by facsimile, addressed as set forth below or to such other address
as such party shall have specified most recently by written notice. Any notice
or other communication required or permitted to be given hereunder shall be
deemed effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the first business day
following the date of sending by reputable courier service, fully prepaid,
addressed to such address, or (c) upon actual receipt of such mailing, if
mailed. The addresses for such communications shall be:
<TABLE>
<CAPTION>
<S> <C>
If to the Company: Dental/Medical Diagnostic Systems, Inc.
200 North Westlake Boulevard, Suite 202
Westlake Village, CA 91362
Attention: Robert H. Gurevitch, President
Telephone: 805-381-2700
Facsimile: 805-374-2137
with a copy to (shall not constitute Murray Markiles, Esq.
notice): Troop Steuber Pasich Reddick & Tobey, LLP
2029 Century Park East, 24th Floor
Los Angeles, CA 90067
Telephone: 310-728-3233
Facsimile: 310-728-2233
if to the Investors: As set forth on the signature pages hereto
with a copy to: Joseph A. Smith, Esq.
(shall not constitute notice) Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York 10177
Telephone: (212) 351-4500
Facsimile: (212) 661-0989
</TABLE>
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 12.1 by giving written notice of such changed
address or facsimile number to the other party hereto as provided in this
Section 12.1.
ARTICLE XIII
MISCELLANEOUS
Section 13.1. Counterparts/ Facsimile/ Amendments. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu
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of the original documents, a facsimile transmission or copy of the original
documents shall be as effective and enforceable as the original. This Agreement
may be amended only by a writing executed by all parties.
Section 13.2. Entire Agreement. This Agreement, the agreements attached as
Exhibits hereto, which include, but are not limited to the Certificate of
Designations, the Warrants, the Escrow Agreement, and the Registration Rights
Agreement, set forth the entire agreement and understanding of the parties
relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, negotiations and understandings between the parties,
both oral and written relating to the subject matter hereof. The terms and
conditions of all Exhibits to this Agreement are incorporated herein by this
reference and shall constitute part of this Agreement as is fully set forth
herein.
Section 13.3. Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that such severability shall be ineffective if
it materially changes the economic benefit of this Agreement to any party.
Section 13.4. Headings. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
Section 13.5. Number and Gender. There may be one or more Investors parties to
this Agreement, which Investors may be natural persons or entities. All
references to plural Investors shall apply equally to a single Investor if there
is only one Investor, and all references to an Investor as "it" shall apply
equally to a natural person.
Section 13.6. Reporting Entity for the Common Stock. The reporting entity relied
upon for the determination of the trading price or trading volume of the Common
Stock on any given Trading Day for the purposes of this Agreement shall be
Bloomberg, L.P. or any successor thereto. The written mutual consent of the
Investors and the Company shall be required to employ any other reporting
entity.
Section 13.7. Replacement of Certificates. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Exchangeable Preferred Stock or any
Exchange Shares or Warrants or any Warrant Shares and (ii) in the case of any
such loss, theft or destruction of such certificate, upon delivery of an
indemnity agreement or security reasonably satisfactory in form to the Company
(which shall not exceed that customarily charged by the Company's transfer
agent) or (iii) in the case of any such mutilation, on surrender and
cancellation of such certificate, the Company at its expense will execute and
deliver, in lieu thereof, a new certificate of like tenor.
Section 13.8. Fees and Expenses. Each of the Company and the Investors agrees to
pay its own expenses incident to the performance of its obligations hereunder,
except that the Company shall pay the fees, expenses and disbursements of
Epstein, Becker & Green, P.C. counsel to the investors, in an amount equal to
$15,000 all as set forth in the Escrow Agreement.
Section 13.9. Publicity. The Company agrees that it will not issue any press
release or other public announcement of the transactions contemplated by this
Agreement without the prior consent of the Investors, which shall not be
unreasonably withheld nor delayed by more than two (2) Trading Days from their
receipt of such proposed release. No release shall name the Investors without
their express consent.
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Section 13.10. Consent. By their execution of this Agreement, the undersigned
Investors each consent, in their capacity as holders of the Company's Series A
Exchangeable Preferred Stock, to the transactions contemplated by this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Purchase
Agreement to be executed by the undersigned, thereunto duly authorized, as of
the date first set forth above.
DENTAL/MEDICAL DIAGNOSTIC
SYSTEMS, INC.
By: /s/ ROBERT S. GUREVITCH
------------------------------------
Robert S. Gurevitch, President & CEO
ESQUIRE TRADE & FINANCE INC.
By: ____________________________________
Roland Winiger
Authorized Signatory
Amount subscribed for: $350,000
Address for notices:
P.O. Box 2154
Baar, CH-6342 Switzerland
Fax: 011-411-760-1031
AUSTINVEST ANSTALT BALZERS
By: ____________________________________
Dr. Walter Grill
Authorized Signatory
Principal Amount subscribed for: $350,000
Address for notices:
Landstrasse 938
9494 Balzers
Furstentum Liechtenstein
Fax: 011-431-
22
<PAGE> 23
AMRO INTERNATIONAL, S.A.
By: ____________________________________
H.U. Bachofem,
Authorized Signatory
Amount subscribed for: $1,000,000
Address for notices:
C/o Ultrafinanz AG
Grossmuensterplatz 6
Zurich CH-8022 Switzerland
Fax: 011-431-262-5515
LEVAL TRADING
By: ____________________________________
Name and Title:
Amount subscribed for: $300,000
Address for notices:
Fax:
THE KESHET FUND, L.P.
By: ____________________________________
Name and Title:
Principal Amount subscribed for: $150,000
Address for notices:
Fax:
[DMDS Purchase Agreement
Signature Page Continuation]
23
<PAGE> 1
EXHIBIT 10.46
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS OF
SERIES B EXCHANGEABLE PREFERRED STOCK OF
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
PURSUANT TO SECTION 151
OF THE DELAWARE GENERAL CORPORATION LAW
The undersigned, being the Chief Executive Officer and the Secretary
of Dental/Medical Diagnostic Systems, Inc., a corporation organized and existing
under and by virtue of the laws of the State of Delaware (hereinafter the
"Corporation"), DO HEREBY CERTIFY:
FIRST: That pursuant to authority expressly granted and vested in the
Board of Directors of said Corporation by the provisions of the Corporation's
Certificate of Incorporation, said Board of Directors adopted the following
resolution on February 29, 2000 determining the designations, preferences and
rights of its Series B Exchangeable Preferred Stock:
RESOLVED: That pursuant to the authority vested in the Board of
Directors of the Corporation by the Corporation's Certificate of Incorporation,
as amended and restated (the "Certificate of Incorporation"), a series of
Preferred Stock of the Corporation be, and it hereby is, created out of the
authorized but unissued shares of the capital stock of the Corporation, such
series to be designated Series B Exchangeable Preferred Stock (the "Series B
Exchangeable Preferred Stock"), to consist of 2,750 shares, par value $0.01 per
share, of which the preferences and relative and other rights, and the
qualifications, limitations or restrictions thereof, shall be as set forth in
the Certificate of Designations annexed hereto:
1. NUMBER OF SHARES OF SERIES B EXCHANGEABLE PREFERRED STOCK. Of the
998,000 shares of authorized but unissued Preferred Stock, $0.01 par value
("Preferred Stock") of the Corporation, two thousand seven hundred fifty (2,750)
shares shall be designated and known as Series B Exchangeable Preferred Stock,
par value $0.01 per share ("Series B Exchangeable Preferred Stock").
2. VOTING.
(a) Unless required by law, no holder of any shares of Series B
Exchangeable Preferred Stock shall be entitled to vote at any meeting of
stockholders of the Corporation (or any written actions of stockholders in lieu
of meetings) with respect to any matters presented to the stockholders of the
Corporation for their action or consideration. Notwithstanding the foregoing,
the Corporation shall provide each holder of record of Series B Exchangeable
Preferred Stock with
<PAGE> 2
timely notice of every meeting of stockholders of the Corporation and shall
provide each holder with copies of all proxy materials distributed in connection
therewith.
(b) So long as shares of Series B Exchangeable Preferred Stock are
outstanding, the Corporation shall not, without first obtaining the approval (by
vote or written consent, as provided by the Delaware General Corporation Law) of
the holders of at least 75% in interest of the then outstanding shares of Series
B Exchangeable Preferred Stock sold to the original purchasers thereof pursuant
to the Exchangeable Preferred Stock and Warrant Purchase Agreement referred to
in Section 13 hereof:
(i) alter or change the rights, preferences or privileges of the
Series B Exchangeable Preferred Stock;
(ii) create any new class or series of capital stock having a
preference over the Series B Exchangeable Preferred Stock as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation ("Senior
Securities") or alter or change the rights, preferences or privileges of any
Senior Securities so as to affect adversely the Series B Exchangeable Preferred
Stock;
(iii) increase the authorized number of shares of Series B
Exchangeable Preferred Stock; or
(iv) do any act or thing not authorized or contemplated by this
Certificate of Designations which would result in taxation of the holders of
shares of the Series B Exchangeable Preferred Stock under Section 305 of the
Internal Revenue Code of 1986, as amended (or any comparable provision of the
Internal Revenue Code as hereafter from time to time amended).
In the event such holders of at least 75% in interest of the then
outstanding shares of Series B Exchangeable Preferred Stock agree to allow the
Corporation to alter or change the rights, preferences or privileges of the
shares of Series B Exchangeable Preferred Stock, pursuant to subsection (b)
above, so as to affect the Series B Exchangeable Preferred Stock, then the
Corporation will deliver notice of such approved change to the holders of the
Series B Exchangeable Preferred Stock that did not agree to such alteration or
change (the "Dissenting Holders") and Dissenting Holders shall have the right,
but not the obligation, for a period of thirty (30) days to exchange any and all
shares of then held Series B Exchangeable Preferred Stock pursuant to the terms
of this Certificate of Designation as in effect prior to such alteration or
change.
3. DIVIDENDS.
The holders of shares of Series B Exchangeable Preferred Stock shall
be entitled to receive, before any cash dividend shall be declared and paid upon
or set aside for the Common Stock in any fiscal year of the Corporation, out of
funds legally available for that purpose, cumulative dividends payable in cash
or in registered shares of Common Stock (at the sole election of the
Corporation) in an amount per share of Series B Exchangeable Preferred Stock
outstanding for such fiscal year equal to Thirty Dollars ($30.00). Such
dividends shall accrue daily and be payable quarterly on March 31, June 30,
September 30 and December 31 of each year. In the event that the
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<PAGE> 3
Corporation shall elect to pay any such dividend payment in the form of Common
Stock, such Common Stock shall be valued at the Market Price on the dividend
payment date, as defined in Section 5 below.
4. LIQUIDATION. (a) If the Corporation shall commence a voluntary case
under the Federal bankruptcy laws or any other applicable Federal or State
bankruptcy, insolvency or similar law, or consent to the entry of an order for
relief in an involuntary case under any law or to the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or of any substantial part of its property, or make
an assignment for the benefit of its creditors, or admit in writing its
inability to pay its debts generally as they become due, or if a decree or order
for relief in respect of the Corporation shall be entered by a court having
jurisdiction in the premises in an involuntary case under the Federal bankruptcy
laws or any other applicable Federal or State bankruptcy, insolvency or similar
law resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of ninety (90) consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up (each such event being considered a
"Liquidating Event"), no distribution shall be made to the holders of any shares
of capital stock of the Corporation other than Senior Securities upon
liquidation, dissolution or winding up unless prior thereto, the holders of
shares of Series B Exchangeable Preferred Stock shall have received the
Liquidation Preference (as defined in Section 4(c)) with respect to each share.
If upon the occurrence of a Liquidation Event, the assets and funds available
for distribution among the holders of the Series B Exchangeable Preferred Stock
and holders of securities ranking pari passu as to preference upon liquidation
with the Series B Exchangeable Preferred Stock shall be insufficient to permit
the payment to such holders of the preferential amounts payable thereon, then
the entire assets and funds of the Corporation legally available for
distribution to the Series B Exchangeable Preferred Stock and such pari passu
securities shall be distributed ratably among such shares in proportion to the
ratio that that Liquidation Preference payable on each such share bears to the
aggregate Liquidation Preference payable on all such shares.
(b) At the option of each holder, the sale, conveyance of
disposition of all or substantially all of the assets of the Corporation, the
effectuation by the Corporation of a transaction or series or related
transactions in which more than 50% of the voting power of the Corporation is
disposed of, or the consolidation, merger or other business combination of the
Corporation with or into any other person or persons when the Corporation is not
the survivor shall be deemed to be a liquidation, dissolution or winding up of
the Corporation pursuant to which the Corporation shall be required to
distribute, upon consummation of and as a condition to such transaction an
amount equal to the Liquidation Preference with respect to each outstanding
share of Series B Exchangeable Preferred Stock held by such holder in accordance
with and subject to the terms of this Section 4.
(c) The Series B Exchangeable Preferred Stock shall rank pari passu
with the Series A Exchangeable Preferred Stock with respect to priority of
dividends and preference upon liquidation.
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<PAGE> 4
(d) The Liquidation Preference shall be the Stated Value of $1,000
per share of Series B Exchangeable Preferred Stock plus all accrued but unpaid
dividends.
