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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- -- EXCHANGE ACT OF 1934
For the fiscal quarter ended September 30, 1998
OR
- -- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __ to __
Commission File Number: 0-12641
IMAGING TECHNOLOGIES
CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 33-0021693
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11031 VIA FRONTERA
SAN DIEGO, CA 92127
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619) 613-1300
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
--- ---
The number of shares outstanding of the Registrant's Common Stock as of
September 30, 1998, was 13,301,078.
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IMAGING TECHNOLOGIES CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets at
September 30, 1998 (unaudited) and June 30, 1998 (audited)...........1
Consolidated Statements of Operations for the
three months ended September 30, 1998 and 1997 (unaudited)...........2
Consolidated Statements of Cash Flows for the
three months ended September 30, 1998 and 1997 (unaudited)...........3
Notes to Consolidated Financial Statements...........................4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..................................6
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.........................................................15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS...................................................15
ITEM 2. CHANGES IN SECURITIES...............................................15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.....................................16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................16
ITEM 5. OTHER INFORMATION...................................................16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................................16
SIGNATURES...................................................................18
</TABLE>
i
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PART I. - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1998 1998
(UNAUDITED) (AUDITED)
<S> <C> <C>
Current assets
Cash $ 1,020 $ 3,023
Accounts receivable, net 5,798 4,133
Inventories 5,104 6,287
Prepaid expenses and other 1,866 1,401
-------- --------
Total current assets 13,788 14,844
Property and equipment, net 1,436 1,525
Prepaid licenses 635 635
Capitalized software, net 4,536 3,655
Other 252 302
-------- --------
$ 20,647 $ 20,961
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Borrowings under bank lines of credit $ 4,162 $ 5,203
Short-term debt 5,485 1,998
Current portion of long-term debt 903 903
Accounts payable and accrued expenses 6,047 6,425
-------- --------
Total current liabilities 16,597 14,529
Long-term debt, less current portion 2,359 1,828
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Total liabilities 18,956 16,357
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-------- --------
Shareholders' equity
Series A preferred stock, $1,000 par value, 7,500 shares
authorized, 420.5 shares issued and outstanding 420 420
Series C preferred stock, $1,000 par value, 1,200 shares
authorized, 236 shares issued and outstanding - 2,360
Preferred stock, $1,000 par value, 2,383 shares authorized,
no shares issued and outstanding - -
Common stock, $0.005 par value, 100,000,000 shares authorized;
13,301,078 shares issued and outstanding 67 62
Paid-in capital 36,506 35,859
Shareholder loans (110) (110)
Accumulated deficit (35,192) (33,987)
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Total shareholders' equity 1,691 4,604
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$ 20,647 $ 20,961
-------- --------
-------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
1
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IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Revenues
Sales of products $ 6,721 $ 5,668
Engineering fees 395 1,516
Licenses and royalties 163 -
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7,279 7,184
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Costs and expenses
Costs of products sold 4,047 3,939
Selling, general, and administrative 3,640 1,803
Cost of engineering fees 585 597
------- -------
8,272 6,339
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Income (loss) from operations (993) 845
Other expense
Interest, net (208) (26)
------- -------
Income (loss) before income taxes (1,201) 819
Income tax benefit (expense) (4) (4)
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Net income (loss) $(1,205) $ 815
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Earnings (loss) per common share
Basic $ (0.10) $ 0.08
------- -------
------- -------
Diluted $ (0.10) $ 0.07
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------- -------
Weighted average common shares 12,642 9,791
------- -------
------- -------
Weighted average common shares - assuming dilution 12,642 12,517
------- -------
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</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
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IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $(1,205) $ 815
Adjustments to reconcile net income (loss)
to net cash from operating activities
Depreciation and amortization 160 143
Changes in operating assets and liabilities
Accounts receivable (1,665) (1,432)
Inventories 1,181 (365)
Prepaid expenses and other (415) (276)
Accounts payable and accrued expenses (378) (762)
Deferred revenue - (201)
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Net cash from operating activities (2,322) (2,078)
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Cash flows from investing activities
Prepaid licenses - (244)
Capitalized software (881) (560)
Capital expenditures (71) (10)
------- -------
Net cash from investing activities (952) (814)
------- -------
Cash flows from financing activities
Net borrowings under bank lines of credit (1,041) 633
Net borrowings under short-term notes payable 2,752 -
Net proceeds from issuance of common stock 1,250 695
Net proceeds from issuance of preferred stock - 5,000
Redemption of preferred stock (2,228) -
Issuance of long term debt 675 -
Repayment of long-term debt (137) (27)
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Net cash from financing activities 1,271 6,301
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Net increase (decrease) in cash (2,003) 3,409
Cash, beginning of period 3,023 193
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Cash, end of period $ 1,020 $ 3,602
------- -------
------- -------
Supplemental disclosure of cash flow information
Cash paid during the period for interest $ 130 $ 26
Cash paid during the period for income taxes 4 4
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
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IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements of
Imaging Technologies Corporation and Subsidiaries (the "Company" or "ITEC")
have been prepared pursuant to the rules of the Securities and Exchange
Commission (the "SEC") for quarterly reports on Form 10-Q and do not include
all of the information and note disclosures required by generally accepted
accounting principles. These financial statements and notes herein are
unaudited, but in the opinion of management, include all the adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the Company's financial position, results of operations, and
cash flows for the periods presented. These financial statements should be
read in conjunction with the Company's audited financial statements and notes
thereto for the years ended June 30, 1998, 1997, and 1996 included in the
Company's annual report on Form 10-K filed with the SEC. Interim operating
results are not necessarily indicative of operating results for any future
interim period or for the full year.
