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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO ______________
FOR THE FISCAL YEAR ENDED JUNE 30, 1996 COMMISSION FILE NUMBER 0-17928
NEW IMAGE INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4088548
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2283 COSMOS COURT, CARLSBAD, CALIFORNIA 92009
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE (619) 930-9900
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF EACH CLASS
-------------------
COMMON STOCK
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 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 .
- --
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K / /
AT SEPTEMBER 27, 1995, THERE WERE OUTSTANDING 5,479,908 SHARES OF THE
COMMON STOCK OF REGISTRANT, AND THE AGGREGATE MARKET VALUE OF THE SHARES HELD ON
THAT DATE BY NON-AFFILIATES OF THE REGISTRANT, BASED ON THE CLOSING PRICE ($1
5/8 PER SHARE) OF THE REGISTRANT'S COMMON STOCK ON THE NATIONAL MARKET SYSTEM
WAS $8,689,629. FOR PURPOSES OF THIS COMPUTATION, IT HAS BEEN ASSUMED THAT THE
SHARES BENEFICIALLY HELD BY DIRECTORS AND OFFICERS OF REGISTRANT WERE "HELD BY
AFFILIATES"; THIS ASSUMPTION IS NOT TO BE DEEMED TO BE AN ADMISSION BY SUCH
PERSONS THAT THEY ARE AFFILIATES OF REGISTRANT.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF REGISTRANT'S PROXY STATEMENT RELATING TO ITS 1996 ANNUAL MEETING OF
STOCKHOLDERS ARE INCORPORATED BY REFERENCE IN PART 3 OF THIS REPORT.
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PART I
ITEM 1. BUSINESS.
OVERVIEW
New Image Industries, Inc. (New Image) designs, develops, manufactures and
distributes intraoral cameras and computer imaging systems and related software
exclusively to the dental market place worldwide. In May 1996, New Image
acquired all of the issued and outstanding common of Insight Imaging Systems,
Inc. (referred to herein as "Insight"), a California Corporation in exchange for
approximately 650,000 shares of New Image Common Stock. Insight was New Image's
largest competitor, which also designed, developed, manufactured and distributed
intraoral cameras and computer imaging systems and related software exclusively
to the dental market place worldwide. Insight is now a wholly-owned subsidiary
of New Image Industries, Inc. Together, the two companies (referred to herein
as the Company) account for more than 50% of the worldwide intraoral camera
sales with cumulative units sales exceeding 18,000. The Company's intraoral
camera line is segmented to address the low-priced end of the market, the multi-
operatory market and the high-end market. These products range in price from
$5,495 to $13,869. The products include the AcuCam-Registered Trademark- System
One Intraoral Camera System, the MultiCam-TM- Intraoral Camera System, the
AcuCam-Registered Trademark- Concept III Intraoral Camera System, the AcuCam
PC+-TM- Computerized Camera System, the AcuView-TM- Dental Imaging System, the
PLUG 'n PLAY Intraoral Camera System, the MultiLink Intraoral Camera System, and
software packages entitled Chart-It Pro and Capture-It Plus. These products and
others are described in more detail in the sections "Intraoral Camera Products",
"Software Products" and "Other Products".
From its inception in 1987 until approximately the middle of fiscal 1991,
New Image marketed imaging systems and proprietary software to many additional
industries, including the beauty, architectural, landscape, plastic surgery and
weight loss industries. In the middle of fiscal 1991, New Image began to focus
exclusively on the dental industry. During fiscal 1991, 1992 and 1993,
approximately 49%, 80% and 82%, respectively, of New Image's revenues were
derived from sales of Intraoral Camera Systems to the dental industry.
Beginning with the fiscal year 1994 and all subsequent fiscal years, revenues
have been derived entirely from sales of Intraoral Camera Systems, software and
related products to the dental industry.
Insight Imaging Systems, Inc. was formed in 1992 for the purpose of
designing, manufacturing, and marketing a family of intraoral video cameras for
the dental industry. All of its revenues since inception have been derived from
this market. In September 1995, Insight acquired all of the issued and
outstanding common stock of Chart-It, Inc., a Virginia Corporation, for a total
consideration of $805,917. Chart-It, Inc. developed and marketed a fully
automated, computerized tooth and periodontal charting software program sold
under the name of Chart-It-TM-.
INTRAORAL CAMERA PRODUCTS
ACUCAM INTRAORAL CAMERA SYSTEM. In January 1991 New Image acquired the
rights to an intraoral video camera known as the AcuCam Intraoral Camera (the
"AcuCam"). The AcuCam is a patented intraoral video camera system which is
designed to assist the dental professional in diagnosing and demonstrating
intraoral problems to the patient. The Company currently markets systems (the
"AcuCam System") incorporating an advanced version of the AcuCam under the
trade names of AcuCam Plus and AcuCam System One (introduced December 1995) to
the dental industry. These systems are part of our low-priced segment of the
intraoral camera products which sell in the price range of $5,495 to $7,995.
AcuCam Systems accounted for approximately 28% of the Company's total revenues
in the fiscal year ended June 30, 1996.
The AcuCam consists of a high-quality camera body and fiber optic light rod
with interchangeable 0DEG. and 90DEG. lenses built into a unit about the size
of a standard dental handpiece. The 90DEG. lens is housed in an autoclavable
rhodium sleeve which is heat sterilizable. Alternatively, the 90DEG. lens can
be encased in a disposable sterile sheath. The camera uses a 1/2 inch Toshiba
or Panasonic CCD. The camera unit also includes an image control processor
(CCU) and a halogen light source connected to the hand piece by a five foot
fiber optic cable. The entire AcuCam Intraoral Camera System includes a camera
unit, a color monitor (13-inch standard), the AcuPrinter (Color Video
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Printer) and a four wheel cart. Customers may purchase upgrades to the standard
System, which include a foot pedal for hands free operation, a super VHS video
cassette recorder, additional lenses and a 20-inch super VHS color monitor.
MULTICAM INTRAORAL CAMERA SYSTEM. New Image introduced the MultiCam
Intraoral Camera System ("MultiCam") in March 1995. MultiCam is a camera
interchange system that allows a single AcuCam Intraoral Camera to be used in
multiple operatories through the use of docking stations. The portable camera
weighs less than three pounds and is easily moved between locations. MultiCam
is a cost-effective alternative to video networks, which require wiring and
installation. The components of the MultiCam System are basically the same as
the AcuCam System with the exception of the docking station and the housing of
the camera processor (CCU). The MultiCam has a price of $7,995 to $9,995.
Additional operatories can be purchased for $2,500 to $3,595. Revenues for the
fiscal year ending June 30, 1996 were approximately 21% of the Company's total.
ACUCAM CONCEPT III INTRAORAL CAMERA SYSTEM. The Company began delivery of
the AcuCam Concept III in June 1996. This system is the Company's most advanced
intraoral camera system that combines an extremely high quality image (100 line
pairs per mm) with unprecedented ease of use. It features a unique direct
optical system and a single handpiece and lens system with intraoral, extraoral
and macro setting. This camera will have the highest clinical rating of any
intraoral camera. The Concept III camera utilizes 1/4 inch Panasonic CCD which
allows the handpiece to have the smallest diameter among the major intraoral
camera producers. The Concept III System also incorporates the docking station
feature for use in multi-operatory settings. This camera is for the high end
segment of the intraoral camera market. Its price range is from $8,495 to
11,495. Because this product was introduced late in 1996, revenues were
immaterial.
PLUG 'N PLAY. Insight introduced this compact wall mounted dental video
system in 1995 as part of the low end segment of the intraoral camera market.
It serves as an economical starter system which requires no floor space, easy
installation and minimal training. Price of the system starts at $6,995. The
system still delivers a high quality image, a portable dual camera system having
two hand pieces (Insight 20/20-TM-), one with a ODEG. _lens and the other a
100DEG. lens, a vertically-mounted color video printer, color TV monitor (13
inch standard) and mounting brackets for both the camera and monitor. Revenues
for the year ended June 30, 1996 were approximately 6% of the Company total.
MULTILINK. The Insight MultiLink Video Operatory Network allows the dental
operatory to be linked to the front office computer system. The MultiLink
system utilizes the Insight 20/20 portable dual camera system, wall mounted
docking stations, video multiplexers, Infrared Multiplexers, Infrared Receiver,
and a remote controlled color video printer as the building blocks of an
integrated, yet cost effective way to equip multiple dental operatories.
Pricing ranges from $10,488 (two (2) Operatories) to $13,869 (six (6)
Operatories). Many upgrades and options are offered with the MultiLink modular
system. Revenues for the year ended June 30, 1996 were approximately 22% of the
Company total.
SOFTWARE PRODUCTS
ACUCAM PC+ COMPUTERIZED INTRAORAL CAMERA SYSTEM. The Company introduced
its first computerized intraoral camera system, the AcuCam PC Computerized
Intraoral Camera System in November 1993 later improved to the AcuCam PC+ in
October 1994. The AcuCam PC+ is a computerized intraoral camera system which
allows the images captured with the intraoral camera to be automatically
transferred to a host computer for storage or combination with the patient's
records. With the AcuCam PC+, the dentist can make notations about a particular
image and include the notations with the image in the file. The AcuCam PC+ also
allows for easy integration of the AcuCam with other imaging modalities.
The standard system components of the AcuCam PC+ are the AcuCam Camera
System, a 486 or Pentium compatible computer with 16 Mb RAM and 540 Mb hard
drive and proprietary, Windows-based software which ties the intraoral images to
patient files, automatically date stamps each picture and provides room for
clinical notes and treatment reminders, the AcuPrinter, a 13" super VGA monitor,
a mouse and four wheeled cabinet. The AcuCam PC has a list price of $12,145.
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ACUVIEW DENTAL IMAGING SYSTEM. In October 1989, the Company acquired the
rights to certain software developed for use in the plastic surgery and cosmetic
dentistry industries, which the Company has used to develop the AcuView Dental
Imaging System. The Company no longer actively markets a plastic surgery
imaging system.
The AcuView Dental Imaging System, formerly named the PreView Imaging
System, is a computerized cosmetic imaging system which allows dentists to
visually communicate to their patients the potential results of one or more
cosmetic, restorative or orthodontic dentistry procedures. The dentist uses a
video camera which is included as part of the system to take a picture of the
patient, and the image is input into the system and appears on the screen. The
dentist can then alter the on-screen image of the patient, allowing both
practitioner and patient to view the potential outcomes of various procedures.
The dentist may then print out a "before" and "after" picture of the patient
illustrating the potential outcome of the suggested procedure.
The basic equipment utilized in the AcuView System includes a 486 or
Pentium based computer with an image processing board, the Company's proprietary
software, an RGB color video camera, an RGB monitor, an imaging camera system
including camera mount, diopter set and video lighting, a graphics tablet and
stylus pen and a printer. The software program is a paint-type program that is
specifically designed for the cosmetic dentistry application, and enables the
practitioner to make computer-assisted freehand changes to the image displayed
on the screen using a stylus. The AcuView was upgraded and put on Microsoft
Windows in 1995. The AcuView System's current list price is $12,145.
CHART-IT. Chart-It is a periodontal charting, restorative charting, and
treatment planning software package for dentistry. Using Chart-It, a dental
professional can quickly chart the condition of a patient's mouth, identifying
healthy teeth and restorations as well as defective teeth and restorations.
Chart-It's treatment planning module facilitates treatment planning by
automatically providing a list of appropriate treatments for each defective
tooth or restoration. Treatment plans are created by selecting one of the
treatments for each problem. Chart-It is designed to run on an IBM compatible
PC with Microsoft Windows.
CAPTURE-IT PLUS. Capture-It Plus is a clinical image management software
package for dentistry which is designed to enhance the capabilities of an
intraoral camera. Capture-It Plus software provides unlimited storage of images
from intraoral cameras. Capture-It Plus organizes images into a patient folder
and keeps track of them through the use of a relational database. The
relational database provides a means for storage and retrieval of images by
tooth number, region of the mouth, diagnosis, treatment or exam date. Capture-
It Plus provides image re-orientation to correct for cameras which utilize
prisms and also corrects for image mis-orientation caused by holding the camera
upside down. Capture-It Plus is designed to run on an IBM PC compatible with
Microsoft Windows.
OTHER PRODUCTS
ACUPRINTER AND ACUPRINTER DTS. The AcuPrinter is a high speed, high
resolution color printer which allows for the production of multi-format hard
copy images for patient and insurance use. The AcuPrinter DTS, which the
Company introduced in October 1993, allows for the storage of multiple images in
memory and the digital transfer of images to and from a computer. With the
AcuPrinter DTS, four full resolution images can be displayed in four quadrants,
thereby allowing the display of 16 total images. The AcuPrinter DTS uses a
Microsoft Windows software program to export and import images from the printer
to the computer.
SOCRATES-TM- INTERACTIVE CD. Beginning in April 1994, the Company also
offers either separately or as a part of any other system, the Socrates
Interactive CD Patient Education System ("Socrates"). Using interactive CD
technology, Socrates is used to educate patients about dentistry and a variety
of dental procedures, either in the waiting room or in the dentist's chair.
Socrates provides patient education on a variety of topics in 3-5 minute
segments. The current list price for Socrates is $995.
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CONSUMABLES. The Company generates additional revenue by selling film to
its customers for use in the printers sold by the Company, as well as disposable
sterilized sheaths and window clips for the AcuCam lenses. Approximately 8% of
the Company's revenues are derived from these products.
MANUFACTURING/MATERIALS
Prior to February 1993, the Company contracted with AeroSpace Optics, Inc.,
an independent third party, for the manufacture of the AcuCam handpiece, lenses
and light-processor and completed its final assembly and test in the main
facility in Canoga Park. In February 1993, the Company acquired AeroSpace
Optics to obtain the capability to manufacture these products with its own
employees. This was done to lessen the dependence on third parties, improve
quality controls and lower costs. At the beginning of the calendar year 1995,
the Company decided to consolidate its manufacturing into one location at San
Juan Capistrano, California.
The Company moved its manufacturing facilities in November 1995 from San
Juan Capistrano, California to Carlsbad, California. This was part of the
restructuring plan to consolidate all its operations into one facility. In May
1996, through the acquisition of Insight, the Company acquired three additional
production locations; they included camera assembly in Mission Viejo,
California, software and technical assistance in Richmond, Virginia and the main
manufacturing and headquarters in San Carlos, California. All three of these
facilities will be closed and functions and personnel transferred to Carlsbad,
California by the end of calendar 1996.
The Company purchases the non-proprietary hardware components included as
part of its Intraoral Camera Products from outside sources. Multiple sources of
supply are available for most parts and components purchased by the Company.
However, the Company has no internal capacity to manufacture certain essential
hardware components included as part of its systems and is dependent on outside
sources for such components. If the Company's sources experience problems with
production quality or quantity, whether due to financial, operational or other
difficulties, the Company could suffer delays, reduction or interruption in
supply of its products, higher warranty expenses and product image problems.
Accordingly, the Company's operating results could be materially adversely
affected if such supplier problems should develop. In light of these risks, the
Company has entered into written supply contracts for essential components of
its own and for products of others which it distributes. When an outside
supplier does not have significant financial strength and a track record of
reliable performance, the Company endeavors to have alternative sources of
supply identified. While the Company believes that suitable third party
manufacturing capacity is available, there can be no assurance that such
manufacturers will meet the Company's future requirements or that such services
will be available in a time frame, on terms and at prices favorable to the
Company.
Many of the high cost components of the Company's systems are computer and
video items which have alternative uses. The Company is a value added reseller
for most of these hardware components included as part of its systems. The
Company purchases substantially all of these hardware components from its
vendors at a discount from recommended retail list prices.
MARKETING AND SALES
UNITED STATES.
Prior to the merger with Insight, the Company sold its products in the
United States through a national sales force of approximately 60 independent
representatives who operated under the supervision of 12 Regional Managers.
Currently, the Company has approximately 70 full-time employee sales
representatives and no independent sales representatives. The sales
representatives are supervised by six Zone Managers for the U.S. and one for
Canada.
The majority of the sales made by the Company have historically been the
result of leads created principally from responses to direct mail solicitations,
advertising in trade publications and attending trade shows. Sales
representatives are compensated on a commission basis, with commissions
generally ranging between 8% and 12% of the sale price of the unit sold.
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INTERNATIONAL SALES
NEW IMAGE INTERNATIONAL. Traditionally, the Company marketed turnkey New
Image Systems in Europe through New Image International, headquartered in Ghent,
Belgium, which was the Company's exclusive distributor of New Image products in
Europe prior to being acquired by the Company in December 1989. In April 1992,
the Company sold New Image International to an unrelated Belgian company. The
purchaser acquired the stock of New Image International and the exclusive right
to distribute the Company's dental products in Europe. The terms of the sale
were such that the purchaser paid for the stock with a promissory note which was
secured by the New Image International stock sold. The purchaser defaulted on
the payment of the note and the Company reacquired ownership of New Image
International during fiscal 1993. The Company then terminated all of New Image
International's rights to distribute New Image Systems, and granted an exclusive
license to an unaffiliated third party to market its products in Europe.
Pursuant to an Assignment and Assumption of License Agreement dated July 29,
1994, the Company reacquired this license in consideration of the transfer of
100,000 shares of the Company's Common Stock to the licensee. After reacquiring
the rights to market its products in Europe, the Company has decided to change
its international strategy. Historically, the Company marketed its products
outside the United States primarily through licensees, in 1995 the Company began
to move toward direct marketing of its products through distributors and
dealers.
CURRENT INTERNATIONAL SALES ARRANGEMENTS.
As of June 30, 1996, the Company's products were sold internationally
through a licensee in South America and through distributors in Taiwan, Korea,
Great Britain, the Benelux countries, Denmark and Italy. In January 1996, the
Company signed a 3-year agreement with Takara Belmont Corporation to distribute
its intraoral camera products in Japan. The 1996 commitment by Belmont is to
purchase $1.95 million of New Image products. The Company contracts with VTM
Medical Marketing to establish dealer arrangements in both Europe and Japan. In
addition, through the merger with Insight, the Company acquired and is
continuing an employment arrangement with an international sales manager.
International sales are subject to certain risks common to non-United
States operations in general, such as governmental regulation and import
restrictions. The Company's international sales are dollar denominated and,
therefore, are not directly subject to international currency fluctuations.
ADVERTISING AND PROMOTION
The Company uses a combination of national advertising in selected trade
journals, direct mail and trade show exhibitions to promote the New Image
Systems. During the last three fiscal years, the Company has incurred $4
million to $5 million in advertising costs and promotional activities. The
Company attended over 150 trade shows and seminars during fiscal 1996.
Also as a form of advertising and promotion, the Company sells or lends
Intraoral Camera Systems to dental schools nationwide. The Company believes
that exposure to the product while a practitioner is in training may lead to
increased sales in the future.
TRAINING, CUSTOMER SUPPORT AND PRODUCT SERVICE
Management believes that most of the customers who purchase Intraoral
Camera Systems have little or no prior computer experience. No training is
required to operate the AcuCam or MultiCam Intraoral Video Camera Systems. The
other systems purchased from the Company offer half or full day training session
conducted at the customer's location or at a Company facility. At the initial
training session, the customer is instructed in the operation of the system. A
customer may purchase additional training sessions or refresher courses at any
time.
All products currently sold by the Company come with a one year standard
limited parts and labor warranty on the hardware components. Computer imaging
technicians are available to answer customers' telephone inquiries through the
Company's office in Carlsbad, California during regular working hours.
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Company developed enhancements and upgrades to software programs are
offered periodically by the Company to customers for purchase.
PRODUCT DEVELOPMENT
During fiscal 1993, New Image began to focus its efforts on product
development for the dental marketplace. New Image introduced the AcuChart
System and the AcuCam PC System in 1993. At the same time, Insight developed
and introduced its first version of the 20/20 dual camera system. In October
1994, New Image released the AcuCam PC+ which was an improved AcuCam PC product.
In March 1995, New Image introduced MultiCam, an AcuCam system that is
expandable to multiple dental operatories. Also in early 1995, Insight
introduced its MultiLink product line to address the multiple operatories. In
July 1995, New Image introduced an upgraded AcuView on Microsoft Windows, a
dental imaging software product for the cosmetic dentistry market. In September
1995, Insight purchased Chart-It, the company which developed Chart-It Pro, the
most widely used, fully automated, computerized tooth and periodontal charting
software available in the dental market.
DIGITAL X-RAY SYSTEMS
Since March 1995, New Image has been jointly developing a digital x-ray
system with the Loral Fairchild Imaging Systems subsidiary of Lockheed Martin
Corporation and plans to begin marketing it domestically in the third quarter of
fiscal 1997. A digital x-ray system utilizes the existing x-ray transmission
equipment (most familiarly a white cone-type device) in the dentist's office,
but captures the image with a CCD-based sensor rather than film. The principal
components of the Company's digital x-ray system are a CCD sensor, digital x-ray
image capture and management software, a pentium computer, a monitor and,
optionally, a printer. The Company is responsible for development of the
software and obtaining the required FDA clearance and Loral is responsible for
the CCD sensor and its electronic controller board. All components of the
system are essentially complete and the FDA clearance process has begun.
Digital x-ray systems provide the following advantages over film to both
the patient and the dentist:
1. Capture and display of the x-ray image on a computer monitor is nearly
instantaneous.
2. X-ray radiation dosage is approximately 10% that of conventional film.
3. Serves as a tool to educate patients and involve them in the diagnosis
by displaying images on a large monitor.
4. For those dental practices (approximately 90% of the total) not
requiring a panoramic x-ray, it eliminates the costs and the
accompanying issues of chemical handling and disposal associated with
handling film. Such costs are reduced for those with a panoramic
x-ray.
5. Offers significant capabilities in image enhancement and manipulation.
6. Can be easily linked with an intraoral camera and with other
operatories.
7. Eventually, it may be possible to transmit digital x-ray images
electronically to insurers and receive reimbursement approval
immediately.
DIGITAL X-RAY MARKET
In the U.S., currently about 1.5% (equal to approximately 1,600 systems) of
dental practices own a digital x-ray system. Data from the 1996 technology
survey of computerized dental practices conducted by DENTAL PRACTICE & FINANCE
indicates that 11% of the survey's respondents plan to buy a digital x-ray
system within the next 12 months. This could translate to between 6,000 and
8,000 units for the industry in the next year. Beyond that, Applied Decision
Analysis, Inc. performed a study for the Company late in 1995 to develop a
forecast of the U.S. market for digital x-ray systems. This study forecasts that
cumulative system sales to date by the year 2000
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will fall in the range of 17,000-23,000 units. U.S. competitors in digital
x-ray are Schick Technologies, Trophy Radiology and Sorodex.
SOFT-PREP-TM-
In June 1996, the Company entered into a 15-month private label contract
with Sunrise Technologies to become an OEM remarketer of its air abrasion cavity
preparation system products under the New Image tradename Soft Prep-TM-. The
first three months of the contract are a trial period to determine potential
sales rates prior to the Company's making a volume purchase commitment. The
Company has already concluded substantial due diligence to determine the
viability of the product, and the balance of the contract is continuable at the
Company's discretion. Sunrise does not have significant distribution
capabilities of its own and is attracted by the strength of the New Image field
sales organization.
Soft Prep is an alternative to the traditional dental drill and is utilized
in the preparation of small to mid-sized cavities. It effects drilling by
forcing abrasive aluminum oxide particles under air pressure on to the tooth.
The system has the same cutting time as the traditional drill, but is much
gentler to the patient. In most cases it can be applied without anesthesia,
thereby allowing increased comfort for the patient, while increasing the
profitability of the dental practice, often substantially.
Currently, there are three significant domestic competitors selling air
abrasion systems: American Dental Technologies, Inc. ("ADT"), Sunrise
Technologies, Inc., and Kreativ, Inc. A recent study of the market for air
abrasion cavity preparation systems prepared by Theta Corporation forecasts the
unit volume for the U.S. market as:
YEAR UNITS
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1996 1,500
1997 2,100
1998 2,730
1999 3,415
PATENTS AND PROPRIETARY RIGHTS
The Company regards its imaging systems and applications software as
proprietary trade secrets and attempts to protect them with confidentiality
agreements it has entered into with its employees and the confidentiality
provisions in its agreements with distributors, licensees and sales
representatives. The Company also relies on copyright protection, which
protects against unauthorized copying of its programs. The Company has a patent
on the AcuCam Camera (No. 5,124,797). The Company has also obtained or applied
for trademark protection on the names AcuCam, AcuCam PC, AcuView, AcuChart,
AcuRay and AcuPrinter. Despite the precautions the Company has taken, it may be
possible for third parties to copy aspects of the Company's products or, without
authorization, to obtain and use information which the Company regards as
proprietary. The Company believes that existing copyright laws afford only
limited practical protection against such risks. The Company believes that the
technical and creative skills and expertise of its technical staff and marketing
and management personnel are more critical to the Company's success than patent,
copyright or trademark protection.
COMPETITIVE INDUSTRY
The market for intraoral cameras and related systems is increasingly
competitive. The markets for the Company's products are relatively new and may
attract additional competition in the future. A number of other companies,
including at least three publicly traded companies either produce, distribute,
or market intraoral camera products similar to the Company's products and
compete with the Company with respect to pricing and the introduction of new
products and features. There is a risk that the Company will be unable to
continue to develop leading edge products for this market or that if it does
that it will be unable to produce and distribute them at a competitive price.
Some of these competitors have significantly greater financial, marketing,
manufacturing or technological resources than the Company. Management believes
that its emphasis on research and
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development activities will help assure continuation of its leadership position
as the largest seller of intraoral cameras in the world.
OBSOLESCENCE AND TECHNOLOGICAL CHANGE
The computer hardware and software associated with healthcare products are
characterized by rapid technological change. As technological changes occur and
as other applications for the Company's products develop, the Company may have
to modify its systems and software in order to keep pace with these changes and
developments and avoid technological obsolescence. Although the Company intends
to continue to improve and add to its existing products, there can be no
assurance that funds for such expenditures will be available or that the
Company's competitors will not develop products with superior capabilities
and/or market them at lower prices. Management is confident in its ability to
steer the Company through the challenges of a competitive environment and to
develop and install systems and procedures which will help assure low production
costs and superior technology relative to the Company's competitors.
SEASONALITY
Sales of capital goods to the dental industry tend to be seasonal. The
Company's period of greatest demand for its products is its quarter ending
December 31 and its period of least demand is its quarter ending September 30.
This seasonality effects revenues more than expenses and may result in
significant quarter-to-quarter changes in revenues and profitability.
EMPLOYEES
At September 20, 1996, the Company had 162 full-time employees. Of this
number, 3 were officers, 33 were involved in production, 27 were in customer
service, 15 were in administration, 78 were engaged in sales and marketing and 6
were involved in research & development. The Company has never had a work
stoppage and no employees are represented by a collective bargaining agreement.
ITEM 2. PROPERTIES.
Prior to November 1995, New Image corporate headquarters and main offices
were located in Canoga Park, California, in approximately 9,825 square feet of
space under a lease which expired on December 31, 1995. The lease provided for
minimum monthly rental payments of approximately $8,350. The Company also
leased approximately 14,265 square feet in a building where it manufactured the
AcuCam in San Juan Capistrano, which expired on November 30, 1995. The lease
provided for monthly rental payments of $15,000 per month. In addition, the
Company leased approximately 7,000 square feet of warehouse space in San Juan
Capistrano for monthly rental payments of $3,000 per month, which also expired
on November 30, 1995.
In November 1995, New Image consolidated its operations from Canoga Park
and San Juan Capistrano into one facility located in Carlsbad, California. The
Company leases approximately 32,047 square feet of space under a lease which
expires on February 28, 2001. The lease provides for aggregate minimum monthly
rental payments of approximately $11,000 from October through February 1996 and
$21,500 thereafter. The lease also requires the Company to pay taxes,
maintenance and insurance.
New Image leased approximately 1,700 square feet of space in an office
building in Manhattan Beach, California. This space was subleased on a pass-
through basis until the lease expired in June 1996. The Company did not renew
this lease.
In May 1996, the Company acquired Insight. Insight was under lease for
approximately 13,171 square feet of office space located in San Carlos,
California. The monthly rent was approximately $9,054 and the lease expires on
January 31, 1998. At the completion of the transaction, Insight's executive
offices were closed down. Insight's manufacturing facility will remain in
operation until relocating to Carlsbad in July 1996. The last and final closure
of all accounting and customer service operations is scheduled for September
1996. The Company plans to either sub-let or buy out the remaining lease.
9
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Insight was also under lease for approximately 2,400 square feet of space
in Richmond, Virginia where the Company designs and sells its periodontal and
treatment planning software, Chart-It. The monthly rent is approximately
$1,545. This lease is due to expire on July 1, 1997 at which time the Chart-It
operation will be consolidated into the Carlsbad facility.
Insight was under lease for approximately 1,476 square feet of space in
Mission Viejo, California which was used for the precision assembly of optical
devices. The monthly rent on this space was approximately $1,254 and expired on
April 30, 1996. The Company has made arrangements with a subcontractor to
continue assembly operations for six months and have the subcontractor pay the
rent.
ITEM 3. LEGAL PROCEEDINGS.
The following is a summary of material recent developments in lawsuits in
which the Company is involved. (See also Note 7 to Consolidated Financial
Statements.)
HIGH TECH MEDICAL INSTRUMENTATION V. NEW IMAGE, ET AL.
This case involves alleged infringement by the Company of certain camera
technology covered by a patent owned by Plaintiff. The Company has prevailed in
the trial court on all material issues in this case. The Plaintiff has stated
that it intends to appeal the judgment. The Company has certain rights to
indemnification against the damages incurred in connection with the defense of
this lawsuit. The amount of the indemnification is currently the subject of an
arbitration proceeding with the indemnifying parties.
STEVEN P. HILL V. NEW IMAGE INDUSTRIES, INC. ET AL.
This case is a securities class action alleging violation of certain
securities laws by prior management. Verbal agreement has been reached to
settle this matter on terms which are within the litigation reserve provided for
it by the Company. A final written agreement between the parties is being
drafted.
BOSTON MARKETING CO. LTD. V. NEW IMAGE INDUSTRIES, INC.
In July 1995, Boston Marketing Co., Ltd. filed an action against the
Company in which it claims the Company breached certain purchase orders for
cameras which are incorporated in the Company's products. The Plaintiff in the
action seeks damages in excess of $1 million. The Company has denied all of the
allegations, has raised certain affirmative defenses, and has filed a cross-
complaint for inducing breach of contract, interference with economic relations,
misappropriation of trade secrets and related causes of action. The cross-
complaint is against an officer of the Plaintiff, and against Tokyo Electronic
Industries, Inc. ("TELI") which, until May 1995, was the principal manufacturer
of the CCD chip and processor for the Company's intraoral camera products.
GRISWA V. NEW IMAGE INDUSTRIES, INC.
In September 1995, Plaintiff, a former officer of the Company, filed an
action against the Company alleging among other things, wrongful termination and
breach of contract. This matter has been settled within the litigation reserve
provided by the Company.
NETWORK ONE V. NEW IMAGE INDUSTRIES, INC.
On October 19, 1995, the Company was sued by Network One Strategic
Management Systems, Inc. for breach of contract. This matter was settled within
the litigation reserves provided by the Company and the action dismissed.
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NEW IMAGE INDUSTRIES, INC. V. NEW IMAGE INDUSTRIES PTY., LTD. AND INTERNATIONAL
IMAGING COMPANY, LTD.; NEW IMAGE INDUSTRIES PTY., LTD. AND INTERNATIONAL IMAGING
COMPANY, LTD. V. NEW IMAGE INDUSTRIES, INC.
On April 11, 1996, the Company filed suit to collect a debt in the sum of
$370,215 for goods sold to the foreign distributors New Image Industries Pty.,
Ltd. and International Imaging Company, Ltd. The Company has no ownership
interest in these distributors. The defendants have filed answers and
counterclaims seeking damages which allegedly far exceed the relief sought in
the complaint. On September 25, 1996, the Company reached an oral agreement to
settle the suit. If the suit ultimately settles according to the terms of the
oral agreement, no additional reserves will be required as such amount is
included in accrued liabilities in the accompanying balance sheet at June 30,
1996.
NEW IMAGE INDUSTRIES, INC. VS. PERRY MICHAEL WILLIAMS
This is an action filed by the Company against a former employee for
conversion of 35,000 shares of common stock which were mistakenly issued to
Mr. Williams by the Company's transfer agent. Williams filed a
cross-complaint against the transfer agent for indemnification and against
the Company for defamation. In February 1994, the Company obtained a writ of
attachment against Mr. Williams in the amount of $706,120 representing the
value of the shares on the date of conversion and estimated attorney's fees.
The Company has attached Mr. Williams' home and his stock in two other
companies. The 35,000 shares were recorded in 1995 as issued and outstanding
at no value. In November 1994, the Company and Mr. Williams entered into a
settlement agreement that required Mr. Williams to pay the Company $875,000.
This settlement includes the value of the stock plus legal costs and
interest. During 1996, the Company received approximately $565,000 of the
award of which $333,000 was recorded as an increase to shareholders' equity
and the balance was recorded as reimbursement of related legal expenses. The
Company is in process of pursuing collection of the remainder of the
settlement and will record such amounts when received.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fourth quarter of fiscal 1996 to a vote
of the security holders of the Company.
11
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock has been traded in the NASDAQ National Market
System under the symbol "NIIS" since the Company's initial public offering on
August 24, 1989. Prior to August 24, 1989, there was no public trading market
for the Company's Common Stock. The following table sets forth the high and low
last sale prices for the Company's Common Stock in the NASDAQ National Market
System for the periods indicated, as reported by the National Association of
Securities Dealers, Inc.
Price
---------------------------------------
High Low
---------- ---------
Fiscal 1994
First Quarter . . . . . . . . . . . . . . 19 1/4 11 3/4
Second Quarter . . . . . . . . . . . . . . 16 5/8 11 3/4
Third Quarter . . . . . . . . . . . . . . 16 3/8 8 7/8
Fourth Quarter . . . . . . . . . . . . . . 12 3/8 8 5/8
Fiscal 1995
First Quarter . . . . . . . . . . . . . . 15 1/8 7 1/16
Second Quarter . . . . . . . . . . . . . . 6 3/4 3 5/8
Third Quarter . . . . . . . . . . . . . . 5 1/4 3 5/8
Fourth Quarter . . . . . . . . . . . . . . 4 3/8 2 13/16
Fiscal 1996
First Quarter . . . . . . . . . . . . . . 4 1/4 1 7/8
Second Quarter . . . . . . . . . . . . . . 3 1 1/2
Third Quarter . . . . . . . . . . . . . . 2 7/8 1 15/16
Fourth Quarter . . . . . . . . . . . . . . 5 5/8 2
Fiscal 1997
First Quarter (through
September 27, 1996) . . . . . . . . . . . 3 1/8 1 3/8
On September 27, 1996 the closing price of the Common Stock on the
NASDAQ National Market System was $1 5/8.
As of September 28, 1996, there were approximately 700 record holders
of the Company's Common Stock.
DIVIDEND POLICY. The present policy of the Company is to retain
earnings to provide funds for use in its business. The Company has not paid
cash dividends on its Common Stock and does not anticipate that it will do so in
the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial data of the Company set forth below at and for each
of the years shown below has been derived from the Company's audited financial
statements. The financial statements for fiscal years ended June 30, 1996, 1995
and 1994 are included elsewhere herein.
The selected consolidated financial data should be read in conjunction WITH
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATION AND FINANCIAL
CONDITION and the CONSOLIDATED FINANCIAL STATEMENTS and related Notes and other
financial information included elsewhere in this Annual Report.
<TABLE>
<CAPTION>
For Year ended June 30,
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Net Revenues . . . . . . . . . . . . . . $37,144,000 $44,579,000 $41,488,000 $32,841,000 $ 16,357,000
Cost of Revenues . . . . . . . . . . . 24,400,000 29,531,000 23,377,000 16,832,000 8,602,000
---------- ---------- ---------- ----------- ----------
Gross profit . . . . . . . . . . . 12,744,000 15,048,000 18,111,000 16,009,000 7,755,000
---------- ---------- ---------- ----------- ----------
Selling and marketing. . . . . . . . . . 13,588,000 13,837,000 11,265,000 7,338,000 4,736,000
General and
Administrative expenses. . . . . . . . . 6,029,000 5,991,000 5,461,000 3,297,000 2,127,000
Research and
development expenses. . . . . . . . . 1,485,000 1,987,000 785,000 398,000 84,000
Restructuring costs . . . . . . . . . . 962,000 4,350,000 - - -
Acquisition expenses. . . . . . . . . . 478,000 - - - -
Legal/litigation expenses . . . . . . . 454,000 349,000 2,710,000 217,000 1,395,000
Loss on disposition
of subsidiary . . . . . . . . . . . . - - - - 474,000
Loss on impairment . . . . . . . . . . . 814,000 - - - -
Other (income)/expenses . . . . . . . . 122,000 33,000 (7,000) (27,000) -
Interest (income) expense, net. . . . . (17,000) 351,000 112,000 (35,000) (48,000)
---------- ---------- --------- ----------- ----------
(Loss) income before
income taxes. . . . . . . . . . . . . (11,171,000) (11,850,000) (2,215,000) 4,821,000 (1,013,000)
Provision (benefit)
for income taxes. . . . . . . . . . . - - - 675,000 -
---------- ---------- ---------- ----------- ----------
Net (loss) income. . . . . . . . . . . $ (11,171,000) $ (11,850,000) $ (2,215,000) $ 4,146,000 $ (1,013,000)
---------- ---------- ---------- ----------- ----------
---------- ---------- ---------- ----------- ----------
Net (loss) income per share. . . . . . $ (2.05) $ (2.19) $ (0.42) $ .82 $ (.26)
---------- ---------- ---------- ----------- ----------
---------- ---------- ---------- ----------- ----------
Weighted average shares
of common stock outstanding . . . . . 5,449,000 5,412,000 5,262,000 5,079,000 3,973,000
---------- ---------- ---------- ----------- ----------
---------- ---------- ---------- ----------- ----------
<CAPTION>
June 30,
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
Working capital (deficit). . . . . . . $(2,291,000) $ 4,202,000 $ 9,239,000 $ 8,296,000 $ 4,029,000
Total assets . . . . . . . . . . . . . 12,526,000 19,684,000 23,967,000 18,827,000 9,412,000
Long term debt . . . . . . . . . . . . 1,150,000 45,000 229,000 486,000 104,000
Total debt . . . . . . . . . . . . . . 3,571,000 1,120,000 1,576,000 1,708,000 122,000
Retained (deficit) earnings. . . . . . (31,188,000) (21,585,000) (9,735,000) (7,520,000) (11,598,000)
Shareholders' equity (deficit) . . . . (734,000) 7,788,000 12,308,000 11,471,000 6,026,000
</TABLE>
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
total revenue represented by certain items on the Company's Consolidated
Statements of Operations.