5. OPTIONAL EXCHANGE. The holders of shares of Series B Exchangeable
Preferred Stock shall have the following exchange rights:
(a) RIGHT TO EXCHANGE; EXCHANGE PRICE. Subject to the terms,
conditions, and restrictions of this Section 5, the holder of any shares of
Series B Exchangeable Preferred Stock shall have the right to exchange each such
share of Series B Exchangeable Preferred Stock (except that upon any liquidation
of the Corporation, the right of exchange shall terminate at the close of
business on the business day fixed for payment of the amount distributable on
the Series B Exchangeable Preferred Stock) for an amount of shares of Common
Stock equal to the Stated Value of such share or shares of Series B Exchangeable
Preferred Stock divided by the lower of (i) the average of the closing bid
prices of the Common Stock during the five (5) Trading Day period immediately
prior to the Original Issuance Date (the "Set Price") and (ii) one hundred
percent (100%) of the Market Price on the date of exchange (the "Exchange Date")
to determine the exchange price (the "Exchange Price"). However, in no event
shall the Exchange Price be greater than the Set Price (the "Maximum Exchange
Price"). In addition, if the Exchange Price on any Exchange Date is less than
Six Dollars ($6.00) (adjusted for any splits, reverse splits or dividends in the
form of shares of Common Stock after the Original Issuance Date), then the
Corporation shall have the option, upon at least three (3) Trading Days' prior
written notice to all holders of its intention to do so, to pay the holder in
cash in an amount equal to (i) the average of the closing bid and asked prices
on the Principal Market on the Exchange Date multiplied by (ii) the number of
shares of Common Stock which would otherwise be issuable to the holder upon such
exchange. If notice of the Corporation's election to pay the holder in cash is
not received by the holder prior to three(3) Trading Days before the receipt by
the Corporation of an Exchange Notice, the Corporation shall issue to the holder
shares of Common Stock unless otherwise agreed to by the holder. Unless the
Corporation shall have obtained the approval of its voting stockholders to such
issuance in accordance with the rules of the Principal Market, the Corporation
shall not issue shares of Common Stock upon exchange of any shares of Series B
Exchangeable Preferred Stock if such issuance of Common Stock, when added to the
number of shares of Common Stock previously issued by the Corporation upon
exchange of shares of the Series B Exchangeable Preferred Stock or upon exercise
of the Warrants issued in connection with the issuance of the Series B
Exchangeable Preferred Stock, would exceed 19.9% of the number of shares of the
Corporation's Common Stock which were issued and outstanding on the Original
Issuance Date; and, in such event, or if the Corporation does not have
registered shares of Common Stock available with which to honor Exchanges, the
Corporation shall honor such exchange request in cash in accordance with the
previous sentence, irrespective of the Exchange Price, and the holder shall be a
creditor of the Corporation in respect of such sum. The right to exchange shares
of Series B Exchangeable Preferred Stock shall be pro-rated among the original
purchasers of such shares or their respective subsequent transferees, if any, in
order to comply with the aforesaid overall limitation. Any exchange which is
paid in cash shall be paid within three (3) Trading Days of the Exchange Date,
or else the late delivery payments set forth in Section 5(d)(ii) hereof shall
apply to such late payment, and, upon demand of the holder in such event of late
delivery, the holder may require the Corporation to deliver the shares otherwise
issuable upon such exchange.
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<PAGE> 5
(b) EXCHANGE DATE. (i) The holder of any shares of Series B
Exchangeable Preferred Stock may exchange such shares immediately after the date
upon which such shares of Series B Preferred Stock were originally issued (the
"Original Issuance Date"); provided, that the Corporation shall have the right,
on no more than three (3) occasions during the life the Series B Exchangeable
Preferred Stock, by at least two (2) Trading Days' prior written notice to the
holders, to refuse to honor any Exchange Notice delivered during any specified
seven (7) calendar day period.
(ii) In no event shall a holder be permitted to exchange any
shares of Series B Exchangeable Preferred Stock in excess of the number of such
shares upon the exchange of which, (x) the number of shares of Common Stock
owned by such holder (other than shares of Common Stock issuable upon exchange
of shares of Series B Exchangeable Preferred Stock) plus (y) the number of
shares of Common Stock issuable upon such exchange of such shares of Series B
Exchangeable Preferred Stock, would be equal to or exceed 9.9% of the number of
shares of Common Stock then issued and outstanding, including shares issuable
upon exchange of the Series B Exchangeable Preferred Stock held by such holder
after application of this Section 5(b)(ii). As used herein, beneficial ownership
shall be determined in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder. To the extent
that the limitation contained in this Section 5(b)(ii) applies, the
determination of whether shares of Series B Exchangeable Preferred Stock are
exchangeable (in relation to other securities owned by holder) and of which
shares of Series B Exchangeable Preferred Stock are exchangeable shall be in the
sole discretion of such holder, and the submission of shares of Series B
Exchangeable Preferred Stock for exchange shall be deemed to be such holder's
determination of whether such shares of Series B Exchangeable Preferred Stock
are exchangeable (in relation to other securities owned by such holder) and of
which shares of Series B Exchangeable Preferred Stock are exchangeable, in each
case subject to such aggregate percentage limitation, and the Corporation shall
have no obligation to verify or confirm the accuracy of such determination, and
shall have no liability to holder with respect thereto. Nothing contained herein
shall be deemed to restrict the right of a holder to exchange such shares of
Series B Exchangeable Preferred Stock at such time as such exchange will not
violate the provisions of this paragraph. The provisions of this Section
5(b)(ii) may be waived by a holder of Series B Exchangeable Preferred Stock as
to itself (and solely as to itself) upon (A) not less than 75 days' prior notice
to the Corporation, and the provisions of this Section 5(b)(ii) shall continue
to apply until such 75th day (or such later date as may be specified in such
notice of waiver) or (B) not less than three (3) days' prior notice to the
Corporation if and only if the Corporation shall have breached or defaulted upon
one or more of its obligations to the holder pursuant to this Certificate of
Designation. No exchange in violation of this paragraph but otherwise in
accordance with this Certificate of Designation shall affect the status of the
Common Stock issued upon such exchange as validly issued, fully-paid and
nonassessable.
(c) NOTICE OF EXCHANGE. The right of exchange shall be exercised by
the holder thereof by giving written notice (the "Exchange Notice") to the
Corporation, by facsimile or by registered mail or overnight delivery service,
with a copy by facsimile to the Corporation's then transfer agent for its Common
Stock, as designated by the Corporation from time to time, that the holder
elects to exchange a specified number of shares of Series B Exchangeable
Preferred Stock representing a specified Stated Value thereof for Common Stock
and, if such exchange will result in the exchange of all of such holder's shares
of Series B Exchangeable Preferred Stock, by surrender of a certificate or
certificates for the shares so to be Exchanged to the Corporation at its
principal office (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the holders of the Series B
Exchangeable Preferred Stock) at any time during its usual business hours on the
date set forth in the Exchange Notice, together with a statement of the name or
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<PAGE> 6
names (with address) in which the certificate or certificates for shares of
Common Stock shall be issued. The Exchange Notice shall include therein the
Stated Value of shares of Series B Exchangeable Preferred Stock to be Exchanged,
and a calculation, if applicable, (i) of the Market Price, (ii) the Exchange
Price, and (iii) the number of shares of Common Stock to be issued in connection
with such Exchange.
(d) ISSUANCE OF CERTIFICATES; TIME EXCHANGE EFFECTED. (i) Promptly,
but in no event more than three Trading Days, after the receipt of the Exchange
Notice referred to in Section 5(c) and surrender of the certificate or
certificates for the share or shares of Series B Exchangeable Preferred Stock to
be exchanged (if required), the Corporation shall issue and deliver, or cause to
be issued and delivered, to the holder, registered in such name or names as such
holder may direct, a certificate or certificates for the number of whole shares
of Common Stock for which such shares of Series B Exchangeable Preferred Stock
are exchanged. To the extent permitted by law, such exchange shall be deemed to
have been effected on the date on which such Exchange Notice shall have been
received by the Corporation and at the time specified stated in such Exchange
Notice, which must be during the calendar day of such notice, and at such time
the rights of the holder of such share or shares of Series B Exchangeable
Preferred Stock shall cease, and the person or persons in whose name or names
any certificate or certificates for shares of Common Stock shall be issuable
upon such exchange shall be deemed to have become the holder or holders of
record of the shares represented thereby. Issuance of shares of Common Stock
issuable upon exchange which are requested to be registered in a name other than
that of the registered holder shall be subject to compliance with all applicable
federal and state securities laws. In the event that the Corporation elects to
pay cash in lieu of issuing Common Stock in accordance with Section 5(a) hereof,
such cash payment shall be made on or before the third business day after
receipt of an Exchange Notice.
(ii) The Corporation cannot refuse to effect the exchange of the
Series B Exchangeable Preferred Stock into Common Shares or otherwise dishonor
or reject any Exchange Notice delivered in accordance with this Section 5 based
upon any claim that a holder or any person associated or affiliate with such
holder has been engaged in any violation of law or for any other reason, unless
an injunction from a court or regulatory body, on notice, restraining or
enjoining the exchange of all or some of such shares of Series B Exchangeable
Preferred Stock shall have issued and the Corporation shall have posted a surety
bond for the benefit of the holder or holder so affected in the amount of the
difference between the Exchange Price and the closing ask price on the Trading
Day preceding the date of the attempted exchange, multiplied by the number of
shares of Common Stock which would have been issuable upon such exchange, which
bond shall remain in effect until the completion of the arbitration or
litigation of the dispute and the proceeds of which shall be payable to the
affected holder or holders in the event its obtains a favorable judgment. If any
third party who is not and has never been an Affiliate (as defined in Rule 405
under the Securities Act of 1933, as amended) of the holder obtains a judgment
or any injunctive relief from any court or public or governmental authority
which denies, enjoins, limits, modifies, delays or disputes the right of the
holder hereof to effect the exchange of the Series B Exchangeable Preferred
Stock into Common Shares, then the holder shall also have the right, by written
notice to the Corporation, to require the Corporation to promptly redeem the
Series B Exchangeable Preferred Stock for cash at a redemption price equal to
one hundred twenty five percent (125%) of the Stated Value thereof (the
"Mandatory Purchase Amount"). Under any of the circumstances set forth above,
the Corporation shall be responsible for the payment of all costs and expenses
of the holder, including reasonable legal fees
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<PAGE> 7
and expenses, as and when incurred in disputing any such action or pursuing its
rights hereunder (in addition to any other rights of the holder). In the absence
of an injunction precluding the same, the Corporation shall issue shares upon a
properly noticed exchange.
(iii) The holder shall be entitled to exercise its exchange
privilege notwithstanding the commencement of any case under 11 U.S.C. Section
101 et seq. (the "Bankruptcy Code"). In the event the Corporation is a debtor
under the Bankruptcy Code, the Corporation hereby waives to the fullest extent
permitted any rights to relief it may have under 11 U.S.C. Section 362 in
respect of the holder's exchange privilege. The Corporation hereby waives to the
fullest extent permitted any rights to relief it may have under 11 U.S.C.
Section 362 in respect of the exchange of the Series B Exchangeable Preferred
Stock. The Corporation agrees, without cost or expense to the holder, to take or
consent to any and all action necessary to effectuate relief under 11 U.S.C.
Section 362.
(e) FRACTIONAL SHARES. No fractional shares shall be issued upon
exchange of Series B Exchangeable Preferred Stock for Common Stock. All
fractional shares shall be payable in cash at the closing price per share on the
business day prior to the day such payment is accrued. All exchanges pursuant to
Section 5 or Section 6 hereof by any holder shall be aggregated so that in no
event shall any single holder receive a cash payment in lieu of fractional
shares pursuant to this subsection for a fraction greater than or equal to one
(1).
(f) REORGANIZATION OR RECLASSIFICATION. If any capital
reorganization or reclassification of the capital stock of the Corporation shall
be effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for Common
Stock, or, in the case of any consolidation, merger or mandatory share exchange
of the Corporation into any other company, then, as a condition of such
reorganization, reclassification or exchange, lawful and adequate provisions
shall be made whereby each holder of a share or shares of Series B Exchangeable
Preferred Stock shall thereupon have the right to receive, upon the basis and
upon the terms and conditions specified herein and in lieu of the shares of
Common Stock immediately theretofore receivable upon the exchange of such share
or shares of Series B Exchangeable Preferred Stock, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding shares of such Common Stock equal to the number of
shares of such Common Stock immediately theretofore receivable upon such
exchange had such reorganization, reclassification or exchange not taken place,
and in any such case appropriate provisions shall be made with respect to the
rights and interests of such holder to the end that the provisions hereof
(including without limitation provisions for adjustments of the exchange rights)
shall thereafter be applicable, as nearly as may be, in relation to any shares
of stock, securities or assets thereafter deliverable upon the exercise of such
exchange rights.
(g) ADJUSTMENTS FOR SPLITS, COMBINATIONS, ETC. The Set Price and the
number of shares of Common Stock into which the Series B Exchangeable Preferred
Stock shall be Exchangeable shall be adjusted for stock splits, stock dividends,
combinations or other similar events. No adjustment to the Exchange Price will
be made for dividends (other than stock dividends), if any, paid on the Common
Stock or for securities issued pursuant to exercise for fair value of options,
warrants or restricted stock.