NOTE 2. GOING CONCERN CONSIDERATIONS
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. At September 30, 1998, and for the
three months then ended, the Company had a net loss, negative working
capital, and a decline in net worth which raise substantial doubt about its
ability to continue as a going concern. The losses have resulted primarily
from an inability to achieve product sales targets due to insufficient
working capital, a sharp decline in contract revenue because many OEM
customers are experiencing financial difficulties relating to the Asian
crisis, and relatively high operating costs in relation to current sales
levels. The Company is taking a new strategic direction whereby it will
manufacture imaging products under its own name. To this end the Company has
acquired increased manufacturing, selling, and distribution capabilities
through key mergers and acquisitions. The Company is in the process of
consolidating and restructuring these operations to conform to the new
strategic plan. While management believes that these new products will be
well received by the market, the Company must obtain additional funds to
provide adequate working capital and finance operations. Management intends
to attempt to raise these funds through debt and/or equity financings. However,
no assurance can be given that the Company will be able to complete any of
these financings or that any financing that is complete will be adequate to
meet the Company's capital requirements. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
NOTE 3. EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per common share ("Basic EPS") excludes dilution and is
computed by dividing net income (loss) available to common shareholders (the
"numerator") by the weighted average number of common shares outstanding (the
"denominator") during the period. Diluted earnings (loss) per common share
("Diluted EPS") is similar to the computation of Basic EPS except that the
denominator is increased to include the number of additional common shares
that would have been outstanding if the dilutive potential common shares had
been issued. In addition, in computing the dilutive effect of convertible
securities, the numerator is adjusted to add back the after-tax amount of
interest recognized in the period associated with any convertible debt. The
computation of Diluted EPS does not assume exercise or conversion of
securities that would have an antidilutive effect on net earnings (loss) per
share. The following is a reconciliation of Basic EPS to Diluted EPS:
<TABLE>
<CAPTION>
EARNINGS (LOSS) SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C>
SEPTEMBER 30, 1997
Net income $815
Preferred dividends (5)
----
Basic EPS 810 9,791 $0.08
Effect of options and warrants - 1,833
Effective of convertible notes payable 2 64
Effect of convertible preferred stock 5 829
---- ------
Diluted EPS $817 12,517 $0.07
---- ------
---- ------
</TABLE>
4
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<TABLE>
<CAPTION>
EARNINGS (LOSS) SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C>
SEPTEMBER 30, 1998
Net loss $(1,205)
Preferred dividends (6)
-------
Basic and diluted EPS $(1,211) 12,642 $(0.10)
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</TABLE>
NOTE 4. INVENTORIES
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1998 1998
<S> <C> <C>
Inventories
Materials and supplies $1,978 $2,081
Finished goods 3,126 4,206
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$5,104 $6,287
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</TABLE>
NOTE 5. BANK LINES OF CREDIT
In September 1998, Imperial Bank ceased funding under the lines of
credit it has provided to the Company and notified the Company that it
intended to terminate its banking relationship with the Company. After
further discussions, on November 4, 1998 the Company and Imperial Bank
executed a Forbearance Agreement pursuant to which Imperial Bank has resumed
funding to the Company under the lines of credit and the Company has agreed
to repay all outstanding indebtedness owed to Imperial Bank by January 15,
1999. Although the Company is in discussions with several lenders regarding
new financing for the Company, there can be no assurance that the Company
will secure new financing by January 15, 1999, if ever. The failure of
Imperial Bank to continue to provide funding to the Company under the lines
of credit or the failure of the Company to secure sufficient new financing to
repay all indebtedness owed to Imperial Bank on or before January 15, 1999,
would have a material adverse effect on the Company.
As of September 30, 1998, the Company also had a line of credit with the
Bank of Yorba Linda with a principal balance of $0.4 million. The loan bears
interest at prime plus 3% per annum and matured on August 13, 1998. The
Company currently plans to refinance this obligation as part of the new
financing it is attempting to secure. There can be no assurance, however,
that the Company will be able to secure new financing to repay the Bank of
Yorba Linda loan, and the Company's failure to do so could have a material
adverse effect on the Company.