1996 1995 1994 1993
------ ------ ------ ------
Net revenues . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Cost of revenues . . . . . . . . . . . . 66.0 66.2 56.3 51.3
Gross profit . . . . . . . . . . . . . . 34.0 33.8 43.7 48.7
Selling and marketing. . . . . . . . . . 36.6 31.0 27.1 22.3
General and Administrative expenses. . . 16.2 13.4 13.1 10.0
Research and
Development expenses. . . . . . . . . . 4.0 4.5 1.9 1.2
Restructuring and unusual costs. . . . . 2.6 9.8 - -
Legal/litigation expenses. . . . . . . . 1.2 0.1 6.5 0.7
Interest (income) expense, net . . . . . - 0.1 0.3 (0.1)
Loss before taxes. . . . . . . . . . . . (30.1) (26.6) (5.3) (14.7)
Net loss . . . . . . . . . . . . . . . . (30.1) (26.6) (5.3) (12.6)
GENERAL
The Company designs, develops and integrates intraoral and extraoral
cameras and computer imaging systems. The Company earns revenue principally
from sales of its systems into the dental market place, including individual
dental practices, dental clinics and labs, and to distributors. Domestic sales
are made through the Company's direct sales force. International sales are made
in Europe, South America, and certain countries in the Asia Pacific region using
distributors and licensees. Revenues are subject to significant variation from
quarter to quarter because of the variation in the length of the sales cycle
with individual customers and the number of shipments made. Traditionally, the
quarter ending December 31 has been the Company's strongest sales quarter
primarily because of a tendency by dentists to defer capital purchases until
near the end of the individual income tax reporting year.
Beginning in the third quarter of fiscal year 1995, the Company implemented
a plan of restructuring that included management personnel changes, product
consolidation and relocation of all operations from Canoga Park, California and
San Juan Capistrano, California to Carlsbad, California. Execution of this
restructuring continued throughout fiscal year 1996 and as of June 30, 1996
substantially all actions planned in the 1995 restructuring were completed.
In May 1996, the Company acquired Insight, a private company located in San
Carlos, California and a competitor engaged in the business of designing,
manufacturing and marketing a family of intraoral video cameras for the dental
industry. Insight's products include high resolution extraoral and intraoral
video cameras integrated with high intensity light sources, monitors and
printers. In connection with the acquisition a plan of restructuring was
initiated in the fourth quarter of fiscal year 1996 (see RESULTS OF OPERATIONS-
YEAR ENDED JUNE 30, 1996 COMPARED TO THE YEAR ENDED JUNE 30, 1995 and LIQUIDITY
AND CAPITAL RESOURCES), which included Insight's operations being relocated to
Carlsbad, California in July 1996. The acquisition was effected through the
issuance of New Image common stock, and options and warrants to purchase New
Image common stock, to the former Insight shareholders and option/warrant
holders in exchange for all of the outstanding common stock of Insight. The
business combination was accounted for as a pooling of interests and,
accordingly, the Company's consolidated financial statements and the discussion
and analysis of such statements contained herein reflect the combined results of
the pooled businesses for the respective periods presented. (See Note 2 of NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS).
In connection with the merger, Insight changed its fiscal year end from
September 30 to June 30, which conforms to New Image's year end. Except for the
year ended June 30, 1996, Insight's separate results for prior years have not
been restated to conform to the fiscal year of New Image. Therefore, the
results of operations contained in the consolidated financial statements for the
fiscal years ended June 30, 1995 and 1994 combine those of
14
<PAGE>
New Image for these periods, as previously reported, with those of Insight for
the years ended September 30, 1995 and 1994. Insight's separate results of
operations for the three months ended September 30, 1995 are, therefore,
included in the consolidated statements of operations for both June 30, 1996 and
1995. Accordingly, an adjustment totaling $1,568,000 has been recorded as a
reduction to retained deficit in 1996, reflecting the impact on net loss of this
overlapping period. The Company's consolidated balance sheet at June 30, 1995
combines the balance sheet of New Image as of June 30, 1995 and the balance
sheet of Insight as of September 30, 1995.
RESULTS OF OPERATIONS
YEAR ENDED JUNE 30, 1996 COMPARED TO THE YEAR ENDED JUNE 30, 1995
For the fiscal year ended June 30, 1996, total revenues were $37,144,000, a
decrease of 17% compared to total revenue of $44,579,000 in the prior year. Net
loss for the fiscal year ended June 30, 1996 was $11,171,000 or $2.05 per common
share compared to a net loss of $11,850,000 or $2.19 per common share last year.
Included in expenses for the current fiscal year were charges of approximately
$962,000 relating to the Insight restructuring discussed in LIQUIDITY AND
CAPITAL RESOURCES and $478,000 of acquisition costs related to Insight.
Before considering the impact of the pooling of interests accounting for
Insight, New Image sustained operating losses in each of the last three fiscal
years totaling approximately $5,552,000, $7,673,000 and $347,000 in 1996, 1995
and 1994, respectively. In 1996, New Image experienced a decline in revenues
from New Image products ($9,354,000 or 30%) and continued to experience
depressed profit margins. The revenue decline was primarily as a result of
nonavailability of a critical system component for a certain product,
reorganization of the distribution network for international sales, a delay in
introduction of a widely anticipated new product that caused customers to delay
purchase decisions on all Company products and uncertainty created within the
sales force during the process of merging with Insight. Included in the 1996
loss is all of the $478,000 of acquisition costs related to Insight, $394,000 of
the 1996 restructuring costs, $1,025,000 related to reserves recorded for
potentially uncollectible receivables and $400,000 related to the write-off of
slow moving and obsolete inventory.
Insight, which was formed in 1992, had experienced rapid growth in revenues
since inception, but increases in marketing and other expenses have historically
exceeded revenue growth, resulting in operating losses of approximately
$5,619,000 for the twelve months ended June 30, 1996 and $4,177,000 and
$1,868,000 for the fiscal years ended September 30, 1995 and 1994, respectively.
As mentioned above, in connection with the acquisition of Insight, management
identified additional restructuring costs, estimated at $962,000, necessary to
integrate Insight's operations. Of this total, $568,000 is included in
Insight's loss for 1996.
As a percentage of total consolidated revenue, foreign sales have not
exceeded 10% in fiscal years 1996, 1995 and 1994. Growth in international
operations is expected as a result of the Company's establishment of an
international distributor network and availability of critical camera parts.
The Company's products are sold through a licensee in South America and through
distributors in Taiwan, Korea, Japan, Great Britain, the Benelux countries,
Denmark, South Africa and Italy. Additionally, the Company uses a contractor to
establish dealer arrangements in Europe and Japan and an international sales
manager to continue relationship with Insight distributor network.
The Company's gross profit percentage remained constant at approximately
34% for the years ended June 30, 1996 and 1995. Gross profit has been depressed
in each of these years compared to 1994 and earlier years primarily because of
intense competition between New Image and Insight, as well as with other
competitors.
Selling and marketing expenses remained relatively constant in fiscal 1996
when compared to fiscal 1995, although as a percentage of revenue, selling and
marketing increased from 31% to 37%. The increase was due to the decline in
revenues discussed above relating to New Image. Insight selling and marketing
expenses exceeded 50% of its revenues in both years. Reductions of these
duplicative and excessive expenses are the primary target of the restructuring
implemented by management.
General and administrative expenses also remained relatively constant from
1995 to 1996. As a percentage of revenues, however, general and administrative
expenses increased from 13% to 16% due to the decline in 1996
15
<PAGE>
revenues. Included in general and administrative expenses for 1996 is
approximately $1.3 million of bad debt expense which compares to approximately
$211,000 for 1995.
Research and development expenses decreased 25% from $1,987,000 in 1995 to
$1,485,000 in 1996. This decrease is attributable to the completion of
activities undertaken to develop the MultiCam product in 1995 and the
outsourcing and capitalization of the further development of the Company's
digital x-ray product.
Legal/litigation expenses in fiscal 1996 remained relatively constant when
compared to fiscal 1995 as the Company continues to settle its outstanding legal
matters. As of June 30, 1996, the Company has approximately $911,000 in
accruals and reserves remaining to cover its legal exposure. Although the
Company believes that the amount of this reserve is adequate to cover the
anticipated costs of defending this action, no assurance can be given as to the
ultimate outcome of the litigation, or its impact on the operations or financial
position of the Company. See Legal Proceedings.
YEAR ENDED JUNE 30, 1995 COMPARED TO THE YEAR ENDED JUNE 30, 1994
For the fiscal year ended June 30, 1995, total revenues were $44,579,000,
an increase of 7% compared to total revenues of $41,488,000 in the prior year.
Net loss for the fiscal year ended June 30, 1995 was $11,850,000 or $2.19 per
common share compared to a net loss of $2,215,000 or $0.42 per common share in
1994. In 1995, the Company's gross profits declined sharply primarily because
of competitive forces that required reductions in selling prices. Management
believes that much of the competition was directly with Insight. Additionally,
New Image introduced new products with lower profit margins, and incurred higher
manufacturing costs and certain product transition costs. Also included in the
results of operations for 1995 are the estimated costs of a plan implemented in
1995 to restructure operations and to take several other actions designed to
improve operating performance. The estimated cost of these actions approximated
$4,350,000. These charges related to the termination/resignation of officers
and other management personnel, a writedown of inventory related to discontinued
products, payments related to the Canoga Park and San Juan Capistrano leases, a
write-off of marketing rights to Europe, and other miscellaneous items.
The Company's gross profit percentage decreased from 44% for the year ended
June 30, 1994 to 34% for the year ended June 30, 1995. This reduction in gross
profit percentage is a result of a number of factors, including significant
selling price reductions, higher material costs as a percentage of selling price
for some of the Company's new products, change in mix of products to lower
margin products, higher indirect labor and overhead costs in manufacturing,
production transition costs and increased reserves.
Selling and marketing expenses increased approximately $2.6 million in
fiscal 1995 when compared to fiscal 1994, and also increased as a percentage of
revenues from 27% to 31%. This increase was due to significantly increased
marketing initiatives at Insight.
General and administrative expenses increased $530,000 from 1994 to 1995,
or approximately 10%, primarily due to higher general and administrative
expenses, resulting from a variety of factors notable among which were higher
salaries and depreciation and amortization.
Research and development expenses increased 150% from $785,000 in 1994 to
$1,987,000 in 1995. This increase is attributable to activities undertaken to
develop the MultiCam product as well as activities to further develop the
Company's digital x-ray product.
Legal/litigation expenses declined from $2,710,000 to $349,000. The
decrease was a result of the Company providing reserves in 1994 to cover several
significant legal matters.
IMPACT OF INFLATION AND CHANGING PRICES.
The Company does not believe it has been significantly impacted by
inflation.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company is currently experiencing constraints on liquidity. At June
30, 1996, the Company had minimal cash reserves compared to previous year cash
and short term investments of $2.1 million and $4.2 million at June 30, 1994.
Additionally, at June 30, 1996 the Company has a consolidated net working
capital deficiency of approximately $2.3 million and a deficit in shareholders'
equity of $734,000. The Company's borrowings on its lines of credit at June 30,
1996 totaled approximately $2,286,000 and its credit limit as of that date was
approximately $2,617,000 based upon an asset borrowing base, as defined in the
credit agreement. This compares with an outstanding balance in the prior year
of $879,000, with a credit limit of $1 million. As of late September, 1996, the
Company's outstanding borrowings under the line continue to approximate the
maximum amount available under the borrowing agreement. At June 30, 1996,
the Company was in violation of a financial covenant under the debt agreement
that requires the Company to maintain positive shareholders' equity. On
September 27, 1996, the Company received from the bank a letter that waived the
covenant violation through January 1, 1997 and authorized an increase in the
credit limit of the debt agreement from $4 million to $5 million.
The Company has used cash in its operating activities in each of the last
three fiscal years. Net cash used in operations was $3,931,000, $5,558,000 and
$2,165,000 for fiscal years 1996, 1995 and 1994, respectively. The use of cash
for operations was due primarily to the large net losses incurred in each year.
In 1996, 1995 and 1994, proceeds from the issuance of stock under stock options
provided the Company with cash of $575,000, $1,035,000 and $1,616,000
respectively. There can be no assurance that the Company will be able to obtain
such funds from the exercise of stock options or from investors in the future.
Other sources of cash in each of the past three years have been primarily from
bank borrowings and other notes payable totaling approximately $3 million in
1996, $3.2 million in 1995, and $800,000 in 1994.
Management believes that it has an achievable plan that will return the
Company to profitability. However, its ability to accomplish its plan requires
the Company to have access to sufficient funds and (i) complete its product
development and marketing initiatives, including repositioning its price
structure as it introduces new products, (ii) continue efforts to fully
implement the efficiencies and reduced cost structure envisioned in the 1995
restructuring plan, and (iii) accomplish similar objectives for Insight and
integrating the management, manufacturing and marketing activities of the two
companies in such a way that the expected efficiencies of scale are realized.
In this regard, a new restructuring plan was initiated in the fourth quarter of
1996 designed to fully integrate Insight.
In connection with these actions, a provision totaling $962,000 was
recorded in the financial statements for the year ended June 30, 1996. Also,
certain other items approximating $100,000 will be included as expenses in the
Company's financial statements for the year ended June 30, 1997 in accordance
with current releases of the Securities and Exchange Commission and the Emerging
Issues Task Force of the AICPA related to restructuring charges. The
restructuring charges recorded in the statement of operations for the year ended
June 30, 1996 included charges related to personnel termination and severance,
relocation and other costs related to Insight's facilities and operations,
inventory write-downs for product integration and other miscellaneous items.
(See Note 1 to NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.)
The matters discussed above and in RESULTS OF OPERATIONS raise substantial
doubt about the Company's ability to continue as a going concern. Without an
infusion of additional debt or equity capital, the Company may not be able to
fund operations, implement its plans to return to profitability, or meet its
obligations as they come due. The Company is negotiating with certain vendors to
obtain extensions on invoice payment terms and to obtain agreements with the
vendors that shipments to the Company of needed product materials will continue
without interruption. Management has also been actively seeking additional
sources of equity financing that would be used to fund certain costs incurred in
connection with the acquisition of Insight, reduce outstanding debt, and provide
working capital to fund the planned integration of Insight. Although management
successfully negotiated with the bank to increase the credit limit under the
line of credit and obtained a waiver of the covenant violation, there can be no
assurance that the Company's revised agreement with its bank and negotiations
with vendors will result in terms that will be sufficient to resolve liquidity
problems. Additionally, there can be no assurance that additional equity
financing will be available to the Company at all or on terms that are
acceptable to the Company. Furthermore, there can be no assurance that
17
<PAGE>
management's plans outlined above will be implemented or if implemented that
they will successfully return the Company to profitability. The consolidated
financial statements contained elsewhere herein do not include any adjustments
relating to the recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might result should the
Company be unable to continue as a going concern.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Because Insight was a major competitor of New Image, management believes
that this acquisition placed the Company in a leading market position with
respect to intraoral cameras for dental operatory use. Management also believes
that as a result of the acquisition, product pricing can be repositioned which,
if achieved, might result in increased revenues and gross profits, and that
significant cost reductions can be achieved because of consolidation of
operating facilities and deletion of duplicative SG&A expenses. Management's
estimate of separate company expenses incurred in 1996 that are not expected to
be incurred in future periods by the merged entity approximate $5,000,000.
However, in order to successfully achieve and sustain a market leading position,
the Company must successfully complete its plan of restructuring related to
Insight and its overall business plan as it relates to continuing as a going
concern. (See LIQUIDITY AND CAPITAL RESOURCES).
The preparation of business plans require the use of estimates, forecasts
of results and certain underlying assumptions. The preparation of financial
statements in conformity with generally accepted accounting principles also
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and 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. Actual results could differ
from those estimates.
Accounts receivable, net of the allowance for doubtful accounts, decreased
approximately $3 million from June 30, 1995 to June 30, 1996 primarily as a
result of a decline in revenues during the fourth quarter of 1996 and because of
a significant increase in the allowance for doubtful accounts. Management
carefully reviewed the customer account balances at June 30, 1996, noted
payments made by customers after year end and considered the Company's write-off
experience. Based on this analysis, it believes the allowance account of
$1,686,000 is adequate at June 30, 1996.
Although management believes that the consolidation of New Image and
Insight will be received favorably by the dental industry, there are risks
associated with product consolidation and acceptance in the marketplace.
Management has made a careful assessment of its expected future product lines
and has estimated the impact of consolidation on the gross carrying value of
inventory. While management believes that it has adequate reserves to cover
identified product changes, it is reasonably possible that additional changes to
the product mix could be identified in the near term and such changes could have
a material impact on the carrying value of inventory.
It is the Company's policy to amortize capitalized software costs by the
greater of the amount computed using a ratio of current gross revenues for a
product to the total of current and anticipated future gross revenues or the
straight-line method over the remaining estimated economic life of the product.
The Company has also capitalized certain other intangible assets consisting of
the amount paid for patents, copyrights and other rights to certain products and
goodwill. Amortization for these items is provided on a straight-line basis
over a period of five to ten years. Generally accepted accounting principles
require that long-lived assets and certain identifiable intangibles held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. It is reasonably possible that estimates of anticipate future
gross revenues and related cash flows, the remaining estimated economic life of
the products or intangible assets, or both will be reduced significantly in the
near term due to competitive pressures. As a result, the carrying amount of the
capitalized software costs and the intangible assets may be reduced materially
in the near term. However, management believes the carrying values of these
assets at June 30, 1996 are realizable.
The Company is a defendant in several lawsuits alleging, among other
things, patent infringement, wrongful termination, violations of Sections 10 (b)
and 20 of the Securities and Exchange Act of 1934 and breach of contract. While
the Company believes it has meritorious defenses against each of the suits and,
based on existing facts and conditions, has provided reserves it believes to be
adequate, the ultimate resolutions of these matters, most of which
18
<PAGE>
are expected to occur within one year, could result in losses in excess of the
amounts accrued. (See Legal Proceedings.)
As explained in Note 6 of Notes to Consolidated Financial Statements, at
June 30, 1996, the Company has significant net operating loss carryforwards
(NOL's) related to New Image and Insight Imaging of approximately $12,000,000
and $8,000,000, respectively. Federal net operating losses will begin to expire
after 2005, becoming fully expired by the year 2011 if not offset against future
taxable income. As a result of the acquisition of Insight, annual limitations
of approximately $120,000 apply to approximately $8,000,000 of the Company's
NOL's carryforwards. Though management believes that future net operating
income and taxable income of the Company may be sufficient to realize the
benefits of the Company's NOL's carryforwards and to utilize the associated
deferred tax asset, a valuation allowance has been recorded to offset completely
the carrying value of such deferred tax asset due to the Company's lack of prior
earnings and the size of the accumulated deficit.
In October 1995, the FASB issue SFAS No. 123 "Accounting for Stock Based
Compensation." It encourages but does not require, companies to recognize
compensation expense for grants of stock and stock options to employees based on
new fair value accounting rules. Companies that choose not to adapt the new
rules will continue to apply the existing accounting rules. However, fair value
accounting is required for transactions involving the issuance of stock options
or other equity instruments to acquire goods or services. SFAS No. 123 will be
effective for the Company's fiscal year 1997 consolidated financial statements.
Currently, the Company does not expect to adopt the new fair value accounting
rules for stock-based compensation pertaining to employees as allowed under SFAS
No. 123.
However, SFAS No. 123 will require the Company, in its fiscal 1997
financial statements, to disclose pro forma net income/loss per share
information under the fair value accounting method for stock option grants that
occurred subsequent to June 30, 1995. In addition, the Company will be required
to expand its disclosure about plan terms, exercise prices and the assumptions
used in measuring the fair value of stock-based grants. Although the Company
has not performed the pro forma calculation required by SFAS No. 123 for fiscal
1995 or 1996, it expects that the pro forma results will result in additional
compensation charges to operations.
The Company's business environment is characterized by rapid technological
change, changes in customer requirements, new emerging products and intense
competition. Consequently, to compete effectively, the Company must deploy its
sales and distribution network to look for new product ideas and opportunities
and make new product introductions. The ability of the Company to achieve and
manage the expected growth of the business and to develop new products will
depend on the Company's success in retaining its key personnel and adding new
employees with appropriate skills at the right times. Failure to make timely
product introductions and enhancements or to capitalize on new market
opportunities as they emerge may adversely affect future operating results
The Company's operations are also subject to certain other risks and
uncertainties including, among other things, the effectiveness of actual and
potential competition, the success of the Company's relationships with its
strategic partners such as vendors, product developers and distributors of the
Company's products and the risks associated with acquisitions and international
operations and expansion. Sales of capital goods to the dental industry tend to
be seasonal. The Company's period of greatest demand for its products is its
second quarter ending December 31 and its period of least demand is its quarter
ending September 30. This seasonality affects revenues more than expenses and
may result in significant quarter-to-quarter changes in revenues and
profitability.
19
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
NEW IMAGE INDUSTRIES, INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . 21
Consolidated Balance Sheets at June 30, 1996 and 1995 . . . . . . . . . . 23
Consolidated Statements of Operations for each of the three
years ended June 30, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . 25
Consolidated Statements of Shareholders' Equity for each of
the three years ended June 30, 1996, 1995 and 1994 . . . . . . . . . . . 26
Consolidated Statements of Cash Flows for each of the three
years ended June 30, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . 28
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . 30
Schedule II, Valuation and Qualifying Accounts for each of the
three years ended June 30, 1996, 1995 and 1994. . . . . . . . . . . . . . 51
20
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To New Image Industries, Inc.:
We have audited the accompanying consolidated balance sheets of New Image
Industries, Inc. (a Delaware corporation) and subsidiary as of June 30, 1996 and
1995, and the related statements of operations, shareholders' equity (deficit)
and cash flows for each of the three years in the period ended June 30, 1996.
These consolidated financial statements and the schedule referred to below are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and schedule based
on our audits. We did not audit the financial statements as of or for the years
ended September 30, 1995 and 1994 of Insight Imaging, Inc., a company acquired
during 1996 in a transaction accounted for as a pooling of interest, as
discussed in Note 2. Such statements are included in the consolidated
statements of New Image Industries, Inc. for the fiscal years ended June 30,
1995 and 1994 and reflect total assets and total revenues of 19% percent and 29%
percent in 1995, and 11% percent and 24% percent in 1994, respectively, of the
related consolidated totals. These statements were audited by other auditors
whose report has been furnished to us and our opinion, insofar as it relates to
amounts included for Insight Imaging, Inc., is based solely on the report of the
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of New Image Industries, Inc. and subsidiary as of June
30, 1996 and 1995, and the results of their operations and their cash flows for
each of the three years in the period ended June 30, 1996 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has sustained recurring losses from
operations, is currently experiencing significant constraints on liquidity, and
unaudited information subsequent to year end indicates that losses are
continuing. As of June 30, 1996, the Company had a working capital deficiency
of approximately $2,300,000, and had a net deficit in shareholders' equity of
approximately $734,000. Additionally, at June 30, 1996 the Company had borrowed
substantially all amounts available under its line of credit and was in
violation of a certain debt covenant under the credit agreement. On September
27, 1996 the Company received from the bank a letter that waived the covenant
violation through January 1, 1997 and authorized an increase in the credit limit
of the debt agreement from $4 million to $5 million. Notwithstanding the impact
of the bank's letter, the above matters, among others, raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.
21
<PAGE>
- 2 -
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index to consolidated financial statements is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not a
required part of the basic consolidated financial statements. This schedule has
been subjected to the auditing procedures applied in the audits of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects, the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
San Diego, California
September 30, 1996
22
<PAGE>
NEW IMAGE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 381,000 $ 1,640,000
Short-term investments and bank certificate of deposit - 500,000
Accounts receivable, net of allowance for doubtful
accounts of $1,686,000 in 1996 and $332,000 in 1995 3,279,000 6,246,000
Inventories 5,543,000 6,815,000
Prepaid expenses and other 550,000 800,000
----------- -----------
Total current assets 9,753,000 16,001,000
----------- -----------
PROPERTY AND EQUIPMENT, at cost:
Machinery and equipment 2,127,000 2,196,000
Office furniture and fixtures 315,000 226,000
Vehicles 154,000 154,000
Leasehold improvements 427,000 242,000
----------- -----------
3,023,000 2,818,000
Less: accumulated depreciation and amortization (1,788,000) (1,738,000)
----------- -----------
1,235,000 1,080,000
----------- -----------
INTANGIBLE ASSETS, net of accumulated amortization
of $2,172,000 in 1996 and $1,582,000 in 1995
(Notes 3 and 7) 792,000 2,038,000
----------- -----------
OTHER ASSETS (Notes 3 and 7) 746,000 565,000
----------- -----------
$12,526,000 $19,684,000
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
23
<PAGE>
NEW IMAGE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 4,473,000 $ 5,680,000
Accrued payroll and other compensation 1,312,000 1,645,000
Lines of credit (Note 4) 2,286,000 879,000
Current portion of notes payable (Note 4) 135,000 196,000
Accrued restructuring charges (Note 2) 954,000 1,109,000
Other accrued liabilities (Note 5) 2,884,000 2,290,000
----------- -----------
Total current liabilities 12,044,000 11,799,000
----------- -----------
LONG TERM LIABILITIES:
Notes payable, net of current portion 1,150,000 45,000
Other long term liabilities 66,000 52,000
----------- -----------
Total long term liabilities 1,216,000 97,000
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred stock, par value $0.001 per share;
1,000,000 shares authorized; none outstanding - -
Common stock, par value $0.001 per share;
10,000,000 shares authorized; 5,480,000 outstanding
at 1996; 5,441,000 outstanding at 1995 5,000 5,000
Additional paid in capital 30,449,000 29,368,000
Accumulated deficit (31,188,000) (21,585,000)
----------- -----------
Total shareholders' equity (deficit) (734,000) 7,788,000
----------- -----------
$12,526,000 $19,684,000
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
24
<PAGE>
NEW IMAGE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR EACH OF THE THREE YEARS ENDED JUNE 30
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net revenues $ 37,144,000 $ 44,579,000 $ 41,488,000
Cost of revenues 24,400,000 29,531,000 23,377,000
------------ ------------ ------------
Gross profit 12,744,000 15,048,000 18,111,000
Selling and marketing 13,588,000 13,837,000 11,265,000
General and administrative expenses 6,029,000 5,991,000 5,461,000
Research and development expenses 1,485,000 1,987,000 785,000
Legal/litigation expenses 454,000 349,000 2,710,000
Restructuring and unusual charges 962,000 4,350,000 -
Acquisition expenses 478,000 - -
Loss on impairment (Note 3) 814,000 - -
------------ ------------ ------------
Loss from operations (11,066,000) (11,466,000) (2,110,000)
Interest (income) expense, net (17,000) 351,000 112,000
Other (income) expense, net 122,000 33,000 (7,000)
------------ ------------ ------------
Net loss $(11,171,000) $(11,850,000) $ (2,215,000)
------------ ------------ ------------
------------ ------------ ------------
Net loss per share $ (2.05) $ (2.19) $ (0.42)
------------ ------------ ------------
------------ ------------ ------------
Weighted average shares of
common stock outstanding 5,449,000 5,412,000 5,262,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
25
<PAGE>
NEW IMAGE INDUSTRIES, INC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR EACH OF THE THREE YEARS ENDED JUNE 30
<TABLE>
<CAPTION>
Common Stock and
Additional Paid in
Capital
-------------------------------- Total
Number of Accumulated Shareholders'
Shares Amount (Deficit) Equity (Deficit)
------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Balance at June 30, 1993 as
previously reported 4,413,000 $18,298,000 $(5,990,000) $12,308,000
Adjustment for pooling of
interests (Note 2) 650,000 6,705,000 (1,530,000) 5,175,000
------------ ------------ ------------ ------------
Balance as restated 5,063,000 25,003,000 (7,520,000) 17,483,000
Exercise of stock options 65,000 641,000 - 641,000
Issuance of stock for shareholder
litigation settlement 56,000 1,000,000 - 1,000,000
Issuance of stock for Aerospace
acquisition 87,000 1,065,000 - 1,065,000
Net loss - - (2,215,000) (2,215,000)
------------ ------------ ------------ ------------
Balance at June 30, 1994 5,271,000 27,709,000 (9,735,000) 17,974,000
Exercise of stock options 18,000 43,000 - 43,000
Issuance of stock for European
licensee acquisition 100,000 1,413,000 - 1,413,000
Issuance of stock for Aerospace
acquisition 17,000 208,000 - 208,000
Issuance of stock in error
(Note 7) 35,000 - - -
Net loss - - (11,850,000) (11,850,000)
------------ ------------ ------------ ------------
Balance at June 30, 1995 5,441,000 29,373,000 (21,585,000) 7,788,000
</TABLE>
26
<PAGE>
NEW IMAGE INDUSTRIES, INC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR EACH OF THE THREE YEARS ENDED JUNE 30
<TABLE>
<CAPTION>
Common Stock and
Additional Paid in
Capital
-------------------------------- Total
Number of Accumulated Shareholders'
Shares Amount (Deficit) Equity (Deficit)
------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Exercise of stock options 39,000 242,000 - 242,000
Payment received in 1996 for
stock issued in 1995 (Note 7) - 333,000 - 333,000
Adjustment for change in Insight
fiscal year - - 1,568,000 1,568,000
Conversion of debt in connection with
pooling of interests - 506,000 - 506,000
Net loss - - (11,171,000) (11,171,000)
------------ ------------ ------------ ------------
Balance at June 30, 1996 5,480,000 $ 30,454,000 $(31,188,000) $ (734,000)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
27
<PAGE>
NEW IMAGE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS ENDED JUNE 30
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net loss $(11,171,000) $(11,850,000) $ (2,215,000)
Adjustments to reconcile net loss
to net cash used in operating activities:
Unpaid portion of restructuring 954,000 1,597,000 -
Depreciation and amortization 1,456,000 1,623,000 1,037,000
Provision for losses on accounts receivable 1,310,000 211,000 205,000
Impairment loss 814,000 - -
Effect of change in fiscal year 1,568,000 - -
Changes in operating assets and liabilities:
Accounts receivable 1,657,000 (355,000) (1,715,000)
Inventories 1,272,000 1,821,000 (3,478,000)
Prepaid expenses and other 250,000 (326,000) (238,000)
Income taxes receivable - 659,000 (659,000)
Accounts payable (1,207,000) 110,000 2,285,000
Accrued expenses and other (834,000) 952,000 2,613,000
------------ ------------ ------------
Net cash used in operating
activities (3,931,000) (5,558,000) (2,165,000)
------------ ------------ ------------
Cash flows from investing activities:
Increase in capitalized software and
other assets (457,000) (220,000) (403,000)
Purchase of property and equipment (903,000) (599,000) (754,000)
Cash received from sales of
investments and maturities of CDs 500,000 796,000 1,122,000
------------ ------------ ------------
Net cash used in investing
activities (860,000) (23,000) (35,000)
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
28
<PAGE>
NEW IMAGE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS ENDED JUNE 30
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Net proceeds from issuance of stock 575,000 1,035,000 1,616,000
Bank line of credit 1,407,000 278,000 600,000
Notes payable 1,550,000 2,958,000 248,000
------------ ------------ ------------
Net cash provided by financing
activities 3,532,000 4,271,000 2,464,000
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,259,000) (1,310,000) 264,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
beginning of year 1,640,000 2,950,000 2,686,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
end of year $ 381,000 $ 1,640,000 $ 2,950,000
------------ ------------ ------------
------------ ------------ ------------
Supplemental disclosures:
Interest paid $ 128,000 $ 132,000 $ 171,000
------------ ------------ ------------
------------ ------------ ------------
Taxes paid $ - $ - $ 625,000
------------ ------------ ------------
------------ ------------ ------------
Conversion of loans into stock $ 506,000 $ - $ -
------------ ------------ ------------
------------ ------------ ------------
Common Stock issued in connection with
Shareholder litigation settlement $ - $ - $ 1,000,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
29
<PAGE>
NEW IMAGE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 AND 1994
1. Line of Business and Financial Condition
a. Line of Business -- New Image Industries, Inc. and subsidiary (the
"Company") designs, develops and manufactures intraoral cameras and
computer imaging systems. The Company earns revenue principally from sales
of its systems into the dental market place, including individual dental
practices, dental clinics and labs, and to distributors. Domestic sales
are made through the Company's direct sales force. International sales are
made in Europe, South America and South Africa, and certain countries in
the Asia Pacific region using distributors and licensees. In May 1996, New
Image Industries, Inc. (New Image) acquired all of the outstanding shares
of a competitor, Insight Imaging Systems, Inc. ("Insight") (See Note 2).
New Image products consist of cart mounted systems including the AcuCam
Intraoral Camera System, the AcuCam PC+ Computerized Camera System, the
MultiCam Intraoral Camera System and the AcuView Dental Imaging System.
Insight products consist of wall mounted systems including high resolution
intraoral and extraoral video cameras, integrated with high intensity light
sources, monitors and other hardware accessories and software peripherals.
b. Financial Condition, Results of Operations and Restructuring-- The
accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. New Image has sustained
operating losses in each of the last three fiscal years (before considering
the impact of the pooling of interests accounting for Insight (see Note 2)
totaling approximately ($5,552,000), ($7,673,000) and ($347,000) in 1996,
1995, and 1994, respectively. Unaudited information subsequent to June 30,
1996, indicates that operating losses are continuing in fiscal year 1997.
In fisca1 1995, New Image's gross profits declined sharply primarily
because of competitive forces that required reductions in selling prices.
Additionally, New Image introduced new products with lower profit margins,
and incurred higher manufacturing costs and certain product transition
costs. Also included in the results of operations for 1995 are the
estimated costs of a plan implemented in 1995 to restructure operations and
to take several other actions designed to improve operating performance.
The estimated costs of these actions approximated $4,350,000. These
charges related to the termination/ resignation of officers and other
management personnel, a writedown of inventory related to discontinued
products, payments related to the facility leases, a write-off of marketing
rights to Europe, and other miscellaneous items. In 1996, New Image
experienced a decline in revenues from New Image products and continued to
experience depressed profit margins. The revenue decline was primarily as
a result of nonavailability of a critical system component for a certain
product, reorganization of the distribution network for international
sales, a delay in introduction of a widely anticipated new product that
caused customers to delay purchase decisions on all New Image products and
uncertainty created within the sales force during the process of merging
with Insight.
Insight, which was formed in 1992, had experienced rapid growth in
revenues since inception, but increases in marketing and other expenses
historically have exceeded revenue growth, resulting in operating losses of
approximately ($5,619,000) for the twelve months ended June 30, 1996, and
($4,177,000) and ($1,868,000) for the years ended September 30, 1995 and
1994, respectively. In connection with the acquisition of Insight,
management has identified additional restructuring costs necessary to
integrate Insight's operations with those of New Image. The estimate of
these restructuring costs, which is included in the accompanying
consolidated statement of operations for 1996, is approximately $962,000.
(See further discussion below.)
The Company is experiencing constraints on liquidity. At June 30,
1996, the Company had minimal cash reserves, a consolidated net working
capital deficiency of $2,291,000 and a deficit in shareholders' equity of
$734,000. The Company is delinquent on payments to certain vendors under
the terms of the related vendor invoices. The Company's borrowings on its
lines of credit at June 30, 1996
30
<PAGE>
totaled $2,286,000 and its credit limit as of that date was approximately
$2,617,000 based upon an asset borrowing base, as defined. As of late
September, 1996, the Company's outstanding borrowings under the line
continued to approximate the maximum allowed under the terms of the credit
agreement. At June 30, 1996, the Company was in violation of a financial
covenant under the debt agreement that requires the Company to maintain
positive shareholders' equity. On September 27, 1996, the Company received
from the bank a letter that waived the covenant violation through January
1, 1997 and authorized an increase in the credit limit of the debt
agreement from $4 million to $5 million.
Management believes that it has an achievable plan that will return
the Company to profitability. However, its ability to accomplish its plan
requires the availability of adequate funds and working capital and (i) the
completion of its product development and marketing initiatives including
repositioning its price structure as it introduces new products, (ii)
continued efforts to fully implement the efficiencies and reduced cost
structure envisioned in the 1995 restructuring plan, and (iii)
accomplishing similar objectives for Insight and integrating the
management, manufacturing and marketing activities of the two companies in
such a way that the expected efficiencies of scale are realized. In this
regard, an additional restructuring plan was implemented in the fourth
quarter of 1996 designed to fully integrate Insight. The plan includes
severance or relocation of personnel, abandonment of leased facilities and
relocation of Insight operations, and write-offs of certain assets.
In connection with these actions, certain provisions have been
recorded in the financial statements for the year ended June 30, 1996.
Also, certain other items estimated at approximately $100,000 will be
included as expenses in the Company's financial statements for the year
ended June 30, 1997, in accordance with current releases of the Securities
and Exchange Commission and the Emerging Issues Task Force of the AICPA
related to restructuring charges.
The restructuring charges recorded in the statement of operations for
the year ended June 30, 1996 are as follows:
Charges related to personnel termination
and severance $411,000
Relocation and other costs related to
Insight's facilities and operations 408,000
Inventory write-downs for product integration 100,000
Other miscellaneous items 43,000
--------
$962,000
--------
--------
The matters discussed above raise substantial doubt about the
Company's ability to continue as a going concern. Without an infusion of
additional debt or equity capital, the Company may not be able to fund
operations, implement its plans to return to profitability, or meet its
obligations as they come due. Management successfully negotiated with the
bank to increase the credit limit under the line of credit and obtained a
waiver of the covenant violation. Additionally, the Company is negotiating
with certain vendors to obtain extensions on invoice payment terms and to
obtain agreements with the vendors that shipments to the Company of needed
product materials will continue without interruption. Management has
also been actively seeking additional sources of equity financing that
would be used to fund certain costs incurred in connection with the
acquisition of Insight, reduce outstanding debt, and provide working
capital to fund the planned integration of Insight. However, there can be
no assurance that the Company's revised agreement with its bank and
negotiations with vendors will result in terms that will be sufficient to
resolve liquidity problems. Additionally, there can be no assurance that
additional equity financing will be available to the Company at all or on
terms that are acceptable to the Company. Furthermore, there can be no
assurance that management's plans outlined above will be implemented or if
implemented that they will successfully return the Company to
profitability. The financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts
or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.
31
<PAGE>
2. Acquisition of Insight Imaging Systems
Effective May 17, 1996 the Company acquired all of the outstanding
common stock of Insight in exchange for the issuance of 353,356 shares of
New Image common stock. In addition, the Company issued 296,603 shares of
New Image common stock as consideration for the outstanding balance of
principal and interest on loans to Insight from its shareholders totaling
$2,110,000. The Company also assumed obligations under outstanding options
and warrants to sell Insight common stock and, accordingly, has reserved
158,040 shares of New Image common stock for issuance upon exercise of such
options and warrants. The Company accounted for the acquisition as a
pooling of interests and, accordingly, the Company's financial statements
have been restated to include the results of Insight for all periods
presented. Combined and separate results of New Image and Insight are as
follows:
<TABLE>
<CAPTION>
New Image Insight Combined
----------- ----------- -----------
<S> <C> <C> <C>
Year Ended June 30, 1996
Net sales $22,278,000 $14,866,000 $37,144,000
Net (loss) (5,552,000) (5,619,000) (11,171,000)
Year Ended June 30, 1995 (Insight as of September 30)
Net sales 31,623,000 12,956,000 44,579,000
Net (loss) (7,673,000) (4,177,000) (11,850,000)
Year Ended June 30, 1994 (Insight as of September 30)
Net sales 31,569,000 9,919,000 41,488,000
Net (loss) (347,000) (1,868,000) (2,215,000)
</TABLE>
In connection with the merger, Insight changed its fiscal year end
from September 30 to June 30, which conforms to New Image's year end.