6. MANDATORY EXCHANGE.
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<PAGE> 8
(a) MANDATORY EXCHANGE DATE. If (i) on or after the third year
anniversary of the Original Issuance Date of any share of Series B Exchangeable
Preferred Stock, or (ii) the average of the closing bid prices for the
Corporation's Common Stock on the Principal Market for five (5) consecutive
Trading Days ending on the Trading Day prior to the date of a Mandatory Exchange
Notice (as defined below) is at least Ten Dollars ($10.00) per share (adjusted
for any splits or reverse splits) and the average daily trading volume on the
Principal Market for the thirty (30) Trading Days ending on the Trading Day
prior to the date provided for herein is at least 50,000 shares (such date as
selected by the Corporation being the "Mandatory Exchange Date"), there remain
issued and outstanding any shares of Series B Exchangeable Preferred Stock and a
registration statement permitting the resale by the holder of the Common Stock
issuable upon such exchange is then effective and remains effective through the
Mandatory Exchange Date, then the Corporation shall be entitled to require all
(but not less than all) holders of shares of Series B Exchangeable Preferred
Stock then outstanding to exchange their shares of Series B Exchangeable
Preferred Stock for shares of Common Stock at the then effective Exchange Price
pursuant to Section 5(a). The Corporation shall provide at least three (3)
Trading Days' written notice (the "Mandatory Exchange Notice") to the holders of
shares of Series B Exchangeable Preferred Stock of such mandatory exchange. The
Mandatory Exchange Notice shall include (i) the Stated Value of the shares of
Series B Exchangeable Preferred Stock to be exchanged, (ii) the Exchange Price
(which for purposes of this subsection 6(a), shall be the lesser of (A) the Set
Price and (B) the Market Price on the Mandatory Exchange Date), and (iii) the
number of shares of the Corporation's Common Stock to be issued upon such
mandatory exchange at the then applicable Exchange Price. If on or after the
third year anniversary of the Original Issuance Date of any shares of Series B
Exchangeable Preferred Stock remain outstanding, in lieu of a Mandatory
Exchange, the Corporation may buy-out the shares of Series B Exchangeable
Preferred Stock by means of such Mandatory Exchange Notice. The amount of cash
to be paid in the event of a buy-out shall equal the average of the closing bid
and asked prices of the Common Stock on the business day prior to the Mandatory
Exchange Date times the number of shares which would have been issued upon a
voluntary Exchange, but in no event shall such buy-out yield the holder a total
return on its investment of less than forty percent (40%). Notwithstanding the
foregoing, in no event shall the Corporation exchange that portion of the Series
B Exchangeable Preferred Stock to the extent that the issuance of Common Stock
upon the exchange of such Series B Exchangeable Preferred Stock, when combined
with shares of Common Stock received upon other exchanges of Series B
Exchangeable Preferred Stock by such holder and any other holders of Series B
Exchangeable Preferred Stock or upon exercise of the Stock Purchase Warrants
referred to in Section 5(a), would exceed 19.9% of the Common Stock outstanding
on the Original Issuance Date (unless stockholder approval has been obtained as
described in Section 5(a)), or as to any individual holder, make such holder the
beneficial owner of 9.9% or more of the Corporation's then-outstanding Common
Stock.
(b) SURRENDER OF CERTIFICATES. On or before the Mandatory Exchange
Date, each holder of shares of Series B Exchangeable Preferred Stock shall
surrender his or its certificate or certificates for all such shares to the
Corporation at the place designated in such Mandatory Exchange Notice (or an
affidavit of lost certificate in form and content reasonably satisfactory to the
Corporation), and shall thereafter receive certificates for the number of shares
of Common Stock to which such holder is entitled or, in the event of a buy-out
by the Corporation, the amount of cash such holder is entitled within three
Trading Days. On the Mandatory Exchange Date, all rights with
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respect to the Series B Exchangeable Preferred Stock so exchanged, including the
rights, if any, to receive notices and vote, will terminate, provided that the
Corporation either (i) delivers the shares of Common Stock to be delivered upon
such Exchange within five (5) Trading Days of the Mandatory Exchange Date or
(ii) in the event of a buy-out in lieu of a Mandatory Exchange, delivers the
buy-out price within five (5) Trading Days of the Mandatory Exchange Date, and
otherwise such Mandatory Exchange shall be void and the Corporation shall not
thereafter have any further right to require a Mandatory Exchange. All
certificates evidencing shares of Series B Exchangeable Preferred Stock that are
required to be surrendered for Exchange in accordance with the provisions
hereof, from and after the Mandatory Exchange Date, shall be deemed to have been
retired and cancelled, notwithstanding the failure of the holder or holders
thereof to surrender such certificates on or prior to such date. The Corporation
may thereafter take such appropriate action as may be necessary to reduce the
authorized Series B Exchangeable Preferred Stock accordingly.
7. NOTICES. In case at any time:
(a) the Corporation shall declare any dividend upon its Common Stock
payable in cash or stock or make any other pro rata distribution to the holders
of its Common Stock; or
(b) the Corporation shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or other
rights; or
(c) there shall be any capital reorganization or reclassification of
the capital stock of the Corporation, or a consolidation or merger of the
Corporation with or into, or a sale of all or substantially all its assets to,
another entity or entities; or
(d) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, or by telex or facsimile or by recognized overnight
delivery service to non-U.S. residents, addressed to each holder of any shares
of Series B Exchangeable Preferred Stock at the address of such holder as shown
on the books of the Corporation, (i) at least twenty (20) Trading Days' prior
written notice of the date on which the books of the Corporation shall close or
a record shall be taken for such dividend, distribution or subscription rights
or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up and (ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least
twenty (20) Trading Days' prior written notice of the date when the same shall
take place. Such notice in accordance with the foregoing clause (i) shall also
specify, in the case of any such dividend, distribution or subscription rights,
the date on which the holders of Common Stock shall be entitled thereto and (ii)
shall also specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
8. STOCK TO BE RESERVED. The Corporation, upon the effective date of
this Certificate of Designations, has a sufficient number of shares of Common
Stock available to reserve for issuance
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upon the exchange of all outstanding shares of Series B Exchangeable Preferred
Stock. The Corporation will at all times reserve and keep available out of its
authorized Common Stock, solely for the purpose of issuance upon the exchange of
Series B Exchangeable Preferred Stock as herein provided, such number of shares
of Common Stock as shall then be issuable upon the exchange of all outstanding
shares of Series B Exchangeable Preferred. The Corporation covenants that all
shares of Common Stock which shall be so issued shall be duly and validly
issued, fully paid and non-assessable. The Corporation will take all such action
as may be so taken without violation of any applicable law or regulation, or of
any requirement of any national securities exchange upon which the Common Stock
may be listed to have a sufficient number of authorized but unissued shares of
Common Stock to issue upon exchange of the Series B Exchangeable Preferred
Stock. The Corporation will not take any action which results in any adjustment
of the exchange rights if the total number of shares of Common Stock issued and
issuable after such action upon exchange of the Series B Exchangeable Preferred
Stock would exceed the total number of shares of Common Stock then authorized by
the Corporation's Certificate of Incorporation.
9. NO REISSUANCE OF SERIES B EXCHANGEABLE PREFERRED STOCK. Shares of
Series B Exchangeable Preferred Stock which are exchanged for shares of Common
Stock as provided herein shall not be reissued.
10. ISSUE TAX. The issuance of certificates for shares of Common Stock
upon exchange of Series B Exchangeable Preferred Stock shall be made without
charge to the holder for any United States issuance tax in respect thereof,
provided that the Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Series B Exchangeable
Preferred Stock which is being exchanged.
11. CLOSING OF BOOKS. The Corporation will at no time close its transfer
books against the transfer of any Series B Exchangeable Preferred Stock or of
any shares of Common Stock issued or issuable upon the exchange of any shares of
Series B Exchangeable Preferred Stock in any manner which interferes with the
timely exchange of such Series B Exchangeable Preferred Stock, except as may
otherwise be required to comply with applicable securities laws.
12. DEFINITIONS. As used in this Certificate of Designations, the term
"Common Stock" shall mean and include the Corporation's authorized Common Stock,
$0.01 par value per share, as constituted on the date of filing of these terms
of the Series B Exchangeable Preferred Stock, and shall also include any capital
stock of any class of the Corporation thereafter authorized which shall neither
be limited to a fixed sum or percentage of par value in respect of the rights of
the holders thereof to participate in dividends nor entitled to a preference in
the distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; provided that the shares of Common
Stock receivable upon exchange of shares of Series B Exchangeable Preferred
Stock shall include only shares designated as Common Stock of the Corporation on
the date of filing of this instrument, or in case of any reorganization,
reclassification, or stock split of the outstanding shares thereof, the stock,
securities or assets provided for in Subparagraph 5(f) and (g). Any capitalized
terms used in this Certificate of Designations but not defined herein shall have
the meanings set forth in that certain Exchangeable Preferred Stock and Warrant
Purchase Agreement dated as of February 24, 2000 among the Corporation and the
other persons signatory thereto, a
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copy of which will be provided to any stockholder of the Corporation upon
request to the Secretary of the Corporation, without charge.
13. LOSS, THEFT, DESTRUCTION OF PREFERRED STOCK. Upon receipt of
evidence satisfactory to the Corporation of the loss, theft, destruction or
mutilation of certificates representing shares of Series B Exchangeable
Preferred Stock and, in the case of any such loss, theft or destruction, upon
receipt of indemnity or security reasonably satisfactory to the Corporation, or,
in the case of any such mutilation, upon surrender and cancellation of the
Series B Exchangeable Preferred Stock certificate, the Corporation shall make,
issue and deliver, in lieu of such lost, stolen, destroyed or mutilated
certificates for Series B Exchangeable Preferred Stock, new certificates for
Series B Exchangeable Preferred Stock of like tenor. The Series B Exchangeable
Preferred Stock shall be held and owned upon the express condition that the
provisions of this Section 14 are exclusive with respect to the replacement of
mutilated, destroyed, lost or stolen shares of Series B Preferred Stock and
shall preclude any and all other rights and remedies notwithstanding any law or
statue existing or hereafter enacted to the contrary with respect to the
replacement of negotiable instruments or other securities without the surrender
thereof.
14. WHO DEEMED ABSOLUTE OWNER. The Corporation may deem the person in
whose name the Series B Exchangeable Preferred Stock shall be registered upon
the registry books of the Corporation to be, and may treat it as, the absolute
owner of the Series B Exchangeable Preferred Stock for the purpose of exchange
of the Series B Exchangeable Preferred Stock and for all other purposes, and the
Corporation shall not be affected by any notice to the contrary. All such
payments and such exchange shall be valid and effectual to satisfy and discharge
the liability upon the Series B Exchangeable Preferred Stock to the extent of
the sum or sums so paid or the exchange so made.
15. REGISTER. The Corporation shall maintain a transfer agent, which may
be the transfer agent for the Common Stock, for the registration of the Series B
Exchangeable Preferred Stock. Upon any transfer of the Series B Exchangeable
Preferred Stock in accordance with the provisions hereof, the Corporation shall
register or cause the transfer agent to register such transfer on the Series B
Exchangeable Preferred Stock register.
16. WITHHOLDING. To the extent required by applicable law, the
Corporation may withhold amounts for or on account of any taxes imposed or
levied by or on behalf of any taxing authority in the United States having
jurisdiction over the Corporation from any payments made pursuant to the Series
B Exchangeable Preferred Stock.
17. HEADINGS. The headings of the Sections of this Certificate of
Designations are inserted for convenience only and do not constitute a part of
this Certificate of Designations.
IN WITNESS WHEREOF, Robert H. Gurevitch, President and Chief Executive
Officer of the Corporation, under penalties of perjury, does hereby declare and
certify that this is the act and
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deed of the Corporation and the facts stated herein are true and accordingly has
signed this Certificate of Designations as of this __ day of February, 2000.
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
By: /s/ Robert S. Gurevitch
----------------------------------
Robert S. Gurevitch, President and
Chief Executive Officer
Attest:
[signature illegible]
- --------------------------------------
, Secretary
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EXHIBIT 10.47
EXHIBIT B-1
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS.
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD,
PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN A TRANSACTION
WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT.
STOCK PURCHASE WARRANT
To Purchase XX,000 Shares of Common Stock of
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
THIS CERTIFIES that, for value received, ____________________
(the "Holder"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time on or after August 24, 2000 (the "Initial
Exercise Date") and on or prior to the close of business on August 24, 2005 (the
"Termination Date") but not thereafter, to subscribe for and purchase from
Dental/Medical Diagnostic Systems, Inc., a corporation incorporated in Delaware
(the "Company"), up to XX Thousand (XX,000) shares (the "Warrant Shares") of
Common Stock, $.01 par value, of the Company (the "Common Stock"). The purchase
price of one share of Common Stock (the "Exercise Price") under this Warrant
shall be $_____ (100% of the Market Price of the Common Stock on the Closing
Date of the Exchangeable Preferred Stock and Warrants Purchase Agreement dated
as of February 24, 2000 pursuant to which this Warrant has been issued (the
"Purchase Agreement")). The Exercise Price and the number of shares for which
the Warrant is exercisable shall be subject to adjustment as provided herein. In
the event of any conflict between the terms of this Warrant and the Purchase
Agreement, the Purchase Agreement shall control. Capitalized terms used and not
otherwise defined herein shall have the meanings set forth for such terms in the
Purchase Agreement.
<PAGE> 2
1. Title to Warrant. Prior to the Termination Date and subject to
compliance with applicable laws and the terms of this Warrant, this Warrant and
all rights hereunder are transferable, in whole or in part, at the office or
agency of the Company by the holder hereof in person or by duly authorized
attorney, upon surrender of this Warrant together with the Assignment Form
annexed hereto properly endorsed. F6
2. Authorization of Shares. The Company covenants that all shares of
Common Stock which may be issued upon the exercise of rights represented by this
Warrant will, upon exercise of the rights represented by this Warrant, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).