NOTE 6. SERIES C REDEEMABLE CONVERTIBLE PREFERRED STOCK
In September 1998, the Company redeemed all outstanding shares of the Series
C Convertible Preferred Stock (Series C Shares). Owners of the Series C
Shares received $2.23 million in cash, $1.0 million in subordinated notes and
warrants to purchase 300,000 shares of common stock (200,000 at an exercise
price of $2.025 and 100,000 at an exercise price of $4.00). The
Company financed the redemption through a $4.38 million private placement of
newly issued shares of common stock and subordinated notes.
The $4.38 million in funding came from several private investors, one of whom
is a director of the Company. In exchange, the Company issued a total of
500,000 shares of the Company's common stock at a price of $2.50 per share
and subordinated promissory notes in the amount of $3.13 million. All of the
promissory notes bear interest at 16% per year. A portion of the notes,
$675,000, mature in two years and are convertible, at the option of each
investor, at any time into shares of Company common stock at $2.025 per share
(subject to adjustment under certain circumstances). The remaining notes,
$2.45 million, mature in one year and are not convertible. The Company also
issued warrants to the investors as part of the financing. The warrants
authorize the purchase of 490,000 shares of common stock at an exercise price
of $2.025 per share.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto appearing elsewhere
in this Quarterly Report on Form 10-Q. The discussion of the Company's
business contained in this Quarterly Report on Form 10-Q may contain
certain projections, estimates and other forward-looking statements that
involve a number of risks and uncertainties, including those discussed below
at "Risks and Uncertainties." While this outlook represents management's
current judgment on the future direction of the business, such risks and
uncertainties could cause actual results to differ materially from any future
performance suggested below. The Company undertakes no obligation to release
publicly the results of any revisions to these forward-looking statements to
reflect events or circumstances arising after the date hereof.
OVERVIEW
Imaging Technologies Corporation develops, manufactures, and distributes
high-quality digital imaging solutions. The Company produces a wide range of
printer and imaging products for use in graphics and publishing, digital
photography and other niche business and technical markets. Beginning with a
core technology in the design and development of controllers for non-impact
printers and multifunction peripherals, the Company has expanded its product
offerings to include monochrome and color printers, external print servers,
digital image storage devices, and software to improve the accuracy of color
reproduction.
ITEC has acquired four separate businesses during the past twenty-one
months that have expanded the Company's strategic position in the digital
imaging market. In addition, the Company has altered its focus away from some
of its traditional revenue sources and has been required to make expenditures
to support these changes. The Company's business continues to be in a
significant transitional phase and there are important short-term operational
and liquidity challenges. Accordingly, quarter-to-quarter financial
comparisons may be of limited usefulness now and for the next several
quarters due to these important changes in the Company's business.
Historically, a portion of the Company's income was derived from
non-recurring engineering fees and royalty income from a relatively small
number of OEM customers. Over the past three years, the Company has
experienced shortfalls in income as a result of engineering contracts with
OEM manufacturers for products that were never completed by the OEM, were
never introduced into the market and shipped or were cancelled by the
customer before ITEC completed the deliverables portion of the contract. The
timing and amount of income from these customers ultimately depended on sales
levels and shipping schedules for the OEM products into which the Company's
products were incorporated. The Company had no control over the shipping date
or volumes of products shipped by its OEM customers, and there was no
assurance that any OEM would continue to ship products that incorporate the
Company's technology. Failure of these OEMs to achieve significant sales of
products incorporating the Company's technology and fluctuations in the
timing and volume of such sales had a materially adverse effect on the
Company.
The Company's current strategy is to develop and commercialize its own
technology. The Company intends to increase penetration of its current target
markets and to continue pursuing clearly defined commercial market
opportunities that enable it to leverage its core technologies. The Company
has established a number of strategic partnerships with industry leaders,
such as Adobe Systems and NEC Electronics for product development, marketing
and sales. Through these strategic partnerships, ITEC seeks to obtain
specific market knowledge and enhanced understanding of market demands and
needs, access to funding for continued product development, product and
customer validation and a channel for market penetration.
To execute successfully its current strategy, the Company will need to
improve its working capital position. The report of the Company's independent
auditors accompanying the Company's June 30, 1998 financial statements
includes an explanatory paragraph indicating there is a substantial doubt
about the Company's ability to continue as a going concern, due primarily to
the decreases in the Company's working capital and net worth. At September
30, 1998, and for the three months then ended, the Company had a net loss,
negative working capital, and a decline in net worth which continue to raise
substantial doubt about its ability to continue as a going concern. To
address the Company's working capital needs, on September 17, 1998, the
Company raised an aggregate of $4.38 million through the issuance of shares
of its Common Stock and subordinated notes to several private investors. The
Company needs to raise additional funds to operate its business effectively.