Except for the year ended June 30, 1996, Insight's separate results for
prior years have not been restated to conform to the fiscal year of New
Image. Therefore, the results of operations contained in the consolidated
financial statements for the fiscal years ended June 30, 1995 and 1994
combine those of New Image for the periods, as previously reported, with
those of Insight for the years ended September 30, 1995 and 1994.
Therefore, the results of Insight's operations for the three months ended
September 30, 1995 are included in the consolidated statements of
operations for both June 30, 1996 and 1995. Accordingly, an adjustment
totaling $1,568,000 has been recorded as a reduction to retained deficit in
1996, reflecting the impact on net loss of this overlapping period. The
Company's consolidated balance sheet at June 30, 1995 combines the balance
sheet of New Image as of June 30, 1995 and the balance sheet of Insight as
of September 30, 1995.
Costs related to the acquisition of $478,000 were charged to expense
in the Company's fourth quarter of 1996.
As discussed above, in connection with this acquisition the Company
developed a restructuring plan that required additional financing.
Accordingly, in May 1996 the Company renegotiated its line of credit to
increase the credit limit from $2.5 million to $4 million and borrowed
$500,000 under a secured subordinated promissory note. Additionally,
$650,000 was loaned to Insight by an Insight shareholder under an unsecured
subordinated note payable. (See Note 4).
3. Summary of Significant Accounting Policies
a. Principles of Consolidation -- The accompanying financial statements
include the accounts of the Company and its wholly owned subsidiary
Insight. All significant intercompany accounts and transactions have been
eliminated in consolidation.
32
<PAGE>
b. Cash and Cash Equivalents -- Cash and cash equivalents include short
term, highly liquid investments; principally tax-exempt money market funds
and municipal securities with original maturities of three months or less.
c. Short-term Investments and Bank Certificates of Deposit -- As of June
30, 1995, short-term investments and bank certificates of deposit include
short-term, highly liquid investments; principally tax-exempt money market
funds and municipal securities with original maturities of greater than
three months.
d. Inventories -- Inventories, which consist primarily of purchased
components, raw materials and finished systems, are priced at the lower of
cost (first-in; first-out) or market. Such amounts include the cost of
material and, when applicable, labor and overhead. Appropriate
consideration is given to deterioration, obsolescence and other factors in
determining net realizable value. The components of inventory as of June
30, 1996 and 1995 were as follows:
1996 1995
----------- -----------
Raw materials
and Purchased Components $ 4,005,000 $ 4,878,000
Finished systems 1,538,000 1,937,000
----------- -----------
$ 5,543,000 $ 6,815,000
----------- -----------
----------- -----------
e. Property and Equipment -- The Company primarily uses the straight-line
method of depreciation. Estimated useful lives are as follows:
Computer hardware and software 2 to 3 years
Furniture and fixtures 5 years
Vehicles under capital leases 5 years
Leasehold improvements lesser of lease term or asset life
The Company follows the policy of capitalizing expenditures which
materially increase asset lives, and charging ordinary maintenance and
repairs to operations as incurred. When assets are sold or otherwise
disposed of, the cost and related reserves are removed from the accounts
and any resulting gain or loss is included in operations.
f. Capitalized Software Development Costs -- The Company capitalizes, and
includes in other assets, costs incurred for the development of certain
computer software in accordance with Statement of Financial Accounting
Standards No. 86, "Accounting for the Costs of Computer Software to be
Sold, Leased, or Otherwise Marketed." Capitalization of computer software
development costs begins upon the establishment of technological
feasibility. The establishment of technological feasibility and the
ongoing assessment of recoverability of capitalized computer software
development costs requires the review of external factors, including, but
not limited to, technological feasibility and obsolescence, anticipated
future gross revenues, estimated economic life, changes in software and
hardware technology, and patent and trademark law and litigation. The net
book value of capitalized software at June 30, 1996 and 1995 was $282,000
and $400,000, respectively.
Amortization of capitalized software development costs is provided for
on a product-by-product basis at the greater of the amount computed using a
ratio of current gross revenues for a product to the total of current and
anticipated future gross revenues or the straight-line method over the
remaining estimated economic life of the product. An original estimated
economic life of 24 months is assigned to capitalized computer software
development costs. Amortization amounted to $276,000, $249,000 and $48,000
for the periods ended June 30, 1996, 1995 and 1994, respectively and is
included in cost of revenues in the accompanying statement of operations.
33
<PAGE>
g. Intangible Assets -- Intangible assets consist of the amount paid for
the patent, copyright and other rights to certain products, non-compete
agreements and goodwill. Amortization is provided on a straight-line basis
over a period of five to ten years. During fiscal 1996, management
evaluated events and changes in circumstances that indicated that the
carrying amount of certain intangibles may not be recoverable. As a
result, the Company recorded an impairment loss of approximately $656,000
related to certain product and patent rights that were acquired from
Insight and $158,000 related to goodwill from a prior acquisition.
Intangible assets consist of the following as of June 30,:
1996 1995
------------ -----------
Goodwill $ 938,000 $ 938,000
Non-compete and Employment Agreement 690,000 690,000
Product and Patent Rights 1,336,000 1,992,000
------------ -----------
2,964,000 3,620,000
Accumulated Amortization (2,172,000) (1,582,000)
------------ -----------
Total $ 792,000 $ 2,038,000
------------ -----------
------------ -----------
h. Income Taxes -- The Company accounts for income taxes based on FASB
Statement No. 109 "Accounting for Income Taxes, SFAS No. 109" under which
deferred tax assets and liabilities are provided on temporary differences
between financial reporting and tax reporting using the enacted tax rates.
i. Warranty Expenses -- The Company generally warrants its systems for
one year. A provision for estimated future costs relating to warranty,
training and installation is recorded when systems are shipped.
j. Customers and Credit Risk -- No customer accounted for ten percent or
more of revenues in any of the periods presented. The majority of the
Company's current customers consist of dental professionals. Certain of
the dental professionals lease the Company's products through third party
leasing companies. Under the terms of the sales, the leasing companies
have no recourse to the Company. The Company extends credit to its
customers based on an evaluation of the customer's financial condition,
generally without requiring a deposit or collateral. Exposure to losses on
receivables is principally dependent on each customer's financial
condition. The Company monitors its exposure for credit losses and
maintains allowances for anticipated losses.
k. Revenue Recognition -- The Company recognizes revenue primarily from
sales of systems and supplies at the time of shipment, net of estimated
sales returns and allowances. Revenues from warranty, maintenance and
service contracts, which have not been significant, are recognized ratably
over the life of the contract.
l. Loss Per Common Share -- Loss per common share for fiscal 1996, 1995
and 1994 is based on the weighted average number of common shares
outstanding. The effect of common share equivalents is not included in the
loss per common share calculation as it would be anti-dilutive.
m. 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 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. Actual
results could differ from those estimates (See Note 7).
n. Accounting Pronouncement -- In October 1995, the FASB issue SFAS No.
123 "Accounting for Stock Based Compensation." It encourages but does not
require, companies to recognize compensation expense for grants of stock
and stock options to employees based on new fair value accounting rules.
34
<PAGE>
Companies that choose not to adapt the new rules will continue to apply the
existing accounting rules. However, fair value accounting is required for
transactions involving the issuance of stock options or other equity
instruments to acquire goods or services. SFAS No. 123 will be effective
for the Company's fiscal year 1997 consolidated financial statements.
Currently, the Company does not expect to adopt the new fair value
accounting rules for stock-based compensation pertaining to employees as
allowed under SFAS No. 123.
However, SFAS No. 123 will require the Company, in its fiscal 1997
financial statements, to disclose pro forma net income/loss and earnings
per share information under the fair value accounting method for stock
option grants that occurred subsequent to June 30, 1996. In addition, the
Company will be required to expand its disclosure about plan terms,
exercise prices and the assumptions used in measuring the fair value of
stock-based grants. Although the Company has not performed the pro forma
calculation required by SFAS No. 123 for fiscal 1996 or 1995, it expects
that the pro forma results of operations may be lower than the historical
results reported herein.
4. Notes Payable and Lines of Credit
As of June 30, 1996 and 1995, notes payable consisted of the following:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Unsecured, subordinated notes payable to shareholder.
Interest at 10%. Interest only payments due quarterly
commencing on June 30, 1996, with a 44% principal
paydown on May 17,1998. The remaining principal is
due on May 17, 1999. Quarterly interest payments are
waived in the event the Company is in default on the
bank line of credit (See Note 1). $ 650,000 $ -
Subordinated note payable to Mercury Partners, LLC.
Interest at 10% per annum. Interest only payments
due quarterly commencing on August 1, 1996. Secured
by accounts receivable, inventory, equipment and
general intangibles. Principal due May 30, 1998.
Quarterly interest payments are waived in the event
the Company is in default on the bank line of credit
(See Note 1). 500,000 -
Other - including $75,000 and $225,000 payable to
shareholders at June 30, 1996 and 1995, respectively.
The Shareholder note is payable by monthly installments
of $15,000 bearing no interest. 135,000 241,000
------------- -------------
1,285,000 241,000
Less current portion (135,000) (196,000)
------------- -------------
$ 1,150,000 $ 45,000
------------- -------------
------------- -------------
</TABLE>
Line of Credit -- During Fiscal 1996, the Company entered into a bank
line of credit agreement with Coast Business Credit. The agreement
provides for maximum borrowing of $4,000,000 limited to a percentage of
eligible accounts receivable and inventory as defined in the agreement. As
of June 30,1996, the Company had $2,286,000 outstanding under its line of
credit agreement. The line expires on May 1,
35
<PAGE>
1997, and carries an interest rate of the greater of 10% or prime plus
2.25% (10.5% at June 30, 1996). The line is collateralized by accounts
receivable, inventory, equipment and general intangibles, and requires the
Company to maintain positive shareholders' equity. On June 30, 1996, the
Company was in violation of this financial covenant. On September 27,
1996, the Company received from the bank a letter that waived the covenant
violation through January 1, 1997 and authorized an increase in the credit
limit from $4 million to $5 million.
At June 30, 1995, Insight had available a $1,000,000 revolving line of
credit with a bank collateralized by all its assets. The accompanying
balance sheet reflects outstanding borrowings under the line of credit of
approximately $879,000. Borrowings under the line of credit bore interest
at 11% per annum. As a result of the acquisition of Insight by New Image,
outstanding borrowings were retired in May 1996 and the agreement was
terminated.
5. Accrued Liabilities
Other accrued liabilities as of June 30, 1996 and 1995 is comprised of
the following:
1996 1995
----------- -----------
State sales tax $ 952,000 $ 445,000
Litigation settlements and
legal expenses 911,000 836,000
Acquisition costs 354,000 -
Warranty 319,000 347,000
Other 348,000 662,000
----------- -----------
$ 2,884,000 $ 2,290,000
----------- -----------
----------- -----------
At June 30, 1996, the Company had not remitted all state sales tax
due. The Company has accrued for the full amount of estimated taxes due
including an estimate of the maximum penalties and interest due on late
payment of these taxes. Penalties and interest have been estimated based
on published and effective rates at the date of default. As the Company
negotiates settlements of tax, penalties and interest due, with the
respective taxing authorities, the estimate is subject to change in the
near term. The actual amount of taxes plus interest and penalties may
therefore change materially from the amount accrued.
6. Income Taxes
Since the Company incurred pretax losses for the fiscal year periods
presented herein, there are no income taxes provided in the accompanying
statements of operations. Though management believes that future net
operating income and taxable income of the Company may be sufficient to
realize the benefits of the Company's net operating loss carryforwards and
to utilize the associated deferred tax asset, a valuation allowance has
been recorded to offset completely the carrying value of such deferred tax
asset due to the Company's lack of prior earnings and the size of the
accumulated deficit.
36
<PAGE>
Temporary differences and carry forwards which give rise to a significant
portion of deferred tax assets and liabilities as of June 30, 1996 and 1995
are as follows:
1996 1995
------------ ------------
Software $ (115,000) $ (189,000)
Accounts Receivable 695,000 135,000
Inventory 475,000 380,000
Other reserves and accruals 985,000 373,000
Restructuring reserve 385,000 950,000
Net operating loss carryforward 5,400,000 4,856,000
Litigation 260,000 337,000
Other 690,000 141,000
------------ ------------
8,775,000 6,983,000
Valuation allowance (8,775,000) (6,983,000)
------------ ------------
Total deferred taxes $ -- $ --
------------ ------------
------------ ------------
As of June 30, 1996, the Company has net operating loss carryforwards
("NOL's") related to New Image and Insight of approximately $12,000,000 and
approximately $8,000,000, respectively. Utilization of these NOL's may be
limited by future changes in ownership. As a result of the acquisition of
Insight, annual limitations of $120,000 applies to $8,000,000 of NOL's.
Accordingly, the deferred assets shown above reflect only the NOL's that are
potentially utilizable by the Company.
7. Commitments and Contingencies
a. Leases -- The Company leases its facilities under various operating leases
which expire at various dates through February 2001. The leases require the
Company to pay taxes, maintenance and insurance and provide for periodic rent
increases based on a published price index. Total lease expenses under these
operating leases were $373,000, $440,000, and $309,000 for the periods ended
June 30, 1996, 1995 and 1994, respectively. The aggregate liability for future
rentals under these lease agreements as of June 30, 1996 is summarized as
follows:
Year Ended
June 30, Amount
---------- --------
1997 $ 286,000
1998 270,000
1999 278,000
2000 284,000
2001 192,000
-----------
$ 1,310,000
-----------
-----------
b. Contracts -- The Company has entered into a five year, $31 million
purchase contract with a vendor for the acquisition of certain components of a
planned digital x-ray product. The Company plans to distribute and sell the
product beginning in late fiscal 1997 and management believes the Company will
meet its commitment. Under the terms of the contract, the Company can
terminate their purchase commitment in exchange for a cash payment of
$550,000, representing non-recurring costs of the vendor and an additional
payment of $1,650,000 in the event the Company cancels the initial purchase
order of 1,500 units. Included in capitalized software and other assets is
approximately $144,000 of digital x-ray software development costs and
$350,000 in advances paid to the supplier. These advances will be applied
against future purchases from the vendor.
37
<PAGE>
c. Asset Carrying Values -- Although management believes that the merger with
Insight will be received favorably by the dental industry, there are risks
associated with product consolidation and acceptance of new products in the
marketplace. Management has made a careful assessment of its expected future
product lines and has estimated the impact of consolidation on the gross
carrying value of inventories. While management believes that it has adequate
reserves to cover identified product changes, it is reasonably possible that
additional changes to the product mix could be identified in the near term and
such changes could have a material impact on the carrying value of
inventories.
It is the Company's policy to amortize capitalized software costs by the
greater of the amount computed using a ratio of current gross revenues for a
product to the total of current and anticipated future gross revenues or the
straight-line method over the remaining estimated economic life of the
product. The Company has also capitalized certain other intangible assets
consisting of the amount paid for patents, copyrights and other rights to
certain products, non-compete agreements and goodwill. Amortization for
these items is provided on a straight-line basis over a period of five to
ten years. Generally accepted accounting principles require that
long-lived assets and certain identifiable intangibles held and used by an
entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. It is reasonably possible that estimates of anticipated
future gross revenues and related cash flows, the remaining estimated
economic life of the products or intangible assets, or both will be reduced
significantly in the near term due to competitive pressures. As a result,
the carrying amount of the capitalized software costs and the intangible
assets may be reduced materially in the near term.
d. Litigation -- The Company has been party to certain claims and legal
proceedings. While the Company believes it has meritorious defenses against
each of the suits, it is reasonably possible that the ultimate resolution
of these matters, most of which are expected to occur within one year,
could result in losses in excess of the amounts accrued. The most
significant matters are summarized as follows:
HIGH TECH MEDICAL INSTRUMENTATION V. NEW IMAGE, ET AL.
On November 20, 1993, High Tech Medical Instrumentation ("HTMI")
filed a patent infringement lawsuit against the Company, captioned "High
Tech Medical Instrumentation v. New Image Industries, Civil Action No.
C-94152 SBA. On May 24, 1995, the Court issued an order ruling that the
Company's product did not and does not infringe. Plaintiffs filed a
motion seeking reconsideration of the Court's ruling, and such motion
was denied on October 3, 1995. The Company's legal counsel has advised
management that HTMI will appeal the Court's ruling of non-infringement
and that such appeal is unlikely to be successful.
STEVEN P. HILL V. NEW IMAGE INDUSTRIES, INC., ET AL.
On September 29, 1994, Steven P. Hill, a shareholder of the Company,
filed a class action lawsuit against the Company and certain of its
former officers alleging violations of Sections 10 (b) and 20 of the
Securities and Exchange Act of 1934. The action purports to be on behalf
of all persons who purchased New Image Common Stock between April 22,
1994 and September 27, 1994 and alleges that the Company made certain
materially false and misleading statements. Although the Company does
not believe there is a basis for the claims and has defended itself
vigorously, negotiations to settle the suit have been entered into and
management believes, based on preliminary settlement discussions, that
the results of the negotiation will not have a material adverse impact on
the Company's financial condition.
38
<PAGE>
BOSTON MARKETING, CO. LTD. V. NEW IMAGE INDUSTRIES, INC.
In July 1995, New Image was served with an action by Boston
Marketing, Co. Ltd. in which Boston Marketing, Co. Ltd. claims New Image
breached certain purchase orders for cameras which are incorporated in
the Company's products. The plaintiffs in the action seek damages in
excess of $1 million. The Company has denied all of the allegations
contained in the Complaint and intends to vigorously defend the action.
The Company's legal counsel has informed management that it is unlikely
that the Company will suffer a net loss in this action.
FITZPATRICK AND BLAIR V. NEW IMAGE INDUSTRIES, INC.
In March 1994, Michael Fitzpatrick, a former employee of New Image,
filed an action against New Image alleging that New Image breached a
contract allegedly existing between New Image and the plaintiff and was
involved in certain fraudulent conduct in connection with that contract.
Plaintiff sought damages in an amount in excess of $4 million. During
fiscal year 1996, the Company entered into a settlement agreement in
which it paid $7,500 to Fitzpatrick.
GRISWA V. NEW IMAGE INDUSTRIES INC.
In September 1995, a former officer (Griswa), filed an action
against the Company, alleging among other things, wrongful termination
and breach of contract. In his initial claim, Mr. Griswa sought damages
of $3 million. On August 30, 1996 the parties entered into a settlement
agreement in which the Company agreed to pay approximately $205,000 in
exchange for a release from all claims. Such amount is included in
accrued liabilities in the accompanying balance sheet at June 30, 1996.
NETWORK ONE V. NEW IMAGE INDUSTRIES, INC.
On October 19, 1995, the Company was sued by Network One Strategic
Management Systems, Inc. Network One was a supplier of Socrates, a
patient education CD system. The claim alleged a breach of purchase
orders on the part of the Company sought damages of $1.2 million. In
June of 1996, this matter was settled and the action dismissed in
exchange for mutual dismissal plus a $100,000 payment by the Company
and delivery to the Company of approximately $300,000 worth of Socrates
and doctor training CD's.
NEW IMAGE INDUSTRIES, INC. V. NEW IMAGE INDUSTRIES PTY. LTD. AND
INTERNATIONAL IMAGING COMPANY, LTD.; NEW IMAGE INDUSTRIES PTY. LTD. AND
INTERNATIONAL IMAGING COMPANY, LTD. V. NEW IMAGE INDUSTRIES, INC.
On April 11, 1996, the Company filed suit to collect a debt in the
sum of $370,215 for goods sold to the foreign distributors New Image
Industries Pty. Ltd. and International Imaging Company, Ltd. (these
distributors are neither affiliates nor subsidiaries of the Company).
The defendants have filed answers and counterclaims seeking damages
which allegedly far exceed the relief sought in the complaint. On
September 25, 1996, the Company reached an oral agreement to settle the
suit. If the suit ultimately settles according to the terms of the oral
agreement, no additional reserves will be required as such amount is
included in accrued liabilities in the accompanying balance sheet at
June 30, 1996.
39
<PAGE>
NEW IMAGE INDUSTRIES, INC. VS. PERRY MICHAEL WILLIAMS
This is an action filed by the Company against a former employee for
conversion of 35,000 shares of common stock which were mistakenly issued
to Mr. Williams by the Company's transfer agent. Williams filed a
cross-complaint against the transfer agent for indemnification and
against the Company for defamation. In February 1994, the Company
obtained a writ of attachment against Mr. Williams in the amount of
$706,120 representing the value of the shares on the date of conversion
and estimated attorney's fees. The Company has attached Mr. Williams'
home and his stock in two other companies. The 35,000 shares were
recorded in 1995 as issued and outstanding at no value. In November
1994, the Company and Mr. Williams entered into a settlement agreement
that required Mr. Williams to pay the Company $875,000. This settlement
includes the value of the stock plus legal costs and interest. During
1996, the Company received approximately $565,000 of the award of which
$333,000 was recorded as an increase to shareholders' equity and the
balance was recorded as reimbursement of related legal expenses. The
Company is in process of pursuing collection of the remainder of the
settlement and will record such amounts when received.
In addition to the foregoing, the Company is from time to time
involved in other litigation arising in the ordinary course of its
business. Management does not believe the outcome from these matters
will have a material adverse impact on its financial position or results
of operations.
40
<PAGE>
8. Capital Transactions
a. Stock Option Plans -- Under the Company's Stock Incentive Plans, non-
qualified stock options, incentive stock options and stock purchase rights
are available for grant to employees, officers, directors and outside
consultants of the Company and its subsidiary. Options are granted at
prices determined by the Board of Directors (not less than 85% or 100% of
market price for non-qualified options and incentive stock options,
respectively). Options generally become exercisable in 25% increments
maturing on each of the first through fourth anniversaries of the grant
date of the option. All options granted were at market value on the date
of grant. Certain options granted to directors, employees and outside
consultants become exercisable immediately. All options must be exercised
within ten years of the date of grant. Effective December 12, 1994,
1,000,600 options granted to certain employees with exercise prices
ranging from $7.25 to $15.00 were canceled and replaced by a grant of
options to purchase 1,000,600 shares at $3.63 per share, the market price
on December 12, 1994.
Information with respect to the Company's stock option plans is as follows:
<TABLE>
<CAPTION>
DIRECTOR STOCK
STOCK INCENTIVE PLANS INCENTIVE PLANS
--------------------- -------------------
Shares Under Option Shares Under Option
Option Prices Option Prices
<S> <C> <C> <C> <C>
Balance
June 30, 1993 343,000 $0.75 - $14.88 125,000 $12.00
Granted 459,000 $9.00 - $11.88 115,000 $11.88-$15.00
Exercised (20,000) $0.75 - $ 7.25 (45,000) $12.00
Canceled (176,000) $7.25 - $14.88 -- --
- -------------------------------------------------------------------------------------
Balance
June 30, 1994 606,000 $0.75 - $12.75 195,000 $11.88-$15.00
Granted 1,114,000 $3.63 - $04.00 195,000 $03.63
Exercised (18,000) $0.75 - $07.25 -- --
Canceled (825,000) $0.75 - $14.88 (235,000) $11.88-$15.00
- -------------------------------------------------------------------------------------
Balance
June 30, 1995 877,000 $0.75 - $4.00 155,000 $3.63
Granted 476,000 $1.75 - $3.63 -- --
Exercised (26,000) $2.25 - $4.50 -- --
Canceled (193,000) $0.75 - $4.00 -- --
- -------------------------------------------------------------------------------------
Balance
June 30, 1996 1,134,000 $0.75-$4.00 155,000 $3.63
- -------------------------------------------------------------------------------------
Exercisable
June 30, 1996 354,000 $0.75-$4.00 155,000 $3.63
- -------------------------------------------------------------------------------------
Available For
Grant At
June 30, 1996 271,000 -- 100,000 --
- -------------------------------------------------------------------------------------
</TABLE>
41
<PAGE>
b. Warrants -- In connection with the merger with Insight, the Company
assumed Insight obligations under outstanding options to purchase warrants.
The options were issued at $.001 per warrant in connection with borrowings
under notes payable which converted to equity as a result of the merger
(see Note 2.). The warrants entitle the holders to purchase shares of
common stock at $9.02 per share and expire in 1999 and 2000. Approximately
55,000 options to purchase warrants were outstanding at June 30, 1996
relating to this transaction.
In March 1995, Colman Furlong & Co. ("Colman Furlong") was retained by
the Company to effect a management restructuring. In exchange for services
rendered, the Company has issued warrants to purchase a total of 350,000
shares of common stock at prices ranging from $2.12 to $ 3.875 per share
(fair market value on the dates of grant). The warrants were allocated
137,500 shares to Robert S. Colman, Chairman of the Company's Board of
Directors, 112,500 shares, to Kenneth B. Sawyer, a member of the Company's
Board of Directors, and 100,000 shares to Joseph F. Furlong. Additionally,
the Company incurred fees from Colman Furlong totaling $184,000 and $36,000
in 1996 and 1995, respectively, for consulting services. In addition, the
Company incurred $150,000 of acquisition expenses relating to services
provided by Colman Furlong in conjunction with the Insight acquisition during
fiscal year 1996. Included in accrued liabilities in the accompanying
balance sheet at June 30, 1996 is $197,000 related to services provided by
Colman Furlong. Effective June 30, 1996, the management agreement expired.
c. European Marketing Rights -- Effective July 28, 1994, the Company
reacquired the exclusive licensing rights to Europe from Fimarco, N. V. a
Belgium Corporation, in exchange for 100,000 shares of the Company's Common
Stock. The fair value of the shares issued (approximately $1,400,000) was
recorded as an intangible asset by the Company. In connection with its
restructuring in the fourth quarter of the year ended June 30, 1995, new
management determined that the realization of the amount capitalized in the
foreseeable future was doubtful. Accordingly, the Company included the
write-off of this license in the unusual charges recorded in 1995.
d. Preferred Stock -- The Company is authorized to issue 1,000,000 shares of
Preferred Stock, having a par value of $0.001 per share. These shares may be
issued from time to time in one or more classes or series and may be
designated with full, limited or no voting powers. The Board of Directors
establishes and designates the series and fixes the number of shares and
relative rights, preferences, and limitations of Preferred Stock. There
was no Preferred Stock outstanding at June 30, 1996 and 1995.
9. Employee Benefit Plan
The Company has a defined contribution retirement plan covering all
employees who have completed one year service with the Company. The plan
allows eligible employees to contribute a portion of their gross pay and
allows the Company to contribute certain discretionary amounts. During fiscal
1996, 1995 and 1994 the Company did not make contributions to the plan.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
42
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
The following table sets forth certain information with respect to the
nominee, continuing directors and executive officers of the Company as of
June 30, 1996.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Dewey F. Edmunds 53 Chief Executive Officer,
Director
Harold J. Meyers 62 Director
Robert S. Colman 55 Director
Ralph M. Richart 63 Director
Kenneth B. Sawyer 31 Director and Secretary
Richard P. Greenthal 42 Director
Mark W. Stevens 40 Sr. VP Business Development, Director
Hal Orr 48 Chief Financial Officer, Treasurer
David Cooper 61 VP & Chief Technical Officer
</TABLE>
In accordance with the Certificate of Incorporation and Bylaws
of the Company, the Board of Directors of the Company is divided into three
classes. At each annual meeting of the stockholders of the Company,
directors constituting one class are elected for three-year terms. The Board
of Directors is currently set at seven members, consisting of two Class I
Directors, with a term expiring in 1997, two Class II Directors, with a term
expiring in 1998, and three Class III Directors with a term expiring in 1996.
All officers are appointed by and serve at the discretion of
the Board of Directors. There are no family relationships between any
directors or officers of the Company.
MR. EDMUNDS joined the company in May of 1995 as the President
and Chief Executive Officer. He was appointed to the board at the same time
as a Class II Director. On January 10, 1996, he was elected to the Board as
a Class II Director with a term expiring in 1998. In 1987, Mr. Edmunds was
one of three founding employees of Secomerica, Inc., a U.S. holding company
for a $2 billion Japanese conglomerate. During his employ from 1987 to 1995,
Mr. Edmunds acted as Vice President, Corporate Development and Chief
Financial Officer of Secomerica, Inc. As well as President and Chief
Operating Officer of LifeFleet, Inc., a subsidiary.
MR. MEYERS was first elected to the Board of Directors of the
Company following completion of the Company's initial public offering in
August 1989. Mr. Meyers was then elected to the Board as a Class I Director
at the Company's 1990 Annual Meeting and was reelected for a three-year term
expiring in 1994 at the Company's 1991 Annual Meeting. Mr. Meyers has been
the Chairman of the Board and President of H.J. Meyers & Co., Inc. and a
principal shareholder of the parent corporation of H.J. Meyers & Co., Inc.
since 1982. Mr. Meyers served as President and Chief Executive Officer of
McDonald, Kreiger & Bowyer, an investment banking firm and the predecessor of
H.J. Meyers & Co., Inc. from 1978 to 1982. From 1974 to 1978, Mr. Meyers
served as west coast Senior Partner of Loeb Rhoades. Mr. Meyers is also a
member of the Board of Directors of Styles on Video, Inc.
43
<PAGE>
MR. COLMAN was appointed to the Board of Directors in February
1994 as a Class I member to fill a vacancy. His term expires in 1997. He is
a partner of Colman Furlong & Co., a merchant banking firm, which he
co-founded in 1991 and Colman Partners, LLC. Mr. Colman serves on the Board
of Directors of HealthCare COMPARE Corp., a health care cost management firm,
Cleveland Cliffs, Inc., a producer and processor of iron ore and Van Wagoner
Funds, Inc., an investment management company.
DR. RICHART has served as a Director of the Company since July
1995. He is currently a Professor of Pathology at Columbia University
College of Physicians and Surgeons, where he has taught since 1969. Dr.
Richart has also been an attending Pathologist at The Presbyterian Hospital
since 1969. Dr. Richart is the founder and owner of Kyto Diagnostics, L.P.,
a clinical pathology lab in New York. Dr. Richart received an MD from the
University of Rochester, School of Medicine and Dentistry and a BA from Johns
Hopkins University. Dr. Richart also serves on the board of Neopath, Inc., a
medical diagnostic instrument company, and BEI Medical Systems, Inc.
MR. GREENTHAL has served as a Director of the Company since
July 1995. Mr. Greenthal is the co-owner and Vice President of Sentex
Systems, Inc., a manufacturer of access control systems. Mr. Greenthal
co-founded the company in 1983. From 1977 to 1983, Mr. Greenthal was Senior
Engagement Manager for McKinsey & Co., Inc., a management consulting firm.
Mr. Greenthal received an MBA from Harvard Business School and a BA in
Economics from Cornell University.
MR. SAWYER was appointed to the Board of Directors in July
1994 as a Class II member. He was reelected at the last stockholders meeting
in January 1996 and his term expires in 1998. He is a general partner of
Volpe, Welty & Company, an investment banking firm. Mr. Sawyer worked
previously for Colman Furlong, a merchant banking firm.
MARK STEVENS joined the Company as Sr. Vice President,
Business Development and member of the Board of Directors in May 1996. He
was President and Chief Operating Officer of Insight Imaging since 1992.
Earlier, Mr. Stevens was co-founder and president of Vesteq Financial corp.,
a national financial services firm. In his seven years at Vesteq, it grew to
800 employees with offices in eight major cities across the country.
HAL ORR joined the Company in October 1995 as its Chief
Financial Officer. Prior thereto, and since 1994, he was Chief Financial
Officer and Vice President, Operations of LH Research, Inc., a designer,
manufacturer and distributor of AC/DC power supplies. Prior thereto, and
since 1992, Mr. Orr was Chief Financial Officer of Receptors, Inc., a
manufacturer of video ID and card access security systems. Prior thereto, and
since 1988, Mr. Orr was Chief Financial Officer and Executive Vice President
of Vanguard Electronics Co., Inc., an international electronic components
manufacturing and distribution company. He received his BS from UC Berkeley
and his JD from Pepperdine University.
DAVID COOPER joined the Company in May of 1995 as Vice
President, Advanced Development. Mr. Cooper has an extensive background in
broadcast and medical camera design and marketing. As Executive Vice
President and President of Fuji Optical Systems, Inc., Mr. Cooper was
responsible for the development of the highest resolution video endoscope and
was the inventor of the intraoral video camera. Mr. Cooper received an HNC
in electrical engineering from Harlow College, England, and an MS in
Engineering Science from Pennsylvania State University.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Section 16(a) of the Securities Exchange Act of 1934 requires
the Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange
Commission and the NASD. Officers, directors and greater than 10%
stockholders are required by SEC rules to furnish the Company with copies of
all Section 16(a) forms they file.
Based solely on its review of the copies of such forms
received by it, the Company has determined that additional reports are
required by certain officers and directors and has begun a program to assist
all officers and directors to bring their filings current and keep them
current.
44
<PAGE>
During the fiscal year ended June 30, 1996, the Board of
Directors met 10 times. Each director attended in excess of 75% of all
meetings of the Board of Directors held during the year.
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated by reference from Registrant's Proxy Statement
issued in connection with its 1996 annual meeting of stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated by reference from Registrant's Proxy Statement
issued in connection with its 1996 annual meeting of stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated by reference from Registrant's Proxy Statement
issued in connection with its 1996 annual meeting of stockholders.
45
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Agreement and Plan of Reorganization (1)
(including all material exhibits thereto)
3.1 Articles of Incorporation of Registrant (2)
3.2 Bylaws of Registrant, as currently in effect (2)
4.1 Form of Certificate for the Registrant's Common Stock, $.001 Par Value
(1)
10.1 Form of Indemnification Agreement between Registrant and its
Directors (2)
10.2 1989 Stock Incentive Plan of Registrant, as amended (3)
10.3 1992 Stock Incentive Plan of the Company (3)
10.4 1992 Director Incentive Plan of the Company (3)
10.5 1993 Stock Incentive Plan (4)
10.6 1993 Director Incentive Plan (4)
10.7 1995 Stock Incentive Plan (5)
10.8 Undertaking Concerning Certain Registration Rights (1)
10.9 Employment Agreement between the Company and Dewey F. Edmunds dated
May 30, 1995 (6)
10.10 Senior Subordinated Secured Promissory Note and Common Stock Purchase
Warrant between Mercury Partners and New Image Industries, Inc. (1)
10.11 Form of Series A Subordinated Promissory (1)
10.12 Amended and Restated Loan and Security Agreement between Coast
Business Credit and New Image Industries, Inc. (1)
10.13 Distribution Agreement dated March 18, 1994 between the Company and
International Imaging Company (6)
10.14 Basic Lease Information for Real Property Lease Agreement between
Insight Imaging Systems, Inc. And Three Sisters Ranch Enterprises
10.15 Employment Agreement between the Company and Mark W. Stevens, dated
May 17, 1996
10.16 Warrant for 100,000 shares of Common Stock issued by the Company to
Robert S. Colman as of December 31, 1995
10.17 Warrant for 75,000 shares of Common Stock issued by the Company to
Kenneth B. Sawyer as of December 31, 1995
46
<PAGE>
10.18 Warrant for 37,500 shares of Common Stock issued by the Company to
Robert S. Colman, dated March 31, 1996
10.19 Warrant for 37,500 shares of Common Stock issued by the Company to
Kenneth B. Sawyer, dated March 31, 1996
10.20 Form of Common Stock Warrant of Insight Imaging Systems, Inc. Assumed
by the Company
10.21 Form of First Amendment to Common Stock Warrant of Insight Imaging
Systems, Inc. Assumed by the Company
10.22 International Distribution Agreement between the Company and Takara
Belmont Company, Ltd., dated January 1, 1996
10.23 International Marketing and Consulting Services Agreement between the
Company and VTM Medical Marketing, dated January 1, 1996
10.24 General Private Label Leasing Agreement; Lease Funding Agreement, and
Revolving Promissory Note between the Company and Affiliated Capital
Leasing, Inc., dated February 21, 1996
10.25 Contract between New Image Industries and Loral Fairchild Corp. for
Intra-Oral Dental X-Ray System, dated March 3, 1995
10.26 First Amendment to Contract Between New Image Industries and Loral
Fairchild Corp. for Intra-Oral Dental X-Ray System, dated March 28,
1996
24.1 Consent of Arthur Andersen LLP
___________________________________________
(1) Incorporate herein by reference from Registrant's Current Report on
Form 8-K filed on June 18, 1996
(2) Incorporated herein by reference from Registrant's Statement on Form
S-18, File No. 33-3050-LA
(3) Incorporated herein by reference from Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1992
(4) Incorporated herein by reference from Registrant's Proxy Statement
relating to its Annual Meeting of Stockholders held December 23, 1993
(5) Incorporated herein by reference from Registrant's Proxy Statement
relating to its Annual Meeting of Stockholders held January 10, 1996
(6) Incorporated herein by reference from Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1995
(b) Reports on Form 8-K. Registrant filed a report on Form 8-K June 18,
1996, which reported the acquisition of Insight Imaging Systems, Inc., a
California corporation, through merger of that corporation into a wholly
owned subsidiary of the Registrant. That filing included pertinent
exhibits relating to the acquisition. Pursuant to Form 8-K, financial
statements were included in a report on Form 8-K/A filed on July 30,
1996. That report was further amended by Amendment One to the report on
Form 8-K/A, which amendment was filed on September 17, 1996.
(c) None
47
<PAGE>
(d) None
48
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934 the Registrant has caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
NEW IMAGE INDUSTRIES, INC.
(Registrant)
By: /s/ DEWEY F. EDMUNDS
----------------------------
Dewey F. Edmunds
Chief Executive Officer
Date: September 30, 1996
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, this Report has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ DEWEY F. EDMUNDS
- ---------------------------- Chief Executive Officer September 30, 1996
Dewey F. Edmunds and President
(Principal Executive
Officer and Director)
/s/ HAL ORR
- ---------------------------- Chief Financial Officer September 30, 1996
Hal Orr (Principal Financial
Officer and Principal
Accounting Officer)
/s/ ROBERT S. COLMAN
- ---------------------------- Director October 3, 1996
Robert S. Colman
/s/ MARK W. STEVENS
- ---------------------------- Director September 30, 1996
Mark W. Stevens
/s/ HAROLD J. MEYERS
- ---------------------------- Director September 30, 1996
Harold J. Meyers
/s/ RALPH M. RICHART
- ---------------------------- Director September 30, 1996
Ralph M. Richart
/s/ RICHARD P. GREENTHAL
- ---------------------------- Director September 30, 1996
Richard P. Greenthal
49
<PAGE>
/s/ KENNETH B. SAWYER
- ---------------------------- Director
Kenneth B. Sawyer October 1, 1996
</TABLE>
50
<PAGE>
NEW IMAGE INDUSTRIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Balance At Amounts Net Amounts Balance at
Beginning Charged to (Written Off) End of
of Period Expenses Received of Period
---------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
June 30, 1994
- -------------
Allowance for Doubtful Accounts: 150,000 205,000 (54,000) 301,000
June 30, 1995
- -------------
Allowance for Doubtful Accounts: 301,000 211,000 (180,000) 332,000
June 30, 1996
- -------------
Allowance for Doubtful Accounts 332,000 1,310,000 44,000 1,686,000
</TABLE>
51
<PAGE>
EXHIBIT 10-14
BASIC LEASE INFORMATION FOR REAL PROPERTY LEASE
AGREEMENT BETWEEN INSIGHT IMAGING SYSTEMS, INC.
AND THREE SISTERS RANCH ENTERPRISES, DATED
DECEMBER 11, 1992 - SPACES A, C, AND D, AS AMENDED
The following is a summary of basic lease information relating to leases
between Insight Imaging Systems, Inc., as tenant, and Industrial Way I Limited
Partnership, as landlord, as amended.