3. Exercise of Warrant. Except as provided in Section 4 herein,
exercise of the purchase rights represented by this Warrant may be made at any
time or times on or after the Initial Exercise Date, and before the close of
business on the Termination Date by the surrender of this Warrant and the Notice
of Exercise Form annexed hereto duly executed, at the office of the Company (or
such other office or agency of the Company as it may designate by notice in
writing to the registered holder hereof at the address of such holder appearing
on the books of the Company) and upon payment of the Exercise Price of the
shares thereby purchased by wire transfer or cashier's check drawn on a United
States bank, the holder of this Warrant shall be entitled to receive a
certificate for the number of shares of Common Stock so purchased. Certificates
for shares purchased hereunder shall be delivered to the holder hereof within
five (5) Trading Days after the date on which this Warrant shall have been
exercised as aforesaid. This Warrant shall be deemed to have been exercised and
such certificate or certificates shall be deemed to have been issued, and Holder
or any other person so designated to be named therein shall be deemed to have
become a holder of record of such shares for all purposes, as of the date the
Holder faxes a Notice of Exercise to the Company, provided that such fax notice
is followed by delivery of the original notice and payment to the Company of the
Exercise Price and all taxes required to be paid by Holder, if any, pursuant to
Section 5 prior to the issuance of such shares, have been paid within three (3)
Trading Days of such fax notice. If this Warrant shall have been exercised in
part, the Company shall, at the time of delivery of the certificate or
certificates representing Warrant Shares, deliver to Holder a new Warrant
evidencing the rights of Holder to purchase the unpurchased shares of Common
Stock called for by this Warrant, which new Warrant shall in all other respects
be identical with this Warrant. If there is no registration in effect permitting
the resale by the Holder of the Warrant Shares at any time from and after one
year from the issuance date of this Warrant, then the Holder shall have the
right to a "cashless exercise" in which the Holder shall be entitled to receive
a certificate for the number of shares equal to the quotient obtained by
dividing [(A-B) (X)] by (A), where:
(A) = the average of the high and low trading prices per share of Common Stock
on the Trading Day preceding the date of such election;
(B) = the Exercise Price of the Warrant; and
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(X) = the number of shares issuable upon exercise of the Warrant in accordance
with the terms of this Warrant.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise be entitled
to purchase upon such exercise, the Company shall pay a cash adjustment in
respect of such final fraction in an amount equal to the Exercise Price.
5. Charges, Taxes and Expenses. Issuance of certificates for shares
of Common Stock upon the exercise of this Warrant shall be made without charge
to the holder hereof for any issue or federal or state transfer tax or other
incidental expense in respect of the issuance of such certificate, all of which
taxes and expenses shall be paid by the Company, and such certificates shall be
issued in the name of the holder of this Warrant or in such name or names as may
be directed by the holder of this Warrant; provided, however, that in the event
certificates for shares of Common Stock are to be issued in a name other than
the name of the holder of this Warrant, this Warrant when surrendered for
exercise shall be accompanied by the Assignment Form attached hereto duly
executed by the holder hereof; and the Company may require, as a condition
thereto, the payment of a sum sufficient to reimburse it for any transfer tax
incidental thereto.
6. Closing of Books. The Company will not close its shareholder
books or records in any manner which prevents the timely exercise of this
Warrant.
7. Transfer, Division and Combination. (a) the Holder (and its
transferees and assigns), by acceptance of this Warrant, covenants and agrees
that it is acquiring the Warrants evidenced hereby, and, upon exercise hereof,
the Warrant Shares, for its own account as an investment and not with a view to
distribution thereof. The Warrant Shares have not been registered under the
Securities Act or any state securities laws and no transfer of any Warrant
Shares shall be permitted unless the Company has received notice of such
transfer, at the address of its principal office set forth in the Purchase
Agreement, in the form of assignment attached hereto, accompanied by an opinion
of counsel reasonably satisfactory to the Company that an exemption from
registration of such Warrants or Warrant Shares under the Securities Act is
available for such transfer, except that no such opinion shall be required after
the registration for resale by the Holder of the Warrant Shares, as contemplated
by the Registration Rights Agreement. Upon any exercise of the Warrants,
certificates representing the Warrant Shares shall bear a restrictive legend
substantially identical to that set forth on the face of this Warrant
certificate. Any purported transfer of any Warrant or Warrant Shares not in
compliance with the provisions of this section shall be null and void.
(b) This Warrant may be divided or combined with other Warrants
upon presentation hereof at the aforesaid office of the Company, together with a
written notice specifying the names and denominations in which new Warrants are
to be issued, signed by Holder or its agent or attorney. Subject to compliance
with Section 7(a), as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice.
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(c) The Company shall prepare, issue and deliver at its own
expense (other than transfer taxes) the new Warrant or Warrants under this
Section 7.
(d) The Company agrees to maintain, at its aforesaid office,
books for the registration and the registration of transfer of the Warrants.
8. No Rights as Shareholder until Exercise. This Warrant does not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company prior to the exercise hereof. Upon the surrender of this Warrant
and the payment of the aggregate Exercise Price, the Warrant Shares so purchased
shall be and be deemed to be issued to such holder as the record owner of such
shares as of the close of business on the later of the date of such surrender or
payment.
9. Loss, Theft, Destruction or Mutilation of Warrant. The Company
covenants that upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant certificate
or any stock certificate relating to the Warrant Shares, and in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it
(which shall not exceed that customarily charged by the Company's transfer
agent), and upon surrender and cancellation of such Warrant or stock
certificate, if mutilated, the Company will make and deliver a new Warrant or
stock certificate of like tenor and dated as of such cancellation, in lieu of
such Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day
for the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a Saturday,
Sunday or legal holiday.
11. Adjustments of Exercise Price and Number of Warrant Shares. (a)
Stock Splits, etc. The number and kind of securities purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to adjustment
from time to time upon the happening of any of the following. In case the
Company shall (i) pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock to holders of its outstanding Common
Stock, (ii) subdivide its outstanding shares of Common Stock into a greater
number of shares of Common Stock, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock or (iv) issue any shares
of its capital stock in a reclassification of the Common Stock, then the number
of Warrant Shares purchasable upon exercise of this Warrant immediately prior
thereto shall be adjusted so that the holder of this Warrant shall be entitled
to receive the kind and number of Warrant Shares or other securities of the
Company which he would have been entitled to receive had such Warrant been
exercised in advance thereof. Upon each such adjustment of the kind and number
of Warrant Shares or other securities of the Company which are purchasable
hereunder, the holder of this Warrant shall thereafter be entitled to purchase
the number of Warrant Shares or other securities resulting from such adjustment
at an Exercise Price per Warrant Share or other security obtained by multiplying
the Exercise Price in effect immediately prior to such adjustment by the number
of Warrant Shares purchasable pursuant hereto immediately prior to such
adjustment and dividing by the number of Warrant Shares or other securities of
the Company resulting from such adjustment. An adjustment made pursuant to this
paragraph shall become effective immediately after the effective date of such
event
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retroactive to the record date, if any, for such event.(b) Reorganization,
Reclassification, Merger, Consolidation or Disposition of Assets. In case the
Company shall reorganize its capital, reclassify its capital stock, consolidate
or merge with or into another corporation (where the Company is not the
surviving corporation or where there is a change in or distribution with respect
to the Common Stock of the Company), or sell, transfer or otherwise dispose of
all or substantially all its property, assets or business to another corporation
and, pursuant to the terms of such reorganization, reclassification, merger,
consolidation or disposition of assets, shares of common stock of the successor
or acquiring corporation, or any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants or other subscription or
purchase rights) in addition to or in lieu of common stock of the successor or
acquiring corporation ("Other Property"), are to be received by or distributed
to the holders of Common Stock of the Company, then Holder shall have the right
thereafter to receive, upon exercise of this Warrant, the number of shares of
common stock of the successor or acquiring corporation or of the Company, if it
is the surviving corporation, and Other Property receivable upon or as a result
of such reorganization, reclassification, merger, consolidation or disposition
of assets by a holder of the number of shares of Common Stock for which this
Warrant is exercisable immediately prior to such event. In case of any such
reorganization, reclassification, merger, consolidation or disposition of
assets, the successor or acquiring corporation (if other than the Company) shall
expressly assume the due and punctual observance and performance of each and
every covenant and condition of this Warrant to be performed and observed by the
Company and all the obligations and liabilities hereunder, subject to such
modifications as may be deemed appropriate (as determined in good faith by
resolution of the Board of Directors of the Company) in order to provide for
adjustments of shares of Common Stock for which this Warrant is exercisable
which shall be as nearly equivalent as practicable to the adjustments provided
for in this Section 11. For purposes of this Section 11, "common stock of the
successor or acquiring corporation" shall include stock of such corporation of
any class which is not preferred as to dividends or assets over any other class
of stock of such corporation and which is not subject to redemption and shall
also include any evidences of indebtedness, shares of stock or other securities
which are convertible into or exchangeable for any such stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event and any warrants or other rights to subscribe for or purchase
any such stock. The foregoing provisions of this Section 11 shall similarly
apply to successive reorganizations, reclassifications, mergers, consolidations
or disposition of assets.
12. Voluntary Adjustment by the Company. The Company may at any time
during the term of this Warrant, reduce the then current Exercise Price to any
amount and for any period of time deemed appropriate by the Board of Directors
of the Company.
13. Notice of Adjustment. Whenever the number of Warrant Shares or
number or kind of securities or other property purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall promptly mail by registered or certified mail, return receipt requested,
to the holder of this Warrant notice of such adjustment or adjustments setting
forth the number of Warrant Shares (and other securities or property)
purchasable upon the exercise of this Warrant and the Exercise Price of such
Warrant Shares (and other securities or property) after such adjustment, setting
forth a brief statement of the facts requiring such adjustment and setting forth
the computation by which such adjustment was
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<PAGE> 6
made. Such notice, in the absence of manifest error, shall be conclusive
evidence of the correctness of such adjustment.
14. Notice of Corporate Action. If at any time:
(a) the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) there shall be any capital reorganization of the Company,
any reclassification or recapitalization of the capital stock of the Company or
any consolidation or merger of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of the
Company to, another corporation or,
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least 10 days' prior written notice of the record date for such dividend,
distribution or right or for determining rights to vote in respect of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, at least 10 days' prior
written notice of the date when the same shall take place. Such notice in
accordance with the foregoing clause also shall specify (i) the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, the date on which the holders of Common Stock shall be entitled to any
such dividend, distribution or right, and the amount and character thereof, and
(ii) the date on which any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up is to take place and the time, if any such time is to be fixed, as of which
the holders of Common Stock shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such disposition,
dissolution, liquidation or winding up. Each such written notice shall be
sufficiently given if addressed to Holder at the last address of Holder
appearing on the books of the Company and delivered in accordance with Section
16(d).
15. Authorized Shares. The Company covenants that during the period
the Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of the
Warrant Shares upon the exercise of any purchase rights under this Warrant. The
Company further covenants that its issuance of this Warrant shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the Principal Market
upon which the Common Stock may be listed.
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The Company shall not by any action, including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of Holder against impairment. Without limiting the generality of the
foregoing, the Company will (a) not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise immediately prior to such increase in par
value, (b) take all such action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant, and (c) use its best efforts to
obtain all such authorizations, exemptions or consents from any public
regulatory body having jurisdiction thereof as may be necessary to enable the
Company to perform its obligations under this Warrant.
Before taking any action which would cause an adjustment
reducing the current Exercise Price below the then par value, if any, of the
shares of Common Stock issuable upon exercise of the Warrants, the Company shall
take any corporate action which may be necessary in order that the Company may
validly and legally issue fully paid and non-assessable shares of such Common
Stock at such adjusted Exercise Price.
Before taking any action which would result in an adjustment in
the number of shares of Common Stock for which this Warrant is exercisable or in
the Exercise Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
16. Miscellaneous.
(a) Jurisdiction. This Warrant shall be binding upon any
successors or assigns of the Company. This Warrant shall constitute a contract
under the laws of Delaware without regard to its conflict of law, principles or
rules, and be subject to arbitration pursuant to the terms set forth in the
Purchase Agreement.
(b) Restrictions. The holder hereof acknowledges that the
Warrant Shares acquired upon the exercise of this Warrant, if not registered,
will have restrictions upon resale imposed by state and federal securities laws.
(c) Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of Holder shall operate as a
waiver of such right or otherwise prejudice Holder's rights, powers or remedies,
notwithstanding all rights hereunder terminate on the Termination Date. If the
Company fails to comply with any provision of this Warrant, the Company shall
pay to Holder such amounts as shall be sufficient to cover any costs and
expenses including, but not limited to, reasonable attorneys' fees, including
those of appellate proceedings, incurred by Holder in collecting any amounts due
pursuant hereto or in otherwise enforcing any of its rights, powers or remedies
hereunder.
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<PAGE> 8
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof by the Company shall be
delivered in accordance with the notice provisions of the Purchase Agreement.
(e) Limitation of Liability. No provision hereof, in the absence
of affirmative action by Holder to purchase shares of Common Stock, and no
enumeration herein of the rights or privileges of Holder hereof, shall give rise
to any liability of Holder for the purchase price of any Common Stock or as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.
(f) Remedies. Holder, in addition to being entitled to exercise
all rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. The Company agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of the provisions of this Warrant and hereby agrees to
waive the defense in any action for specific performance that a remedy at law
would be adequate.
(g) Successors and Assigns. Subject to applicable securities
laws, this Warrant and the rights and obligations evidenced hereby shall inure
to the benefit of and be binding upon the successors of the Company and the
successors and permitted assigns of Holder. The provisions of this Warrant are
intended to be for the benefit of all Holders from time to time of this Warrant
and shall be enforceable by any such Holder or holder of Warrant Shares.
(h) Indemnification. The Company agrees to indemnify and hold
harmless Holder from and against any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses
and disbursements of any kind which may be imposed upon, incurred by or asserted
against Holder in any manner relating to or arising out of any failure by the
Company to perform or observe in any material respect any of its covenants,
agreements, undertakings or obligations set forth in this Warrant; provided,
however, that the Company will not be liable hereunder to the extent that any
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, attorneys' fees, expenses or disbursements are found in a final
non-appealable judgment by a court to have resulted from Holder's negligence,
bad faith or willful misconduct.