Lease Date: Space A - December 11, 1992
Space C - October 26, 1993
Space D - December 11, 1992
Address: 981 Industrial Road
San Carlos, CA 94070
Landlord: Three Sisters Ranch Enterprises
Landlord's Address: P.O. Box 1444
San Carlos, CA 94070-1444
Description: 13,171 square feet located in the San Carlos
Business Park in three separate units.
Lease Expiration Date: January 31, 1998
Rent: $9,054 per month
<PAGE>
EXHIBIT 10-15
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made as of May 17, 1996 between
New Image Industries, Inc., a Delaware corporation, located at 2283 Cosmos
Court, Carlsbad, California ("Company"), and Mark Stevens ("Executive"), as
follows:
WHEREAS, a subsidiary of Company and Insight Imaging Systems, Inc., a
California corporation, ("Insight") plan to merge pursuant to an Agreement and
Plan of Reorganization dated May 17, 1996 ("the Merger") and the date of the
Merger will be known herein as the Closing Date.
WHEREAS, Executive is the president of Insight.
WHEREAS, Company and Executive wish to enter into this Agreement to state
the employment terms of Executive with Company during the term of the Agreement
after the Closing Date of the Merger.
1. TERM OF EMPLOYMENT
1.1 SPECIFIED TERM. Company hereby employs Executive and Executive hereby
accepts employment with Company for the period from the date of this Agreement
through June 30, 1997.
1.2 EARLIER TERMINATION. This Agreement may be terminated earlier as
hereinafter provided.
2. DUTIES AND OBLIGATIONS OF EXECUTIVE
2.1 TITLE AND DESCRIPTION OF DUTIES. Executive shall serve as Senior
Vice-President for Business Development of New Image Industries, Inc. and shall
have his office at the Company headquarters in Carlsbad, California. In that
capacity, Executive shall do and perform all services, acts, or things necessary
or advisable to fulfill the duties of a Senior Vice-President with business
development responsibilities, as may be more specifically described by the
President or the Board of Directors from time to time. Executive shall at all
times be subject to the direction of the President, and to the policies
established by the Board of Directors, of Company.
2.2 LOYAL AND CONSCIENTIOUS PERFORMANCE OF DUTIES. Executive agrees that
to the best of his ability and experience he will at all times loyally and
conscientiously perform all of the duties and obligations required of him either
expressly or implicitly by the terms of this Agreement.
2.3 DEVOTION OF ENTIRE TIME TO COMPANY'S BUSINESS.
2.3.1 Executive shall devote his entire productive time, ability,
and attention to the business of Company during the term of this Agreement.
<PAGE>
2.3.2 During the term of this Agreement, Executive shall not
engage in any other business duties or pursuits whatsoever. Furthermore, during
the term of this Agreement, Executive shall not, whether directly or indirectly,
render any services of a commercial, or professional nature to any other person
or organization, whether for compensation or otherwise, without the prior
written consent of Company's President.
2.3.3 This Agreement shall not be interpreted to prohibit
Executive from making passive personal investments or conducting private
business affairs if those activities do not materially interfere with the
services required under this Agreement. However, Executive shall not, directly
or indirectly, acquire, hold, or retain any interest in any business competing
with or similar in nature to the business of Company.
2.4 COMPETITIVE ACTIVITIES. During the term of this Agreement Executive
shall not, directly or indirectly, either as an Executive, company, consultant,
agent, principal, partner, stockholder, corporate officer, director, or in any
other individual or representative capacity, engage or participate in any
business that is in competition in any manner whatsoever with the business of
Company.
2.5 INDEMNIFICATION FOR NEGLIGENCE OR MISCONDUCT. Executive shall
indemnify and hold Company harmless from all liability for loss, damage, or
injury to persons or property resulting from the negligence or misconduct of
Executive.
2.6 TRADE SECRETS.
2.6.1 The parties acknowledge and agree that during the term of
this Agreement and in the course of the discharge of his duties hereunder,
Executive shall have access to and become acquainted with information concerning
the operation of Company, including without limitation, financial, personnel,
sales, planning, and product development information that is owned by Company
and regularly used in the operation of Company's business and that this
information constitutes Company's trade secrets.
2.6.2 Executive agrees that he shall not disclose any such trade
secrets, directly or indirectly, to any other person or use them in any way,
either during the term of this Agreement or at any other time thereafter, except
as is required in the course of his employment with Company.
2.6.3 Executive further agrees that all files, records, documents,
equipment, and similar items relating to Company's business, whether prepared by
Executive or others, are and shall remain exclusively the property of Company
and that they shall be removed from the premises of Company only as required in
the performance of Executive's duties hereunder.
3. OBLIGATIONS OF COMPANY
<PAGE>
3.1 GENERAL DESCRIPTION. Company shall provide Executive with the
compensation, incentives, benefits, and business expense reimbursement specified
elsewhere in this Agreement.
3.2 OFFICE AND STAFF. Company shall provide Executive with a private
office, stenographic help, office equipment and supplies, and other facilities
and services, suitable to Executive's position and adequate for the performance
of his duties.
3.3 INDEMNIFICATION OF LOSSES OF EXECUTIVE. Except as provided in Section
2.5, Company shall indemnify Executive for all losses sustained by Executive in
direct consequence of the discharge of his duties on Company's behalf.
4. COMPENSATION OF EXECUTIVE
4.1 ANNUAL SALARY. As compensation for the services to be rendered by
Executive hereunder, Company shall pay Executive an annual salary at the rate of
$130,000 per annum payable in equal bi-weekly installments each month during the
period of employment, prorated for any partial employment period.
4.2 ACCRUED BONUS. In connection with the Merger, Company has agreed to
assume the payment of the bonus which Executive earned as president of Insight
in the amount of $45,167, which bonus shall be paid in installments as follows:
DATE PAYMENT
---- -------
June 15, 1996 $10,000
September 15, 1996 $10,000
December 15, 1996 $10,000
March 15, 1997 $10,000
June 15, 1997 $ 5,167
In consideration of this bonus, Executive agrees to waive any claim he may
have against Insight Imaging Systems, Inc. arising out of his employment
relation with that Company.
4.3 TAX WITHHOLDING. Company shall have the right to deduct or withhold from
the compensation due to Executive hereunder any and all sums required for
federal income and Social Security taxes and all state or local taxes now
applicable or that may be enacted and become applicable in the future.
<PAGE>
5. EXECUTIVE INCENTIVES
5.1 CASH BONUS BASED ON PROFITABILITY.
5.1.1 Executive shall be entitled to participate in the fiscal
year 1997 annual cash incentive plan for management ("the Plan") once the Plan
and its target performance levels ("Target") have been established by the Board
of Directors. Executive shall be entitled to receive a bonus of 35% of his base
salary if the Company reaches Target in addition to any other compensation which
he is entitled to receive hereunder. This bonus shall be paid within three
months after the close of Company's fiscal year in which the bonus is earned,
but only if Executive's services hereunder have not been terminated prior to the
end of that fiscal year.
5.1.2 For the purposes of this bonus provision, financial results
shall be based on the audited financial statements of the Company for the period
to which the bonus relates.
5.2 STOCK OPTIONS.
As additional compensation, Company agrees to grant to Executive options to
purchase 40,000 shares of the Company's common stock $.001 par value, under one
of its stock incentive plans. Such options shall be based on closing bid price
for such common stock on the business day prior to the Closing Date; and shall
vest as follows:
DATE SHARES VESTED
---- -------------
May 31, 1997 10,000
May 31, 1998 13,000 additional shares
May 31, 1999 17,000 additional shares
------
Total 40,000
6. EXECUTIVE BENEFITS
6.1 GENERAL BENEFITS. Executive shall be entitled to three weeks paid
vacation per year and the Company shall pay the cost of the Company's dental and
health plan for Employee and his family. Employee shall receive other benefits
consistent with those afforded other Executives of Company at the level of Vice
President.
6.2 RELOCATION BENEFITS. Executive shall be entitled to the following
relocation benefits:
6.2.1 Executive shall be reimbursed for reasonable travel, meals
and lodging for up to four round trips and up to eight days for Executive and
his wife to look for housing in the Carlsbad area.
6.2.2 Executive shall be reimbursed up to $10,000 for the cost of
moving household goods from his current residence to the Carlsbad area.
<PAGE>
6.2.3 All reimbursements shall be subject to the requests being
supported by receipts meeting the documentary requirement of Section 7.1.3.
7. BUSINESS EXPENSES
7.1 BUSINESS EXPENSES.
7.1.1 Company shall promptly reimburse Executive for all
reasonable business expenses incurred by Executive in promoting the business of
Company, including expenditures for entertainment, gifts, and travel.
7.1.2 Each such expenditure shall be reimbursable only if it is of
a nature qualifying it as a proper deduction on the federal and state income tax
return of Company.
7.1.3 Each such expenditure shall be reimbursable only if
Executive furnishes to Company adequate records and other documentary evidence
required by federal and state statutes and regulations issued by the appropriate
taxing authorities for the substantiation of that expenditure as an income tax
deduction.
7.2 REPAYMENT BY EXECUTIVE OF DISALLOWED BUSINESS EXPENSES. In the event
that any business expense paid for Executive or any reimbursement of expense
paid to Executive shall, in the preparation or audit or other examination of
Company's income tax returns, be determined not to be allowable deductions from
Company's gross income, Executive shall repay to Company the amount of the
disallowed expenses.
8. TERMINATION OF EMPLOYMENT
8.1 TERMINATION FOR CAUSE.
8.1.1 Company reserves the right to terminate this Agreement if
Executive (i) willfully breaches, habitually neglects, or fails to perform the
duties which he is required to perform under the terms of this Agreement; (ii)
is unwilling to follow the direction of the person(s) to whom he reports; (iii)
discloses or uses trade secrets, confidential information or customer lists in
an unauthorized manner; (iv) is incapacitated on the job by reason of the
habitual use or abuse of alcohol or drugs; (v) commits an act of dishonesty,
fraud, misrepresentation, theft, or other act of moral turpitude or (vi) engages
in conduct which materially contributes to a stressful or unhealthy working
environment for others.
8.1.2 Company may at its option terminate this Agreement for the
reasons stated in this section by giving written notice of termination to
Executive without prejudice to any other remedy to which Company may be entitled
either at law, in equity, or under this Agreement.
8.1.3 The notice of termination required by this section shall
<PAGE>
specify the ground for the termination and shall be supported by a statement of
pertinent facts.
8.1.4 Termination under this section shall be considered "for
cause" for the purposes of this Agreement.
8.2 TERMINATION WITHOUT CAUSE.
8.2.1 This Agreement shall be terminated upon the death of
Executive.
8.2.2 Company reserves the right to terminate this Agreement if
Executive suffers any physical or mental disability that would prevent the
performance of his duties under this Agreement and such condition is permanent.
(For this purpose, any such condition which persists for five months shall be
deemed to be permanent.) Such a termination shall be effected by giving 10
days' written notice of termination to Executive.
8.2.3 Termination under this section shall not be considered "for
cause" for the purposes of this Agreement.
8.3 EFFECT ON COMPENSATION. In the event that this Agreement is
terminated prior to the completion of the term of employment specified herein by
Company for any of the causes set forth in Sections 8.1 or 8.2 above, or if
Executive voluntarily terminates this Agreement. Executive shall be entitled to
the compensation earned by and vested in him prior to the date of termination as
provided for in this Agreement, computed pro rata up to and including that date
and Executive shall be entitled to no further compensation as of the date of
termination. If Executive is terminated for any other reason he shall be
entitled to all compensation due him for the remainder of the term of employment
specified herein in accordance with the time of payment set forth herein.
9. GENERAL PROVISIONS
9.1 NOTICES. Any notices to be given by either party to the other shall
be in writing and may be transmitted either by personal delivery or by mail,
registered or certified, postage prepaid with return receipt requested. Mailed
notices shall be addressed to the parties at the addresses appearing in the
introductory paragraph of this Agreement, but each party may change that address
by written notice in accordance with this section. Notices shall be deemed
communicated as of the date of actual receipt.
9.2 DISPUTES. Any dispute or controversy between the parties arising out
of this Agreement, including disputes as to the validity and enforceability of
this Agreement which cannot be resolved by agreement of the parties (each
dispute or controversy being referred to as a "Dispute") shall, upon the demand
of either party, be determined and settled by arbitration in San Diego,
California under California
<PAGE>
substantive law and the Commercial Arbitration Rules of the American
Arbitration Association. This method of resolving disputes shall be
exclusive. The parties further agree that:
(i) ATTORNEYS FEES. The arbitrator shall include attorney fees and
costs in the award to the prevailing party.
(ii) DISCOVERY. The parties shall be entitled to reasonable and
necessary discovery in accordance with the provisions of California Code of
Civil Procedure Section 1283.05.
(iii) FINDINGS AND CONCLUSIONS. The award shall include findings
of fact and conclusions of law showing the legal and factual basis for the
arbitrator's decision.
(iv) ERRORS OF LAW. The award shall be subject to appeal to the San
Diego Superior Court with respect to errors of law (but not with respect to
errors of fact). For an appeal to be given effect, the party seeking to appeal
must give notice of intent to appeal to the arbitrator and the other party to
the arbitration within ten days following the date notice of the award is
received by such party and the appeal itself must be filed with the court within
30 days of receipt of such notice of award.
(v) ENFORCEMENT. Subject to any appeal pursuant to (iv), the award
may be entered by any court of competent jurisdiction.
9.3 ENTIRE AGREEMENT. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the employment of Executive by Company, and contains all of the covenants and
agreements between the parties with respect to that employment in any manner
whatsoever. Each acknowledges that no representations, inducements, promises,
or agreements, orally or otherwise, have been made by the other party, or anyone
acting on behalf of the other party, which are not embodied herein, and that no
other agreement, statement, or promise not contained in this Agreement shall be
valid or binding.
9.4 MODIFICATIONS. Any modification of this Agreement will be effective
only if it is in writing signed by the party to be charged.
9.5 EFFECT OF WAIVER. The failure of either party to insist on strict
compliance with any of the terms, covenants, or conditions of this Agreement by
the other party shall not be deemed a waiver of that term, covenant, or
condition, nor shall nay waiver or relinquishment of any right or power at any
one time or times be deemed a waiver or relinquishment of that right or power
for all or any other times.
9.6 PARTIAL INVALIDITY. If any provision in this Agreement is held by a
court of competent jurisdiction to be invalid, void, or unenforceable, the
remaining provisions shall nevertheless continue in full force without being
impaired or invalidated in any way.
<PAGE>
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
<PAGE>
9.7 LAW GOVERNING AGREEMENT. This Agreement shall be governed by and
construed in accordance with the laws of he State of California.
Executed on May ___, 1996 at San Diego, California.
COMPANY
NEW IMAGE INDUSTRIES, INC.
By: /s/ Dewey F. Edmunds
------------------------------------
Dewey F. Edmunds, President
EXECUTIVE
/s/ Mark W. Stevens
------------------------------------
Mark W. Stevens
<PAGE>
EXHIBIT 10.16
WARRANT AGREEMENT
(Robert S. Colman 100,000 Warrant Shares)
This WARRANT AGREEMENT (this "AGREEMENT") is entered into as of
December 31, 1995, by and between New Image Industries, Inc. (the "Company"), a
Delaware corporation, and Robert S. Colman ("Holder") as a subdivision of that
certain Warrant Agreement made and entered into as of the 24th day of March,
1995, by and between the Company and COLMAN FURLONG & CO. In consideration of
these premises and the mutual covenants and agreements hereinafter set forth,
and other good and valuable consideration the receipt and sufficiency of which
are hereby acknowledged, the Company and Holder agree as follows:
1. GRANT OF WARRANT. In consideration of the sum of $100.00 ($0.001 per
Warrant) and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Company hereby grants to Holder the right
and option (the "Warrant"), upon the terms and subject to the conditions set
forth in this Agreement, to purchase all or any portion of 100,000 shares of the
Common Stock, par value $0.001 per share, of the Company (the "Shares") at an
exercise price of $3.875 per share (the "Exercise Price").
2. TERM OF WARRANT. The Warrant shall terminate and expire at 5:00 p.m.,
Los Angeles time, on March 23, 2000 (the "Warrant Expiration Date"), unless
sooner terminated as provided herein.
3. VESTING.
(a) The Warrant shall be exercisable with respect to 50,000 shares of
Common Stock commencing on the date hereof. The remaining portion of this
Warrant shall vest in 12 equal monthly installments of 5,000 Shares each on the
last day of each month after the date hereof, commencing on March 30, 1995.
Once vested, the Warrant, or portion thereof, shall be exercisable in full by
the holder hereof at any time from and after the date hereof and prior to the
Warrant Expiration Date.
(b) If that certain Engagement Agreement, by and between the Company
and Colman, Furlong & Co., dated March 24, 1995, (the "Engagement Agreement")
should terminate prior to the vesting of all of the Shares hereunder, Holder
shall only be entitled to exercise its rights hereunder with respect to those
Shares which were vested on the date of termination of the Engagement Agreement.
(c) Notwithstanding the foregoing, the Warrant shall fully vest
immediately prior to the closing of a merger, consolidation, sale of
substantially all of the assets of the Company or other corporate reorganization
(collectively, a "Reorganization") in which the Company is not the "surviving
corporation." For these purposes, a determination as to whether the Company is
the surviving corporation shall be made on
<PAGE>
the basis of the relative equity interests of the shareholders in the
corporation existing after the Reorganization, as follows: If the holders of
the securities of the Company prior to the Reorganization own equity
securities possessing more than 50% of the voting power of the corporation
existing after the Reorganization, then for the purposes of this Agreement,
the Company shall be the surviving corporation. In all other bases, the
Company shall not be the surviving corporation.
(d) Notwithstanding anything to the contrary contained in this
Agreement, the Warrant may not be exercised, in whole or in part, unless and
until any then-applicable requirements of all state and federal laws and
regulatory agencies shall have been fully complied with to the satisfaction of
the Company and its counsel.
4. EXERCISE OF WARRANT. There is no obligation to exercise the Warrant,
in whole or in part. The Warrant may be exercised, in whole or in part, only by
delivery to the Company of: (a) written notice of exercise in form and
substance identical to Exhibit "A" attached to this Agreement stating the number
of Shares then being purchased (the "Purchased Shares"); and (b) payment of the
Exercise Price of the Purchased Shares by wire transfer of immediately available
Federal funds. Upon receipt of the foregoing, the Company shall promptly issue
in the name of the Holder a stock certificate evidencing the Purchased Shares
being purchased by such exercise and deliver such certificate to the Holder.
5. RESTRICTIONS ON PURCHASED SHARES. Holder shall not sell, transfer
(with or without consideration), assign, pledge, hypothecate or otherwise
dispose of (collectively, "Transfer") any of the Purchased Shares unless the
Purchased Shares are disposed of pursuant to and in conformity with an effective
registration statement filed with the Securities and Exchange Commission (the
"Commission") pursuant to the Securities Act of 1933, as amended (the "Act"), or
pursuant to an available exemption from the registration and prospectus delivery
requirements of the Act, and the proposed disposition will not result in a
violation of the securities laws of any state of the United States. If
requested by the Company, Holder shall, prior to the transfer of such Purchased
Shares, deliver to the Company a written opinion of counsel, satisfactory to the
Company and its counsel, that the proposed disposition will comply with the
requirements set forth in this paragraph 5. Any attempted Transfer which is not
in full compliance with this Paragraph 5 shall be null and void AB INITIO, and
of no force or effect.
6. ADJUSTMENTS UPON RECAPITALIZATION.
(a) In the event the Company should at any time or from time to time
after the date of this Warrant (the "Issuance Date") fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common Stock
or the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any
<PAGE>
consideration by such holder for the additional shares of Common Stock or the
Common Stock Equivalents (including the additional shares of Common stock
issuable upon conversion or exercise thereof), then, as of such record date
(or the date of such dividend distribution, split or subdivision if no record
date is fixed), the Exercise Price shall be appropriately decreased (i.e.,
the per share Exercise Price shall be adjusted such that the aggregate
exercise price for all Shares issuable upon exercise of the Warrants in full,
as adjusted, shall remain the same) and the number of Shares shall be
increased in proportion to such increase in the aggregate number of shares of
Common Stock outstanding and those issuable with respect to such Common Stock
Equivalents.
(b) If the number of shares of Common Stock outstanding at any time
after the Issuance Date is decreased by a combination of the outstanding shares
of Common Stock, then, following the record date of such combination, the
Exercise Price shall be appropriately increased (i.e., the per share Exercise
Price shall be adjusted such that the aggregate exercise price for all Shares
issuable upon exercise of the Warrants in full, as adjusted, shall remain the
same) and the number of Shares shall be decreased in proportion to such decrease
in the aggregate number of shares of Common Stock outstanding and those issuable
with respect to such Common Stock Equivalents.
(c) In case of any capital reorganization, any reclassification of
the Common Stock (other than a change in par value or a recapitalization
described in Section 6(a) or 6(b) of this Agreement), or the consolidation of
the Company with, or a sale of substantially all of the assets of the Company to
(which sale is followed by a liquidation or dissolution of the Company), or
merger of the Company with, another person, the Holder shall thereafter be
entitled upon exercise of the Warrant to purchase the kind and number of shares
of stock or other securities or the amount or value of any cash, assets or other
property receivable upon such event by a holder of the number of shares of the
Common Stock which the Warrant entitles the holder of the Warrant to purchase
from the Company immediately prior to such event; and in any such case,
appropriate adjustment shall be made in the application of the provisions set
forth in this Agreement with respect to the Holder's rights and interests
thereafter, to the end that the provisions set forth in this Agreement
(including the specified changes and other adjustments to the Exercise Price)
shall thereafter be applicable in relation to any shares or other property
thereafter purchasable upon exercise of the Warrant.
(d) In the event the Company should at any time or from time to time
after the Issuance Date fix a record date for the determination of holders of
Common Stock entitled to receive a dividend or other distribution payable in
securities or rights convertible into, or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock or the
securities or such rights of any other corporation (other than Common Stock
Equivalents covered be Section 6(a) hereof), the Holder shall thereafter be
entitled upon exercise of the Warrant to receive, in addition to the Purchased
Shares being purchased upon such exercise, the securities or rights convertible
into securities receivable upon such event by a holder of the number of shares
of the Common Stock which the Holder is purchasing upon such exercise.
<PAGE>
(e) If it is expected that there will occur any event described in
Section 6(c) or 6(d) hereof, the Company shall give the holder of the Warrants
notice thereof, which notice shall be given at such time or times as notice is
given to the holders of the Company's Common Stock.
(f) The provisions of this Section 6 are intended to be exclusive,
and the holder of the Warrant shall have no rights other than as set forth in
this Agreement (and the rights of a stockholder upon exercise of the Warrant)
upon the occurrence of any of the events described in this Section 6.
(g) The grant of the Warrant shall not affect in any way the right or
power of the Company to make adjustments, reclassifications, reorganizations or
changes in its capital or business structure, or to merge, consolidate, dissolve
or liquidate, or to sell or transfer all or any part of its business or assets.
7. REPRESENTATIONS AND WARRANTIES OF HOLDER. Holder makes the following
representations and warranties:
(a) Holder is acquiring the Warrants for its own account with the
present intention of holding such securities for investment purposes only and
not with a view to, or for sale in connection with, any distribution of such
securities (other than a distribution in compliance with all applicable federal
and state securities laws).
(b) Holder is an experienced and sophisticated investor and has such
knowledge and experience in financial and business matters that it is capable of
evaluating the relative merits and the risks of an investment in the Warrants
and in the Shares and of protecting its own interests in connection with this
transaction.
(c) Holder is willing to bear and is capable of bearing the economic
risk of an investment in the Warrants and the Shares.
(d) The Company has made available, prior to the date of this
Agreement, to Holder the opportunity to ask questions of the Company and its
officers, and to receive from the Company and its officers information
concerning the terms and conditions of the Warrants and this Agreement and to
obtain any additional information with respect to the Company, its business,
operations and prospects, as reasonably requested by Holder.
(e) Holder is an "accredited investor" as that term is defined under
Rule 501(a)(8) of Regulation D promulgated by the Securities and Exchange
Commission under the Act.
(f) For purposes of the application of federal and state securities
laws, Holder acknowledges that the offer and sale of the Warrants to Holder
occurred in the State of California and that Holder is a resident of the State
of California.
<PAGE>
8. LEGEND ON STOCK CERTIFICATES. Holder agrees that all certificates
representing the Purchased Shares will be subject to such stock transfer orders
and other restrictions as the Company may deem advisable under the rules,
regulations and other requirements of the Securities and Exchange Commission,
any stock exchange upon which the Common Stock is then listed and any applicable
federal or state securities laws, and the Company may cause the following legend
to be put on such certificates to make appropriate reference to such
restrictions:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED OR
OTHERWISE HYPOTHECATED WITHOUT REGISTRATION UNDER SUCH ACT OR PURSUANT TO
AN EXEMPTION THEREFROM.
9. NO RIGHTS AS STOCKHOLDER. Holder shall have no rights as a stockholder
of the Company with respect to the Shares until the date of the issuance to
Holder of a stock certificate or stock certificates evidencing such Shares.
Except as may be provided in Paragraph 6 of this Agreement, no adjustment shall
be made for dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distributions or other rights for which the record date is
prior to the date such stock certificate is issued.
10. MODIFICATION. The Board or a committee thereof may modify, extend or
renew the Warrant or accept the surrender of, and authorize the grant of a new
option in substitution for, the Warrant (to the extent not previously
exercised). No modification of the Warrant shall be made without the consent of
Holder which would alter or impair any rights of Holder under the Warrant.
11. DISPUTES.
(a) ARBITRATION. All disputes arising in connection with this
Agreement shall be finally settled by arbitration in Los Angeles, California, in
accordance with the rules of the American Arbitration Association (the "Rules of
Arbitration") and judgment on the award rendered by the arbitration panel (the
"Arbitration Panel") may be entered in any court or tribunal of competent
jurisdiction.
(b) Any party which desires to initiate arbitration proceedings as
provided in Section 11(a) above may do so by delivering written notice to the
other party (the "Arbitration Notice") specifying (A) the nature of the dispute
or controversy to be arbitrated, (B) the name and address of the arbitrator
appointed by the party initiating such arbitration and (C) such other matters as
may be required by the Rules of Arbitration.
(c) The Parties shall appoint a single arbitrator who shall
constitute the Arbitration Panel hereunder. Should the parties not agree upon
the appointment of the
<PAGE>
arbitrator within 30 days of delivery of the Arbitration Notice, the
Arbitrator shall be appointed in accordance with the Rules of Arbitration.
(d) In any arbitration proceeding conducted pursuant to the
provisions of this Section 11, both parties shall have the right to discovery,
to call witnesses and to cross-examine the opposing party's witnesses, either
through legal counsel, expert witnesses or both.
(e) FINALITY OF DECISION. All decisions of the Arbitration Panel
shall be final, conclusive and binding on all parties and shall not be subject
to judicial review. The arbitrator shall divide all costs (other than fees of
counsel) incurred in conducting the arbitration proceeding and the final award
in accordance with what they deem just and equitable under the circumstances.
(f) LIMITATIONS. Notwithstanding anything to the contrary contained
in Sections 11(a) and 11(b) above, any claim by either party for injunctive or
other equitable relief, including specific performance, may be brought in any
court of competent jurisdiction and any judgment, order or decree relating
thereto shall have precedence over any arbitral award or proceeding.
12. GENERAL PROVISIONS.
(a) FURTHER ASSURANCES. Holder shall promptly take all actions and
execute all documents requested by the Company which the Company deems to be
reasonably necessary to effectuate the terms and intent of this Agreement.
(b) NOTICES. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be given to the parties
hereto as follows:
If to the Company, to:
NEW IMAGE INDUSTRIES, INC.
2283 Cosmos Court
Carlsbad, California 92009
Attention: President
If to Holder, to:
Robert F. Colman
Colman Partners, LLC
One Maritime Plaza, Suite 2535
San Francisco, CA 94111
or at such other address or addresses as may have been furnished by either party
in writing to the other party hereto. Any such notice, request, demand or other
<PAGE>
communication shall be effective (i) if given by mail, two days after such
communication is deposited in the mail by first-class certified mail, return
receipt requested, postage prepaid, addressed as aforesaid, or (ii) if given by
any other means, when delivered at the address specified in this
subparagraph (b).
(c) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California applicable to contracts
made in, and to be performed within, that state. Jurisdiction and venue over
any legal action brought hereunder shall reside exclusively in the county of Los
Angeles, State of California. Each of the parties hereto waive their right to a
jury trial with respect to any such legal actions.
(d) ATTORNEYS' FEES. In the event that any action, suit or
arbitration or other proceeding is instituted upon any breach of this Agreement,
the prevailing party shall be paid by the other party thereto an amount equal to
all of the prevailing party's costs and expenses, including attorneys' fees
incurred in each and every such action, suit or proceeding (including any and
all appeals or petitions therefrom). As used in this Agreement, "attorneys'
fees" shall mean the full and actual cost of any legal services actually
performed in connection with the matter involved calculated on the basis of the
usual fee charged by the attorney performing such services and shall not be
limited to "reasonable attorneys' fees" as defined in any statute or rule of
court.
(e) AMENDMENT; WAIVER. This Agreement shall be binding upon and
inure to the benefit of the parties to this Agreement and their respective
successors, heirs and personal representatives. No provision of this Agreement
may be amended or waived unless in writing signed by all of the parties to this
Agreement. Waiver of any one provision of this Agreement shall not be deemed to
be a waiver of any other provision.
(f) NO FINDERS. The parties each agree to indemnify and hold
harmless the other against any expense incurred by reason of any consulting,
brokerage commission or finder's fee alleged to be payable to any person in
connection with the transactions contemplated hereby because of any act,
omission or statement of indemnifying party or any dealings by the indemnifying
party with any consultant, broker or finder.
(g) EXPENSES. Each of the parties shall pay its own expenses
incurred in connection with the preparation of this Agreement and the
consummation of the transactions contemplated hereby.
(h) 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.
<PAGE>
(i) COUNTERPARTS. This Agreement may be executed in several
counterparts, all of which together shall constitute one agreement binding on
all parties hereto, notwithstanding that all of the parties have not signed the
same counterpart.
(j) ENTIRE AGREEMENT. This 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.
(k) MISCELLANEOUS. Titles and captions contained in this Agreement
are inserted for convenience of reference only and do not constitute a part of
this Agreement for any other purpose. Except as specifically provided herein,
neither this Agreement nor any right pursuant hereto or interest herein shall be
assignable by any of the parties hereto without the prior written consent of the
other party hereto.
13. AGREEMENT CONCERNING SUBDIVISION. The Company and Holder agree that
this Warrant Agreement is one of three warrants aggregating warrants to purchase
275,000 shares of Common Stock which are being issued in subdivison of the
March 24, 1995 Warrant Agreement referred to above and in full substitution
therefor. Each Holder of this Warrant agrees to be bound by all of the
provisions of this Warrant Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.
NEW IMAGE INDUSTRIES, INC.
By: /s/ Dewey F. Edmunds /s/ Robert S. Colman
------------------------------- ---------------------------
Dewey F. Edmunds, President Robert S. Colman
<PAGE>
EXHIBIT "A"
NOTICE OF EXERCISE
(TO BE SIGNED ONLY UPON EXERCISE OF THE WARRANT)
TO: New Image Industries, Inc.
The undersigned hereby irrevocably elects (to the extent indicated herein) to
exercise the purchase right represented by the Warrant granted pursuant to the
attached Warrant Agreement (originally issued March 24, 1995) and to purchase
thereunder ________ shares of Common Stock of New Image Industries, Inc., a
Delaware corporation (the "Company"). The closing of the exercise of the
purchase right shall take place at _______ on ____________________ , ____ at the
principal executive office of the Company located at 2283 Cosmos Court,
Carlsbad, California .
Dated: ________________________________
Signed: ________________________________
<PAGE>
EXHIBIT 10.17
WARRANT AGREEMENT
(Kenneth B. Sawyer 75,000 Warrant Shares)
This WARRANT AGREEMENT (this "AGREEMENT") is entered into as of
December 31, 1995, by and between New Image Industries, Inc. (the "Company"), a
Delaware corporation, and Kenneth B. Sawyer ("Holder") as a subdivision of that
certain Warrant Agreement made and entered into as of the 24th day of March,
1995, by and between the Company and COLMAN FURLONG & CO. In consideration of
these premises and the mutual covenants and agreements hereinafter set forth,
and other good and valuable consideration the receipt and sufficiency of which
are hereby acknowledged, the Company and Holder agree as follows:
1. GRANT OF WARRANT. In consideration of the sum of $75.00 ($0.001 per
Warrant) and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Company hereby grants to Holder the right
and option (the "Warrant"), upon the terms and subject to the conditions set
forth in this Agreement, to purchase all or any portion of 75,000 shares of the
Common Stock, par value $0.001 per share, of the Company (the "Shares") at an
exercise price of $3.875 per share (the "Exercise Price").
2. TERM OF WARRANT. The Warrant shall terminate and expire at 5:00 p.m.,
Los Angeles time, on March 23, 2000 (the "Warrant Expiration Date"), unless
sooner terminated as provided herein.
3. VESTING.
(a) The Warrant shall be exercisable with respect to 37,500 shares of
Common Stock commencing on the date hereof. The remaining portion of this
Warrant shall vest in 12 equal monthly installments of 3,750 Shares each on the
last day of each month after the date hereof, commencing on March 30, 1995.
Once vested, the Warrant, or portion thereof, shall be exercisable in full by
the holder hereof at any time from and after the date hereof and prior to the
Warrant Expiration Date.
(b) If that certain Engagement Agreement, by and between the Company
and Colman, Furlong & Co., dated March 24, 1995, (the "Engagement Agreement")
should terminate prior to the vesting of all of the Shares hereunder, Holder
shall only be entitled to exercise its rights hereunder with respect to those
Shares which were vested on the date of termination of the Engagement Agreement.
(c) Notwithstanding the foregoing, the Warrant shall fully vest
immediately prior to the closing of a merger, consolidation, sale of
substantially all of the assets of the Company or other corporate reorganization
(collectively, a "Reorganization") in which the Company is not the "surviving
corporation." For these purposes, a determination as to whether the Company is
the surviving corporation shall be made on
<PAGE>
the basis of the relative equity interests of the shareholders in the
corporation existing after the Reorganization, as follows: If the holders of
the securities of the Company prior to the Reorganization own equity
securities possessing more than 50% of the voting power of the corporation
existing after the Reorganization, then for the purposes of this Agreement,
the Company shall be the surviving corporation. In all other bases, the
Company shall not be the surviving corporation.
(d) Notwithstanding anything to the contrary contained in this
Agreement, the Warrant may not be exercised, in whole or in part, unless and
until any then-applicable requirements of all state and federal laws and
regulatory agencies shall have been fully complied with to the satisfaction of
the Company and its counsel.
4. EXERCISE OF WARRANT. There is no obligation to exercise the Warrant,
in whole or in part. The Warrant may be exercised, in whole or in part, only by
delivery to the Company of: (a) written notice of exercise in form and
substance identical to Exhibit "A" attached to this Agreement stating the number
of Shares then being purchased (the "Purchased Shares"); and (b) payment of the
Exercise Price of the Purchased Shares by wire transfer of immediately available
Federal funds. Upon receipt of the foregoing, the Company shall promptly issue
in the name of the Holder a stock certificate evidencing the Purchased Shares
being purchased by such exercise and deliver such certificate to the Holder.
5. RESTRICTIONS ON PURCHASED SHARES. Holder shall not sell, transfer
(with or without consideration), assign, pledge, hypothecate or otherwise
dispose of (collectively, "Transfer") any of the Purchased Shares unless the
Purchased Shares are disposed of pursuant to and in conformity with an effective
registration statement filed with the Securities and Exchange Commission (the
"Commission") pursuant to the Securities Act of 1933, as amended (the "Act"), or
pursuant to an available exemption from the registration and prospectus delivery
requirements of the Act, and the proposed disposition will not result in a
violation of the securities laws of any state of the United States. If
requested by the Company, Holder shall, prior to the transfer of such Purchased
Shares, deliver to the Company a written opinion of counsel, satisfactory to the
Company and its counsel, that the proposed disposition will comply with the
requirements set forth in this paragraph 5. Any attempted Transfer which is not
in full compliance with this Paragraph 5 shall be null and void AB INITIO, and
of no force or effect.
6. ADJUSTMENTS UPON RECAPITALIZATION.
(a) In the event the Company should at any time or from time to time
after the date of this Warrant (the "Issuance Date") fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common Stock
or the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any
<PAGE>
consideration by such holder for the additional shares of Common Stock or the
Common Stock Equivalents (including the additional shares of Common stock
issuable upon conversion or exercise thereof), then, as of such record date
(or the date of such dividend distribution, split or subdivision if no record
date is fixed), the Exercise Price shall be appropriately decreased
(i.e., the per share Exercise Price shall be adjusted such that the aggregate
exercise price for all Shares issuable upon exercise of the Warrants in full,
as adjusted, shall remain the same) and the number of Shares shall be
increased in proportion to such increase in the aggregate number of shares of
Common Stock outstanding and those issuable with respect to such Common Stock
Equivalents.
(b) If the number of shares of Common Stock outstanding at any time
after the Issuance Date is decreased by a combination of the outstanding shares
of Common Stock, then, following the record date of such combination, the
Exercise Price shall be appropriately increased (i.e., the per share Exercise
Price shall be adjusted such that the aggregate exercise price for all Shares
issuable upon exercise of the Warrants in full, as adjusted, shall remain the
same) and the number of Shares shall be decreased in proportion to such decrease
in the aggregate number of shares of Common Stock outstanding and those issuable
with respect to such Common Stock Equivalents.
(c) In case of any capital reorganization, any reclassification of
the Common Stock (other than a change in par value or a recapitalization
described in Section 6(a) or 6(b) of this Agreement), or the consolidation of
the Company with, or a sale of substantially all of the assets of the Company to
(which sale is followed by a liquidation or dissolution of the Company), or
merger of the Company with, another person, the Holder shall thereafter be
entitled upon exercise of the Warrant to purchase the kind and number of shares
of stock or other securities or the amount or value of any cash, assets or other
property receivable upon such event by a holder of the number of shares of the
Common Stock which the Warrant entitles the holder of the Warrant to purchase
from the Company immediately prior to such event; and in any such case,
appropriate adjustment shall be made in the application of the provisions set
forth in this Agreement with respect to the Holder's rights and interests
thereafter, to the end that the provisions set forth in this Agreement
(including the specified changes and other adjustments to the Exercise Price)
shall thereafter be applicable in relation to any shares or other property
thereafter purchasable upon exercise of the Warrant.
(d) In the event the Company should at any time or from time to time
after the Issuance Date fix a record date for the determination of holders of
Common Stock entitled to receive a dividend or other distribution payable in
securities or rights convertible into, or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock or the
securities or such rights of any other corporation (other than Common Stock
Equivalents covered be Section 6(a) hereof), the Holder shall thereafter be
entitled upon exercise of the Warrant to receive, in addition to the Purchased
Shares being purchased upon such exercise, the securities or rights convertible
into securities receivable upon such event by a holder of the number of shares
of the Common Stock which the Holder is purchasing upon such exercise.