(i) Amendment. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and the Holder.
(j) Severability. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Warrant.
(k) Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
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<PAGE> 9
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: February 24, 2000
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
By: /s/ ROBERT H. GUREVITCH
-----------------------------------
Robert H. Gurevitch, President
9
<PAGE> 10
NOTICE OF EXERCISE
To: Dental/Medical Diagnostic Systems, Inc.
(1) The undersigned hereby elects to purchase ________ shares of
Common Stock (the "Common Stock"), of Dental/Medical Diagnostic Systems, Inc.
pursuant to the terms of the attached Warrant, and tenders herewith payment of
the exercise price in full, together with all applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said
shares of Common Stock in the name of the undersigned or in such other name as
is specified below:
--------------------------------------
(Name)
--------------------------------------
(Address)
--------------------------------------
Dated:
------------------------------
Signature
<PAGE> 11
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
_______________________________________________ whose address is
________________________________________________________________
________________________________________________________________
Dated: ______________, _______
Holder's Signature: ____________________
Holder's Address: ____________________
____________________
Signature Guaranteed: _________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
<PAGE> 1
EXHIBIT 10.48
EXHIBIT B-2
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS.
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD,
PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN A TRANSACTION
WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT.
STOCK PURCHASE WARRANT
To Purchase XX,000 Shares of Common Stock of
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
THIS CERTIFIES that, for value received, ____________________ (the
"Holder"), is entitled, upon the terms and subject to the conditions hereinafter
set forth, at any time on or after February 29, 2000 (the "Initial Exercise
Date") and on or prior to the close of business on November 30, 2000 (the
"Termination Date") but not thereafter, to subscribe for and purchase from
Dental/Medical Diagnostic Systems, Inc., a corporation incorporated in Delaware
(the "Company"), up to XX Thousand (XX,000) shares (the "Warrant Shares") of
Common Stock, $.01 par value, of the Company (the "Common Stock"). The purchase
price of one share of Common Stock (the "Exercise Price") under this Warrant
shall be $3.50. The Exercise Price and the number of shares for which the
Warrant is exercisable shall be subject to adjustment as provided herein. In the
event of any conflict between the terms of this Warrant and the Exchangeable
Preferred Stock and Warrants Purchase Agreement dated as of February 24, 2000
pursuant to which this Warrant has been issued (the "Purchase Agreement") the
Purchase Agreement shall control. Capitalized terms used and not otherwise
defined herein shall have the meanings set forth for such terms in the Purchase
Agreement.
<PAGE> 2
1. Title to Warrant. Prior to the Termination Date and subject to
compliance with applicable laws and the terms of this Warrant, this Warrant and
all rights hereunder are transferable, in whole or in part, at the office or
agency of the Company by the holder hereof in person or by duly authorized
attorney, upon surrender of this Warrant together with the Assignment Form
annexed hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all shares of
Common Stock which may be issued upon the exercise of rights represented by this
Warrant will, upon exercise of the rights represented by this Warrant, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).
3. Exercise of Warrant. Except as provided in Section 4 herein,
exercise of the purchase rights represented by this Warrant may be made at any
time or times on or after the Initial Exercise Date, and before the close of
business on the Termination Date by the surrender of this Warrant and the Notice
of Exercise Form annexed hereto duly executed, at the office of the Company (or
such other office or agency of the Company as it may designate by notice in
writing to the registered holder hereof at the address of such holder appearing
on the books of the Company) and upon payment of the Exercise Price of the
shares thereby purchased by wire transfer or cashier's check drawn on a United
States bank, the holder of this Warrant shall be entitled to receive a
certificate for the number of shares of Common Stock so purchased. Certificates
for shares purchased hereunder shall be delivered to the holder hereof within
five (5) Trading Days after the date on which this Warrant shall have been
exercised as aforesaid. This Warrant shall be deemed to have been exercised and
such certificate or certificates shall be deemed to have been issued, and Holder
or any other person so designated to be named therein shall be deemed to have
become a holder of record of such shares for all purposes, as of the date the
Holder faxes a Notice of Exercise to the Company, provided that such fax notice
is followed by delivery of the original notice and payment to the Company of the
Exercise Price and all taxes required to be paid by Holder, if any, pursuant to
Section 5 prior to the issuance of such shares, have been paid within three (3)
Trading Days of such fax notice. If this Warrant shall have been exercised in
part, the Company shall, at the time of delivery of the certificate or
certificates representing Warrant Shares, deliver to Holder a new Warrant
evidencing the rights of Holder to purchase the unpurchased shares of Common
Stock called for by this Warrant, which new Warrant shall in all other respects
be identical with this Warrant. If there is no registration in effect permitting
the resale by the Holder of the Warrant Shares at any time from and after
September 30, 2000, then the Holder shall have the right to a "cashless
exercise" in which the Holder shall be entitled to receive a certificate for the
number of shares equal to the quotient obtained by dividing [(A-B) (X)] by (A),
where:
(A) = the average of the high and low trading prices per share of Common Stock
on the Trading Day preceding the date of such election;
(B) = the Exercise Price of the Warrant; and
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<PAGE> 3
(X) = the number of shares issuable upon exercise of the Warrant in accordance
with the terms of this Warrant.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise be entitled
to purchase upon such exercise, the Company shall pay a cash adjustment in
respect of such final fraction in an amount equal to the Exercise Price.
5. Charges, Taxes and Expenses. Issuance of certificates for shares
of Common Stock upon the exercise of this Warrant shall be made without charge
to the holder hereof for any issue or federal or state transfer tax or other
incidental expense in respect of the issuance of such certificate, all of which
taxes and expenses shall be paid by the Company, and such certificates shall be
issued in the name of the holder of this Warrant or in such name or names as may
be directed by the holder of this Warrant; provided, however, that in the event
certificates for shares of Common Stock are to be issued in a name other than
the name of the holder of this Warrant, this Warrant when surrendered for
exercise shall be accompanied by the Assignment Form attached hereto duly
executed by the holder hereof; and the Company may require, as a condition
thereto, the payment of a sum sufficient to reimburse it for any transfer tax
incidental thereto.
6. Closing of Books. The Company will not close its shareholder
books or records in any manner which prevents the timely exercise of this
Warrant.
7. Transfer, Division and Combination. (a) the Holder (and its
transferees and assigns), by acceptance of this Warrant, covenants and agrees
that it is acquiring the Warrants evidenced hereby, and, upon exercise hereof,
the Warrant Shares, for its own account as an investment and not with a view to
distribution thereof. The Warrant Shares have not been registered under the
Securities Act or any state securities laws and no transfer of any Warrant
Shares shall be permitted unless the Company has received notice of such
transfer, at the address of its principal office set forth in the Purchase
Agreement, in the form of assignment attached hereto, accompanied by an opinion
of counsel reasonably satisfactory to the Company that an exemption from
registration of such Warrants or Warrant Shares under the Securities Act is
available for such transfer, except that no such opinion shall be required after
the registration for resale by the Holder of the Warrant Shares, as contemplated
by the Registration Rights Agreement. Upon any exercise of the Warrants,
certificates representing the Warrant Shares shall bear a restrictive legend
substantially identical to that set forth on the face of this Warrant
certificate. Any purported transfer of any Warrant or Warrant Shares not in
compliance with the provisions of this section shall be null and void.
(b) This Warrant may be divided or combined with other Warrants
upon presentation hereof at the aforesaid office of the Company, together with a
written notice specifying the names and denominations in which new Warrants are
to be issued, signed by Holder or its agent or attorney. Subject to compliance
with Section 7(a), as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice.
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<PAGE> 4
(c) The Company shall prepare, issue and deliver at its own
expense (other than transfer taxes) the new Warrant or Warrants under this
Section 7.
(d) The Company agrees to maintain, at its aforesaid office,
books for the registration and the registration of transfer of the Warrants.
8. No Rights as Shareholder until Exercise. This Warrant does not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company prior to the exercise hereof. Upon the surrender of this Warrant
and the payment of the aggregate Exercise Price, the Warrant Shares so purchased
shall be and be deemed to be issued to such holder as the record owner of such
shares as of the close of business on the later of the date of such surrender or
payment.
9. Loss, Theft, Destruction or Mutilation of Warrant. The Company
covenants that upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant certificate
or any stock certificate relating to the Warrant Shares, and in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it
(which shall not exceed that customarily charged by the Company's transfer
agent), and upon surrender and cancellation of such Warrant or stock
certificate, if mutilated, the Company will make and deliver a new Warrant or
stock certificate of like tenor and dated as of such cancellation, in lieu of
such Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day
for the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a Saturday,
Sunday or legal holiday.
11. Adjustments of Exercise Price and Number of Warrant Shares. (a)
Stock Splits, etc. The number and kind of securities purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to adjustment
from time to time upon the happening of any of the following. In case the
Company shall (i) pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock to holders of its outstanding Common
Stock, (ii) subdivide its outstanding shares of Common Stock into a greater
number of shares of Common Stock, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock or (iv) issue any shares
of its capital stock in a reclassification of the Common Stock, then the number
of Warrant Shares purchasable upon exercise of this Warrant immediately prior
thereto shall be adjusted so that the holder of this Warrant shall be entitled
to receive the kind and number of Warrant Shares or other securities of the
Company which he would have been entitled to receive had such Warrant been
exercised in advance thereof. Upon each such adjustment of the kind and number
of Warrant Shares or other securities of the Company which are purchasable
hereunder, the holder of this Warrant shall thereafter be entitled to purchase
the number of Warrant Shares or other securities resulting from such adjustment
at an Exercise Price per Warrant Share or other security obtained by multiplying
the Exercise Price in effect immediately prior to such adjustment by the number
of Warrant Shares purchasable pursuant hereto immediately prior to such
adjustment and dividing by the number of Warrant Shares or other securities of
the Company resulting from such adjustment. An adjustment made pursuant to this
paragraph shall become effective immediately after the effective date of such
event
4
<PAGE> 5
retroactive to the record date, if any, for such event.(b) Reorganization,
Reclassification, Merger, Consolidation or Disposition of Assets. In case the
Company shall reorganize its capital, reclassify its capital stock, consolidate
or merge with or into another corporation (where the Company is not the
surviving corporation or where there is a change in or distribution with respect
to the Common Stock of the Company), or sell, transfer or otherwise dispose of
all or substantially all its property, assets or business to another corporation
and, pursuant to the terms of such reorganization, reclassification, merger,
consolidation or disposition of assets, shares of common stock of the successor
or acquiring corporation, or any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants or other subscription or
purchase rights) in addition to or in lieu of common stock of the successor or
acquiring corporation ("Other Property"), are to be received by or distributed
to the holders of Common Stock of the Company, then Holder shall have the right
thereafter to receive, upon exercise of this Warrant, the number of shares of
common stock of the successor or acquiring corporation or of the Company, if it
is the surviving corporation, and Other Property receivable upon or as a result
of such reorganization, reclassification, merger, consolidation or disposition
of assets by a holder of the number of shares of Common Stock for which this
Warrant is exercisable immediately prior to such event. In case of any such
reorganization, reclassification, merger, consolidation or disposition of
assets, the successor or acquiring corporation (if other than the Company) shall
expressly assume the due and punctual observance and performance of each and
every covenant and condition of this Warrant to be performed and observed by the
Company and all the obligations and liabilities hereunder, subject to such
modifications as may be deemed appropriate (as determined in good faith by
resolution of the Board of Directors of the Company) in order to provide for
adjustments of shares of Common Stock for which this Warrant is exercisable
which shall be as nearly equivalent as practicable to the adjustments provided
for in this Section 11. For purposes of this Section 11, "common stock of the
successor or acquiring corporation" shall include stock of such corporation of
any class which is not preferred as to dividends or assets over any other class
of stock of such corporation and which is not subject to redemption and shall
also include any evidences of indebtedness, shares of stock or other securities
which are convertible into or exchangeable for any such stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event and any warrants or other rights to subscribe for or purchase
any such stock. The foregoing provisions of this Section 11 shall similarly
apply to successive reorganizations, reclassifications, mergers, consolidations
or disposition of assets.
12. Voluntary Adjustment by the Company. The Company may at any time
during the term of this Warrant, reduce the then current Exercise Price to any
amount and for any period of time deemed appropriate by the Board of Directors
of the Company.
13. Notice of Adjustment. Whenever the number of Warrant Shares or
number or kind of securities or other property purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall promptly mail by registered or certified mail, return receipt requested,
to the holder of this Warrant notice of such adjustment or adjustments setting
forth the number of Warrant Shares (and other securities or property)
purchasable upon the exercise of this Warrant and the Exercise Price of such
Warrant Shares (and other securities or property) after such adjustment, setting
forth a brief statement of the facts requiring such adjustment and setting forth
the computation by which such adjustment was
5
<PAGE> 6
made. Such notice, in the absence of manifest error, shall be conclusive
evidence of the correctness of such adjustment.
14. Notice of Corporate Action. If at any time:
(a) the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) there shall be any capital reorganization of the Company,
any reclassification or recapitalization of the capital stock of the Company or
any consolidation or merger of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of the
Company to, another corporation or,
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least 10 days' prior written notice of the record date for such dividend,
distribution or right or for determining rights to vote in respect of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, at least 10 days' prior
written notice of the date when the same shall take place. Such notice in
accordance with the foregoing clause also shall specify (i) the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, the date on which the holders of Common Stock shall be entitled to any
such dividend, distribution or right, and the amount and character thereof, and
(ii) the date on which any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up is to take place and the time, if any such time is to be fixed, as of which
the holders of Common Stock shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such disposition,
dissolution, liquidation or winding up. Each such written notice shall be
sufficiently given if addressed to Holder at the last address of Holder
appearing on the books of the Company and delivered in accordance with Section
16(d).