<PAGE>
(e) If it is expected that there will occur any event described in
Section 6(c) or 6(d) hereof, the Company shall give the holder of the Warrants
notice thereof, which notice shall be given at such time or times as notice is
given to the holders of the Company's Common Stock.
(f) The provisions of this Section 6 are intended to be exclusive,
and the holder of the Warrant shall have no rights other than as set forth in
this Agreement (and the rights of a stockholder upon exercise of the Warrant)
upon the occurrence of any of the events described in this Section 6.
(g) The grant of the Warrant shall not affect in any way the right or
power of the Company to make adjustments, reclassifications, reorganizations or
changes in its capital or business structure, or to merge, consolidate, dissolve
or liquidate, or to sell or transfer all or any part of its business or assets.
7. REPRESENTATIONS AND WARRANTIES OF HOLDER. Holder makes the following
representations and warranties:
(a) Holder is acquiring the Warrants for its own account with the
present intention of holding such securities for investment purposes only and
not with a view to, or for sale in connection with, any distribution of such
securities (other than a distribution in compliance with all applicable federal
and state securities laws).
(b) Holder is an experienced and sophisticated investor and has such
knowledge and experience in financial and business matters that it is capable of
evaluating the relative merits and the risks of an investment in the Warrants
and in the Shares and of protecting its own interests in connection with this
transaction.
(c) Holder is willing to bear and is capable of bearing the economic
risk of an investment in the Warrants and the Shares.
(d) The Company has made available, prior to the date of this
Agreement, to Holder the opportunity to ask questions of the Company and its
officers, and to receive from the Company and its officers information
concerning the terms and conditions of the Warrants and this Agreement and to
obtain any additional information with respect to the Company, its business,
operations and prospects, as reasonably requested by Holder.
(e) Holder is an "accredited investor" as that term is defined under
Rule 501(a)(8) of Regulation D promulgated by the Securities and Exchange
Commission under the Act.
(f) For purposes of the application of federal and state securities
laws, Holder acknowledges that the offer and sale of the Warrants to Holder
occurred in the State of California and that Holder is a resident of the State
of California.
<PAGE>
8. LEGEND ON STOCK CERTIFICATES. Holder agrees that all certificates
representing the Purchased Shares will be subject to such stock transfer orders
and other restrictions as the Company may deem advisable under the rules,
regulations and other requirements of the Securities and Exchange Commission,
any stock exchange upon which the Common Stock is then listed and any applicable
federal or state securities laws, and the Company may cause the following legend
to be put on such certificates to make appropriate reference to such
restrictions:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED OR
OTHERWISE HYPOTHECATED WITHOUT REGISTRATION UNDER SUCH ACT OR PURSUANT TO
AN EXEMPTION THEREFROM.
9. NO RIGHTS AS STOCKHOLDER. Holder shall have no rights as a stockholder
of the Company with respect to the Shares until the date of the issuance to
Holder of a stock certificate or stock certificates evidencing such Shares.
Except as may be provided in Paragraph 6 of this Agreement, no adjustment shall
be made for dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distributions or other rights for which the record date is
prior to the date such stock certificate is issued.
10. MODIFICATION. The Board or a committee thereof may modify, extend or
renew the Warrant or accept the surrender of, and authorize the grant of a new
option in substitution for, the Warrant (to the extent not previously
exercised). No modification of the Warrant shall be made without the consent of
Holder which would alter or impair any rights of Holder under the Warrant.
11. DISPUTES.
(a) ARBITRATION. All disputes arising in connection with this
Agreement shall be finally settled by arbitration in Los Angeles, California, in
accordance with the rules of the American Arbitration Association (the "Rules of
Arbitration") and judgment on the award rendered by the arbitration panel (the
"Arbitration Panel") may be entered in any court or tribunal of competent
jurisdiction.
(b) Any party which desires to initiate arbitration proceedings as
provided in Section 11(a) above may do so by delivering written notice to the
other party (the "Arbitration Notice") specifying (A) the nature of the dispute
or controversy to be arbitrated, (B) the name and address of the arbitrator
appointed by the party initiating such arbitration and (C) such other matters as
may be required by the Rules of Arbitration.
(c) The Parties shall appoint a single arbitrator who shall
constitute the Arbitration Panel hereunder. Should the parties not agree upon
the appointment of the
<PAGE>
arbitrator within 30 days of delivery of the Arbitration Notice, the
Arbitrator shall be appointed in accordance with the Rules of Arbitration.
(d) In any arbitration proceeding conducted pursuant to the
provisions of this Section 11, both parties shall have the right to discovery,
to call witnesses and to cross-examine the opposing party's witnesses, either
through legal counsel, expert witnesses or both.
(e) FINALITY OF DECISION. All decisions of the Arbitration Panel
shall be final, conclusive and binding on all parties and shall not be subject
to judicial review. The arbitrator shall divide all costs (other than fees of
counsel) incurred in conducting the arbitration proceeding and the final award
in accordance with what they deem just and equitable under the circumstances.
(f) LIMITATIONS. Notwithstanding anything to the contrary contained
in Sections 11(a) and 11(b) above, any claim by either party for injunctive or
other equitable relief, including specific performance, may be brought in any
court of competent jurisdiction and any judgment, order or decree relating
thereto shall have precedence over any arbitral award or proceeding.
12. GENERAL PROVISIONS.
(a) FURTHER ASSURANCES. Holder shall promptly take all actions and
execute all documents requested by the Company which the Company deems to be
reasonably necessary to effectuate the terms and intent of this Agreement.
(b) NOTICES. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be given to the parties
hereto as follows:
If to the Company, to:
NEW IMAGE INDUSTRIES, INC.
2283 Cosmos Court
Carlsbad, California 92009
Attention: President
If to Holder, to:
Kenneth B. Sawyer
c/o Colman Partners, LLC
One Maritime Plaza, Suite 2535
San Francisco, CA 94111
or at such other address or addresses as may have been furnished by either party
in writing to the other party hereto. Any such notice, request, demand or other
<PAGE>
communication shall be effective (i) if given by mail, two days after such
communication is deposited in the mail by first-class certified mail, return
receipt requested, postage prepaid, addressed as aforesaid, or (ii) if given by
any other means, when delivered at the address specified in this
subparagraph (b).
(c) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California applicable to contracts
made in, and to be performed within, that state. Jurisdiction and venue over
any legal action brought hereunder shall reside exclusively in the county of Los
Angeles, State of California. Each of the parties hereto waive their right to a
jury trial with respect to any such legal actions.
(d) ATTORNEYS' FEES. In the event that any action, suit or
arbitration or other proceeding is instituted upon any breach of this Agreement,
the prevailing party shall be paid by the other party thereto an amount equal to
all of the prevailing party's costs and expenses, including attorneys' fees
incurred in each and every such action, suit or proceeding (including any and
all appeals or petitions therefrom). As used in this Agreement, "attorneys'
fees" shall mean the full and actual cost of any legal services actually
performed in connection with the matter involved calculated on the basis of the
usual fee charged by the attorney performing such services and shall not be
limited to "reasonable attorneys' fees" as defined in any statute or rule of
court.
(e) AMENDMENT; WAIVER. This Agreement shall be binding upon and
inure to the benefit of the parties to this Agreement and their respective
successors, heirs and personal representatives. No provision of this Agreement
may be amended or waived unless in writing signed by all of the parties to this
Agreement. Waiver of any one provision of this Agreement shall not be deemed to
be a waiver of any other provision.
(f) NO FINDERS. The parties each agree to indemnify and hold
harmless the other against any expense incurred by reason of any consulting,
brokerage commission or finder's fee alleged to be payable to any person in
connection with the transactions contemplated hereby because of any act,
omission or statement of indemnifying party or any dealings by the indemnifying
party with any consultant, broker or finder.
(g) EXPENSES. Each of the parties shall pay its own expenses
incurred in connection with the preparation of this Agreement and the
consummation of the transactions contemplated hereby.
(h) 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.
<PAGE>
(i) COUNTERPARTS. This Agreement may be executed in several
counterparts, all of which together shall constitute one agreement binding on
all parties hereto, notwithstanding that all of the parties have not signed the
same counterpart.
(j) ENTIRE AGREEMENT. This 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.
(k) MISCELLANEOUS. Titles and captions contained in this Agreement
are inserted for convenience of reference only and do not constitute a part of
this Agreement for any other purpose. Except as specifically provided herein,
neither this Agreement nor any right pursuant hereto or interest herein shall be
assignable by any of the parties hereto without the prior written consent of the
other party hereto.
13. AGREEMENT CONCERNING SUBDIVISION. The Company and Holder agree that
this Warrant Agreement is one of three warrants aggregating warrants to purchase
275,000 shares of Common Stock which are being issued in subdivison of the
March 24, 1995 Warrant Agreement referred to above and in full substitution
therefor. Each Holder of this Warrant agrees to be bound by all of the
provisions of this Warrant Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.
NEW IMAGE INDUSTRIES, INC.
By: ___________________________ __________________________
Dewey F. Edmunds, President Kenneth B. Sawyer
<PAGE>
EXHIBIT "A"
NOTICE OF EXERCISE
(TO BE SIGNED ONLY UPON EXERCISE OF THE WARRANT)
TO: New Image Industries, Inc.
The undersigned hereby irrevocably elects (to the extent indicated herein) to
exercise the purchase right represented by the Warrant granted pursuant to the
attached Warrant Agreement (originally issued March 24, 1995) and to purchase
thereunder ________ shares of Common Stock of New Image Industries, Inc., a
Delaware corporation (the "Company"). The closing of the exercise of the
purchase right shall take place at _______ on ____________________ , ____ at the
principal executive office of the Company located at 2283 Cosmos Court,
Carlsbad, California .
Dated: ________________________________
Signed: ________________________________
<PAGE>
Exhibit 10.18
WARRANT AGREEMENT
(Robert S. Colman - 37,500 Shares)
This WARRANT AGREEMENT (this "AGREEMENT") is made and entered into as of
the 31st day of March, 1996, by and between NEW IMAGE INDUSTRIES, INC. (the
"Company"), a Delaware corporation, and Robert S. Colman ("Holder"). In
consideration of these premises and the mutual covenants and agreements
hereinafter set forth, and other good and valuable consideration the receipt
and sufficiency of which are hereby acknowledged, the Company and Holder
agree as follows:
1. GRANT OF WARRANT. In consideration of the sum of $37.50 ($0.001 per
Warrant) and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company hereby grants to
Holder the right and option (the "Warrant"), upon the terms and subject to
the conditions set forth in this Agreement, to purchase all or any portion of
37,500 shares of the Common Stock, par value $0.001 per share, of the Company
(the "Shares") at an exercise price of $2.125 per share (the "Exercise
Price").
2. TERM OF WARRANT. The Warrant shall terminate and expire at 5:00 p.m.,
Pacific Time, on March 30, 2001 (the "Warrant Expiration Date"), unless sooner
terminated as provided herein.
3. EXERCISE OF WARRANT. There is no obligation to exercise the
Warrant, in whole or in part. The Warrant may be exercised, in whole or in
part, only by delivery to the Company of: (a) written notice of exercise in
form and substance identical to Exhibit "A" attached to this Agreement
stating the number of Shares then being purchased (the "Purchased Shares");
and (b) payment of the Exercise Price of the Purchased Shares by wire
transfer of immediately available Federal funds. Upon receipt of the
foregoing, the Company shall promptly issue in the name of the Holder a stock
certificate evidencing the Purchased Shares being purchased by such exercise
and deliver such certificate to the Holder.
4. RESTRICTIONS ON PURCHASED SHARES. Holder shall not sell, transfer
(with or without consideration), assign, pledge, hypothecate or otherwise
dispose of (collectively, "Transfer") any of the Purchased Shares unless the
Purchased Shares are disposed of pursuant to and in conformity with an
effective registration statement filed with the Securities and Exchange
Commission (the "Commission") pursuant to the Securities Act of 1933, as
amended (the "Act"), or pursuant to an available exemption from the
registration and prospectus delivery requirements of the Act, and the
proposed disposition will not result in a violation of the securities laws of
any state of the United States. If requested by the Company, Holder shall,
prior to the transfer of such Purchased Shares, deliver to the Company a
written opinion of counsel, satisfactory to the Company and its counsel, that
the proposed disposition will comply with the requirements set forth in this
Paragraph 4. Any attempted Transfer which is not in full
<PAGE>
compliance with this Paragraph 4 shall be null and void AB INITIO, and of no
force or effect.
5. ADJUSTMENTS UPON RECAPITALIZATION.
(a) In the event the Company should at any time or from time to
time after the date of this Warrant (the "Issuance Date") fix a record date
for the effectuation of a split or subdivision of the outstanding shares of
Common Stock or the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in additional shares of
Common Stock or other securities or rights convertible into, or entitling the
holder thereof to receive, directly or indirectly, additional shares of
Common Stock (hereinafter referred to as "Common Stock Equivalents") without
payment of any consideration by such holder for the additional shares of
Common Stock or the Common Stock Equivalents (including the additional shares
of Common stock issuable upon conversion or exercise thereof), then, as of
such record date (or the date of such dividend distribution, split or
subdivision if no record date is fixed), the Exercise Price shall be
appropriately decreased (i.e., the per share Exercise Price shall be adjusted
such that the aggregate exercise price for all Shares issuable upon exercise
of the Warrants in full, as adjusted, shall remain the same) and the number
of Shares shall be increased in proportion to such increase in the aggregate
number of shares of Common Stock outstanding and those issuable with respect
to such Common Stock Equivalents.
(b) If the number of shares of Common Stock outstanding at any time
after the Issuance Date is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such combination,
the Exercise Price shall be appropriately increased (i.e., the per share
Exercise Price shall be adjusted such that the aggregate exercise price for
all Shares issuable upon exercise of the Warrants in full, as adjusted, shall
remain the same) and the number of Shares shall be decreased in proportion to
such decrease in the aggregate number of shares of Common Stock outstanding
and those issuable with respect to such Common Stock Equivalents.
(c) In case of any capital reorganization, any reclassification of
the Common Stock (other than a change in par value or a recapitalization
described in Paragraph 5(a) or 5(b) of this Agreement), or the consolidation
of the Company with, or a sale of substantially all of the assets of the
Company to (which sale is followed by a liquidation or dissolution of the
Company), or merger of the Company with, another person, the Holder shall
thereafter be entitled upon exercise of the Warrant to purchase the kind and
number of shares of stock or other securities or the amount or value of any
cash, assets or other property receivable upon such event by a holder of the
number of shares of the Common Stock which the Warrant entitles the holder of
the Warrant to purchase from the Company immediately prior to such event; and
in any such case, appropriate adjustment shall be made in the application of
the provisions set forth in this Agreement with respect to the Holder's
rights and interests thereafter, to the end that the provisions set forth in
this Agreement (including the specified changes and other adjustments to the
Exercise Price) shall thereafter be applicable in relation to any
<PAGE>
shares or other property thereafter purchasable upon exercise of the Warrant.
(d) In the event the Company should at any time or from time to
time after the Issuance Date fix a record date for the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in securities or rights convertible into, or entitling the holder
thereof to receive, directly or indirectly, additional shares of Common Stock
or the securities or such rights of any other corporation (other than Common
Stock Equivalents covered by Paragraph 5(a) hereof), the Holder shall
thereafter be entitled upon exercise of the Warrant to receive, in addition
to the Purchased Shares being purchased upon such exercise, the securities or
rights convertible into securities receivable upon such event by a holder of
the number of shares of the Common Stock which the Holder is purchasing upon
such exercise.
(e) If it is expected that there will occur any event described in
Paragraph 5(c) or 5(d) hereof, the Company shall give the holder of the
Warrants notice thereof, which notice shall be given at such time or times as
notice is given to the holders of the Company's Common Stock.
(f) The provisions of this Paragraph 5 are intended to be
exclusive, and the holder of the Warrant shall have no rights other than as
set forth in this Agreement (and the rights of a stockholder upon exercise of
the Warrant) upon the occurrence of any of the events described in this
Paragraph 5.
(g) The grant of the Warrant shall not affect in any way the right
or power of the Company to make adjustments, reclassifications,
reorganizations or changes in its capital or business structure, or to merge,
consolidate, dissolve or liquidate, or to sell or transfer all or any part of
its business or assets.
6. REPRESENTATIONS AND WARRANTIES OF HOLDER. Holder makes the following
representations and warranties:
(a) Holder is acquiring the Warrants for its own account with the
present intention of holding such securities for investment purposes only and
not with a view to, or for sale in connection with, any distribution of such
securities (other than a distribution in compliance with all applicable
federal and state securities laws).
(b) Holder is an experienced and sophisticated investor and has
such knowledge and experience in financial and business matters that it is
capable of evaluating the relative merits and the risks of an investment in
the Warrants and in the Shares and of protecting its own interests in
connection with this transaction.
(c) Holder is willing to bear and is capable of bearing the economic
risk of an investment in the Warrants and the Shares.
(d) The Company has made available, prior to the date of this
Agreement, to Holder the opportunity to ask questions of the Company and its
officers,
<PAGE>
and to receive from the Company and its officers information
concerning the terms and conditions of the Warrants and this Agreement and to
obtain any additional information with respect to the Company, its business,
operations and prospects, as reasonably requested by Holder.
(e) Holder is an "accredited investor" as that term is defined
under Rule 501(a) of Regulation D promulgated by the Securities and Exchange
Commission under the Act.
(f) For purposes of the application of federal and state securities
laws, Holder acknowledges that the offer and sale of the Warrants to Holder
occurred in the State of California and that Holder is a resident of the State
of California.
7. LEGEND ON STOCK CERTIFICATES. Holder agrees that all certificates
representing the Purchased Shares will be subject to such stock transfer
orders and other restrictions as the Company may deem advisable under the
rules, regulations and other requirements of the Securities and Exchange
Commission, any stock exchange upon which the Common Stock is then listed and
any applicable federal or state securities laws, and the Company may cause
the following legend to be put on such certificates to make appropriate
reference to such restrictions:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED
OR OTHERWISE HYPOTHECATED WITHOUT REGISTRATION UNDER SUCH ACT OR
PURSUANT TO AN EXEMPTION THEREFROM.
8. NO RIGHTS AS STOCKHOLDER. Holder shall have no rights as a
stockholder of the Company with respect to the Shares until the date of the
issuance to Holder of a stock certificate or stock certificates evidencing
such Shares. Except as may be provided in Paragraph 5 of this Agreement, no
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights for
which the record date is prior to the date such stock certificate is issued.
9. MODIFICATION. The Board or a committee thereof may modify, extend or
renew the Warrant or accept the surrender of, and authorize the grant of a
new option in substitution for, the Warrant (to the extent not previously
exercised). No modification of the Warrant shall be made without the consent
of Holder which would alter or impair any rights of Holder under the Warrant.
10. DISPUTES.
(a) ARBITRATION. All disputes arising in connection with this
Agreement shall be finally settled by arbitration in San Diego, California,
in accordance with the rules of the American Arbitration Association (the
"Rules of Arbitration") and judgment
<PAGE>
on the award rendered by the arbitration panel (the "Arbitration Panel") may
be entered in any court or tribunal of competent jurisdiction.
(b) Any party which desires to initiate arbitration proceedings as
provided in Paragraph 10(a) above may do so by delivering written notice to
the other party (the "Arbitration Notice") specifying (A) the nature of the
dispute or controversy to be arbitrated, (B) the name and address of the
arbitrator appointed by the party initiating such arbitration and (C) such
other matters as may be required by the Rules of Arbitration.
(c) The Parties shall appoint a single arbitrator who shall
constitute the Arbitration Panel hereunder. Should the parties not agree upon
the appointment of the arbitrator within 30 days of delivery of the
Arbitration Notice, the Arbitrator shall be appointed in accordance with the
Rules of Arbitration.
(d) In any arbitration proceeding conducted pursuant to the
provisions of this Paragraph 10, both parties shall have the right to
discovery, to call witnesses and to cross-examine the opposing party's
witnesses, either through legal counsel, expert witnesses or both.
(e) FINALITY OF DECISION. All decisions of the Arbitration Panel
shall be final, conclusive and binding on all parties and shall not be
subject to judicial review. The arbitrator shall divide all costs (other than
fees of counsel) incurred in conducting the arbitration proceeding and the
final award in accordance with what they deem just and equitable under the
circumstances.
(f) LIMITATIONS. Notwithstanding anything to the contrary contained
in Paragraphs 10(a) and 10(b) above, any claim by either party for injunctive
or other equitable relief, including specific performance, may be brought in
any court of competent jurisdiction and any judgment, order or decree
relating thereto shall have precedence over any arbitral award or proceeding.
11. GENERAL PROVISIONS.
(a) FURTHER ASSURANCES. Holder shall promptly take all actions and
execute all documents requested by the Company which the Company deems to be
reasonably necessary to effectuate the terms and intent of this Agreement.
(b) NOTICES. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be given to
the parties hereto as follows:
If to the Company, to:
NEW IMAGE INDUSTRIES, INC.
2283 Cosmos Court
<PAGE>
Carlsbad, California 92009
Attention: President
If to Holder, to:
Robert S. Colman
Colman Partners, LLC
One Maritime Plaza Suite 2535
San Francisco, CA 94111
or at such other address or addresses as may have been furnished by either
party in writing to the other party hereto. Any such notice, request, demand
or other communication shall be effective (i) if given by mail, two days
after such communication is deposited in the mail by first-class certified
mail, return receipt requested, postage prepaid, addressed as aforesaid, or
(ii) if given by any other means, when delivered at the address specified in
this subparagraph (b).
(c) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California applicable
to contracts made in, and to be performed within, that state. Jurisdiction
and venue over any legal action brought hereunder shall reside exclusively in
the county of Los Angeles, State of California. Each of the parties hereto
waive their right to a jury trial with respect to any such legal actions.
(d) ATTORNEYS' FEES. In the event that any action, suit or
arbitration or other proceeding is instituted upon any breach of this
Agreement, the prevailing party shall be paid by the other party thereto an
amount equal to all of the prevailing party's costs and expenses, including
attorneys' fees incurred in each and every such action, suit or proceeding
(including any and all appeals or petitions therefrom). As used in this
Agreement, "attorneys' fees" shall mean the full and actual cost of any legal
services actually performed in connection with the matter involved calculated
on the basis of the usual fee charged by the attorney performing such
services and shall not be limited to "reasonable attorneys' fees" as defined
in any statute or rule of court.
(e) AMENDMENT; WAIVER. This Agreement shall be binding upon and
inure to the benefit of the parties to this Agreement and their respective
successors, heirs and personal representatives. No provision of this
Agreement may be amended or waived unless in writing signed by all of the
parties to this Agreement. Waiver of any one provision of this Agreement
shall not be deemed to be a waiver of any other provision.
(f) NO FINDERS. The parties each agree to indemnify and hold
harmless the other against any expense incurred by reason of any consulting,
brokerage commission or finder's fee alleged to be payable to any person in
connection with the transactions contemplated hereby because of any act,
omission or statement of indemnifying party or any dealings by the
indemnifying party with any consultant,
<PAGE>
broker or finder.
(g) EXPENSES. Each of the parties shall pay its own expenses
incurred in connection with the preparation of this Agreement and the
consummation of the transactions contemplated hereby.
(h) 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.
(i) COUNTERPARTS. This Agreement may be executed in several
counterparts, all of which together shall constitute one agreement binding on
all parties hereto, notwithstanding that all of the parties have not signed
the same counterpart.
(j) ENTIRE AGREEMENT. This 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.
(k) MISCELLANEOUS. Titles and captions contained in this Agreement
are inserted for convenience of reference only and do not constitute a part
of this Agreement for any other purpose. Except as specifically provided
herein, neither this Agreement nor any right pursuant hereto or interest
herein shall be assignable by any of the parties hereto without the prior
written consent of the other party hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
NEW IMAGE INDUSTRIES, INC.
By: /s/ Dewey F. Edmunds /s/ Robert S. Colman
--------------------------- --------------------
Dewey F. Edmunds, President Robert S. Colman
<PAGE>
EXHIBIT "A"
NOTICE OF EXERCISE
(TO BE SIGNED ONLY UPON EXERCISE OF THE WARRANT)
TO: New Image Industries, Inc.
The undersigned hereby irrevocably elects (to the extent indicated herein) to
exercise the purchase right represented by the Warrant granted to the
undersigned on March 31, 1996 and to purchase thereunder shares of
----------
Common Stock of New Image Industries, Inc., a Delaware corporation
(the "Company"). The closing of the exercise of the purchase right shall take
place at on , at the principal executive
------- ------------------------- -----
office of the Company located at 2283 Cosmos Court, Carlsbad, California.
Dated:
----------------------------------
Signed:
---------------------------------
<PAGE>
EXHIBIT 10-19
WARRANT AGREEMENT
(Kenneth B. Sawyer - 37,500 Shares)
This WARRANT AGREEMENT (this "AGREEMENT") is made and entered into as of
the 31st day of March, 1996, by and between NEW IMAGE INDUSTRIES, INC. (the
"Company"), a Delaware corporation, and Kenneth B. Sawyer ("Holder"). In
consideration of these premises and the mutual covenants and agreements
hereinafter set forth, and other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the Company and Holder agree as
follows:
1. GRANT OF WARRANT. In consideration of the sum of $37.50 ($0.001 per
Warrant) and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Company hereby grants to Holder the right
and option (the "Warrant"), upon the terms and subject to the conditions set
forth in this Agreement, to purchase all or any portion of 37,500 shares of the
Common Stock, par value $0.001 per share, of the Company (the "Shares") at an
exercise price of $2.125 per share (the "Exercise Price").
2. TERM OF WARRANT. The Warrant shall terminate and expire at 5:00 p.m.,
Pacific Time, on March 30, 2001 (the "Warrant Expiration Date"), unless sooner
terminated as provided herein.
3. EXERCISE OF WARRANT. There is no obligation to exercise the Warrant,
in whole or in part. The Warrant may be exercised, in whole or in part, only by
delivery to the Company of: (a) written notice of exercise in form and
substance identical to Exhibit "A" attached to this Agreement stating the number
of Shares then being purchased (the "Purchased Shares"); and (b) payment of the
Exercise Price of the Purchased Shares by wire transfer of immediately available
Federal funds. Upon receipt of the foregoing, the Company shall promptly issue
in the name of the Holder a stock certificate evidencing the Purchased Shares
being purchased by such exercise and deliver such certificate to the Holder.
4. RESTRICTIONS ON PURCHASED SHARES. Holder shall not sell, transfer
(with or without consideration), assign, pledge, hypothecate or otherwise
dispose of (collectively, "Transfer") any of the Purchased Shares unless the
Purchased Shares are disposed of pursuant to and in conformity with an effective
registration statement filed with the Securities and Exchange Commission (the
"Commission") pursuant to the Securities Act of 1933, as amended (the "Act"), or
pursuant to an available exemption from the registration and prospectus delivery
requirements of the Act, and the proposed disposition will not result in a
violation of the securities laws of any state of the United States. If
requested by the Company, Holder shall, prior to the transfer of such Purchased
Shares, deliver to the Company a written opinion of counsel, satisfactory to the
Company and its counsel, that the proposed disposition will comply with the
requirements set forth in this Paragraph 4. Any attempted Transfer which is not
in full
<PAGE>
compliance with this Paragraph 4 shall be null and void AB INITIO, and of no
force or effect.
5. ADJUSTMENTS UPON RECAPITALIZATION.
(a) In the event the Company should at any time or from time to time
after the date of this Warrant (the "Issuance Date") fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common Stock
or the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Exercise Price shall be appropriately decreased (i.e., the per share
Exercise Price shall be adjusted such that the aggregate exercise price for all
Shares issuable upon exercise of the Warrants in full, as adjusted, shall remain
the same) and the number of Shares shall be increased in proportion to such
increase in the aggregate number of shares of Common Stock outstanding and those
issuable with respect to such Common Stock Equivalents.
(b) If the number of shares of Common Stock outstanding at any time
after the Issuance Date is decreased by a combination of the outstanding shares
of Common Stock, then, following the record date of such combination, the
Exercise Price shall be appropriately increased (i.e., the per share Exercise
Price shall be adjusted such that the aggregate exercise price for all Shares
issuable upon exercise of the Warrants in full, as adjusted, shall remain the
same) and the number of Shares shall be decreased in proportion to such decrease
in the aggregate number of shares of Common Stock outstanding and those issuable
with respect to such Common Stock Equivalents.
(c) In case of any capital reorganization, any reclassification of
the Common Stock (other than a change in par value or a recapitalization
described in Paragraph 5(a) or 5(b) of this Agreement), or the consolidation of
the Company with, or a sale of substantially all of the assets of the Company to
(which sale is followed by a liquidation or dissolution of the Company), or
merger of the Company with, another person, the Holder shall thereafter be
entitled upon exercise of the Warrant to purchase the kind and number of shares
of stock or other securities or the amount or value of any cash, assets or other
property receivable upon such event by a holder of the number of shares of the
Common Stock which the Warrant entitles the holder of the Warrant to purchase
from the Company immediately prior to such event; and in any such case,
appropriate adjustment shall be made in the application of the provisions set
forth in this Agreement with respect to the Holder's rights and interests
thereafter, to the end that the provisions set forth in this Agreement
(including the specified changes and other adjustments to the Exercise Price)
shall thereafter be applicable in relation to any
<PAGE>
shares or other property thereafter purchasable upon exercise of the Warrant.
(d) In the event the Company should at any time or from time to time
after the Issuance Date fix a record date for the determination of holders of
Common Stock entitled to receive a dividend or other distribution payable in
securities or rights convertible into, or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock or the
securities or such rights of any other corporation (other than Common Stock
Equivalents covered by Paragraph 5(a) hereof), the Holder shall thereafter be
entitled upon exercise of the Warrant to receive, in addition to the Purchased
Shares being purchased upon such exercise, the securities or rights convertible
into securities receivable upon such event by a holder of the number of shares
of the Common Stock which the Holder is purchasing upon such exercise.
(e) If it is expected that there will occur any event described in
Paragraph 5(c) or 5(d) hereof, the Company shall give the holder of the Warrants
notice thereof, which notice shall be given at such time or times as notice is
given to the holders of the Company's Common Stock.
(f) The provisions of this Paragraph 5 are intended to be exclusive,
and the holder of the Warrant shall have no rights other than as set forth in
this Agreement (and the rights of a stockholder upon exercise of the Warrant)
upon the occurrence of any of the events described in this Paragraph 5.
(g) The grant of the Warrant shall not affect in any way the right or
power of the Company to make adjustments, reclassifications, reorganizations or
changes in its capital or business structure, or to merge, consolidate, dissolve
or liquidate, or to sell or transfer all or any part of its business or assets.
6. REPRESENTATIONS AND WARRANTIES OF HOLDER. Holder makes the following
representations and warranties:
(a) Holder is acquiring the Warrants for its own account with the
present intention of holding such securities for investment purposes only and
not with a view to, or for sale in connection with, any distribution of such
securities (other than a distribution in compliance with all applicable federal
and state securities laws).
(b) Holder is an experienced and sophisticated investor and has such
knowledge and experience in financial and business matters that it is capable of
evaluating the relative merits and the risks of an investment in the Warrants
and in the Shares and of protecting its own interests in connection with this
transaction.
(c) Holder is willing to bear and is capable of bearing the economic
risk of an investment in the Warrants and the Shares.
(d) The Company has made available, prior to the date of this
Agreement, to Holder the opportunity to ask questions of the Company and its
officers,
<PAGE>
and to receive from the Company and its officers information concerning the
terms and conditions of the Warrants and this Agreement and to obtain any
additional information with respect to the Company, its business, operations
and prospects, as reasonably requested by Holder.
(e) Holder is an "accredited investor" as that term is defined under
Rule 501(a) of Regulation D promulgated by the Securities and Exchange
Commission under the Act.
(f) For purposes of the application of federal and state securities
laws, Holder acknowledges that the offer and sale of the Warrants to Holder
occurred in the State of California and that Holder is a resident of the State
of California.
7. LEGEND ON STOCK CERTIFICATES. Holder agrees that all certificates
representing the Purchased Shares will be subject to such stock transfer orders
and other restrictions as the Company may deem advisable under the rules,
regulations and other requirements of the Securities and Exchange Commission,
any stock exchange upon which the Common Stock is then listed and any applicable
federal or state securities laws, and the Company may cause the following legend
to be put on such certificates to make appropriate reference to such
restrictions:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED OR
OTHERWISE HYPOTHECATED WITHOUT REGISTRATION UNDER SUCH ACT OR PURSUANT TO
AN EXEMPTION THEREFROM.
8. NO RIGHTS AS STOCKHOLDER. Holder shall have no rights as a stockholder
of the Company with respect to the Shares until the date of the issuance to
Holder of a stock certificate or stock certificates evidencing such Shares.
Except as may be provided in Paragraph 5 of this Agreement, no adjustment shall
be made for dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distributions or other rights for which the record date is
prior to the date such stock certificate is issued.
9. MODIFICATION. The Board or a committee thereof may modify, extend or
renew the Warrant or accept the surrender of, and authorize the grant of a new
option in substitution for, the Warrant (to the extent not previously
exercised). No modification of the Warrant shall be made without the consent of
Holder which would alter or impair any rights of Holder under the Warrant.
10. DISPUTES.
(a) ARBITRATION. All disputes arising in connection with this
Agreement shall be finally settled by arbitration in San Diego, California, in
accordance with the rules of the American Arbitration Association (the "Rules of
Arbitration") and judgment
<PAGE>
on the award rendered by the arbitration panel (the "Arbitration Panel") may
be entered in any court or tribunal of competent jurisdiction.
(b) Any party which desires to initiate arbitration proceedings as
provided in Paragraph 10(a) above may do so by delivering written notice to the
other party (the "Arbitration Notice") specifying (A) the nature of the dispute
or controversy to be arbitrated, (B) the name and address of the arbitrator
appointed by the party initiating such arbitration and (C) such other matters as
may be required by the Rules of Arbitration.
(c) The Parties shall appoint a single arbitrator who shall
constitute the Arbitration Panel hereunder. Should the parties not agree upon
the appointment of the arbitrator within 30 days of delivery of the Arbitration
Notice, the Arbitrator shall be appointed in accordance with the Rules of
Arbitration.
(d) In any arbitration proceeding conducted pursuant to the
provisions of this Paragraph 10, both parties shall have the right to discovery,
to call witnesses and to cross-examine the opposing party's witnesses, either
through legal counsel, expert witnesses or both.
(e) FINALITY OF DECISION. All decisions of the Arbitration Panel
shall be final, conclusive and binding on all parties and shall not be subject
to judicial review. The arbitrator shall divide all costs (other than fees of
counsel) incurred in conducting the arbitration proceeding and the final award
in accordance with what they deem just and equitable under the circumstances.
(f) LIMITATIONS. Notwithstanding anything to the contrary contained
in Paragraphs 10(a) and 10(b) above, any claim by either party for injunctive or
other equitable relief, including specific performance, may be brought in any
court of competent jurisdiction and any judgment, order or decree relating
thereto shall have precedence over any arbitral award or proceeding.
11. GENERAL PROVISIONS.
(a) FURTHER ASSURANCES. Holder shall promptly take all actions and
execute all documents requested by the Company which the Company deems to be
reasonably necessary to effectuate the terms and intent of this Agreement.
(b) NOTICES. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be given to the parties
hereto as follows:
If to the Company, to:
NEW IMAGE INDUSTRIES, INC.
2283 Cosmos Court
<PAGE>
Carlsbad, California 92009
Attention: President
If to Holder, to:
Kenneth B. Sawyer
Colman Partners, LLC
One Maritime Plaza Suite 2535
San Francisco, CA 94111
or at such other address or addresses as may have been furnished by either
party in writing to the other party hereto. Any such notice, request, demand
or other communication shall be effective (i) if given by mail, two days
after such communication is deposited in the mail by first-class certified
mail, return receipt requested, postage prepaid, addressed as aforesaid, or
(ii) if given by any other means, when delivered at the address specified in
this subparagraph (b).
(c) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California applicable to contracts
made in, and to be performed within, that state. Jurisdiction and venue over
any legal action brought hereunder shall reside exclusively in the county of Los
Angeles, State of California. Each of the parties hereto waive their right to a
jury trial with respect to any such legal actions.
(d) ATTORNEYS' FEES. In the event that any action, suit or
arbitration or other proceeding is instituted upon any breach of this Agreement,
the prevailing party shall be paid by the other party thereto an amount equal to
all of the prevailing party's costs and expenses, including attorneys' fees
incurred in each and every such action, suit or proceeding (including any and
all appeals or petitions therefrom). As used in this Agreement, "attorneys'
fees" shall mean the full and actual cost of any legal services actually
performed in connection with the matter involved calculated on the basis of the
usual fee charged by the attorney performing such services and shall not be
limited to "reasonable attorneys' fees" as defined in any statute or rule of
court.
(e) AMENDMENT; WAIVER. This Agreement shall be binding upon and
inure to the benefit of the parties to this Agreement and their respective
successors, heirs and personal representatives. No provision of this Agreement
may be amended or waived unless in writing signed by all of the parties to this
Agreement. Waiver of any one provision of this Agreement shall not be deemed to
be a waiver of any other provision.
(f) NO FINDERS. The parties each agree to indemnify and hold
harmless the other against any expense incurred by reason of any consulting,
brokerage commission or finder's fee alleged to be payable to any person in
connection with the transactions contemplated hereby because of any act,
omission or statement of indemnifying party or any dealings by the indemnifying
party with any consultant,
<PAGE>
broker or finder.
(g) EXPENSES. Each of the parties shall pay its own expenses
incurred in connection with the preparation of this Agreement and the
consummation of the transactions contemplated hereby.
(h) 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.
(i) COUNTERPARTS. This Agreement may be executed in several
counterparts, all of which together shall constitute one agreement binding on
all parties hereto, notwithstanding that all of the parties have not signed the
same counterpart.
(j) ENTIRE AGREEMENT. This 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.
(k) MISCELLANEOUS. Titles and captions contained in this Agreement
are inserted for convenience of reference only and do not constitute a part of
this Agreement for any other purpose. Except as specifically provided herein,
neither this Agreement nor any right pursuant hereto or interest herein shall be
assignable by any of the parties hereto without the prior written consent of the
other party hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.
NEW IMAGE INDUSTRIES, INC.
By:
------------------------------- -------------------------------
Dewey F. Edmunds, President Kenneth B. Sawyer
<PAGE>
EXHIBIT "A"
NOTICE OF EXERCISE
(TO BE SIGNED ONLY UPON EXERCISE OF THE WARRANT)
TO: New Image Industries, Inc.
The undersigned hereby irrevocably elects (to the extent indicated herein) to
exercise the purchase right represented by the Warrant granted to the
undersigned on March 31, 1996 and to purchase thereunder ________ shares of
Common Stock of New Image Industries, Inc., a Delaware corporation (the
"Company"). The closing of the exercise of the purchase right shall take place
at _______ on ____________________ , ____ at the principal executive office of
the Company located at 2283 Cosmos Court, Carlsbad, California .
Dated:
---------------------------------
Signed:
--------------------------------
<PAGE>
EXHIBIT 10.20
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. IT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SUCH
ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS
NOT REQUIRED.
COMMON STOCK WARRANT
OF
INSIGHT IMAGING SYSTEMS, INC.