15. Authorized Shares. The Company covenants that during the period
the Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of the
Warrant Shares upon the exercise of any purchase rights under this Warrant. The
Company further covenants that its issuance of this Warrant shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the Principal Market
upon which the Common Stock may be listed.
6
<PAGE> 7
The Company shall not by any action, including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of Holder against impairment. Without limiting the generality of the
foregoing, the Company will (a) not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise immediately prior to such increase in par
value, (b) take all such action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant, and (c) use its best efforts to
obtain all such authorizations, exemptions or consents from any public
regulatory body having jurisdiction thereof as may be necessary to enable the
Company to perform its obligations under this Warrant.
Before taking any action which would cause an adjustment
reducing the current Exercise Price below the then par value, if any, of the
shares of Common Stock issuable upon exercise of the Warrants, the Company shall
take any corporate action which may be necessary in order that the Company may
validly and legally issue fully paid and non-assessable shares of such Common
Stock at such adjusted Exercise Price.
Before taking any action which would result in an adjustment in
the number of shares of Common Stock for which this Warrant is exercisable or in
the Exercise Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
16. Miscellaneous.
(a) Jurisdiction. This Warrant shall be binding upon any
successors or assigns of the Company. This Warrant shall constitute a contract
under the laws of Delaware without regard to its conflict of law, principles or
rules, and be subject to arbitration pursuant to the terms set forth in the
Purchase Agreement.
(b) Restrictions. The holder hereof acknowledges that the
Warrant Shares acquired upon the exercise of this Warrant, if not registered,
will have restrictions upon resale imposed by state and federal securities laws.
(c) Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of Holder shall operate as a
waiver of such right or otherwise prejudice Holder's rights, powers or remedies,
notwithstanding all rights hereunder terminate on the Termination Date. If the
Company fails to comply with any provision of this Warrant, the Company shall
pay to Holder such amounts as shall be sufficient to cover any costs and
expenses including, but not limited to, reasonable attorneys' fees, including
those of appellate proceedings, incurred by Holder in collecting any amounts due
pursuant hereto or in otherwise enforcing any of its rights, powers or remedies
hereunder.
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<PAGE> 8
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof by the Company shall be
delivered in accordance with the notice provisions of the Purchase Agreement.
(e) Limitation of Liability. No provision hereof, in the absence
of affirmative action by Holder to purchase shares of Common Stock, and no
enumeration herein of the rights or privileges of Holder hereof, shall give rise
to any liability of Holder for the purchase price of any Common Stock or as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.
(f) Remedies. Holder, in addition to being entitled to exercise
all rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. The Company agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of the provisions of this Warrant and hereby agrees to
waive the defense in any action for specific performance that a remedy at law
would be adequate.
(g) Successors and Assigns. Subject to applicable securities
laws, this Warrant and the rights and obligations evidenced hereby shall inure
to the benefit of and be binding upon the successors of the Company and the
successors and permitted assigns of Holder. The provisions of this Warrant are
intended to be for the benefit of all Holders from time to time of this Warrant
and shall be enforceable by any such Holder or holder of Warrant Shares.
(h) Indemnification. The Company agrees to indemnify and hold
harmless Holder from and against any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses
and disbursements of any kind which may be imposed upon, incurred by or asserted
against Holder in any manner relating to or arising out of any failure by the
Company to perform or observe in any material respect any of its covenants,
agreements, undertakings or obligations set forth in this Warrant; provided,
however, that the Company will not be liable hereunder to the extent that any
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, attorneys' fees, expenses or disbursements are found in a final
non-appealable judgment by a court to have resulted from Holder's negligence,
bad faith or willful misconduct.
(i) Amendment. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and the Holder.
(j) Severability. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Warrant.
(k) Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
8
<PAGE> 9
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: February 24, 2000
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
By: /s/ ROBERT H. GUREVITCH
-----------------------------------
Robert H. Gurevitch, President
9
<PAGE> 10
NOTICE OF EXERCISE
To: Dental/Medical Diagnostic Systems, Inc.
(1) The undersigned hereby elects to purchase ________ shares of
Common Stock (the "Common Stock"), of Dental/Medical Diagnostic Systems, Inc.
pursuant to the terms of the attached Warrant, and tenders herewith payment of
the exercise price in full, together with all applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said
shares of Common Stock in the name of the undersigned or in such other name as
is specified below:
--------------------------------------
(Name)
--------------------------------------
(Address)
--------------------------------------
Dated:
-----------------------------
Signature
<PAGE> 11
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
_______________________________________________ whose address is
________________________________________________________________________.
_________________________________________________________________________
Dated: ______________, _______
Holder's Signature: _____________________________
Holder's Address: _____________________________
_____________________________
Signature Guaranteed: __________________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
<PAGE> 1
EXHIBIT 10.49
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of February 24, 2000,
between the investor or investors signatory hereto (each an "Investor" and
together the "Investors"), and Dental/Medical Diagnostic Systems, Inc. a
Delaware corporation (the "Company").
WHEREAS, simultaneously with the execution and delivery of this
Agreement, the Investors are purchasing from the Company, pursuant to an
Exchangeable Preferred Stock and Warrants Purchase Agreement dated the date
hereof (the "Purchase Agreement"), up to Two Million Seven Hundred Fifty
Thousand Dollars ($2,750,000) Stated Value of Exchangeable Preferred Stock and
B-1 Warrants to purchase up to 275,000 shares of Common Stock and B-2 Warrants
to purchase up to 550,000 shares of Common Stock (terms not defined herein shall
have the meanings ascribed to them in the Purchase Agreement); and
WHEREAS, the Company desires to grant to the Investors the
registration rights set forth herein with respect to the Exchange Shares of
Common Stock issuable upon exchange of or as dividends upon the Exchangeable
Preferred Stock purchased pursuant to the Purchase Agreement and shares of
Common Stock issuable upon exercise of the Warrants (hereinafter referred to as
the "Stock" or "Securities" of the Company).
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the term
"Registrable Security" means the Securities until (i) the Registration Statement
has been declared effective by the Commission, and all Securities have been
disposed of pursuant to the Registration Statement, (ii) all Securities have
been sold under circumstances under which all of the applicable conditions of
Rule 144 (or any similar provision then in force) under the Securities Act
("Rule 144") are met, (iii) all Securities have been otherwise transferred to
holders who may trade such Securities without restriction under the Securities
Act, and the Company has delivered a new certificate or other evidence of
ownership for such Securities not bearing a restrictive legend or (iv) such time
as, in the opinion of counsel to the Company, all Securities may be sold without
any time, volume or manner limitations pursuant to Rule 144(k) (or any similar
provision then in effect) under the Securities Act. The term "Registrable
Securities" means any and/or all of the securities falling within the foregoing
definition of a "Registrable Security." In the event of any merger,
reorganization, consolidation, recapitalization or other change in corporate
structure affecting the Common Stock, such adjustment shall be deemed to be made
in the definition of "Registrable Security" as is appropriate in order to
prevent any dilution or enlargement of the rights granted pursuant to this
Agreement.
Section 2. Restrictions on Transfer. Each Investor acknowledges and
understands that prior to the registration of the Securities as provided herein,
the Securities are "restricted securities" as defined in Rule 144 promulgated
under the Act. Each Investor understands that no disposition or transfer of the
Securities may be made by Investor in the
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absence of (i) an opinion of counsel to the Investor, in form and substance
reasonably satisfactory to the Company, that such transfer may be made without
registration under the Securities Act or (ii) such registration.
With a view to making available to the Investors the benefits of
Rule 144 under the Securities Act or any other similar rule or regulation of the
Commission that may at any time permit the Investors to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to:
(a) comply with the provisions of paragraph (c)(1) of Rule 144;
and
(b) file with the Commission in a timely manner all reports and
other documents required to be filed with the Commission pursuant to Section 13
or 15(d) under the Exchange Act by companies subject to either of such sections,
irrespective of whether the Company is then subject to such reporting
requirements.
Section 3. Registration Rights With Respect to the Securities.
(a) The Company agrees that it will prepare and file with the
Securities and Exchange Commission ("Commission"), within forty-five (45) days
after the Closing Date a registration statement (on Form S-3, or other
appropriate registration statement form) under the Securities Act (the
"Registration Statement"), at the sole expense of the Company (except as
provided in Section 3(c) hereof), in respect of the Investors, so as to permit a
public offering and resale of the Securities under the Act by the Investors as
selling stockholders and not as underwriters.
The Company shall use its best efforts to cause such
Registration Statement to become effective within ninety (90) days from the
Closing Date (or 120 days from the Closing Date if the SEC makes a "full review"
of the Registration Statement) or, if earlier, within five (5) days of SEC
clearance to request acceleration of effectiveness. The number of shares
designated in the Registration Statement to be registered shall include the
Warrant Shares, at least 175% of the number of shares issuable upon exchange of
the Exchangeable Preferred Stock assuming exchange in full on the day prior to
filing date of the Registration Statement, and such number of shares as the
Company deems prudent for the purpose of issuing shares of Common Stock as
dividends on the Exchangeable Preferred Stock, and shall include appropriate
language regarding reliance upon Rule 416 to the extent permitted by the
Commission. The Company will notify the Investors of the effectiveness of the
Registration Statement within one Trading Day of such event. In the event that
the number of shares so registered shall be less than 125% of the number of
shares of Registrable Securities remaining unsold (using the Exchange Price of
the Exchangeable Preferred Stock from time to time), or if the SEC does not
permit the registration of the Exchange Shares issuable upon exchange of the
Optional Exchangeable Preferred Stock in the initial Registration Statement,
then the Company shall be obligated to file, within thirty (30) days of such
event (in the case of insufficient shares) or within 30 days of demand by any
Investor who purchases Optional Exchangeable Preferred Stock, a further
Registration Statement registering such remaining shares and shall use its best
efforts to cause
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such additional Registration Statement to become effective within ninety (90)
days of the date of such event.
(b) The Company will maintain the Registration Statement or
post-effective amendment filed under this Section 3 effective under the
Securities Act until the earlier of (i) the date that none of the Securities
covered by such Registration Statement are or may become issued and outstanding,
(ii) the date that all of the Securities have been sold pursuant to such
Registration Statement, (iii) the date the Investors receive an opinion of
counsel to the Company, which counsel shall be reasonably acceptable to the
Investors, that the Securities may be sold under the provisions of Rule 144
without limitation as to volume, (iv) all Securities have been otherwise
transferred to persons who may trade such shares without restriction under the
Securities Act, and the Company has delivered a new certificate or other
evidence of ownership for such securities not bearing a restrictive legend, or
(v) all Securities may be sold without any time, volume or manner limitations
pursuant to Rule 144(k) or any similar provision then in effect under the
Securities Act in the opinion of counsel to the Company, which counsel shall be
reasonably acceptable to the Investor (the "Effectiveness Period").
(c) All fees, disbursements and out-of-pocket expenses and costs
incurred by the Company in connection with the preparation and filing of the
Registration Statement under subparagraph 3(a) and in complying with applicable
securities and Blue Sky laws (including, without limitation, all attorneys' fees
of the Company) shall be borne by the Company. The Investors shall bear the cost
of underwriting and/or brokerage discounts, fees and commissions, if any,
applicable to the Securities being registered and the fees and expenses of their
counsel. The Investors and their counsel shall have a reasonable period, not to
exceed five (5) Trading Days, to review the proposed Registration Statement or
any amendment thereto, prior to filing with the Commission, and the Company
shall provide each Investor with copies of any comment letters received from the
Commission with respect thereto within two (2) Trading Days of receipt thereof.
The Company shall qualify any of the Securities for sale in such states as any
Investor reasonably designates and shall furnish indemnification in the manner
provided in Section 6 hereof. However, the Company shall not be required to
qualify in any state which will require an escrow or other restriction relating
to the Company and/or the sellers, or which will require the Company to qualify
to do business in such state or require the Company to file therein any general
consent to service of process. The Company at its expense will supply the
Investors with copies of the applicable Registration Statement and the
prospectus included therein and other related documents in such quantities as
may be reasonably requested by the Investors.
(d) The Company shall not be required by this Section 3 to
include any Investor's Securities in any Registration Statement which is to be
filed if, in the opinion of counsel to the Company, the proposed offering or
other transfer as to which such registration is requested is exempt from
applicable federal and state securities laws and would result in all purchasers
or transferees obtaining securities which are not "restricted securities", as
defined in Rule 144 under the Securities Act.
(e) In the event that (i) the Registration Statement to be filed
by the Company pursuant to Section 3(a) above is not filed with the Commission
within forty-five (45)
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days from the Closing Date, (ii) such Registration Statement is not declared
effective by the Commission within the earlier of ninety (90) days from the
Closing Date (or 120 days from the Closing Date if the Commission makes a "full
review" of the Registration Statement) or five (5) days of clearance by the
Commission to request effectiveness, (iii) such Registration Statement is not
maintained as effective by the Company for the period set forth in Section 3(b)
above or (iv) the additional Registration Statement referred to in Section 3(a)
is not filed within thirty (30) days or declared effective within ninety (90)
days as set forth therein (each a "Registration Default") then the Company will
pay Investor (pro rated on a daily basis), as liquidated damages for such
failure and not as a penalty one percent (1%) of the aggregate market value of
shares of Common Stock purchased from the Company (including the Exchange Shares
which would be issuable upon Exchange of the Exchangeable Preferred Stock on any
date of determination, and whether or not the Exchangeable Preferred Stock are
then exchangeable pursuant to their terms) and held by the Investor for each
week until such Registration Statement has been filed, and in the event of late
effectiveness (in case of clause (ii) above) or lapsed effectiveness (in the
case of clause (iii) above), one percent (1%) of the aggregate market value of
shares of Common Stock purchased from the Company and held by the Investor
(including the Exchange Shares which would be issuable upon exchange of the
Exchangeable Preferred Stock on any date of determination, and whether or not
the Exchangeable Preferred Stock are then exchangeable pursuant to their terms)
for each week (regardless of whether one or more such Registration Defaults are
then in existence) until such Registration Statement has been declared
effective. Such payment of the liquidated damages shall be made to the Investors
in cash, within five (5) calendar days of demand, provided, however, that the
payment of such liquidated damages shall not relieve the Company from its
obligations to register the Securities pursuant to this Section. The market
value of the Common Stock for this purpose shall be the closing price (or last
trade, if so reported) on the Principal Market for each day during such
Registration Default. Notwithstanding anything to the contrary contained herein,
a failure to obtain or maintain the effectiveness of a filed Registration
Statement or the ability of an Investor to use an otherwise effective
Registration Statement to effect resales of Securities during the period after
45 days and within 90 days from the end of the Company's fiscal year resulting
solely from the need to update the Company's financial statements contained or
incorporated by reference in such Registration Statement shall not constitute a
Registration Default and shall not trigger the accrual of liquidated damages
hereunder.
If the Company does not remit the payment to the Investors as
set forth above, the Company will pay the Investors reasonable costs of
collection, including attorneys' fees, in addition to the liquidated damages.
The registration of the Securities pursuant to this provision shall not affect
or limit the Investors' other rights or remedies as set forth in this Agreement.
(f) No provision contained herein shall preclude the Company
from selling securities pursuant to any Registration Statement in which it is
required to include Securities pursuant to this Section 3.
(g) If at any time or from time to time after the effective date
of any Registration Statement, the Company notifies the Investors in writing of
the existence of a Potential Material Event (as defined in Section 3(h) below),
the Investors shall not offer or sell
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any Securities or engage in any other transaction involving or relating to
Securities, from the time of the giving of notice with respect to a Potential
Material Event until the Investors receive written notice from the Company that
such Potential Material Event either has been disclosed to the public or no
longer constitutes a Potential Material Event; provided, however, that the
Company may not so suspend the right to such holders of Securities for more than
thirty (30) days in the aggregate (90 days in the case of an acquisition
requiring the filing of audited financial statements of the acquired business
under Form 8-K) during any twelve month period, during the period the
Registration Statement is required to be in effect, and if such period is
exceeded, such event shall be a Registration Default. If a Potential Material
Event shall occur prior to the date a Registration Statement is required to be
filed, then the Company's obligation to file such Registration Statement shall
be delayed without penalty for not more than twenty (20) days, and such delay or
delays shall not constitute a Registration Default. The Company must, if lawful,
give the Investors notice in writing at least two (2) Trading Days prior to the
first day of the blackout period.
(h) "Potential Material Event" means any of the following: (a)
the possession by the Company of material information not ripe for disclosure in
a registration statement, as determined in good faith by the Chief Executive
Officer or the Board of Directors of the Company that disclosure of such
information in a Registration Statement would be detrimental to the business and
affairs of the Company; or (b) any material engagement or activity by the
Company which would, in the good faith determination of the Chief Executive
Officer or the Board of Directors of the Company, be adversely affected by
disclosure in a registration statement at such time.
Section 4. Cooperation with Company. The Investors will cooperate
with the Company in all respects in connection with this Agreement, including
timely supplying all information and confirmations reasonably requested by the
Company or the Commission (which shall include all information regarding the
Investors and proposed manner of sale of the Registrable Securities required to
be disclosed in any Registration Statement) and executing and returning all
documents reasonably requested in connection with the registration and sale of
the Registrable Securities and entering into and performing their obligations
under any underwriting agreement, if the offering is an underwritten offering,
in usual and customary form, with the managing underwriter or underwriters of
such underwritten offering. Nothing in this Agreement shall obligate any
Investor to consent to be named as an underwriter in any Registration Statement.
The obligation of the Company to register the Registrable Securities shall be
absolute and unconditional as to those Securities which the Commission will
permit to be registered without naming the Investors as underwriters. Any delay
or delays caused by the Investors by failure to cooperate as required hereunder
shall not constitute a Registration Default.
Section 5. Registration Procedures. If and whenever the Company is
required by any of the provisions of this Agreement to effect the registration
of any of the Registrable Securities under the Act, the Company shall (except as
otherwise provided in this Agreement), as expeditiously as possible, subject to
the Investors' assistance and cooperation as reasonably required with respect to
each Registration Statement:
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(a) (i)prepare and file with the Commission such amendments and
supplements to the Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective and
to comply with the provisions of the Act with respect to the sale or other
disposition of all securities covered by such registration statement whenever
the Investors shall desire to sell or otherwise dispose of the same (including
prospectus supplements with respect to the sales of securities from time to time
in connection with a registration statement pursuant to Rule 415 promulgated
under the Act) and (ii) take all lawful action such that each of (A) the
Registration Statement and any amendment thereto does not, when it becomes
effective, contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading and (B) the prospectus forming part of the Registration Statement,
and any amendment or supplement thereto, does not at any time during the
Registration Period include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading;
(b) (i)prior to the filing with the Commission of any
Registration Statement (including any amendments thereto) and the distribution
or delivery of any prospectus (including any supplements thereto), provide draft
copies thereof to the Investors as required by Section 3(c) and reflect in such
documents all such comments as the Investors (and their counsel) reasonably may
propose respecting the Selling Shareholders and Plan of Distribution sections
(or equivalents) and (ii) furnish to each Investor such numbers of copies of a
prospectus including a preliminary prospectus or any amendment or supplement to
any prospectus, as applicable, in conformity with the requirements of the Act,
and such other documents, as such Investor may reasonably request in order to
facilitate the public sale or other disposition of the securities owned by such
Investor;
(c) register and qualify the Registrable Securities covered by
the Registration Statement under such other securities or blue sky laws of such
jurisdictions as the Investors shall reasonably request (subject to the
limitations set forth in Section 3(c) above), and do any and all other acts and
things which may be necessary or advisable to enable each Investor to consummate
the public sale or other disposition in such jurisdiction of the securities
owned by such Investor;
(d) list such Registrable Securities on the Principal Market, if
the listing of such Registrable Securities is then permitted under the rules of
such Principal Market;
(e) notify each Investor at any time when a prospectus relating
thereto covered by the Registration Statement is required to be delivered under
the Act, of the happening of any event of which it has knowledge as a result of
which the prospectus included in the Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing, and the Company
shall use its best efforts to prepare and file a curative amendment under
Section 5(a);
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(f) as promptly as practicable after becoming aware of such
event, notify each Investor who holds Registrable Securities being sold (or, in
the event of an underwritten offering, the managing underwriters) of the
issuance by the Commission of any stop order or other suspension of the
effectiveness of the Registration Statement at the earliest possible time and
take all lawful action to effect the withdrawal, recession or removal of such
stop order or other suspension;
(g) cooperate with the Investors to facilitate the timely
preparation and delivery of certificates for the Registrable Securities to be
offered pursuant to the Registration Statement and enable such certificates for
the Registrable Securities to be in such denominations or amounts, as the case
may be, as the Investors reasonably may request and registered in such names as
the Investors may request; and, within three (3) Trading Days after a
Registration Statement which includes Registrable Securities is declared
effective by the Commission, deliver and cause legal counsel selected by the
Company to deliver to the transfer agent for the Registrable Securities (with
copies to the Investors) an appropriate instruction and, to the extent
necessary, an opinion of such counsel;
(h) take all such other lawful actions reasonably necessary to
expedite and facilitate the disposition by the Investors of their Registrable
Securities in accordance with the intended methods therefor provided in the
prospectus which are customary for issuers to perform under the circumstances;
(i) in the event of an underwritten offering, promptly include
or incorporate in a prospectus supplement or post-effective amendment to the
Registration Statement such information as the managers reasonably agree should
be included therein and to which the Company does not reasonably object and make
all required filings of such prospectus supplement or post-effective amendment
as soon as practicable after it is notified of the matters to be included or
incorporated in such Prospectus supplement or post-effective amendment; and
(j) maintain a transfer agent and registrar for its Common
Stock.
Section 6. Indemnification.
(a) To the maximum extent permitted by law, the Company agrees
to indemnify and hold harmless the Investors and each person, if any, who
controls an Investor within the meaning of the Securities Act (each a
"Distributing Investor") against any losses, claims, damages or liabilities,
joint or several (which shall, for all purposes of this Agreement, include, but
not be limited to, all reasonable costs of defense and investigation and all
reasonable attorneys' fees and expenses), to which the Distributing Investor may
become subject, under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in any Registration Statement, or any related final prospectus or
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, that the Company will not be liable in any such case to the extent, and
only to the extent, that any such loss, claim, damage or liability
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arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in such Registration Statement, preliminary
prospectus, final prospectus or amendment or supplement thereto in reliance
upon, and in conformity with, written information furnished to the Company by
the Distributing Investor, its counsel, affiliates or any underwriter,
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which the Company may otherwise have.
(b) To the maximum extent permitted by law, each Distributing
Investor agrees that it will indemnify and hold harmless the Company, and each
officer and director of the Company or person, if any, who controls the Company
within the meaning of the Securities Act, against any losses, claims, damages or
liabilities (which shall, for all purposes of this Agreement, include, but not
be limited to, all reasonable costs of defense and investigation and all
reasonable attorneys' fees and expenses) to which the Company or any such
officer, director or controlling person may become subject under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any Registration
Statement, or any related final prospectus or amendment or supplement thereto,
or arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, but in each case only to the extent that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in such Registration Statement, final prospectus or amendment or supplement
thereto in reliance upon, and in conformity with, written information furnished
to the Company by such Distributing Investor, its counsel, affiliates or any
underwriter, specifically for use in the preparation thereof. This indemnity
agreement will be in addition to any liability which the Distributing Investor
may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action against such indemnified
party, such indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party under this Section 6, notify the indemnifying
party in writing of the commencement thereof; but the omission to so notify the
indemnifying party will not relieve the indemnifying party from any liability
which it may have to any indemnified party except to the extent the failure of
the indemnified party to provide such written notification actually prejudices
the ability of the indemnifying party to defend such action. In case any such
action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, assume the defense thereof,
subject to the provisions herein stated and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party
under this Section 6 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation, unless the indemnifying party shall not
pursue the action to its final conclusion. The indemnified parties as a group
shall have the right to employ one separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party unless (i) the
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employment of such counsel has been specifically authorized in writing by the
indemnifying party, or (ii) the named parties to any such action (including any
impleaded parties) include both the indemnified party and the indemnifying party
and the indemnified party shall have been advised by its counsel that there may
be one or more legal defenses available to the indemnifying party different from
or in conflict with any legal defenses which may be available to the indemnified
party or any other indemnified party (in which case the indemnifying party shall
not have the right to assume the defense of such action on behalf of such
indemnified party, it being understood, however, that the indemnifying party
shall, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable only for the reasonable fees and
expenses of one separate firm of attorneys for the indemnified party, which firm
shall be designated in writing by the indemnified party). No settlement of any
action against an indemnified party shall be made without the prior written
consent of the indemnified party, which consent shall not be unreasonably
withheld so long as such settlement includes a full release of claims against
the indemnified party.
Section 7. Contribution. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) the indemnified
party makes a claim for indemnification pursuant to Section 6 hereof but is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 6 hereof provide
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any indemnified party, then the Company and the
applicable Distributing Investor shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees and
expenses), in either such case (after contribution from others) on the basis of
relative fault as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company on the one hand or the applicable Distributing Investor on the other
hand, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
the Distributing Investor agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to in this Section 7. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this Section 7
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
Notwithstanding any other provision of this Section 7, in no event shall any (i)
Investor be required to undertake liability to any person under this Section 7
for any amounts in excess of the
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dollar amount of the proceeds received by such Investor from the sale of such
Investor's Registrable Securities (after deducting any fees, discounts and
commissions applicable thereto) pursuant to any Registration Statement under
which such Registrable Securities are registered under the Securities Act and
(ii) underwriter be required to undertake liability to any person hereunder for
any amounts in excess of the aggregate discount, commission or other
compensation payable to such underwriter with respect to the Registrable
Securities underwritten by it and distributed pursuant to such Registration
Statement.
Section 8. Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) hand delivered,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by facsimile, addressed as set forth in the
Purchase Agreement or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated in the
Purchase Agreement (if delivered on a business day during normal business hours
where such notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal business hours
where such notice is to be received) or (b) on the first business day following
the date of sending by reputable courier service, fully prepaid, addressed to
such address, or (c) upon actual receipt of such mailing, if mailed. Either
party hereto may from time to time change its address or facsimile number for
notices under this Section 8 by giving at least ten (10) days' prior written
notice of such changed address or facsimile number to the other party hereto.
Section 9. Assignment. This Agreement is binding upon and inures to
the benefit of the parties hereto and their respective heirs, successors and
permitted assigns. The rights granted the Investors under this Agreement may be
assigned to any purchaser of substantially all of the Registrable Securities (or
the rights thereto) from an Investor, as otherwise permitted by the Purchase
Agreement.