MARCH 23, 1994
THIS CERTIFIES THAT, for a purchase price of $0.001 per share, The William
W. Stevens and Virda J. Stevens Trust, dated October 17, 1986 (the
"Warrantholder") is entitled to purchase from Insight Imaging Systems, Inc., a
California corporation (the "Company"), up to 5,000 shares of the Company's
Common Stock ("Common Stock"), at a purchase price of Fifty Cents ($0.50) per
share (the "Exercise Price"), such price and the shares issuable upon exercise
hereof being subject to adjustment upon the occurrence of the contingencies set
forth in this Warrant.
Upon delivery of this Warrant, together with payment of the Exercise Price
multiplied by the total number of shares of Common Stock thereby purchased (the
"Aggregate Exercise Price"), at the principal office of the Company or at such
other office or agency as the Company may designate by notice in writing to the
holder hereof the holder of this Warrant shall be entitled to receive a
certificate or certificates for the shares of Common Stock so purchased. The
date at which the Company receives (i) this Warrant and (ii) payment for the
shares of Common Stock, either by payment in cash, or by check, or wire
transfer, shall be referred to herein as the "Exercise Date." All shares of
Common Stock which may be issued upon the exercise of this Warrant shall upon
issuance, be fully paid and non-assessable.
This Warrant is subject to the following terms and conditions:
1. EXERCISE OF WARRANT.
1.1 TIME OF EXERCISE. This Warrant may be exercised in whole or in
part on or after the date hereof and prior to the earlier of (i) the fifth
anniversary date of the issuance of this Warrant, (ii) the closing of (A) a sale
of all or substantially all of the Company's assets or (B) the merger or
consolidation of the Company with another corporation whereby the Company's
shareholders immediately prior to such merger or consolidation will hold less
than 50% of the outstanding securities of the surviving corporation immediately
following such merger or consolidation (such sale, merger or
<PAGE>
consolidation referred to herein as a "Sale of the Company"), and (iii) the
closing of an underwritten public offering of the Company's equity securities
pursuant to a registration - statement under the Securities Act of 1933, as
amended (the "Act"), with net proceeds to the Company of at least $7,500,000
(an "IPO").
1.2 METHOD OF EXERCISE. While this Warrant remains outstanding and
exercisable in accordance with Section 1. 1 above, the Warrantholder may
exercise, in whole or in part, the purchase rights evidenced hereby. Such
exercise shall be effected by:
(a) the surrender of the Warrant at the principal office of the
Company; and
(b) subject to Section 1.3 below, the payment to the Company
by wire transfer or check of the Aggregate Exercise Price for all shares of
Common Stock purchased.
1.3 NET EXERCISE. Subject to the Company's consent, in lieu of
"exercising this Warrant under the terms of Section 1.2 above, the Warrantholder
may elect to receive shares of Common Stock equal to the value of this Warrant
(or the portion thereof being cancelled) by surrender of this Warrant at the
principal office of the Company together with notice of such election, in which
event the Company shall issue to the holder hereof a number of shares of Common
Stock computed using the following formula:
X = Y (A-B)
-------
A
Where
X - The number of shares of Common Stock to be issued to the
Warrantholder.
Y - The number of shares of Common Stock purchaseable under this
Warrant.
A - The Fair Market Value (as defined below) of one share of the
Common Stock.
B - The Exercise Price (as adjusted to the date of such
calculations).
For purposes of this Section 1.3, the "Fair Market Value" of the Common
Stock shall equal the actual initial offering price of shares of Common Stock in
an IPO, the actual purchase price of shares of Common Stock in a Sale of the
Company, or as determined in good faith by the Board of Directors of the
Company.
<PAGE>
1.4 CERTIFICATES FOR SHARES. The Company shall, within 30 days-
after the Exercise Date, prepare a certificate for the shares of Common Stock
purchased in the name of the holder of this Warrant, or as such holder may
direct (subject to the restrictions upon transfer contained herein and upon
payment by such holder hereof of any applicable transfer taxes). In case the
Warrantholder shall exercise this Warrant with respect to less than all of the
shares of Common Stock that may be purchased under this Warrant, the Company
shall execute a new warrant in the form of this Warrant for the balance of such
shares and deliver such new warrant to the Warrantholder.
2. TRANSFER OF WARRANT. This Warrant and all rights hereunder are not
transferable.
3. CERTAIN ADJUSTMENTS.
3.1 DATE OF REPAYMENT OF NOTE. If the Promissory Note of even date
herewith issued to the Warrantholder in conjunction with this Warrant (the
"Note") remains outstanding for greater than 29 days, the number of shares of
Common Stock for which this Warrant may be exercised shall be increased to equal
the sum of (x) the number of shares of Common Stock for which this Warrant is
initially exercisable and (y) the product resulting from multiplying (a) the
amount of principal of such Note by (b) the quotient resulting from dividing (i)
the product resulting from multiplying (aa) .01 by (bb) the number of complete
30-day periods that the principal under the Note remains unpaid by the Company
by (ii) the Exercise Price.
3.2 SUBDIVISIONS. In case the Company shall at any time fix a record
date to effect a split or subdivision of the outstanding shares of the Common
Stock, or to determine the holders of Common Stock entitled to receive a
dividend or other distribution payable in additional shares of Common Stock or
other securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (the "Common
Stock Equivalents") without payment of any consideration by such holder for the
additional shares of Common Stock or Common Stock Equivalents (including the
additional shares of Common Stock issuable upon conversion or exercise thereof),
then, as of such record date (or the date of such distribution, split or
subdivision if no record date is fixed) the Exercise Price in effect immediately
prior to such, subdivision shall be proportionately decreased.
3.3 COMBINATIONS. In case the Company shall at any time combine the
outstanding shares of its Common Stock, the Exercise Price in effect immediately
prior to such combination shall be proportionately increased as of the date of
such combination.
3.4 COMMON STOCK DIVIDENDS. If the Company at any time prior to the
expiration of this Warrant shall pay a dividend with respect to Common Stock
payable in shares of Common Stock, or make any other distribution with respect
to
<PAGE>
Common Stock, then the Exercise Price per share shall be adjusted, from and
after the date of determination of the shareholders entitled to receive such
dividend or distribution, to that price determined by multiplying the per
share purchase price in effect by a fraction (i) the numerator of which shall
be the total number of shares of Common Stock outstanding immediately prior
to such dividend or distribution, and (ii) the denominator of which shall be
the total number of shares of the Common Stock outstanding immediately after
such dividend or distribution.
3.5 NOTICES. Upon any adjustment of the Exercise Price and any
increase or decrease in the number of shares of Common Stock purchasable upon
the exercise of this Warrant pursuant to this Section 3, then, and in each such
case, the Company, within thirty (30) days thereafter, shall give written notice
thereof to the registered holder of this Warrant at the address of such holder
as shown on the books of the Company which notice shall state the Exercise Price
as adjusted and the increased or decreased number of shares purchasable upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation of each; provided, however, that no such notice need be provided in
the event of any increase in the number of shares of Common Stock purchasable
upon the exercise of this Warrant pursuant to Section 3.1 herein.
4. REPRESENTATIONS AND WARRANTIES OF WARRANTHOLDER. Warrantholder
hereby represents and warrants that:
4.1 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Warrant and the shares
of stock issuable upon conversion or exercise hereof (collectively, the
"Securities") will be acquired for investment for Warrantholder's own account,
not as a nominee or agent, and not with a view to the resale or distribution of
any part thereof and Warrantholder has no present intention of selling, granting
any participation in, or otherwise distributing the same. Warrantholder does
not have any contract, undertaking, agreement, or arrangement with any person to
sell transfer, or grant participation to any person with respect to any of the
Securities. Warrantholder represents that it has full power and authority to
enter into this Warrant.
4.2 INVESTMENT EXPERIENCE. Warrantholder acknowledges that it is
able to fend for itself can bear the economic risk of its investment, and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the investment
in this Warrant. Warrantholder also represents it has not been organized for
the purpose of acquiring this Warrant.
4.3 ACCREDITED INVESTOR. Warrantholder is an "accredited investor"
within the meaning of Rule 501 of Regulation D of the Securities and Exchange
Commission (the "SEC"), as presently in effect.
4.4 RESTRICTED SECURITIES. Warrantholder understands that the
Securities are characterized as "restricted securities" under the federal
securities laws
<PAGE>
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering, and that under such laws and applicable
regulations such securities may be resold without registration under the only
in certain limited circumstances. In this connection, Warrantholder
represents that it is familiar with SEC Rule 144, as presently in effect, and
understands the resale limitations imposed thereby and by the Act.
4.5 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting
the representations set forth above, Warrantholder further agrees not to make
any disposition of all or any portion of the Securities unless and until there
is then in effect a Registration Statement under the Act covering such proposed
disposition and such disposition is made in accordance with such Registration
Statement, or (i) Warrantholder shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, Warrantholder shall have furnished the Company with an
opinion of counsel reasonably satisfactory to the Company, that such disposition
win not require registration of such shares under the Act. It is agreed that
the Company win not require opinions of counsel for transactions made pursuant
to Rule 144 except in unusual circumstances.
4.6 RIGHT OF FIRST REFUSAL. It is understood that the Securities are
subject to a right of first refusal in favor of the Company, the provisions of
which are set forth in Section 64 of the Company's Bylaws.
5. MISCELLANEOUS.
5.1 The terms of this Warrant shall be binding upon and shall inure
to the benefit of any successors or assigns of the Company and of the holder or
holders hereof and of the Common Stock issued or issuable upon the exercise
hereof and all of the obligations of the Company relating to the Common Stock
issuable upon exercise of this Warrant shall survive the exercise of this
Warrant.
5.2 No holder of this Warrant, as such, shall be entitled to vote or
receive dividends or be deemed to be a shareholder of the Company for any
purpose, nor shall anything contained in this Warrant be construed to confer
upon the holder of this Warrant, as such, any rights of a shareholder of the
Company or any right to vote, give or withhold consent to any corporate action,
receive notice of meetings, receive dividends or subscription rights, or
otherwise.
5.3 No fractional share shall be issued upon exercise of this
Warrant. The Company shall in lieu of issuing any fractional share, pay
Warrantholder a sum in cash equal to the Fair Market Value (as defined in
Section 1.3 hereof) of such fraction on the date of exercise.
5.4 Warrantholder hereby agrees that, during the period of duration
(not to exceed 180 days) specified by the Company and an underwriter of Common
Stock or other securities of the Company, following the effective date of any
registered
<PAGE>
underwritten public offering of Company securities, it shall not, to the
extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any
short sale), grant any option to purchase or otherwise transfer or dispose of
(other than to donees who agree to be similarly bound) any securities of the
Company held by it at any time during such period except Common Stock
included in such registration; provided, however, that all officers and
directors of the Company, and all other persons with registration rights
enter into similar agreements.
In order to enforce the foregoing covenant, the Company may impose stop-
transfer instructions with respect to the Registrable Securities of each
Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
5.5 Upon receipt of evidence reasonably satisfactory to the Company
of the loss, theft, destruction or mutilation of this Warrant and, in the case
of any such loss, theft or destruction, upon delivery of an indemnity agreement
reasonably satisfactory in form and amount to the Company, or in the case of any
such mutilation, upon surrender and cancellation of such Warrant, the Company at
its expense win execute and deliver, in lieu thereof a new Warrant of like data
and tenor.
5.6 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 or Sunday
or shall be a legal holiday, then such action may be taken or such right may be
exercised, except as to the purchase price, on the next succeeding day not a
legal holiday.
5.7 This Warrant shall be governed by the internal laws of the State
of California, as applied to contracts between residents of California and to be
performed entirely within California, without regard to the application of
conflict of law rules.
5.8 Receipt of this Warrant by the holder hereof shall constitute
acceptance of and agreement to the foregoing terms and conditions.
5.9 Any term of this Warrant may be amended and the observance of any
term of this Warrant may be waived (either generally or in a particular instance
and either retroactively or prospectively) with the written consent of the
Company and the holder hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
INSIGHT IMAGING SYSTEMS, INC.
<PAGE>
By:
--------------------------------
Mark W. Stevens, President
<PAGE>
EXHIBIT 10.21
FIRST AMENDMENT TO COMMON STOCK WARRANT
(May 9, 1996)
This Amendment is entered into as of May 9, 1996, by and between Insight
Imaging Systems, Inc. ("Insight"), a California corporation, and Name with
respect to that certain Common Stock Warrant (the "Warrant"), dated WarrantDate,
by and between Insight and Warrantholder, as follows:
1. EFFECT OF NEW IMAGE ACQUISITION. The parties agree that to the extent
that the provisions of Section 1.1(ii) of the Warrant would prevent exercise of
the Warrant after the closing of the transactions contemplated in that certain
Agreement and Plan of Reorganization by and among New Image Industries, Inc.,
Wisdom Acquisition Corp., and Insight, dated as of May 9, 1996, the
provisions of Section 1.1(ii) are to that extent waived and the Warrant shall
remain exercisable following the closing of such transactions. This waiver shall
not constitute a waiver as to any other transaction which would come within the
provisions of Section 1.1(ii).
2. Except as amended hereby, the Warrant shall remain in full force and
effect.
WHEREFORE, the parties have entered into this Amendment.
Insight Imaging Systems, Inc. SigningName
By: By
------------------------------- -------------------------------
Mark W. Stevens, SigningPerson
President
<PAGE>
EXHIBIT 10.22
INTERNATIONAL
DISTRIBUTION AGREEMENT
between
NEW IMAGE INDUSTRIES, INC.
and
TAKARA BELMONT CO. LTD.
<PAGE>
DISTRIBUTION AGREEMENT
TABLE OF CONTENTS
SECTION Page
- ------- ----
1 Products 2
2 Appointment and Territory 3
3 Term and Termination 4
4 Pricing 6
5A Obligations of NEW IMAGE 6
5B Obligations of TAKARA BELMONT 7
6 Minimum Purchase Requirements 8
7 Sales Policy 9
8 Patents, Trade Names, Trademarks 9
9 Assignment 11
10 Independent Contractor 11
11 Entire Agreement 11
12 Headings 11
13 Confidentiality 12
14 Severability 12
15 Governing Law 12
16 Notices 13
17 Compliance with Law 13
18 Survival 13
19 Waiver 13
<PAGE>
20 Force Majeure 13
21 Arbitration 14
Signature 14
Schedule A Current Products
Schedule B New Products
Schedule C Minimum Purchase Requirements
Schedule D Trade Names and Trademarks
<PAGE>
NEW IMAGE INDUSTRIES, INC.
INTERNATIONAL DISTRIBUTION AGREEMENT
THIS AGREEMENT made and entered into the first day of January, 1996.
BETWEEN:
NEW IMAGE INDUSTRIES INC., a California Corporation, having its principal place
of business at 2283 Cosmos Court, Carlsbad, California 92009, United States of
America
hereinafter called "NEW IMAGE"
OF THE FIRST PART,
- and -
TAKARA BELMONT CO. LTD.
P.O. BOX OSAKA MINANU 27
1-1,2-CHOME, HIGASAI-SHINSAIBASHI
CHUO-KU, OSAKA, JAPAN
hereinafter called "TAKARA BELMONT"
OF THE SECOND PART.
WHEREAS:
(1) NEW IMAGE manufactures, sells and distributes the NEW IMAGE, intraoral
camera system and related accessories and has established a reputation for
quality and goodwill incident to its trade name, trademarks and Products (as
defined
<PAGE>
herein);
(2) TAKARA BELMONT desires to market and distribute such Products on an
exclusive basis in the Territory (as defined herein); and
(3) The parties intend that their relationship be that of independent
contractors;
NOW THEREFORE THIS AGREEMENT WITNESSETH and in consideration of the mutual
covenants and agreements herein contained, the parties hereto do covenant and
agree as follows:
1. PRODUCTS
(i) DEFINITION. As used herein the word "PRODUCTS" shall mean those set
out in Schedule A hereto and such accessories thereto as are from time to time
during the term of this Agreement offered for sale in the Territory by NEW
IMAGE, "NEW PRODUCT (plural, "New Products") shall mean a product which may
hereafter be manufactured, developed, or distributed by NEW IMAGE that is
related to those defined, but not included, in Schedule A. If TAKARA BELMONT
elects to market and distribute a New Product in accordance with Section I(ii),
items included in the term "Products" shall thereafter include such New Product.
(ii) NEW PRODUCTS. Upon the international introduction of a New Product
NEW IMAGE shall give TAKARA BELMONT written notice thereof including full
technical specifications and export pricing. Within sixty (60) days after
TAKARA BELMONT receives written notice of a New Product, it shall give written
notice to NEW IMAGE specifying whether TAKARA BELMONT elects to market and
distribute such New Product in the Territory. If TAKARA BELMONT elects to
market and distribute such New Product in the Territory, TAKARA BELMONT'S
written notice to NEW IMAGE shall be in the form of Schedule B. If TAKARA
BELMONT notifies NEW IMAGE that it elects not to market and distribute such New
Product, or fails to make an election to do so in the form of Exhibit B within
such sixty (60) day period, NEW IMAGE may appoint a third party to market and
distribute such New Product in the Territory. The procedure set out in this
paragraph shall be applicable to each New Product during the "TERM" and any
"RENEWAL Term," both as defined in Section 3.
(iii) PRODUCT SPECIFICATIONS. TAKARA BELMONT shall provide NEW IMAGE
written notification of requirements and specifications for products to be
imported into and transported within the Territory. NEW IMAGE will incur the
cost of modifying or changing Products in order to comply with all product
requirements and specifications provided that all Product changes will be done
at NEW IMAGE'S
<PAGE>
discretion.
(iv) IMPORT APPROVALS. TAKARA BELMONT shall incur, directly or through
its affiliate Belmont Corporation, all costs of obtaining import, or other
regulatory licenses required for the Products to be imported into, transported
within, and sold and used within the Territory.
2. APPOINTMENT AND TERRITORY
(i) GRANT OF RIGHTS. NEW IMAGE grants to TAKARA BELMONT the limited
right to use the "TRADEMARKS," as defined in Section 8 on the terms set forth in
that Section and exclusive authority (subject to laws in the Territory) to
market and distribute the Products to customers in JAPAN (the "TERRITORY") NEW
IMAGE will notify TAKARA BELMONT of all inquires originating within the
Territory that relate to Products (i) or to New Products which TAKARA BELMONT
does not represent.
(ii) TERRITORIAL RESTRICTIONS. The grant of exclusive authority under
Section 2(i) above is limited to sales and marketing of Products in the
Territory for use in the Territory. TAKARA BELMONT accepts this grant of
exclusive authority and agrees not to market, distribute, or use the Products
directly or indirectly in any capacity outside the Territory. TAKARA BELMONT
agrees not to distribute the Products to any person other than customers for use
in the Territory. Subject to the laws in the Territory, TAKARA BELMONT shall
not permit any other person to market or distribute the Products in any place
other than the Territory or to persons other than customers. Except as provided
herein, during the Term of this Agreement and any Renewal Term, NEW IMAGE shall
not make sales of, or grant to others the right to sell the Products, within the
Territory. NEW IMAGE further agrees not to sell any Products to any person,
firm or company which NEW IMAGE knows or has reason to believe intends to resell
or export, is reselling or exporting and or has resold or exported, the Products
into the Territory. If due to oversight, inadvertence or lack of knowledge, any
purchaser or licensee manufactures or exports Products for sale into the
Territory, then NEW IMAGE will use its best efforts to take whatever steps are
necessary to have such parties cease such offending activities.
(iii) EXCLUSIVITY OF DISTRIBUTION. During the term of this Agreement,
TAKARA BELMONT shall not, directly or indirectly, in any capacity acquire,
market, promote, use, sell, or otherwise deal with or distribute any products
that compete with the Products without prior written consent of NEW Image TAKARA
BELMONT learns that any person or entity is infringing on TAKARA BELMONT'S
exclusive right to market and distribute the Products in the Territory, TAKARA
BELMONT agrees to notify NEW IMAGE immediately and cooperate fully with NEW
IMAGE in halting such infringement. New Image acknowledges that Takara Belmont
agreed, prior to the effective date of this Agreement, to purchase from Moritex
50 units of a product competing with the Products. New Image consents to such
purchase and to the resale of such items.
3. TERM AND TERMINATION
<PAGE>
(i) TERM. This Agreement shall remain in effect until December 31, 1998
(the "TERM"), subject to the renewal provisions of Section 3(ii) and the earlier
termination provisions of Section 3(iii) through 3(iv).
(ii) AUTOMATIC ANNUAL RENEWAL. If this Agreement is still in full force
and effect at the end of the Term, it shall be automatically renewed at that
time and each year thereafter for an additional one year period (the "RENEWAL
TERM"), unless terminated by either TAKARA BELMONT or NEW IMAGE upon written
notice submitted at least ninety (90) days prior to the end of the Term or
Renewal Term, or unless otherwise terminated pursuant to Section 3(iii)
through 3(v). Except as otherwise specifically provided, the Renewal Term shall
be on the same terms and conditions as the Term. When this Agreement has been
renewed, thereafter "Term" shall include the period of the "Renewal Term."
(iii) IMMEDIATE TERMINATION. In addition to all other rights or remedies,
either NEW IMAGE or TAKARA BELMONT may terminate this Agreement upon 10 days
prior written notice if:
(a) the other party (1) makes an assignment for the benefit of
creditors; (2) files a voluntary petition in bankruptcy or is adjudicated as
bankrupt or insolvent; or (3) files any petition or answer seeking
reorganization, liquidation or similar relief or files an answer admitting the
material allegations of a petition against it for any such relief,
(b) within 90 days after the commencement of any proceeding
against the other party seeking reorganization, liquidation or similar relief,
the proceeding has not been dismissed;
(c) any court, tribunal, or government agency modifies any term
of this Agreement to the substantial detriment of the party seeking termination;
(d) the other party dissolves or ceases to do business; or
(e) the other party appoints a receiver or trustee for all or a
part of its assets, business, or property.
(iv) ADDITIONAL RIGHTS TO TERMINATE. In addition to all of its other
rights or remedies, NEW IMAGE may terminate this Agreement if:
(a) TAKARA BELMONT transfers or attempts to transfer without NEW
IMAGE'S prior written consent the rights granted under this Agreement;
(b) TAKARA BELMONT fails to purchase the Minimum Purchase
Requirements of Products set forth in Schedule C for any calendar year;
(c) the parties fail to agree upon the Minimum Purchase
Requirement
<PAGE>
for Period 3, 60 or more days prior to the beginning of such period.
(d) TAKARA BELMONT fails to maintain all necessary licenses and
government approvals required to import into, transport within, and market,
sell, and use the Products in the Territory;
(e) TAKARA BELMONT fails to obtain the governmental approvals
necessary to import, transport, market, sell and use the Products in the
Territory within 6 months after the date of this Agreement.
TAKARA BELMONT and NEW IMAGE each agrees to advise the other immediately in
writing of the occurrence of any event specified in Section 3(iii) or 3(iv).
(v) TERMINATION FOR BREACH OF AGREEMENT. In the event that either party
breaches any material term of this Agreement and such breach continues for more
than ten (10) days after written notice thereof from the non-breaching party,
such non-breaching party shall have the right to terminate this Agreement by
written notice to the breaching party, such termination to be effective not less
than thirty (30) days after the receipt of such notice.
(vi) INVENTOR AT TERMINATION. If as of the effective date of the
expiration or termination of this Agreement TAKARA BELMONT has, on hand, any
Products delivered to it by NEW IMAGE within six (6) months of the effective
date of such expiration or termination, then NEW IMAGE shall have the right but
not the obligation to repurchase from TAKARA BELMONT such Products at the landed
cost paid by TAKARA BELMONT. Any Products so purchased shall be in the same
condition as when they were received and shall not have been used.
(vii) PARTS AND COMPONENTS FOLLOWING TERMINATION. New Image agrees to
supply Takara Belmont parts and components, priced on the same basis as during
the Term of this Agreement, for Products for a period of 12 full calendar months
following the termination of this Agreement.
4. PRICING
(i) INTERNATIONAL PRICE LIST. TAKARA BELMONT shall order and purchase
the Products from NEW IMAGE and NEW IMAGE shall sell the Products to TAKARA
BELMONT at the price set forth in the then current price list for export to the
Territory, the current version of which is attached as part of Schedule A. NEW
IMAGE may from time to time during the Term or any Renewal Term of this
Agreement change any or all of the prices set forth in the then current price
list upon ninety (90) days written notice to TAKARA BELMONT.
(ii) PRICING TERMS. The prices for Products are quoted FOB Carlsbad,
California U.S.A. All orders are to be in writing and shall be subject to
prompt written acceptance by NEW IMAGE. TAKARA BELMONT shall designate a
carrier to whom
<PAGE>
NEW IMAGE may deliver the Products FOB, Carlsbad, California and a receiving
address to which NEW IMAGE may ship the Products Risk of loss of the Products
shall shift to TAKARA BELMONT upon delivery by NEW IMAGE to the carrier. TAKARA
BELMONT shall be responsible for all import formalities including, without
limitation, clearing customs and paying import duties, if any. Title to all the
Products remain with NEW IMAGE until receipt by NEW IMAGE of full purchase
price.
(iii) PAYMENT TERMS. Payment for orders for the Products placed by TAKARA
BELMONT shall be made to NEW IMAGE in U.S. dollars at or prior to shipment, by
letter of credit or wire transfer.
5A. OBLIGATIONS OF NEW IMAGE
(i) PROMOTIONAL MATERIALS. NEW IMAGE shall provide to TAKARA BELMONT
(a) information considered by NEW IMAGE appropriate to assist TAKARA BELMONT
in its preparation of sales promotional materials, (b) sales promotional
material and material to facilitate TAKARA BELMONT'S advertising of the
Products, and (c) written warranty and warranty claim materials.
(ii) PRODUCT WARRANTY. NEW IMAGE warrants to TAKARA BELMONT that the
Products sold to TAKARA BELMONT (i) are fit for the purpose of use as an
intraoral camera system by trained personnel and (ii) shall be free from defects
in materials and workmanship for a period of one (1) year from the date the
Products are received by the actual end user thereof, provided however, that
this warranty shall in no event extend beyond the close of the eighteenth (18th)
full calendar month following the date of shipment by NEW IMAGE. EXCEPT AS JUST
PROVIDED, NEW IMAGE GIVES NO WARRANTY AS TO MERCHANTIBILITY, FITNESS FOR A
PARTICULAR PURPOSE, OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED, CONCERNING THE
PRODUCTS. TAKARA BELMONT shall not make any other warranty, guarantee, or
representation with respect to the Products or their use except at its own risk
and expense. If TAKARA BELMONT or its customers are made parties to any claim
or action involving the Products, including claims relating to the manufacture
or use of the Products, TAKARA BELMONT shall immediately notify NEW IMAGE in
writing. This paragraph (ii) sets forth the sole and entire warranty obligation
of NEW IMAGE with respect to Products.
(iii) SHIPMENT OF ORDERS. NEW IMAGE will manufacture and ship all orders
placed by TAKARA BELMONT in a prompt and timely manner according to NEW IMAGE'S
production capability, with NEW IMAGE to provide prompt notification of any
delays and rescheduled shipping duties.
5B. OBLIGATIONS OF TAKARA BELMONT
(i) SCOPE OF RESPONSIBILITY. TAKARA BELMONT shall, at its sole cost and
expense, use its continuing best efforts to sell the Products and provide
technical assistance, as defined below, within the Territory. TAKARA BELMONT
shall keep NEW IMAGE informed of market information and TAKARA BELMONT'S sales
and marketing activities. TAKARA BELMONT shall
<PAGE>
not take any action which would impair or diminish the reputation of NEW IMAGE
or its Products.
(ii) SALES, SERVICE AND TECHNICAL ASSISTANCE. During the Term and any
Renewal Term of this Agreement, TAKARA BELMONT shall, at its own cost and
expense, provide qualified sales and technical personnel to market and sell the
Products and provide technical assistance to the customers in the Territory.
The parties are negotiating as to the handling of warranty claims, service, and
repair of Products. The results of these negotiations will be the subject of a
separate agreement.
(iii) MARKETING. TAKARA BELMONT shall, at its own cost and expense, use
its best efforts to market the Products in the Territory during the Term and any
Renewal Term of this Agreement. TAKARA BELMONT shall advertise the Products,
participate in such trade shows and exhibits, demonstrate the Products to
potential customers, and distribute literature and other printed materials made
available to TAKARA BELMONT by NEW IMAGE In all advertising and in holding
itself out to others, TAKARA BELMONT shall use only the language contained in
NEW IMAGE'S authorized advertising material, provided that reasonable non-
substantive adjustments may be made for the JAPANESE market. NEW IMAGE shall
not be responsible for any claims arising out of any advertising not approved in
writing by NEW Image. At TAKARA BELMONT'S request and expense, NEW IMAGE will
provide to TAKARA BELMONT literature and marketing materials TAKARA BELMONT
shall promptly forward to NEW IMAGE all leads, inquiries and prospects for sale
outside the Territory of Products and New Products.
(iv) INVENTORY. TAKARA BELMONT shall carry an adequate inventory of the
Products to meet customers' orders for the Products. TAKARA BELMONT shall
distribute the Products on a first-in, first-out basis.
(v) INTEGRITY OF THE PRODUCTS. TAKARA BELMONT agrees that it will not
(and will not permit any other person under its control to) change or modify the
Products in any manner. TAKARA BELMONT agrees that it will not repackage or
re-label any packages of the Products after they have been packaged and labeled
by NEW IMAGE except with the prior written consent of NEW IMAGE. TAKARA BELMONT
acknowledges that the integrity of the Products must be maintained to retain the
safety and efficacy of the Products and regulatory approvals.
(vi) CUSTOMER COMPLAINTS. TAKARA BELMONT agrees to promptly notify NEW
IMAGE of any written or oral complaints relative to the identity, quality,
durability, reliability, safety, effectiveness, or performance of the Products
it distributes ("complaints")TAKARA BELMONT further agrees to fully cooperate
with NEW IMAGE to the extent reasonably necessary to investigate said complaints
and/or submit medical device reports to the U.S. Food and Drug Administration.
<PAGE>
6. MINIMUM PURCHASE REQUIREMENTS
NEW IMAGE agrees to sell Products to TAKARA BELMONT and TAKARA BELMONT
agrees to purchase at least the target quantities of the Products within the
time periods set forth in Schedule C (the Minimum Purchase Requirements). For
purposes of this Section 6, Products will be deemed to be purchased by TAKARA
BELMONT when TAKARA BELMONT orders the Products from NEW IMAGE for shipment in
the ordinary course.
7. SALES POLICY
TAKARA BELMONT shall be solely responsible for determining sales and
marketing strategies and selling prices for the Products within the Territory
during the Term and any Renewal Term. TAKARA BELMONT agrees, however, to
consult with NEW IMAGE from time to time in connection with such strategies and
to report regularly to NEW IMAGE on market conditions affecting the sale of the
Products within the Territory.
8. PATENTS, TRADE NAMES, TRADEMARKS
(i) TRADEMARKS. "Trademarks" means (a) the marks set forth in
Schedule D (b) all designs related to those marks, and (c) all other marks
that NEW IMAGE adds from time to time and authorizes TAKARA BELMONT to use by
written notice. The Trademarks are protected by trademark registration and
applications both in the United States Patent and Trademark Office and other
foreign countries.
(ii) TRADE NAMES. "Trade Names" means (a) the names set forth in
Schedule D and(b) all other names that New Image adds from time to time and
authorizes TAKARA BELMONT to use by written notice.
(iii) INTELLECTUAL PROPERTY. Subject to the provisions of this Agreement,
NEW IMAGE grants to TAKARA BELMONT the nonexclusive, nontransferable limited
right to use the Trademarks and Trade Names in connection with the marketing and
distribution of the Products to customers in the Territory during the Term of
this Agreement. This limited right may not be sublicensed by TAKARA BELMONT.
TAKARA BELMONT shall use the Trademarks and Trade Names solely for the benefit
of NEW IMAGE and the sale and distribution of the Products. Except for the
limited right granted above, this Agreement does not give TAKARA BELMONT any
additional rights or interests in the Trademarks or Trade Names. TAKARA BELMONT
agrees that the nature and quality of all services rendered and goods sold by
TAKARA BELMONT in connection with the Trademarks shall conform to standards set
by and be under the control of NEW IMAGE. TAKARA BELMONT and NEW IMAGE agree
that the limited right and permission granted to TAKARA BELMONT in this
Agreement extends only to the marketing and distribution of the Products in the
Territory during the Term of this Agreement. Nothing in this Agreement shall
limit the right of NEW IMAGE or any of NEW IMAGE'S other licensees to use the
Trademarks and Trade Names in connection
<PAGE>
with the Products and New Products outside the Territory or other products
inside or outside the Territory.
(iv) MAINTENANCE OF TRADEMARK. TAKARA BELMONT acknowledges the ownership
of the Trademarks of NEW IMAGE and covenants not to prejudice or impair the
Trademarks or the interest of NEW IMAGE in the Trademarks. TAKARA BELMONT
agrees that it will not attack the title of NEW IMAGE to the Trademarks nor the
validity of the license If TAKARA BELMONT knows that any person or entity is
infringing on any Trademark, TAKARA BELMONT agrees to notify NEW IMAGE
immediately and cooperate fully with NEW IMAGE, and NEW IMAGE shall have the
right (and the obligation) to defend and protect the Trademark against the
infringer at NEW IMAGE'S expense.
(iv) USE OF TRADEMARKS. TAKARA BELMONT agrees to use the Trademarks only
in the form and manner and with appropriate legend prescribed by NEW IMAGE.
Before any label, container or other item bearing a NEW IMAGE Trademark is
placed in use by TAKARA BELMONT, a sample or facsimile must be submitted by
TAKARA BELMONT to NEW IMAGE for written approval and such approval shall not be
unreasonably withheld or delayed. TAKARA BELMONT agrees to use the Trademarks
as a prominent item in all of its advertising and promotional material for the
Products. TAKARA BELMONT shall not use any other trademarks for the Products
nor shall it use the Trademarks to promote any product other than the Products.
TAKARA BELMONT shall not alter the Trademarks, trade dress or product packaging
supplied by NEW IMAGE. TAKARA BELMONT shall not have the right to use any of
the Trademarks as part of TAKARA BELMONT'S name or trade name. TAKARA BELMONT
represents that it has not filed any application to register any of the
Trademarks or similar marks and that it will not file any such application
without NEW IMAGE'S prior written consent. If TAKARA BELMONT files an
application to register any of the Trademarks or any similar mark, either with
or without NEW IMAGE'S consent, TAKARA BELMONT hereby agrees to perform all
reasonable acts, including executing and delivering all right, title and
interest in the application and the registration to NEW IMAGE TAKARA BELMONT
shall comply with all applicable laws and regulations and obtain all appropriate
government approvals pertaining to the sale, distribution and advertising of
goods and services covered by this license.
(v) PATENTS. TAKARA BELMONT acknowledges that certain Products subject
to this Agreement are extremely proprietary to NEW IMAGE, and NEW IMAGE
expressly retains all right, title, or interest in the Products, patents, patent
applications, copyrights, or trade secrets related to the Products. NEW IMAGE
shall retain all right, title and interest, including any improvements, in
(i) the Products, (ii) inventions and (iii) continuation patent applications
whether in the United States or in foreign countries. This includes any
improvements to the technology, modifications in the structure or design of the
Products or component parts of the Products. This Agreement shall not be
construed as a patent license.
9. ASSIGNMENT
<PAGE>
The rights and obligations of TAKARA BELMONT under this Agreement may not
be assigned in whole or in part by operation of law or otherwise without the
prior written consent of NEW IMAGE, and any attempted assignment of any rights,
duties or obligations hereunder without such consent shall be void For purposes
of this Agreement, any change in ownership of the capitalization or voting
control of TAKARA BELMONT which results in the persons or entities which have a
majority of such interests at the time this Agreement is signed being reduced to
less than 50% of either of such items will constitute an assignment prohibited
by the preceding sentence unless NEW IMAGE gives its prior written consent to
such changes. The rights, duties and obligations of NEW IMAGE under this
Agreement may be assigned, in whole or in part, to any Company controlling,
controlled by, or under common control with NEW IMAGE.
10. INDEPENDENT CONTRACTOR
The relationship of TAKARA BELMONT to NEW IMAGE is that of independent
contractor and neither party is in any way the legal representative or agent of
the other for any purpose whatsoever. Neither party has any right or authority
to assume or create, in writing or otherwise, any obligation of any kind,
express or implied, in the name of or on behalf of the other.
11. ENTIRE AGREEMENT
This Agreement and its schedules constitute the entire and only agreement
between the parties hereto relating to this subject matter. This Agreement
supersedes all previous agreements, commitments and presentations in respect
thereto and may not be changed or modified in any manner except by an instrument
of subsequent date signed by both parties.
12. HEADINGS
The headings of this Agreement are inserted only as a matter of convenience
and for reference and in no way define the scope or content of this Agreement or
the construction of any provision hereof or of any instrument or document
referred to herein.
13. CONFIDENTIALITY
(i) TAKARA BELMONT acknowledges that as a result of being appointed
exclusive distributor for the Territory, it will become informed of, and have
access to, valuable and confidential information of NEW IMAGE, including
inventions, trade secrets, technical information, know-how, plans,
specifications, and identity of distributors, customers and suppliers which will
be identified to TAKARA BELMONT on the face thereof as "Confidential"
(collectively, the "Confidential Information"), and the Confidential
Information, is the exclusive property of NEW IMAGE to be held by TAKARA BELMONT
in trust and solely for the benefit of NEW IMAGE. Accordingly,
<PAGE>
TAKARA BELMONT shall handle NEW IMAGE Confidential Information with the same
precautions in all respects as it uses to protect its own confidential
information and shall not at any time during or subsequent to the Term use,
reveal, report, publish, transfer or otherwise disclose to any person,
corporation or other entity, any of the Confidential Information without the
prior written consent of NEW IMAGE, except to responsible officers and employees
of TAKARA BELMONT who have a need for this information for purposes which are
in the best interest of NEW IMAGE. This provision does not prohibit TAKARA
BELMONT from disclosing information which legally is, or becomes, of general
public knowledge from authorized sources other than TAKARA BELMONT or to its
accountants and legal counsel or as required by law.
(ii) Upon the termination of this agreement, TAKARA BELMONT shall promptly
deliver to NEW IMAGE all drawings, manuals, letters, notes, notebooks, reports
and copies thereof and all other materials, including those of a secret or
confidential nature, relating to NEW IMAGE'S business which are in TAKARA
BELMONT possession or control and are identified on the face thereof or which
have otherwise been identified in writing, as "Confidential".
14. SEVERABILITY
Whenever possible, each provision of this Agreement and all related
documents shall be interpreted in such a manner as to be valid under applicable
law, but if any such provision is invalid or prohibited under said applicable
law, such provision shall be in effect up to the extent of such invalidity or
prohibition without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
15. GOVERNING LAW
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of California, U.S.A., without regard to the conflicts of law
rules thereof, and any court of competent jurisdiction in the State of
California, U.S.A. shall have jurisdiction over this Agreement. The place of
performance by NEW IMAGE is the County of San Diego, State of California, U.S.A.
16. NOTICES
All notices or other communications required or given in connection with
this Agreement shall be deemed to have been properly made when telecopied or
deposited in the mail, postage pre-paid addressed as follows:
NEW IMAGE INDUSTRIES, INC. ATTN: PRESIDENT
2283 Cosmos Court Tel: 619-930-9900
Carlsbad, California 92009 Fax: 619-930-9999
TAKARA BELMONT CO. LTD. ATTN:
P.O. Box OSAKA MINAMI 27 Tel: 81-6-213-5945
<PAGE>
1-1,2-CHOME, HIGASHI-SHINSAIBASHI Fax: 81-6-212-3680
CHUO-KU, OSAKA, JAPAN 542
17. COMPLIANCE WITH LAW
New Image will cooperate with Takara Belmont in seeking to have all
Products comply in all material respects with all applicable laws in the
Territory.
18. SURVIVAL
The provisions of Sections 3(vi), 5A(ii), 8 and 17 of this Agreement and
financial obligations of the parties which are due at the time this Agreement
terminates shall survive the termination hereof.
19. WAIVER
No delay by either party in exercising any right, remedy, power, or
privilege granted under this Agreement or otherwise, and no failure on the part
of either party to insist upon strict compliance by any other party with its
obligations under this Agreement, shall operate as a waiver of those rights.
20. FORCE MAJEURE
Except for obligations relating to the payment of money, neither party will
be liable for failure to perform its obligations under this Agreement when the
failure is due to causes beyond the control of that party.
21. ARBITRATION
Any dispute or controversy arising under this Agreement shall be determined
and settled by arbitration in San Diego, California under the Commercial
Arbitration Rules of the American Arbitration Association. The parties further
agree that:
(i) ATTORNEYS FEES. The arbitrator shall include attorney fees and costs
in the award to the prevailing party.
(ii) FINDINGS AND CONCLUSIONS. The award shall include findings of fact
and conclusions of law showing the legal and factual basis for the arbitrator's
decision.
(iii) ERRORS OF LAW. The award shall be subject to appeal to any court of
competent jurisdiction solely with respect of errors of law (but not with
respect to errors of fact). For an appeal to be given effect, the party seeking
to appeal must give notice of intent to appeal to the arbitrator and the other
party to the arbitration within ten days following the date the notice of the
award is received by such party and the appeal itself must be filed with the
proper court within 30 days of the date of such receipt.
<PAGE>
(iv) ENFORCEMENT. Subject to any appeal permitted under
subparagraph (iii), the award may be entered by any court of competent
jurisdiction.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of
the day and year first above written.
NEW IMAGE INDUSTRIES, INC.
By: /s/ Dewey F. Edmunds
-----------------------------
Dewey F. Edmunds
President and
Chief Executive Officer
Date: 2/23/96
---------------
TAKARA BELMONT CO. LTD.
By: /s/ Kunifusa Yoshikawa
-----------------------------
Kunifusa Yoshikawa
Managing Director
Date: Feb 23 '96
----------------
<PAGE>
EXHIBIT 10.23
INTERNATIONAL MARKETING AND
CONSULTING SERVICES AGREEMENT
NEW IMAGE INDUSTRIES, INC.
PREPARED BY: ROBERT L. TROUTMAN
<PAGE>
INTERNATIONAL MARKETING AND CONSULTING SERVICES AGREEMENT
THIS AGREEMENT made and entered into the First day of January, 1996.
B E T W E E N:
VTM MEDICAL MARKETING, INC., having its principal place of business at
191 University Boulevard, Suite 250, Denver, State of Colorado, United
States of America
hereinafter called "VTM"
- and -
New Image Industries, Inc., 21218 Vanowen Street, Canoga Park,
California, 91303
hereinafter called "MANUFACTURER"
WHEREAS:
(1) MANUFACTURER manufactures the AcuCam-TM-, AcuCam PC-TM-, MultiCam-TM-,
AcuNet-TM-, AcuView-TM-, AcuRay-TM-, AcuChart-TM-, products; and has established
a reputation for quality and goodwill incident to its trade name, trademarks and
Products (as defined herein); and
(2) VTM provides consulting services relative to international sales and
marketing; and
(3) MANUFACTURER is desirous of retaining VTM's services to assist it with
international sales of its Products.
NOW THEREFORE THIS AGREEMENT WITNESSETH and in consideration of the mutual
covenants and agreements herein contained, the parties hereto do covenant and
agree as follows:
1. PRODUCTS
(i) DEFINITION. As used herein the word Products shall mean those set out
in Schedule A hereto or any similar Products bearing a different brand name
which are manufactured by MANUFACTURER and its subsidiaries, and such
accessories as are from time to time during the term of this Agreement offered
for sale in the Territory by MANUFACTURER. As used herein the word Products
does not include any OEM products manufactured by MANUFACTURER and its
subsidiaries for another company,
<PAGE>
bearing a different brand name. New Products shall mean those products which
may hereafter be manufactured, developed, or contracted by MANUFACTURER, that
are related to those defined, but not included, in Schedule A, including
additional Products acquired by MANUFACTURER through acquisition or purchase,
and are offered for sale in the Territory ( as described in Schedule C ) by
MANUFACTURER.
(ii) NEW PRODUCTS. MANUFACTURER shall give VTM written notice of the New
Products including, without limitation, full technical specifications,
promotional literature, samples, export price lists, and commission schedule,
whereupon VTM shall have a reasonable time, not exceeding 60 days, within which
to evaluate the, New Products and prepare the market launch plan. In the event
that VTM wishes to handle the marketing and promotion of such New Products in
the Territory, VTM shall provide written notice, to include Schedule B, of its
intention to MANUFACTURER within sixty (60) days of evaluation. In the event
that VTM does not wish to handle the marketing and promotion of such New
Products in the Territory, VTM shall provide written notice to MANUFACTURER
within 60 days after MANUFACTURER'S written specification thereof and
MANUFACTURER shall be at liberty to appoint a marketing agent and/or distributor
for such New Products within the Territory. The parties hereto agree that the
procedure set out in this paragraph shall be applicable to each of the New
Products developed by MANUFACTURER during the term of this Agreement, or any
renewal thereof.
2. APPOINTMENT AND "TERRITORY"
(i) Subject to the terms of this Agreement, MANUFACTURER hereby appoints
VTM as its sole Marketing Consultant for the Products and New Products, within
the countries within the Territory, and VTM hereby accepts such appointment.
3. EFFECTIVE PERIOD AND TERMINATION
(i) TERM. This Agreement is effective January 1, 1996 and unless sooner
terminated, will remain in effect for two years from the effective date.
(ii) TERMINATION BY BANKRUPTCY. Either party may terminate this Agreement
on thirty (30) days written notice to the other party if the other party becomes
bankrupt or makes an assignment for the benefit of creditors.
(iii)TERMINATION BY DEFAULT. In the event that MANUFACTURER does not
achieve the Minimum Dollar Sales Budget as defined in schedule E, for any
contract year that the Marketing Contract is in force, such failure shall
constitute a material default under this Agreement as its sole remedy for such
default, MANUFACTURER may terminate this Agreement, upon sixty (60) days written
notice to VTM.
(iv) TERMINATION FOR BREACH OF CONTRACT. In the event that either party
breaches any material term of this Agreement and such breach continues for more
than ten (10) days after written notice thereof from the non-breaching party,
such
<PAGE>
non-breaching party shall have the right to terminate this Agreement,
effective immediately, by written notice to the breaching party.
(v) CONVERSATION FOLLOWING TERMINATION. If, as of the effective date of
the expiration or termination of this Agreement, MANUFACTURER has outstanding
orders for product delivered to it from distributors in the territory, and
within six (6) months after the effective date of the expiration or termination
of this Agreement, these orders remain outstanding, while other customers
received shipment of the same products, then MANUFACTURER shall be obligated to
compensate VTM for the sale of such Products in accordance with schedule D.
(vi) AUTOMATIC ANNUAL RENEWAL. If this agreement is still in full force
and effect at the end of the term it shall be automatically renewed at that time
and each year thereafter for an additional one year period (the Renewal Term),
unless terminated by either VTM of MANUFACTURER upon written notice submitted at
least 90 days prior to the end of the Term or Renewal Term, or unless otherwise
terminated pursuant to Section 3. Except as otherwise specifically provided, the
Renewal Term shall be on the same terms and conditions as the Term.
4. PRICING
(i) INTERNATIONAL PRICE LIST. A comprehensive international price list to
be specifically used for the marketing of the Products in the Territory shall be
jointly prepared and endorsed by MANUFACTURER and VTM, and attached as part of
Schedule A of this agreement.
(ii) EXCLUSIVE RIGHTS, At all times, MANUFACTURER has exclusive and
singular rights to establish pricing.
5A. OBLIGATIONS OF MANUFACTURER
(i) PROMOTIONAL MATERIALS. MANUFACTURER shall be obligated to promptly
provide VTM with information considered by MANUFACTURER appropriate to assist
VTM in its preparation of sales promotional materials and provide VTM with sales
promotion material, Product literature and samples, to facilitate VTM's
marketing services. MANUFACTURER will provide reasonable samples. Such samples
will be charged to but not paid by VTM. Such samples will be returned by VTM at
the end of the Agreement and full credit will be issued for such samples
returned. Payment will be made for such samples which are not returned or are
lost, at MANUFACTURER'S cost. Samples of disposable products will be issued to
VTM free of charge without any return obligation, at the discretion of
MANUFACTURER.
(ii) TRAINING. MANUFACTURER shall be obligated to provide Product training
for VTM associates.
(iii)LICENSE. MANUFACTURER shall obtain export or regulatory licenses for
<PAGE>
the Products in the Territory.
(iv) COMPENSATION. MANUFACTURER shall be obligated to compensate VTM for
its services on the basis of commissions on sales of Products to distributors
within the Territory, according to the agreed upon rate, as stated in Schedule
D.
(v) AUDIT RIGHTS, MANUFACTURER agrees at all times to maintain accurate
books of accounts regarding sale of Products within the Territory and grants VTM
and its representative the right to audit those books upon request at reasonable
intervals during business hours. The cost of any audit shall be paid by VTM
unless underpayments to VTM discovered during the audit exceed 5% of the
commissions paid, in which event MANUFACTURER shall bear the cost of such audit.
(vi) REFERRALS. MANUFACTURER shall immediately refer all inquiries, leads
and request for the Products or information regarding the Products from anyone
in the Territory, and from parties wishing to ship product into the Territory,
to VTM.
5B. OBLIGATIONS OF VTM
(i) SCOPE OF RESPONSIBILITY. VTM shall, at its sole cost and expense, use
its continuing best efforts to assist the MANUFACTURER and its distributors to
market and promote the Products within the Territory. VTM shall report
regularly to MANUFACTURER in regard to market conditions and statistics
affecting the sale of the Products within the Territory; VTM shall report
regularly to MANUFACTURER in regard to all VTM's marketing and promotional
activities that affect MANUFACTURER. VTM shall not take any action which would
impair or diminish the reputation of MANUFACTURER or its Products.
(ii) MARKETING. VTM shall specifically promote the Products and
demonstrate the Products to potential purchasers, and distribute literature,
samples, catalogs, and other printed materials made available to VTM by
MANUFACTURER. VTM shall promptly forward to MANUFACTURER all leads, inquiries
and prospects for the sale of Products outside the Territory.
(iii) DISTRIBUTORS. VTM shall identify a distributor or distributors in
the countries within the Territory that are capable of representing the Products
and present to the MANUFACTURER.
(iv) DISTRIBUTION AGREEMENTS. VTM shall provide guidance and assistance to
MANUFACTURER in establishing and maintaining Distribution Agreements with the
distributors.
(v) TRAINING. VTM shall provide product training for the distributors or
arrange for training of the distributors at MANUFACTURER'S facility.
(vi) NON-COMPETITIVE PRODUCTS. During the term of this Agreement,
<PAGE>
except as otherwise provided herein, VTM shall not manufacture, market,
distribute, sell or represent for sale in the Territory any products which
are competitive with the Products unless expressly agreed in writing by
MANUFACTURER. MANUFACTURER acknowledges that VTM is currently marketing other
medical products listed in Schedule F, which do not compete with the
Products, and that VTM is free to continue to market such products, and other
products which manufacturer determines do not compete with the Products.
(vii) REQUIREMENTS AND AUTHORIZATIONS. VTM shall provide, upon written
request from MANUFACTURER, written notification of product requirements and
specifications for the transportation and the lawful sale and use of Products in
the Territory, and shall assist MANUFACTURER in obtaining all necessary
authorizations, approvals, licenses and certifications for the sale and use of
Products in the Territory. MANUFACTURER will incur the cost of modifying or
changing the Product in order to comply with the Territory requirements;
however, making Product changes will be done at MANUFACTURER'S discretion.
6. MARKETING POLICY
MANUFACTURER and VTM shall be jointly responsible for determining marketing
and promotional strategies for the Products within the Territory during the term
of this Agreement and any renewal thereof.
7. TRADE NAMES, TRADE MARKS
MANUFACTURER will provide VTM a list of MANUFACTURER'S trade marks and
instruct VTM on the correct use of its trade marks. VTM is responsible for the
correct use of trade marks and it is further agreed that:
(i) INFRINGEMENT. VTM will notify MANUFACTURER promptly of any suspected
infringement or passing off or any adverse pending or threatened litigation or
other proceedings concerning its trademarks and trade names as chosen by
MANUFACTURER which may come to its attention;
(ii) RETRIBUTION. MANUFACTURER shall have the right, but not the
obligation to prosecute, defend and conduct at its own expense all suits
involving its trademarks and trade names including without limitation, actions
involving suspected infringement and/or passing off.
8. ASSIGNMENT OF OBLIGATIONS
The rights and obligations of VTM under this Agreement may not be assigned
in whole or in part by operation of law or otherwise with the prior express
written consent of MANUFACTURER; any attempted assignment of any rights, duties
or obligations hereunder without such consent shall be void. The rights, duties
and obligations of MANUFACTURER under this Agreement may be assigned in whole
but not in part in
<PAGE>
connection with any sale of all or substantially all of MANUFACTURER'S assets
or in connection with any merger or consolidation of MANUFACTURER with any
other corporation or entity.
9. INDEPENDENT CONTRACTOR
The relationship between MANUFACTURER and VTM will, during the term of this
Agreement, be that of vendor and marketing agent and neither party is in any way
the legal representative or instrument of the other for any purpose whatsoever
and has no right or authority to assume or create, in writing or otherwise, any
obligation of any kind, express or implied, in the name of or on behalf of the
other.
10. CONFIDENTIALITY
(i) VTM acknowledges that as a result of VTM's retention by the
MANUFACTURER, VTM has and will become informed of, and have access to, valuable
and confidential information of the MANUFACTURER, including inventions, trade
secrets, technical information, know-how, plans, specifications, and the
identity of distributors, customers and suppliers (collectively, the
"Confidential Information"), and the Confidential Information, even though it
may be contributed, developed or acquired by VTM, is the exclusive property of
the MANUFACTURER to be held by VTM in trust and solely for the manufacturers
benefit. Accordingly, VTM shall not at any time during or subsequent to the
Term use, reveal, report, publish, transfer or otherwise disclose to any person,
Corporation or other entity, any of the Confidential Information without the
prior written consent of the MANUFACTURER, except to responsible officers and
employees of VTM or who have a need for this information for purposes which are
in the best interests of MANUFACTURER. This provision does not prohibit VTM from
disclosing information which legally is or becomes of general public knowledge
from authorized sources other than VTM.
(ii) Upon the termination of this Agreement, VTM shall promptly deliver to
the MANUFACTURER all drawings, manuals, letters, notes, notebooks, reports and
copies thereof and all other materials, including those of a secret or
confidential nature, relating to the MANUFACTURER'S business which are in VTM's
possession or control.
11. NONCOMPETITION
VTM agrees that during the Term (and, if applicable, the Renewal Term) and
for one year after termination of this agreement VTM shall not, unless approved
by MANUFACTURER, (a) in any area where MANUFACTURER is conducting business
during the Term (and, if applicable, the Renewal Term) or on the date this
Agreement is terminated, alone or in association with others, as principal,
officer, agent employee, director or stockholder of any corporation,
partnership, association or other entity, or through the investment of capital,
lending of money or property, or rendering of services or otherwise, engage in
any business activity which is at the time directly competitive with the
business being conducted by MANUFACTURER; or (b) RECRUIT or otherwise solicit or
induce any person who is at the time an employee or consultant of
<PAGE>
MANUFACTURER to terminate his employment with, or otherwise cease his
relationship with MANUFACTURER, or hire any such employee or consultant who
has left the employ of MANUFACTURER within one year after termination of such
employee's or consultant's employment with MANUFACTURER.
The restrictions against competition set FORTH above are considered by the
parties to be reasonable for the purpose of protecting the business of ACTUREK
If any restriction is found by a court of competent jurisdiction to be
enforceable because it extends for too long a period of time, over too broad a
range of activities or in too large a geographic area, that restriction shall be
interpreted to extend only over the maximum period of time, range of activities
or geographic area as to which it may be enforceable.
12. ENTIRE AGREEMENT
This Agreement and its schedules constitutes the entire and only agreement
between the parties hereto relating to the subject matter and supersedes all
previous agreements, commitments and presentations in respect thereto and may
not be released, changed or modified in any manner except by an instrument of
subsequent date signed by both parties.
13. HEADINGS
The headings of this Agreement are inserted only as a matter of convenience
and for reference and in no way define the scope or content of this Agreement or
the construction of any provision hereof or of any instrument or document
referred to herein.
14. SEVERABILITY
Whenever possible, each provision of this Agreement and all related
documents shall be interpreted in such a manner as to be valid under applicable
law, but if any such provision is invalid or prohibited under said applicable
law, such provision shall be in effect up to the extent of such invalidity or
prohibition without invalidating the remainder of such provision or the
remaining provisions of the Agreement.
15. ARBITRATION
Any dispute or controversy arising between the parties to this Agreement
relating to the validity, enforceability, enforcement, performance, construction
or interpretation of this Agreement, including a dispute pertaining to the
validity or enforceability of this provision, other than matters pertaining to
injunctive relief, shall be determined by binding arbitration in Los Angeles
County, California in accordance with the Commercial Rules of Arbitration of the
American Arbitration Association then in effect. The award of the arbitrator
may be enforced in any court of competent jurisdiction. Any proceeding for
injunctive relief (including temporary restraining orders, preliminary
injunctions and permanent injunctions) may be brought in any court of competent
jurisdiction.
16. GOVERNING LAW
This Agreement shall be governed and construed in accordance with, by the
laws of the State of California, U.S.A., without regard for the conflicts of
laws rules thereof, and any court of competent jurisdiction in the State of
California, U.S.A. shall
<PAGE>
have jurisdiction over this Agreement. Place of fulfillment is the County of
Los Angeles.
17. NOTICES
All notices, communications, payments or the like required or given in
connection with this Agreement shall be deemed to have been properly made when
telecopied or deposited in the mail, postage pre-paid addressed as follows:
<PAGE>
VTM Medical Marketing, Inc.
191 University Blvd., Suite 250 Denver, Colorado 80206
tel. 303-321-9881
fax. 303-321-9882
New Image Industries, Inc. Attention: President
21218 Vanowen Street
Canoga Park, California 91303
tel. 818-702-0285
fax. 818-702-8868
<PAGE>
18. COMPLIANCE WITH LAW
MANUFACTURER warrants that the Products comply, and will continue to
comply, in all material respects with all laws applicable thereto in the
Territory.
19. ATTORNEYS' FEES
In the event of litigation arising under or in connection -with this
Agreement, the prevailing party shall be entitled to recover from the losing
party any and all reasonable attorneys' fees and costs incurred, in addition to
all other attorney's fees and costs incurred, in additions to all other remedies
to which the prevailing party may be entitled.
20. SURVIVAL
The provisions of Sections 3(v), 5A(vi), 18 and 19 of this Agreement shall
survive the termination hereof.
21. TIME OF THE ESSENCE Time shall be of the essence of this Agreement.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the day
and year first above written.
VTM Medical Marketing, Inc. New Image Industries,
Inc.
By: /s/ Robert L. Troutman By: /s/ Dewey F. Edmunds
----------------------- -----------------------
Robert L. Troutman Dewey F. Edmunds
President President & CEO
Date:_________________________ Date:_______________________
<PAGE>
EXHIBIT 10.24
GENERAL PRIVATE LABEL LEASING AGREEMENT
This Agreement (the "Agreement") is made and entered into on this 21st day
of February, 1996 by and between New Image Industries, Inc., a Delaware
Corporation (the "Manufacturer"), and Affiliated Capital Corp., an Illinois
Corporation ("Affiliated").
RECITALS
WHEREAS, Manufacturer now wishes to offer a lease program to those
prospective customers of Manufacturer who request a lease arrangement involving
Manufacturer's goods.
WHEREAS, Affiliated seeks the first right of refusal on all lease proposals
wherein the prospective customer of Manufacturer requests a lease arrangement
involving Manufacturer's goods.
THEREFORE, in consideration of the mutual covenants and agreements of the
parties contained herein, Affiliated and Manufacturer agree as follows:
1. LEASES: The Manufacturer authorizes Affiliated to operate a lease
program as provided in this Agreement, pursuant to which Affiliated will offer
to prospective customers of Manufacturer, lease agreements ("Leases") containing
the Manufacturer's name and logo. It is agreed that, although Manufacturer's
name and logo will appear on the Leases, Affiliated will be identified as the
Lessor on all documents executed pursuant to this Agreement and that
Manufacturer shall have no ownership rights in or to the Leases, related
documents or Goods. At the time Affiliated enters into a lease with the
customer, Manufacturer and Affiliated will execute appropriate sale
documentation, wherein Manufacturer will transfer clear title to the Goods and
provide its limited warranty to Affiliated. In exchange, Affiliated will pay
Manufacturer in full for the Goods transferred. Manufacturer further agrees
that all payments from Lessees made under the Leases shall be the property of
Affiliated. Manufacturer further agrees that Affiliated shall have the first
right of refusal on all lease proposals wherein a prospective Lessee requests a
lease arrangement while this Agreement is in effect, provided, however,
Affiliated agrees that if the prospective Lessee has a preference of leasing the
Goods from a company other than Affiliated, then in that case, the proposed
Lessee will be allowed to use his/her preferred leasing company. Affiliated
shall be responsible for executing the Leases, billing and collecting payments
from Lessees and taking any action including legal action necessary to enforce
the terms of the Leases. For purposes of this Agreement, "Goods" means the
personal property purchased by Affiliated hereunder, together with any
accessories, attachments, parts and repairs now or hereafter incorporated in or
affixed to or used in connection with such Goods. and includes Goods substituted
for the original Goods leased.
2. TERM: This Agreement shall continue in effect until terminated by
either party on ninety (90) days advance written notice, provided that no such
termination shall relieve or release either party from any rights, liabilities
or obligations with respect
<PAGE>
to any Leases entered into prior to such termination. Upon the termination
of this Agreement, Affiliated shall have the right to invoice Lessees under
Affiliated's corporate or trade name.
3. POWER OF ATTORNEY: Manufacturer hereby appoints Affiliated or any
other person whom Affiliated may designate, as Manufacturer's attorney-in-fact
with power to endorse in Manufacturer's name any notes, acceptances, checks,
drafts, money orders, and other evidences of payment or collateral that may come
into Affiliated's possession pursuant to the terms of this Agreement and/or any
Lease.
4. DOCUMENTS: Affiliated agrees to accept or reject each leasing
proposal submitted by Manufacturer or its Distributor normally within two (2)
hours after receipt of all credit and financial data and other information
deemed necessary by Affiliated to render a fair judgment regarding the leasing
proposal and the prospective Lessee. Manufacturer shall have no obligation to
actually conduct a credit investigation. Affiliated may directly contact the
prospective Lessee to obtain whatever additional credit and financial
information is needed. If Affiliated agrees to accept the leasing proposal and
the prospective Lessee, Affiliated shall thereafter pay for the requested Goods
within twenty-four (24) hours after Affiliated receives those documents
required, in Affiliated's sole discretion, to consummate the Lease in question.
5. REPRESENTATION OF WARRANTIES: Manufacturer represents, warrants and
agrees that:
a. All Goods sold pursuant to the terms of this Agreement shall be
of merchantable quality, free from defects in materials and workmanship, and fit
for their intended use;
b. All Goods will be manufactured in accordance with applicable
federal, state and local laws, regulations and orders;
c. Title to any Goods purchased under this Agreement shall be free
and clear of all liens and other encumbrances;
d. Manufacturer has and will continue to perform all of its
obligations under the warranties given by Manufacturer in any purchase order or
otherwise related to the Goods covered by such Leases, and will make available a
complete maintenance and service operation for the Goods covered by such Leases.
e. The Goods sold pursuant to the terms of this Agreement will have
been delivered to and accepted by the Lessee and services described in a Lease
or sales invoice will have been performed.
6. REPURCHASE: Manufacturer agrees that if a Lessee asserts against
Affiliated any claim or defense arising out of, or cancels any Lease as a result
of Manufacturers breach of any warranty or representation herein, Manufacturer
shall
<PAGE>
repurchase the specific Goods associated with such Lease from Affiliated on
demand at a purchase price equal to the aggregate unpaid total rent for the
balance of the Lease discounted to present value using a rate equal to 75% of
the yield to Affiliated under the Lease, plus all costs and expenses,
including attorneys' fees, incurred by Affiliated as a result of such
Lessee's claim, defense and/or cancellation of the Lease.
7. REMARKETING: Manufacturer acknowledges that Affiliated is not a
merchant with respect to the Goods that are the subject of this Agreement and
has no expert or special knowledge as to their quality, nature or condition.
Therefore, upon the expiration of the term of any Lease in which the Lessee has
not exercised an option to either renew the Lease or purchase the Goods at the
end of the Lease term, or after an earlier termination of any Lease as a result
of a default thereunder by a Lessee, the Manufacturer agrees, upon notification
by Affiliated, to take possession or accept delivery of the Goods specified in
any such Lease, at a location acceptable to Manufacturer. Manufacturer shall
thereafter commence to resell or release the Goods on a "Best Efforts Basis".
Best Efforts Basis shall mean a good faith effort by Manufacturer to fairly
present the possible sale or lease of the Goods to persons and markets the
Manufacturer believes would be realistically interested therein. All sales or
leases shall be made only with the written approval of Affiliated. To the
extent necessary to make the Goods at par with similar current Goods,
Manufacturer may, at the sole option of Affiliated, repair and/or recondition
the Goods. The Manufacturer shall be reimbursed for any costs and expenses
incurred in repairing or reconditioning the Goods, solely from proceeds
generated from the subsequent sale or lease of the Goods, after first satisfying
any sales commission that may be due third parties directly related to said sale
or lease. The balance of any such proceeds shall be paid to Affiliated.
8. INDEMNITY: Manufacturer shall defend, indemnify and hold Affiliated
harmless from and against any and all claims made by a Lessee and any other
third parties howsoever arising, whether sounding in tort, contract, warranty,
or otherwise, and all reasonable expenses, including without limitation
attorneys' fees and court costs, arising after the date hereof and directly or
indirectly arising out of, connected with, or related in any manner to the Goods
or this Agreement. However, in no event shall Manufacturer be responsible for
any costs or damages resulting from the negligence or intentional misconduct of
Affiliated employees. Manufacturer shall also indemnify and hold harmless
Affiliated from any and all claims. demands, suits, judgments, causes of action,
and all reasonable expenses, including without limitation attorneys' fees and
court costs, arising as a result of Manufacturer's action or actions,
performance or nonperformance or any causes related to Manufacturer's efforts to
repair, recondition and/or remarket Goods.
9. ASSIGNMENT OF AGREEMENT: Manufacturer may not assign this Agreement
or any of its rights under this Agreement without Affiliated's prior written
consent.
10. DEFAULT: The following events shall constitute Events of Default
under this
<PAGE>
Agreement:
a. Manufacturer's material breach of or failure to perform any of
its material obligations under this Agreement;
b. Manufacturer's material breach of any warranty or representation
herein;
c. Manufacturer's insolvency, dissolution or merger with or
acquisition by another entity, Manufacturer's making an assignment for the
benefit of creditors, or Manufacturer ceasing to do business as a going concern;
and
d. Institution by or against Manufacturer of any bankruptcy,
reorganization, receivership, conservatorship, or insolvency proceedings.
11. REMEDIES:
a. Upon the occurrence of any Event of Default, which Event of
Default continues for ten (10) days after Affiliated has given Manufacturer
written notice of the breach and demand to cure, Affiliated may do any one or
more of the following:
i) Demand that Manufacturer repurchase any one or all the
Leases, at Affiliated's sole discretion, in an amount equal to remaining
balances due under the Lease(s) discounted to present value using a rate equal
to 75% of the aggregate annual yield to the Lessor under the Lease or Leases,
plus outstanding charges, within ten (10) days of receiving demand from
Affiliated;
ii) Immediately terminate this Agreement without prior notice to
Manufacturer; and
iii) Exercise any other rights it has under this Agreement, the
Uniform Commercial Code or other law.
b. Where the Event of Default arises from a breach of any of the
provisions of Paragraph 5 of this Agreement, the Event of Default may be cured
by the Manufacturer offering to repurchase the Lease(s) to which the Event of
Default relates, as determined solely by Affiliated, which determination shall
be binding on all parties herein, if such repurchase offer is made within the
ten (10) day cure period provided above, and accompanied by the tender of an
amount equal to the remaining balances due under the Lease(s) discounted to a
present value using a rate equal to 75% of the aggregate annual yield to
Affiliated under the Lease(s), plus outstanding charges.
c Upon an Event of Default, Manufacturer will be liable for all
costs and expenses incurred by Affiliated because of the Event of Default,
including repossession costs, court costs and reasonable attorneys' fees.
12. ENTIRE AGREEMENT: This Agreement constitutes the entire Agreement
<PAGE>
between the parties with respect to the subject matter hereof and no
modification of this Agreement shall be effective unless it is in writing and
signed by a duly authorized representative of each party. There are no
understandings, representations, or warranties except as herein expressly set
forth. To the extent that the terms and conditions of any purchase order issued
hereunder are inconsistent with the terms and conditions of this Agreement, the
terms and conditions of this Agreement shall control and govern.
13. WAIVER: The failure or delay of a party hereto to enforce any of its
rights under this Agreement shall not be deemed to be a continuing waiver or
modification by such party of any of its rights under this Agreement. Any
failure to enforce this Agreement, or delay its enforcement, shall not
constitute a defense.
14. NOTICES: Any notice, request, instruction or other document to be
given hereunder shall be deemed validly given, if in writing and delivered
personally, by express mail or similar overnight courier or electronic
transmission or sent by U.S. Certified Mail, postage prepaid, return receipt
requested, as follows:
IF TO AFFILIATED: IF TO MANUFACTURER:
Affiliated Capital Corp. New Image Industries, Inc.
707 Skokie Boulevard 2283 Cosmos Court
Northbrook, IL 60602 Carlsbad, California 92009
15. SEVERABILITY: Should any part or provision of this Agreement be held
unenforceable or in conflict with the law or the jurisdiction construing,
interpreting, applying and governing this Agreement, the validity of the
remaining part or provisions shall not be affected by any such holdings.
16. INDEPENDENT CONTRACTOR: Each of Affiliated and Manufacturer will be
and shall act as an independent contractors and not as an agent or partner of or
joint venture with, the other party for any purpose and neither party by virtue
of this Agreement shall have any right, power or authority to act or create any
obligation, express or implied, on behalf of the other party.
17. ARBITRATION: Any controversy or claim arising out of or relating to
this Agreement shall be settled by arbitration in the City of Chicago before a
panel of three arbitrators. Such panel shall be chosen, and the arbitration
shall be conducted, in accordance with the rules of the American Arbitration
Association then in effect. The panel shall have the authority to consider an
award of costs of the arbitration and reasonable attorney's fees to the
prevailing party. The award entered by a majority of the panel shall be final
and binding, and judgment thereon may be entered by the U.S. District Court for
the Northern District of Illinois, or any other court having jurisdiction over
the parties and the controversy, as provided in Paragraph 18 below, provided,
however, that the award shall be subject to appeal with respect to errors of law
(but not with respect to errors of fact). For an appeal to be given effect, the
party seeking to appeal must give notice of intent to appeal to the arbitrator
and the other party to the
<PAGE>
arbitration within ten days following the date notice of the award is
received by such party and the appeal itself must be filed with the proper
court within 30 days of the date of such notice. The prevailing party in any
judicial proceeding shall be entitled to an award of reasonable attorney's
fees and post-award, pre-judgment interest.
18. GOVERNING LAW. THIS AGREEMENT HAS BEEN DELIVERED FOR ACCEPTANCE BY
PURCHASER IN NORTHBROOK, ILLINOIS AND SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF INTEREST
PROVISIONS) OF THE STATE OF ILLINOIS. VENDOR HEREBY AGREES, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, NOT TO INSTITUTE ANY LEGAL ACTION OR PROCEEDING
AGAINST PURCHASER OR ANY OF PURCHASER'S DIRECTORS, OFFICERS, EMPLOYEES, AGENTS
OR PROPERTY, CONCERNING ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT,
IN ANY COURT OTHER THAN ONE LOCATED IN COOK COUNTY, ILLINOIS.
AFFILIATED CAPITAL CORP. New Image Industries, Inc.
By /s/ David Turner By /s/ Hal Orr
----------------------------- -----------------------------
Title Sr. Vice Prsident Title CFO
----------------------------- -----------------------------
Date 2/28/96 Date 2/23/96
----------------------------- -----------------------------
<PAGE>
LEASE FUNDING AGREEMENT
THIS LEASE FUNDING AGREEMENT (this "Agreement") entered into as of
February 21, 1996 by and between AFFILIATED CAPITAL CORP., an Illinois
corporation ("Affiliated"), and New Image Industries, Inc., a Delaware
corporation ("Vendor"), sets for the terms by which the parties intend to be
legally bound.
1. ADVANCES. Subject to the terms and conditions hereof, Affiliated agrees to
make available for Vendor's use, at Affiliated's sole and absolute discretion in
each instance, certain advances of funds (hereinafter "Advances"). Each Advance
shall be repaid in full within thirty (30) days from the date on which such
Advance is provided (the "Maturity Date"), unless such date is extended in
writing by Affiliated at its sole election. During the term of this Agreement,
Affiliated may make multiple Advances to Vendor in its sole discretion. The
Advances shall be evidenced by the Revolving Promissory Note substantially in
the form attached as Exhibit "A" hereto (the "Note").
2. MAXIMUM ADVANCES OUTSTANDING. The principal amount of any particular
Advance shall not exceed fifty percent (50%) of the "Approved Applications." For
purposes hereof, the term "Approved Applications" shall mean the aggregate
pending lease applications approved by Affiliated that have been documented and
for which Affiliated purchase orders have been issued. Notwithstanding anything
contained in this Agreement to the contrary, the aggregate principal balance of
the Advances at any time outstanding shall not exceed the sum of Two Hundred
Thousand Dollars ($200,000.00). Affiliated, in its sole and absolute
discretion, at any time and from time to time, by written notice to Vendor, may
suspend the restriction imposed by this Section.
3. INTEREST. The Advances will bear interest at the rate specified in the
Note.
4. CREDIT AGAINST ADVANCES. Affiliated will credit as payments against any
Advances and interest hereunder the equipment sale invoice amount with respect
to each "Qualified Lease." For purposes hereof, a "Qualified Lease" is an
equipment lease submitted to Affiliated by the Vendor effective as of the date
of which all of the following conditions are satisfied: (i) the prospective
lessee meets Affiliated's credit requirements as Affiliated may dictate from
time to time in its sole discretion; (ii) all original executed lease documents
have been received by, and are acceptable to Affiliated; and (iii) Affiliated
has designated the lease as an "active lease." Vendor represents, warrants and
covenants good and marketable title to all equipment sold to Affiliated, free
and clear of liens, claims and encumbrances of any kind.
5. RIGHT OF FIRST REFUSAL. In consideration for Affiliated entering into this
Lease Funding Agreement, Vendor hereby grants to Affiliated the right of first
refusal to enter into a written lease agreement with prospective lessees of
equipment purchased from Vendor on terms offered by Affiliated. Affiliated is
not obligated to purchase any equipment from the Vendor, or to subsequently
lease any such equipment to lessees.
<PAGE>
6. TERMINATION AND RIGHT TO DEMAND PAYMENT AT ANY TIME. At any time, in its
sole, absolute and unconditional discretion, Affiliated may, by written notice
to Vendor, terminate this Agreement and/or declare the Advances, all interest
thereon and all other amounts payable under this Agreement to be due and payable
on the 30th day following the date each such Advance was made, whereupon the
Advances, all such interest and all such amounts shall become and be immediately
due, without presentment, demand, protest or further action of any kind by
Affiliated, all of which are hereby expressly waived by Vendor.
7. REPRESENTATIONS AND WARRANTIES. Except as disclosed in writing to
Affiliated, Vendor warrants, represents to and covenants with Affiliated that:
a. Vendor is and at all times during the term of this Agreement shall be
a corporation duly organized and existing in a good standing under the
laws of the state of Delaware and qualified or licensed to do business
in all other states in which the laws thereof require Vendor to be so
qualified and/or licensed;
b. Vendor has the right, power and capacity and is duly authorized and
empowered to enter into, execute, deliver and perform this Agreement
and the Note, and this Agreement and the Note have been properly
authorized, executed and delivered by Vendor;
c. The execution, delivery and/or performance by Vendor of this Agreement
and the Note shall not, by lapse of time, by giving of notice or
otherwise, constitute a violation of any applicable law or breach of
any provision contained in Vendor's Articles or Certificate of
Incorporation or By-Laws, or contained in any agreement, instrument or
document to which Vendor is now or hereafter a party or by which it is
or may become bound;
d. This Agreement and the Note are and will be the legal, valid and
binding agreements of Vendor, enforceable in accordance with their
terms, except as enforcement thereof may be subject to the effect of
applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws effecting creditors' rights generally, and to general
principles of equity;
e. Vendor (i) is not "insolvent" as that term is defined in Section
101(32) of the United States Bankruptcy Code (11 U.S.C. Section
101(32), Section 2 of the Uniform Fraudulent Transfer Act or Section 2
of the Uniform Fraudulent Conveyance Act; and (ii) shall not be
rendered insolvent (as defined above) by the execution and delivery of
this Agreement and the Note, or by the consummation of the
transactions contemplated hereunder or thereunder;
f. There are no judgments outstanding against Vendor and there are no
<PAGE>
actions, suits, arbitrations or other judicial or administrative
proceedings which are pending or threatened against Vendor which might
result in any adverse change in its financial condition or materially
affect its assets or its ability to fully perform under this Agreement
and/or repay Advances made hereunder; and
g. Vendor is not in default with respect to any indenture, loan
agreement, mortgage, deed, or other similar agreement relating to the
borrowing of monies to which it is a party or by which it is bound.
Each Advance made by Affiliated to Vendor pursuant to this Agreement shall
constitute (i) an automatic warranty and representation by Vendor to Affiliated
that there does not then exist an Event of Default as defined in paragraph 10
below, and (ii) a reaffirmation as of the date said Advance was made that each
and every warranty and representation of Vendor contained in this section and
other sections of this Agreement are true and correct in all material respects,
except to the extent such representation or warranty specifically relates to an
earlier date.
8. INDEMNITY. Vendor shall defend, indemnify and hold Affiliated harmless
from and against any and all claims made by a lessee and any other third parties
howsoever arising, whether sounding in tort, contract, warranty, or otherwise,
and all reasonable expenses, including without limitation attorneys' fees and
court costs, arising after the date hereof and directly or indirectly arising
out of, connected with, or related in any manner to the equipment purchased from
Vendor or this Agreement. Vendor shall also indemnify and hold harmless
Affiliated from any and all claims, demands, suits, judgments, causes of action,
and all reasonable expenses, including without limitation attorneys' fees and
court costs, arising as a result of Vendor's action or actions, performance or
nonperformance or any causes related to Vendors efforts to repair, recondition
and/or remarket any equipment purchased from Vendor.