Section 10. Additional Covenants of the Company. The Company agrees
that at such time as it otherwise meets the requirements for the use of
Securities Act Registration Statement on Form S-3 for the purpose of registering
the Registrable Securities, it shall file all reports and information required
to be filed by it with the Commission in a timely manner and take all such other
action so as to maintain such eligibility for the use of such form.
Section 11. Counterparts/Facsimile. This Agreement may be executed
in two or more counterparts, each of which shall constitute an original, but all
of which, when together shall constitute but one and the same instrument, and
shall become effective when one or more counterparts have been signed by each
party hereto and delivered to the other parties. In lieu of the original, a
facsimile transmission or copy of the original shall be as effective and
enforceable as the original.
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Section 12. Remedies. The remedies provided in this Agreement are
cumulative and not exclusive of any remedies provided by law. If any term,
provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their best efforts to find and
employ an alternative means to achieve the same or substantially the same result
as that contemplated by such term, provision, covenant or restriction.
Section 13. Conflicting Agreements. The Company shall not enter into
any agreement with respect to its securities that is inconsistent with the
rights granted to the holders of Registrable Securities in this Agreement or
otherwise prevents the Company from complying with all of its obligations
hereunder.
Section 14. Headings. The headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 15. Governing Law, Arbitration. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made in New York by persons domiciled in New York City
and without regard to its principles of conflicts of laws. Any dispute under
this Agreement shall be submitted to arbitration under the American Arbitration
Association (the "AAA") in New York City, New York, and shall be finally and
conclusively determined by the decision of a board of arbitration consisting of
three (3) members (hereinafter referred to as the "Board of Arbitration")
selected as according to the rules governing the AAA. The Board of Arbitration
shall meet on consecutive business days in New York City, New York, and shall
reach and render a decision in writing (concurred in by a majority of the
members of the Board of Arbitration) with respect to the amount, if any, which
the losing party is required to pay to the other party in respect of a claim
filed. In connection with rendering its decisions, the Board of Arbitration
shall adopt and follow the laws of the State of New York. To the extent
practical, decisions of the Board of Arbitration shall be rendered no more than
thirty (30) calendar days following commencement of proceedings with respect
thereto. The Board of Arbitration shall cause its written decision to be
delivered to all parties involved in the dispute. Any decision made by the Board
of Arbitration (either prior to or after the expiration of such thirty (30)
calendar day period) shall be final, binding and conclusive on the parties to
the dispute, and entitled to be enforced to the fullest extent permitted by law
and entered in any court of competent jurisdiction. The Board of Arbitration
shall be authorized and is hereby directed to enter a default judgment against
any party failing to participate in any proceeding hereunder within the time
periods set forth in the AAA rules. The non-prevailing party to any arbitration
(as determined by the Board of Arbitration) shall pay the expenses of the
prevailing party, including reasonable attorneys' fees, in connection with such
arbitration. Any party shall be entitled to obtain injunctive relief from a
court in any case where such relief is available. The non-prevailing party to
any injunctive proceeding (as determined by the court) shall pay the expenses of
the prevailing party, including reasonable attorney's fees, in connection with
such injunctive proceeding.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed, on the day and year first above written.
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
By: /s/ ROBERT H. GUREVITCH
----------------------------------------
Robert H. Gurevitch, President
INVESTORS:
AMRO INTERNATIONAL, S.A.
By:________________________________________
H.U. Bachofen, Director
ESQUIRE TRADE & FINANCE INC.
By:________________________________________
Roland Winiger, Authorized Signatory
AUSTINVEST ANSTALT BALZERS
By:________________________________________
Dr. Walter Grill, Authorized Signatory
LEVAL TRADING
By:________________________________________
, Authorized Signatory
THE KESHET FUND, L.P.
By:________________________________________
, Authorized Signatory
12
<PAGE> 1
EXHIBIT 10.50
THIRD AMENDMENT
TO PROMISSORY NOTE IN THE PRINCIPAL AMOUNT OF $2,500,000
FIRST AMENDMENT
TO PROMISSORY NOTE IN THE PRINCIPAL AMOUNT OF $2,500,000
AND FIFTH AMENDMENT TO
CREDIT AGREEMENT AND
WAIVER
This Amendment and Waiver Agreement ("Amendment") is made as of March 23, 2000
by and between DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC., ("Borrower") and
Imperial Bank, a California banking corporation, ("Bank") and amends certain
provisions of (i) that Promissory Note dated as of January 4, 1999 executed by
Borrower in favor of Bank in the principal amount of $2,500,000 ("Note 1"),
(ii) that Promissory Note dated as of January 4, 1999 executed by Borrower in
favor of Bank in the principal amount of $4,000,000 ("Note 2") and (iii) that
Credit Agreement dated January 4, 1999 executed by Borrower in favor of Bank
("Agreement") and contains certain waivers by Bank of the Borrower complying
with certain provisions of the Agreement as follows:
Whereas, Borrower violated certain financial covenants of the Agreement and has
requested Bank to waive such breaches.
Events of Default: The following Events of Defaults have occurred in the
Agreement:
A. DEFAULTS AND WAIVERS. The Banks review of the Borrower's nine-month
interim financial statement dated December 31, 1999 disclosed the following
defaults have occurred in the Agreement as follows:
1. Section 4.06 "QUICK RATIO. Maintain quick ratio of cash and accounts
receivable to current liabilities of at least 1.00:1.0."
Default: Actual Quick Ratio was .76:1.0.
2. Section 4.08 "TANGIBLE NET WORTH. Maintain at all times a Tangible Net
Worth (defined as stockholder's equity loss any value for goodwill, trademarks,
patents, copyrights, leaseholds, organization expense and other similar
intangible items, and any amounts due from stockholders, officers and
affiliates) of not less than Ten Million Dollars ($10,000,000)."
Default: Actual Tangible Net Worth was $7,910,000.
3. Section 4.09 "DEBT TO TANGIBLE NET WORTH. Maintain at all times a
consolidated ratio of total liabilities to Tangible Net Worth (defined as
stockholder's equity less any value for goodwill, trademarks, patents,
copyrights, leaseholds, organization expense and other similar intangible items,
and any amounts due from stockholders, officers and affiliates) of not greater
than 1.50:1.0."
1
<PAGE> 2
Default: Actual Debt to Tangible Net Worth was 1.75:1.0.
4. Section 4.10 "FIXED CHARGE COVERAGE RATIO. Maintain quarterly, a Fixed
Charge Ratio of not less the 1.5:1.0."
Default: Actual Fixed Charge Ratio was negative.
5. Section 4.11 "PROFITABILITY, Maintain on a consolidated basis, profitable
operations (meaning a net profit after taxes) of at least $1.00 on a quarterly
basis beginning with the quarter ending 12/31/98."
Default: Actual Profitability for the quarter ending 12/31/99 was a net loss
of ($5,971,00).
The above waivers are specific as to contents and times, and other than the
waivers mentioned above this amendment is not a waiver of any other rights or
remedies that Bank may have pursuant to any agreement or law as a result of any
other violations past, present, or future of any agreement between the Borrower
and the Bank, and Bank reserves all rights, powers and remedies available to it.
1. The above waivers are conditioned upon the following events, and the
failure of Borrower to comply with the following shall terminate this waiver and
result in the occurrence of an Event of Default under the Agreement, giving the
Banks all the rights and remedies thereunder:
(a) Bank receiving a fee of $25,000 from the Borrower. Borrower hereby
authorizes bank to charge its account #10087228 with Bank for this fee.
(b) Borrower agrees to supply Bank a list of all it's intellectual property
and provide Bank in form and substance satisfactory to Bank a perfected
security interest in all patents, trademarks and copyrights as deemed necessary
by Bank within 60 days of the date of this Amendment.
(c) Borrower agrees to provide Bank with 75,000 warrants for Common Stock of
Borrower at the strike price of $2.50 and to include Conversion Rights (net
exercise right). Transferability to Imperial Bank Affiliates, minimum term of
seven (7) years, warrants to be registered, and Warrant issuance on Bank form
and in form and substance satisfactory to Bank.
(d) Borrower agrees to amendments of the Credit Agreement and Promissory Notes
as described below.
2
<PAGE> 3
A. AMENDMENTS TO THE PROMISSORY NOTE IN THE ORIGINAL AMOUNT OF $2,500,000.
1. The Note 1 is amended by deleting, in its entirety, the section entitled
PAYMENT and replacing it with the following:
"PAYMENT. Subject to any payment changes resulting from changes in the Index,
Borrower will pay this loan in accordance with the following payment schedule:
"Fourteen principal payments of $100,000.00 each on March 31, 2000, April 30,
2000, May 31, 2000, June 30, 2000, July 31, 2000, August 31, 2000, September 30,
2000, October 31, 2000, November 30, 2000, December 31, 2000, January 31, 2001,
February 28, 2001, March 31, 2001 and April 30, 2001 with interest calculated on
the unpaid principal balances at an interest rate of 1.0 percentage point over
the Index, described above and one final principal payment of $900,000 on May
31, 2001. This estimated final payment is based on the assumption that all
payments will be made exactly as scheduled and that the Index does not change;
the actual final payment will be for all principal and accrued interest not yet
paid, together with any other unpaid amounts under this Note."
2. Note 1 is further amended by deleting "The interest rate to be applied to the
unpaid principal balance in this Note will be at a rate of 0.5 percentage points
over the Index, resulting in an initial rate of 9.0%." and replaced with the
following:
"The interest rate to be applied to the unpaid principal balance in this Note
will be at a rate of 1.0 percentage point over the Index, resulting in an
initial rate of 10.0%."
B. AMENDMENT TO THE PROMISSORY NOTE IN THE ORIGINAL AMOUNT OF $4,000,000 ("NOTE
2").
1. Note 2 is amended by amending the section entitled PAYMENT deleting the
sentence "Borrower will pay this loan in one payment of all outstanding
principal plus all accrued unpaid interest on May 31, 2000" and replacing it
with the following:
"Borrower will pay this loan in one payment of all outstanding principal plus
all accrued unpaid interest on May 31, 2001."
2. Note 2 is further amended by amending the section entitled VARIABLE INTEREST
RATE. The sentence "The interest rate to be applied to the unpaid principal
balance of this Note will be at a rate of 0.5000 percentage point over the
Index, resulting in an initial rate of 8.250%" shall be deleted and replaced
with the following:
"The interest rate to be applied to the unpaid principal balance of this Note
will be at a rate of 1.00 percentage point over the Index, resulting in an
initial rate of 10.0%."
3
<PAGE> 4
C. AMENDMENTS TO THE CREDIT AGREEMENT
1. Section 1.03 REVOLVING LINE OF CREDIT is amended by deleting "until May
31, 2000 (the "Revolving Line of Credit Maturity Date")" and replacing
with "until May 31, 2001 (the "Revolving Line of Credit Maturity Date")".
2. Section 4.07 QUICK RATIO is amended by adding the following:
"Current liabilities shall include all amounts outstanding to Bank which
are due under the $4,000,000 revolving line of credit and the Term A Loan
as stated on the Credit Agreement dated January 4, 1999 regardless of
maturity date and GAAP presentation."
3. Section 4.09 TANGIBLE NET WORTH is amended by adding the following
sentence:
"Tangible Net Worth shall be increased by 75% of the amount of equity
raised beginning 4/1/00."
4. Section 4.11 PROFITABILITY shall be amended by deleting the phrase "with
the quarter ending 12/31/98" and shall be replaced by the following:
"with the quarter ending June 30, 2000."
D. Except as provided above, the Agreement and Note 1 and Note 2 remain
unchanged. Any capitalized terms used herein and not defined herein shall
have the meanings defined in the Agreement.
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
By: /s/ STEPHEN ROSS
-----------------------
Stephen Ross
Its: Chief Financial Officer
IMPERIAL BANK
By: /s/ TRICIA HUNTER
------------------------------------
Tricia Hunter, Senior Vice President
4
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
DMDS, Ltd., a company organized under the laws of the United Kingdom.
WaveLight, Inc., a Delaware corporation.
DMDcorp.com, Inc., a Delaware corporation.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Annual Report on Form 10-KSB for the period
ended December 31, 1999 and to the incorporation by reference in the
Registration Statements on Form S-3 (File Nos. 333-93651, 333-94827 and
333-83599) of our report dated March 17, 2000, except for the subsequent event
described in Note 10, as to which the date is March 23, 2000, on our audits of
the balance sheets of Dental/Medical Diagnostic Systems, Inc. as of December 31,
1999 and 1998, and the results of its operations and cash flows for each of the
years in the three year period ended December 31, 1999.
PRICEWATERHOUSECOOPERS LLP
Woodland Hills, California
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INTERIM
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF DENTAL/MEDICAL DIAGNOSTIC
SYSTEMS, INC. AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999 INCLUDED IN THIS
REPORT ON FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,615,501
<SECURITIES> 0
<RECEIVABLES> 6,204,129
<ALLOWANCES> 448,081
<INVENTORY> 7,835,377
<CURRENT-ASSETS> 19,433,125
<PP&E> 2,070,931
<DEPRECIATION> 768,173
<TOTAL-ASSETS> 23,825,862
<CURRENT-LIABILITIES> 8,111,810
<BONDS> 0
1,816,343
0
<COMMON> 64,975
<OTHER-SE> 8,130,141
<TOTAL-LIABILITY-AND-EQUITY> 23,825,862
<SALES> 38,180,996
<TOTAL-REVENUES> 38,180,996
<CGS> 22,144,868
<TOTAL-COSTS> 22,049,448
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,055,813
<INCOME-PRETAX> (6,699,331)
<INCOME-TAX> 28,307
<INCOME-CONTINUING> (6,727,638)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,727,638)
<EPS-BASIC> (1.15)
<EPS-DILUTED> (1.15)
</TABLE>