9. FINANCIAL REPORTING REQUIREMENTS. In addition to the requirements set
forth hereinabove, Vendor shall keep proper books of record and account in
which full and true entries will be made of all dealings or transactions of
or in relationship to the business and affairs of Vendor in accordance with
generally accepted accounting principles consistently applied. So long as
any Advance is outstanding, the Vendor will furnish Affiliated as soon as
available and in any event within 45 days after the end of each quarter,
current balance sheets and statements of income and retained earnings, and
such other information reporting the condition or operations, financial or
otherwise, of the Vendor as Affiliated may reasonably request.
10. EVENT OF DEFAULT. An event of default shall occur hereunder if Vendor
under this Agreement: (i) fails to make any payment required hereunder when
due; or (ii) shall suffer in the reasonable judgment of Affiliated a material
adverse change in its financial condition since the commencement of this
Agreement, and as a result thereof, Affiliated deems itself to be insecure; or
(iii) submits any financial statement or other document or information at any
time heretofore or hereafter to Affiliated which has
<PAGE>
misstated or failed to state a material fact; or (iv) breaches any
representation or warranty made or given by Vendor under this Agreement or in
any document furnished to Affiliated in connection herewith, or any said
representation or warranty shall be untrue or, by reason of failure to state
a material fact or otherwise, shall be misleading; or (v) fails to perform or
observe any nonmonetary covenant, condition or agreement to be performed or
observed by Vendor hereunder and such failure or breach shall continue
unremedied for a period of 10 days after the date of the earlier of (a) the
date which Vendor obtains, or should have obtained, knowledge of such failure
or breach or, (b) the date on which notice thereof shall be given by
Affiliated to Vendor; or (vi) shall become insolvent or bankrupt or make any
assignment for the benefit of creditors or consent to an appointment of a
trustee or receiver; or (vii) a trustee or receiver shall be appointed for a
substantial part of its property without its consent and shall continue for a
period of 60 days; or (viii) a bankruptcy or reorganization or insolvency
proceeding shall be instituted against Vendor and such bankruptcy or
reorganization shall not be dismissed within 60 days (collectively, "Events
of Default"). Upon the occurrence of an Event of Default, the outstanding
Advances and all interest thereon and all other amounts payable hereunder
shall be immediately due and payable without notice, presentment, demand,
protest or other formalities of any kind, all of which are hereby expressly
waived by the Vendor.
11. AMENDMENTS. No amendment or waiver of any provision of this Agreement or
the Note, nor consent to any departure by Vendor therefrom, shall in any event
be effective unless it is in writing and signed by Affiliated, and then such
waiver or consent is effective only in such specific instance and for the
specific purpose for which it was given.
12. ATTORNEYS FEES AND EXPENSES. Vendor hereby agrees that it shall reimburse
Affiliated, on demand, as part of its obligations under this Agreement, for any
and all reasonable out-of-pocket costs and expenses (including, without
limitation, the reasonable fees and expenses of any counsel, accountants,
appraisers, or other professionals) incurred by Affiliated at any time, in
connection with (a) any litigation, contest, dispute, suit, proceeding or action
(whether instituted by Affiliated, Vendor, or any other person) in any way
relating to this Agreement or the Note; (b) any attempt to enforce any rights of
Affiliated against Vendor; and (c) any other action taken by Affiliated which is
permitted to be taken by Affiliated in accordance with the terms hereof.
13. STRICT COMPLIANCE. Affiliated's failure at any time or times hereafter to
require strict performance by Vendor of any provision of this Agreement or the
Note should not waive, effect or diminish any right of Affiliated thereafter to
demand strict compliance and performance therewith.
14. SUCCESSORS AND ASSIGNS. This Agreement and the Note are binding on and
inure to the benefit of the Vendor and Affiliated and their respective
successors and assigns, except that THE VENDOR DOES NOT HAVE THE RIGHT TO ASSIGN
ITS RIGHTS OR OBLIGATIONS HEREUNDER WITHOUT THE PRIOR WRITTEN
<PAGE>
CONSENT OF AFFILIATED.
15. GOVERNING LAW. THIS AGREEMENT HAS BEEN DELIVERED FOR ACCEPTANCE BY
AFFILIATED IN NORTHBROOK, ILLINOIS AND SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS.
16. NOTICES. All notices and other communications provided for in this
Agreement will be in writing and mailed and delivered, if to the Vendor at the
address at 2283 Cosmos Ct., Carlsbad, California 92009, and if to Affiliated as
the address at 707 Skokie Blvd., Northbrook, Illinois 60062-2848, Attention:
Stuart Simon; or such other address as shall be designated by a party in
a written notice to the other party. All notices of communication shall, if
mailed, be effective when deposited in the mail.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and
year specified at the beginning hereof.
DATED: 2/28/96
-----------------------
New Image Industries, Inc. AFFILIATED CAPITAL CORP.
By: /s/ Hal Orr By: /s/ David Turner
--------------------------- ---------------------------
Title: CFO Title: Sr. Vice President
--------------------------- ---------------------------
<PAGE>
REVOLVING PROMISSORY NOTE
$200,000.00 February 21, 1996
FOR VALUE RECEIVED the undersigned, New Image Industries, Inc.,
("Promisor") of 2283 Cosmos Court, City of Carlsbad, State of California
promises to pay to Affiliated Capital Corp. ("Affiliated"), at 707 Skokie
Boulevard, in the City of Northbrook, State of Illinois, or such other place as
the holder of this Note may from time to time designate, the sum of Two Hundred
Thousand Dollars ($200,000.00) or, if less, the aggregate unpaid principal
amount of all Advances made by Affiliated to Promisor as shown either on the
grid schedule attached hereto (and any continuation thereof), or in the records
of Affiliated. Promisor also agrees to pay interest from the date of each
Advance until paid in full, such interest to be due and payable at the end of
any 30-day Advance period, as may be extended at Affiliated's sole election, at
the rate per annum of zero percent (O%) computed on the basis of a three hundred
sixty (360) day year applied to the actual number of days elapsed. Any amount
of principal and interest not paid in full on the respective Maturity Date will
bear additional interest at the rate of two percent (2%) per month or, if less,
at the highest legal rate, whether or not Affiliated elects to delay repayment
of that Advance. All interest will be paid in arrears based upon average daily
outstanding balance, and may be deducted from any subsequent Advance.
This Note is the Note referred to in and is entitled to the benefits of a
certain Lease Funding Agreement between Affiliated and Promisor dated as of
February 21, 1996 (the "Agreement"). Reference is hereby made to the Agreement
for a statement of the obligations of Promisor, and for a statement of the terms
and conditions under which the due date of this Note may be accelerated. Upon
the occurrence of any event of default as specified in the Agreement, the
principal balance hereof and the interest accrued hereon may be declared to be
forthwith due and payable, and any indebtedness of Affiliated to Promisor may be
appropriated and applied hereon. In addition, Affiliated has the right at any
time, in its sole, absolute and unconditional discretion, to declare this Note
due and payable in accordance with the Agreement. All capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the
Agreement.
Whenever any payment is due on a Saturday, Sunday or a public or bank
holiday in the state in which the payment is made, such payment shall be due on
the next succeeding business day. All sums due hereunder shall be made to
Affiliated in immediately available funds at the address identified in paragraph
14 of the Agreement or such other address as Affiliated shall provided from time
to time. The transfer of funds from Affiliated to Promisor will act as notice
to Promisor of an Advance made hereunder, with no further notice from Affiliated
required.
Promisor waives presentment, protest, demand, and notice of dishonor. No
renewal or extension of this Note, no release of collateral securing payment of
this
<PAGE>
Note, and no delay in the enforcement of this Note or in exercising any right
or power of Affiliated shall effect the liability of Promisor. The defense
of statute of limitations against any demands made by Affiliated is expressly
waived by Promisor.
In the event suit is commenced to enforce payment of this Note, the
undersigned agrees to
pay attorneys' fees and costs as a court in such action may adjudge reasonable.
This Note shall be governed and construed in accordance with the laws of
the State of Illinois. The parties agree that the federal or state courts in
Illinois are a proper forum and shall be the only forum for the resolution of
any and all disputes of any nature which may arise between the parties to this
Note. No party to the Note shall attempt to change venue from a court in
Illinois to a court in any other jurisdiction.
New Image Industries, Inc.
By: Hal Orr
---------------------------
Title: CFO
---------------------------
<PAGE>
GRID NOTE SCHEDULE
Date: Amount of Advance: Amount of Repayment:
____________________ ____________________ ____________________
____________________ ____________________ ____________________
____________________ ____________________ ____________________
____________________ ____________________ ____________________
____________________ ____________________ ____________________
____________________ ____________________ ____________________
<PAGE>
EXHIBIT 10.25
CONTRACT BETWEEN
NEW IMAGE INDUSTRIES
AND
LORAL FAIRCHILD CORP.
FOR
INTRA-ORAL DENTAL X-RAY SYSTEM
1
<PAGE>
This Contract is made and entered into by and between the New Image
Industries, Inc. 21218 Vanowen Street,. Conga Park, California 91303, a
California corporation, (hereinafter called "Buyer") and Loral Fairchild Corp.,
Loral-Fairchild Imaging Sensors Division, a Delaware Corporation, having offices
at 1801 McCarthy Blvd., Milpitas, California 95035 (hereinafter called Seller)
for development of a Intra-Oral Dental X-Ray System.
WITNESSETH:
WHEREAS, Buyer and Seller are desirous of establishing a contractual
relationship to produce Intra-Oral Dental X-Ray Systems (hereinafter called
"X-Ray Systems") for diagnostic purposes; and
WHEREAS, Buyer and Seller have defined a program, comprised of the
manufacture of prototypes and production units and sale to Buyer of a quantity
of X-Ray Systems; and
WHEREAS, Seller will manufacture the prototype X-Ray Systems according to a
mutually agreed specification as further defined below; and
WHEREAS, Buyer will buy a quantity of Tan Thousand (10,000) X-Ray Systems at
the price and on the terms as hereinafter agreed; and WHEREAS, Seller agrees to
grant Buyer the option to buy an additional 10,000 X-Ray Systems at the price
and on the terms as hereinafter agreed.
NOW, THEREFORE, in consideration of the mutual agreements and the
obligations of the parties hereinafter expressed, Buyer and Seller hereby agree
as follows:
ARTICLE 1
CONTRACT SCOPE
1.1 This Contract consists of these Terms and Conditions, and the
Specification for the X-.Ray Systems, Attachment "A", attached hereto.
1.2 Seller shall, pursuant to and in accordance with the provisions of this
Contract, provide the engineering, manufacturing and other services required to
develop the X-Ray
2
<PAGE>
System, comprised of a CCD intra-oral sensor, a controller board, and 1/0
software as described in Attachment "A".
1.3 The Seller represents that it has conducted technical studies relating
to the Buyer's requirements and that it can produce and deliver X-.Ray Systems
meeting the requirements of the Specification.
ARTICLE 2
DELIVERABLES AND SCHEDULE
Seller shall deliver to Buyer ten (10) X-Ray System prototypes not later
than 6 months after this agreement becomes fully effective- Buyer shall have
four (4) weeks for acceptance testing and evaluation- Acceptance testing will be
in accord with Seller's specification, Attachment "A", and a mutually agreed
acceptance test procedure. The X-Ray System prototypes will be functional, but
not be in final form, FIT and weight. Seller shall commence production
deliveries not later than eight months after this Contract becomes fully
effective.
ARTICLE 3
PRICE AND PAYMENT
3.1 For performance of this Contract, including the delivery of 10,000
production units, Buyer shall pay Seller the firm, fixed price of US $28,000,000
Dollars (the "Contract Price") and take delivery of all production units within
60 months of the date this Contract becomes fully effective.
3.2 Buyer shall make an initial payment of US $250,000 to Seller within
fifteen (15) days after the execution of this Agreement by both Buyer and
Seller, which shall be applied to and liquidated on the production order of
10,000 units at the rate of $25 dollars per unit purchased from Seller.
3.3 After the $250,000 initial payment, Buyer shall pay Seller US $2,775.00
Dollars for
3
<PAGE>
each of the 10,000 X-Ray Systems delivered by Seller to Buyer.
3.4 Buyer will pay Seller $100,000 for production tooling for the redesigned
sensor assembly mechanical housing and the electronic controller board. Buyer
will be responsible for the design of the electronic controller board and agrees
that the design to unit cost will not exceed two hundred dollars. Buyer will
deliver the completed electronic board design to Seller not later than 3 months
after this agreement becomes fully effective.
3.5 Buyer shall have the option to purchase an additional 10,000 units, and
Buyer shall pay US $2,800.00 Dollars for each of the 10,000 X-Ray systems
delivered by Seller to Buyer. Buyer may exercise this option not later than 60
months after this Contract becomes fully effective.
3.6 Seller agrees to allow Buyer 30 days for payment of all invoices from
date of invoice, thereafter Seller's standard policy of 9% interest per annum
and no discounts authorized will be applicable.
ARTICLE 4
PRODUCTION ORDER
4.1 Buyer agrees that of the 10,000 production units provided for in this
Contract, Buyer's initial purchase order shall be for 1,500 units with a total
price of $4,200,000 (1,500 units x $2,800 each), less the credit set forth in
Article 3.1 above of $25, for a per unit price of $2,775 for each unit delivered
to Buyer. Buyer and Seller agree that delivery of all 1,500 initial purchase
order units will be delivered to Buyer not later than 24 months after this
Contract becomes fully effective.
4.2 Buyer and Seller agree that if Buyer for any reason does not order and
purchase all 10,000 production units provided for in this Contract, Seller shall
be entitled to recover and Buyer will pay Sellers non-recurring costs of
$200,000 which will be reduced by a credit of $20 for each production unit
purchased by Buyer.
4
<PAGE>
4.3 In addition to the provisions of 4.2 above, in the event Buyer cancels
the initial purchase order of 1,500 units set forth IN 4.1 above,, Buyer shall
pay Seller its :actual costs plus a reasonable profit which in no event shall
exceed a maximum cancellation liability of $1.3 million dollars.
4.4 For each future purchase order Buyer and Seller agree to negotiate a
mutually acceptable maximum cancellation liability. Buyer agrees to use its best
efforts to place future production orders in a manner to keep Seller's
production continuous with no breaks in production and will further place
- -future production order in a minimum economic order quantity of 1,000 units.
4.5 Buyer shall have the right to incorporate new product changes to the
X-Ray System. Prior to the implementation of any product changes, Buyer and
Seller will mutually agree on the changes to be implemented and any resulting
costs or schedule impact to Seller.
4.6 Buyer recognizes and agrees that it shall not sell the X-Ray Systems in
Germany without the express written permission of Seller's, Licensor. Seller
agrees, to the extent permitted by its License, to assist Buyer in securing
Licensor's permission to sell X-Ray systems in Germany.
4.7 Seller agrees it will not sell to third parties Buyer's unique package
and controller board design as set forth in Exhibit "A" and will mark all units
sold to Buyer with the required logo as required by Buyer. Buyer and Seller
recognize and agree the Seller is free to sell to third parties other X-Ray
Systems that incorporate any of the functional features of the X-Ray Systems
sold to Buyer.
ARTICLE 5
EXCUSABLE DELAYS
5.1 Neither party shall be in default on account of, and neither party
assumes any liability or responsibility for, consequences arising out of the
interruption of its performance
5
<PAGE>
under this Contract by epidemics, fire, flood, unusually severe weather or any
other extraordinary natural disturbances,, acts of God or of the Public enemy,
acts of the United States Government, Buyer's government or a foreign government
in its sovereign capacity, any civil commotion, riot, insurrection or
hostilities, whether or not declared war, conditions that may adversely affect
the safety of such party's personnel and/or equipment, restrictions due to
quarantines, blockades, embargoes, unavailability of materials, severe and
unforeseeable market shortages, or any other causes beyond the reasonable
control of such-party, that arise Without the fault or negligence of such party,
and that result in delay of performance hereunder. Any such delay resulting from
such events shall be deemed excusable and shall be referred to herein as an
"excusable delay". The party whose performance will be delayed by such events
will use its best efforts to notify the other within thirty (30) days after the
occurrence of such an event, and the cessation thereof.
5.2 In the event an excusable delay results in the extending of any delivery
Under this Contract by more than three hundred sixty-five (365) days, Buyer or
Seller may terminate this Contract in whole or in part on account of such
excusable delay, except that Seller shall be entitled to its cost without
profit, provided, however, that Buyer may elect, within fifteen (15) days of
receipt of a notice of termination by Seller, to cancel said notice of
termination by effecting a change hereunder so as to redefine the Contract
schedule. in said event, the parties shall agree to an equitable adjustment to
compensate the Seller for damages sustained for delay or otherwise pursuant to
this Article.
ARTICLE 6
CONTRACT EFFECTIVE DATE
6.1 This Contract shall become effective upon both parties execution of this
Contract.
ARTICLE 7
DEFAULT
6
<PAGE>
In the event of material breach by either party of its obligations under this
Contract, the aggrieved party may, forty-five (45) days after giving written
notice of the material breach, but is not required to, terminate this Contract
for default in whole or in part, and may seek -whatever remedies may be
available.
ARTICLE 8
ARBITRATION
8.1 All claims between the parties hereto based upon any alleged breach of
any of the substantive obligations created hereunder shall be finally settled by
a board of three (3) arbitrators (the "Board") , all of whom-m shall be U.S.
nationals and members of the Bar of the State of California actively engaged in
the practice of law or members of the Federal judiciary, pursuant to the then
rules and regulations of the American Arbitration Association.
8.2 The arbitration proceedings shall be conducted in the English language
in San Francisco, California.
8.3 In rendering its award the Board shall determine the rights and
obligations according to the substantive laws of the State of California
(excluding conflict of laws principles), as though the Board were a court of the
State of California. Any arbitration award shall be based on and accompanied by
findings of fact and -conclusions of law, shall be conclusive AS TO facts so
found and shall be confirmable by the United States District Court for the
Northern District of California, if said award correctly applies the substantive
laws of the State of California (excluding conflict of laws principles).
8.4 The parties agree that any arbitration proceedings hereunder shall be
conducted on a confidential basis, and subject to the security provisions of
this Contract.
8.5 Each party shall be responsible for its respective costs incurred in
arbitration, except that costs and fees imposed by the Board for its fees and
expenses shall be borne equally by the parties.
7
<PAGE>
8.6 This Contract shall be governed by the laws of the State of California
without reference to its choice of law rules.
ARTICLE 9
NOTICES
Any notices required or permitted to be given hereunder may be given by
personal delivery; first-class registered or certified mail, return receipt
requested; or telegram, Telecopier, telex or TWX. Notices delivered personally
shall be deemed given on delivery. Notices sent by mail shall be deemed given
three (3) days after mailing in the United States, postage prepaid to the
addressee, if mailed in accordance herewith. Notice by telegram, telecopier,
telex or TWX shall be deemed given on the date transmitted. until changed by
written notice given by either party to the other, the addresses of the parties
for notice shall be as follows:
<TABLE>
<S> <C>
To Buyer: To Seller:
New Image Industries Loral Fairchild Corp.
21218 Vanowen Street Loral Fairchild Imaging Sensors Division
Conoga Park, CA 91303 1801 McCarthy Blvd.
Telecopier: (818) 702-8868 Milpitas, California 95034
Telephone: (818) 702-0285 Telecopier-. (408) 433-2661
Telephone.- (408) 433-2500
</TABLE>
Notices sent to other than the addressees specified above shall not be deemed
effective for any contractual purpose- Deliverable data items shall be delivered
to Buyer at its address set forth above until changed in accordance with this
Article 9.
ARTICLE 10
PROPRIETARY DATA
10.1 All specifications, technical data and information furnished to Buyer
or Seller by the other in writing prior to the date of this Contract and all
specifications, technical data and information to be furnished to Buyer or
Seller by the other in the course of this Contract which IS clearly and
conspicuously marked Proprietary Data will not be disclosed by Buyer or Seller
to
8
<PAGE>
third parties. Buyer or Seller shall not be liable for disclosure of such data
which (1) is or becomes available to the public from a source other than the
receiving the party before or during the period of this Contract, (2) is
released in writing by the transmitting party, (3) is lawfully obtained by the
receiving party from a third party or parties, (4) the receiving party proves to
the transmitting party's reasonable satisfaction was known by it prior to such
disclosure, (5) is at any time developed by the receiving party completely
independent of this Contract and subsequent to the completion of this Contract,
(6) becomes available to Buyer or Seller by inspection or analysis of products
available in the market.
10.2 Buyer or Seller shall not be liable for the inadvertent or accidental
disclosure of such information marked as Proprietary, if such disclosure occurs
despite the practice of exercising the same degree of care as either Buyer or
Seller normally takes to preserve and safeguard its own proprietary information.
ARTICLE 11
INDEMNIFICATION
11.1 seller agrees to hold harmless, defend and fully indemnity Buyer
against any and all claims, demands, actions or suits of whatsoever nature, by
whomsoever asserted for personal injury death, property damage arising out of,
or in connection with this Contract, which is the result Of Seller's negligence
or willful act.
11.2 Buyer agrees to hold harmless, defend and fully indemnify Seller
against any and all claims, demands, actions or suits of whatsoever nature, by
whomsoever asserted for personal injury, death, property damage arising out of,
or in connection with this Contract , which is the result of Buyer's negligence
or willful act. Notwithstanding any provision of this Contract to the contrary,
Buyer will indemnify and hold Seller harmless for any product liability claims
of any nature whatsoever for personal injury or death arising out of or in
connection with the X-Ray Systems sold to Buyer.
9
<PAGE>
11.3 Buyer and Seller agree that the hold harmless and indemnification
provisions of Article 11 will survive the termination or completion of this
Contract.
ARTICLE 12
WARRANTY
X-Ray Systems and parts are warranted to be free of defects in material and
workmanship under normal use and service when installed in accordance with
specifications for a period of twelve (12) months from the date of shipment. In
- -the event of a breach of this warranty, the Buyer shall notify seller as to the
nature and extent thereof, whereupon Seller may at its option either (a) replace
or repair any defective parts upon the return of the same to seller postpaid by
the Buyer or (b) replace defective system or parts- The warranty remedies
described herein shall be the sole, exclusive and only remedies available to
Buyer.
ARTICLE 13
LIMITATION OF SELLER'S LIABILITY
Seller's warranty does not extend to auxiliary equipment or assemblies
manufactured, developed or supplied by others and sold as part of the equipment
to be delivered hereunder. Such equipment or assemblies are warranted, if at
all, only by the manufacturer, developer or supplier. Seller's warranty IS IN
LIEU OF ALL OTHER WARRANTIES WHETHER EXPRESS OR IMPLIED INCLUDING BUT NOT
LIMITED TO THE WARRANTY OF MERCHANTABILITY AND FITNESS FOR PARTICULAR PURPOSE
and all other obligations on the part of seller. IN NO EVENT SHALL SELLER BE
LIABLE FOR ANY CONSEQUENTIAL OR INCIDENTAL DAMAGES including but not limited to
loss of profit or revenue, loss of use of the products or any associated
equipment, damage to associated equipment, cost of capital, cost of substitute
products or substitute facilities, down time costs, or claims of purchasers,
customers for such damages, regardless of whether such damages arise out
10
<PAGE>
of breach of Contract, warranty or tort (including negligence).
ARTICLE 14
PATENTS
14.1 Seller shall indemnify and hold Buyer harmless from all damages,
liabilities and cost suffered or incurred by Buyer as a result of any claim or
lawsuit alleging that the goods as sold (as distinguished from repaired)
pursuant 'hereto infringe any United States Letters patent; provided, however,
that if the goods are manufactured in accordance with the specifications
furnished by Buyer and are not part of Seller's standard product line then
Seller shall not be liable.
14.2 Seller's indemnity does not apply to any claimed infringement arising
from use of any of the goods in combination with other items not delivered
hereunder where such infringements would not have occurred from the use of the
goods alone. Except as provided in this paragraph, Seller makes no warranty that
the goods will be delivered free from any claims of patent infringement of any
third party.
ARTICLE 15
RIGHTS OF SELLER
Buyer and Seller agree Seller shall retain all patent and proprietary rights
in the X-Ray System delivered to Buyer. Buyer and Seller further agree that
Buyer shall not receive any license to Seller's patent and proprietary rights.
ARTICLE 16
MISCELLANEOUS
16.1 The headings and titles to the articles of this Contract are inserted
for convenience only And shall not be deemed a part hereof or affect the
construction or interpretation of any
11
<PAGE>
provision hereof.
16.2 No cancellation, modification, amendment, deletion, addition or other
change in this Contract or any provision hereof , or waiver of any right or
remedy herein provided, shall be effective for any purpose unless specifically
set forth in a writing signed by the party to be bound thereby. No waiver of any
right or remedy in respect of any occurrence or event on one occasion shall be
deemed a waiver of such right or remedy in respect of such occurrence or event
on any other occasion.
16.3 This Contract supersedes all other agreements, oral or written,
heretofore made with respect to the subject hereof and the transactions
contemplated hereby, and contains -the entire agreement of the parties.
16.4 Any provision hereof prohibited by, or that is unlawful or
unenforceable under, any applicable law of any jurisdiction, shall as to such
jurisdiction be ineffective without affecting any other provisions of this
Contract; provided, however, that if the provisions of such applicable law may
be waived, they are hereby waived, to the end that this Contract be deemed to be
a valid and binding agreement enforceable in accordance with its terms.
16.5 FOB point is Seller's plant in Milpitas, California. Buyer shall bear
risk of loss from and title to the X-Ray Systems shall pass to Buyer- upon
delivery to Buyer at FOB point.
16.6 Seller shall not assign its obligations under this Contract without the
prior written consent of Buyer, which consent may not be unreasonably withheld.
16.7 The provisions of this Contract shall be binding upon and inure to the
benefit of Buyer and Seller and their respective successors and assigns, but
this provision shall riot be deemed to expand or otherwise affect the limitation
on assignment and transfers set forth above, and no party is intended to or
shall have any right or interest under this Contract, except as provided above.
16.8 This Contract may be executed in several counterparts each of which
shall be deemed to be an original and all such counterparts together shall
constitute but one and the same
12
<PAGE>
instrument.
16.9 Buyer shall be responsible to obtain any required regulatory approval
or license for the X-Ray Systems.
IN WITNESS WHEREOF, the authorized representatives of the parties
hereto have executed this Contract on the dates set forth below.
NEW IMAGE INDUSTRIES LORAL FAIRCHILD CORP.
ORAL FAIRCHILD IMAGING
SENSORS DIVISION
BY: /s/ Roger Leddington BY: /s/ Joseph Milelli
------------------------ --------------------------------
Title: Chief Executive Officer Title: Vice President & General Manager
Date: March 3, 1995 Date: 3/2/95
------------------------ --------------------------------
13
<PAGE>
Exhibit 10.26
AMENDMENT NO.1
TO
CONTRACT BETWEEN
NEW IMAGE INDUSTRIES, INC.
AND
LORAL FAIRCHILD CORP.
FOR
INTRA-ORAL DENTAL X-RAY SYSTEM
<PAGE>
This Amendment No. 1 effective the 28th of March 1996 modifies the
Contract, dated the 3rd of March 1995, between New Image Industries, Inc., 2283
Cosmos Court, Carlsbad, CA 92009 (hereinafter called "Buyer") and Loral
Fairchild Corp., Loral Fairchild Imaging Sensors Division, having offices at
1801 McCarthy Blvd., Milpitas, CA 95035 (hereinafter called "Seller"), for
development of a Intra-Oral Dental X-Ray System.
WHEREAS, Buyer desires to have Seller perform the design of the
electronic controller board which previously was the responsibility of Buyer;
WHEREAS, Buyer desires to make certain specification changes to the
requirements for the Intra-Oral Dental X-Ray System; and
WHEREAS, Seller is willing to perform the electronic controller
board design, and incorporate the desired specification changes into the
Intra-Oral Dental X-Ray System.
WHEREAS, Seller and Buyer desire to amend the delivery schedule for
prototype and production units of the Intra-Oral Dental X-Ray System.
NOW, THEREFORE, in consideration of the mutual agreements and the
obligations of the parties hereinafter expressed, Buyer and Seller hereby agree
as follows:
1. The parties agree that the total original contract price is
$28,100,000, consisting of 10,000 units at $2,800 each (as specified in Article
3.1) plus $100,000 for production tooling as provided for in Article 3.4.
2. The parties agree that the original contract requirements under
Article 3.4 is revised as follows:
Article 3.4 was:
"3.4 Buyer will pay Seller $100,000 for production tooling for the
redesigned sensor assembly mechanical housing and the electronic
controller board. Buyer will be responsible for the design of the
electronic controller board and agrees that the design to unit cost
will not exceed two hundred dollars ($200.00). Buyer will deliver the
completed electronic board design to Seller not later than 3 months
after this agreement becomes fully effective.
2
<PAGE>
Article 3.4 is:
"3.4 Buyer has paid to Seller $100,000 for production tooling for the
redesigned sensor assembly mechanical housing and the production
tooling for the electronic controller board. Effective with the
execution of this agreement No. 1, Seller will be responsible for the
design of the Electronic Controller Board. Seller design of the
Electronic Controller Board is to be completed on or about 28 March
1996.
3.4.1 The Electronic Controller Board shall be designed to New
Image specifications, provided hereto as Attachment "B" to the
Contract, which specifications are approved by both parties and
consist of:
- Digital X-Ray Dynamic Link and Software Specifications,
dated 17 January 1996
- X-Ray Computer Specifications, dated 15 January 1996
- Processing Time Specifications, dated 15 January 1996
3.4.2 Upon completion of the design and development activity,
Seller shall conduct a final design review with Buyer on or about 28
March 1996. Not later than two (2) weeks after the design review
Seller shall furnish one complete set of the Electronic Controller
Board design documentation."
3.4.3 For the effective term of this Contract, the Electronic
Controller Board designed to Buyer's specification will be a product
configuration provided exclusively to Buyer.
3. In consideration for Seller design of the Electronic Controller Board, and
providing a WW Fischer SA sealable cable connector with mating soak cap, the
total firm, fixed price of the Contract is increased by $350,000.00 for non-
recurring engineering and $300.00 per production unit, for a total contract
price increase of $3,350,000.00.
3.a. The Electronic Controller Board non-recurring amount of $350,000.00
shall be amortized over 10,000 units and paid upon delivery of each unit at
a rate of $35.00 per unit.
3.b Buyer agrees that Seller shall retain all intellectual property rights
to the design of the Electronic Controller Board, and shall have exclusive
production rights for the controller board,
3
<PAGE>
4. As a consequence of the above changes the parties agree to revision of
the following Articles of the initial Contract as follows:
4.a. Article 2, DELIVERABLES AND SCHEDULE, was:
"Seller shall deliver to Buyer ten (10) X-Ray System prototypes not
later than ten (10) weeks after this agreement becomes fully
effective. Buyer shall have four (4) weeks for acceptance testing and
evaluation. Acceptance testing will be in accord with Seller's
specification, Attachment "A", and a mutually agreed acceptance test
procedure. The X-Ray System prototypes will be functional, but not be
in final form, fit and weight. Seller shall commence production not
later than eight months after this Contract becomes fully effective."
Article 2 is revised in two sub-articles to read:
"2.1 Seller shall deliver to Buyer ten (10) X-Ray System
prototypes on or about 1 April 1996 Buyer shall have three (3) weeks for
acceptance testing and evaluation. Acceptance testing will be in accord with
Seller's specifications, Attachment "A", and a mutually agreed acceptance
test procedure. The X-Ray System prototypes will be functional, but not be in
final form, fit and weight. In the event the Buyer acceptance is not
received by Seller within four (4) weeks of receipt of the last prototype,
the prototypes shall be deemed accepted. Seller shall commence production
deliveries in accordance with Article 3.1.
2.2 Seller shall deliver to Buyer two (2) reproducible copies of
I/O software on 230 MB rewriteable optical disks. The software consists of
virtual device drivers (VxDs) developed using VtoolsD-Trademark-(a registered
Trademark of Vireo Software, Inc.), which by license agreement Loral is
authorized to reproduce, incorporate and distribute object code extracted from
the library files of the program into VxDs developed by Loral provided that
Vireo's copyright notice is included. The I/O developed software is to be
delivered concurrently with the delivery of prototype Electronic Controller
Boards (ECB)."
4.b. Article 3.1 was:
"For performance of this contract, including the delivery of 10,000
production units, Buyer shall pay Seller the firm, fixed price of U.S.
$28,000,000.00 Dollars (the "Contract Price") and take delivery of all
production units within 60 months of the date this contract becomes
fully effective."
<PAGE>
Article 3.1 is revised to read:
"For performance of this Contract, including the delivery of 10,000
production units, Buyer shall pay Seller the firm, fixed price of U.S.
$31,450,000.00 Dollars (the "Contract Price") (subject to credits and
adjustments provided in this Contract) and take periodic delivery of
production units in accordance with the following schedule requirement:
500 systems Not later than 31 March 1997*
800 systems Not later than 31 March 1998
1000 systems Not later than 31 March 1999
1200 systems Not later than 31 March 2000
1400 systems Not later than 31 March 2001
1800 systems Not later than 31 March 2002
2000 systems Not later than 31 March 2003
1300 systems Not later than 31 March 2004
*Quantity Includes ten (10) prototypes.
Starting in September 1996 Buyer and Seller will agree to a six (6) month
rolling forecast of scheduled monthly deliveries to deliver the units
within the delivery requirements specified above, which will be updated bi-
monthly."
4.c. Article 3.3 was:
"After the $250,000 initial payment, Buyer shall pay Seller US $2,775.00
Dollars for each of the 10,000 X-Ray Systems delivered by Seller to Buyer."
Article 3.3 is revised to read:
"After the $250,000 initial down payment (receipt of which is hereby
acknowledged), and the $100,000 tooling payment (receipt of which is hereby
acknowledged) provided for in Article 3.4, Buyer shall pay Seller US
$3110.00 Dollars for each of the 10,000 X-Ray Systems delivered by Seller
to Buyer."
4.d. Article 3.5, which provided for a option to purchase an additional
10,000 units, is deleted in its entirety.
5
<PAGE>
4.e. Article 4.2 was:
"Buyer and Seller agree that if Buyer for any reason does not order and
purchase all 10,000 production units provided for in this contract, Seller
shall be entitled to recover and Buyer will pay Seller's non-recurring
costs of $200,000 which will be reduced by a credit of $20 for each
production unit purchased by Buyer."
Article 4.2 is revised to read:
"Buyer and Seller agree that if Buyer for any reason does not order and
purchase all 10,000 production units provided for in this Contract, Seller
shall be entitled to recover and Buyer will pay Seller's non-recurring
costs of $550,000 which will be amortized by a credit of $55.00 for each
production unit purchased by Buyer. In the event of such cancellation,
payment to Seller shall be within thirty (30) days of notification of
cancellation by Buyer to Seller."
4.e. Article 4.3 was:
In addition to the provisions of 4.2 above, in the event Buyer cancels the
initial purchase order of 1,500 units set forth in 4.1 above, Buyer shall
pay Seller its actual costs plus a reasonable profit which in no event
shall exceed a maximum cancellation liability of $1.3 million dollars."
Article 4.3 is revised to read:
"In addition to the provisions of 4.2 above, in the event Buyer cancels the
units set forth in article 3.1 above, Buyer shall pay Seller its actual
costs plus a reasonable profit for work in process, which in no event shall
exceed a maximum cancellation liability of $1.65 million dollars."
4.g. Article 14, PATENTS, is revised in its entirety as follows:
"14.1 Seller shall indemnify and hold Buyer harmless from all damages,
liabilities and costs suffered or incurred by Buyer as a result of any
claim or lawsuit alleging that the sensor assemblies as sold (as
distinguished from repaired) pursuant hereto infringe any United States
Letters patent, and in the event that any such sensor assemblies found to
infringe any United States Letters patent, Seller shall either (1) obtain a
license for Buyer and Buyer's directors, officers, affiliates and customers
to continue to use, sell, and offer for sale the infringing sensor
assemblies, or (2) replace the infringing sensor assemblies with
substantially equivalent non-infringing sensor
6
<PAGE>
assemblies, or (3) modify the infringing sensor assemblies so as to be
substantially equivalent but non-infringing.
14.2 The provisions of paragraph 14.1 shall not apply if the sensor
assemblies are manufactured in accordance with specifications furnished by
Buyer and are not part of Seller's standard product line.
14.3 Notwithstanding the provisions of 14.2 the provisions of paragraph
14.1 shall apply to sensor assemblies having the same or substantially the
same configuration as the sensor assembly on the effective date of this
Amendment No. 1.
14.4 The provisions of paragraph 14.1 specifically exclude any claim
arising out of or in connection with the design, manufacture or use of the
Electronic Controller Board.
14.5 Seller's indemnity does not apply to any claimed infringement arising
from use of any of the goods in combination with other items not delivered
hereunder where such infringements would not have occurred from the use of
the goods alone. Except as provided in this paragraph, Seller makes no
warranty that the goods will be delivered free from any claims of patent
infringement of any third party."
Except as provided in this Amendment No. 1, all other terms and conditions of
the Contract dated March 3, 1995 shall apply and shall continue in full force
and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1, in duplicate
originals, as of the last date set forth below.
NEW IMAGE INDUSTRIES LORAL FAIRCHILD IMAGING SENSORS
By: /s/ D.F. Edmunds By: /s/ Bob R. Drew
--------------------------- --------------------------------
Name: Dewey F. Edmunds Name: Bob R. Drew
Title: President Title: Vice President & General Manager
Date: 3/29/96 Date: 3/28/96
7
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To New Image Industries, Inc.:
As independent public accountants, we hereby consent to the incorporation by
reference in the Registration Statement on Form S-8, File No. 33-34074, dated
March 29, 1990, of New Image Industries, Inc. of our report dated September 30,
1996, relating to the consolidated balance sheets of New Image Industries, Inc.
and subsidiary as of June 30, 1996 and 1995 and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended June 30, 1996, which report appears in the
Annual Report on Form 10-K of New Image Industries, Inc. for the fiscal year
ended June 30, 1996. It should be noted that we have not audited any financial
statements of the Company subsequent to June 30, 1996 or performed any audit
procedures subsequent to June 30, 1996 or performed any audit procedures
subsequent to the date of our report.
ARTHUR ANDERSEN LLP
San Diego, California
September 30, 1996
EXHIBIT 24.1
52
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 381,000
<SECURITIES> 0
<RECEIVABLES> 4,765,000
<ALLOWANCES> 1,486,000
<INVENTORY> 5,543,000
<CURRENT-ASSETS> 550,000
<PP&E> 3,023,000
<DEPRECIATION> 1,788,000
<TOTAL-ASSETS> 12,526,000
<CURRENT-LIABILITIES> 12,044,000
<BONDS> 0
0
0
<COMMON> 6,000
<OTHER-SE> (740,000)
<TOTAL-LIABILITY-AND-EQUITY> (734,000)
<SALES> 37,144,000
<TOTAL-REVENUES> 37,144,000
<CGS> 24,400,000
<TOTAL-COSTS> 24,400,000
<OTHER-EXPENSES> 23,810,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (11,171,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,171,000)
<EPS-PRIMARY> (2.06)
<EPS-DILUTED> 0
</TABLE>