The Company has recently engaged a financial advisor to assist with
additional fund raising efforts and the Company intends to attempt to raise
additional funds in the near future. There can be no assurance, however, that
the Company will be able to complete any additional debt or equity financing
on favorable terms or at all, or that any such financings, if completed, will
be adequate to meet the Company's capital requirements. Any additional equity
or convertible debt financings could result in substantial dilution to the
Company's stockholders. If adequate funds are not available, the Company may
be required to delay, reduce or eliminate some or all of its planned
activities. The Company's inability to fund its capital requirements would
have a material adverse effect on the Company. See "--Liquidity and Capital
Resources" and Risks and Uncertainties"--Future Capital Needs."
6
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CORPORATE RESTRUCTURING
Beginning in April 1998, the Company implemented a plan to realign the
management and create a divisional structure within the organization. ITEC
consolidated all of its independent operating subsidiaries under a single
financial and operational structure. The Company undertook this restructuring
based in part upon its belief that by breaking down the barriers between the
subsidiaries and organizing the Company around functions the Company would be
able to improve the effectiveness of its established sales channels and to
enhance cross-selling opportunities. The Company also believes that this
structure will improve the management and commercialization of its diverse
technology base. In addition to the structural realignment, ITEC closed the
27,000 square-foot printer manufacturing and distribution facility it
operated in Costa Mesa, California, at lease end, and relocated those
operations to a new 12,000-square-foot facility adjacent to the Corporate
Headquarters in San Diego. The Company also relocated most of its marketing
and sales activities from Costa Mesa to ITEC's existing operation in the San
Jose region of Northern California. By streamlining operations and locating
manufacturing and distribution in one centralized plant, the Company expects
to eventually realize an annualized savings of approximately $1.5 to $2 million,
primarily as a result of workforce reductions, decreased factory space
requirements and the elimination of redundant operations.
STRATEGIC ACQUISITIONS
In Fiscal 1998, the Company made several strategic acquisitions to
reinforce its technology position and expand sales channels. ITEC purchased
privately held McMican Corporation. The new division operates as the Storage
Products division of ITEC, producing specialized memory modules. McMican's
"dfilm-TM-" line of data storage products feature Flash memory modules for
high-speed transfer of stored images and data. "dfilm-TM-" modules have
applications in portable digital cameras and many other portable devices such
as handheld personal computers running the Windows CE-Registered
Trademark-operating system.
In fiscal 1998 ITEC merged with Color Solutions, Inc., a three-year-old
software development firm located in Cardiff, California. Color Solutions'
ColorBlind-Registered Trademark- software allows users to precisely profile
peripherals such as scanners, monitors, digital cameras, printers and other
specialized color digital devices, all based on internationally-accepted ICC
color standards. Color management is a key element for the printing and
graphics industry, but also color reproduction in the textile, motion
picture, and ceramics industries.
At the close of Fiscal 1998, ITEC acquired the assets of AMT, the
European sales and distribution subsidiary of Singapore-based Lam Soon. Lam
Soon is a worldwide manufacturer of dot matrix, inkjet and specialized laser
printers. AMT had been ITEC's master stocking distributor of printers and
supplies in the EC and on the European Continent. AMT's European operations
are being integrated into ITEC's recently established European Headquarters
operation, ITEC Europe, located near London.
RESULTS OF OPERATIONS
NET REVENUES
Revenues were $7.3 million and $7.2 million for the quarters ended
September 30, 1998 and 1997, respectively. Sales of product were $6.7 million
and $5.7 million for the quarters ended September 30, 1998 and 1997,
respectively. The increase in product sales from 1997 to 1998 was due
primarily to an increase in sales of printer products. Engineering fees were
$0.4 million and $1.5 million for the quarters ended September 30, 1998 and
1997, respectively. The decrease in 1998 compared to 1997 was primarily the
result of the Company's change in strategic direction, focusing more on
internal product development and sales and less on engineering for third
parties. License fees were $0.2 million for the quarter ended September 30,
1998 and the Company did not recognize any license fees during the quarter
ended September 30, 1997. The amount for 1998 was due primarily to the sales
of a license to a Korean customer.
COST OF PRODUCTS SOLD
Cost of products sold were $4.0 million or 60% of product sales and
$3.9 million or 69% of product sales for the quarters ended September 30,
1998 and 1997, respectively. The percentage decrease in 1998 as compared to
1997 was primarily due to improved margins on recently released product.
7
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $3.6 million or 50% of
total revenue and $1.8 million or 25% of total revenues for the quarters
ended September 30, 1998 and 1997, respectively. Selling, general and
administrative expenses consisted primarily of salaries and commissions of
sales and marketing personnel, salaries and related costs for general
corporate functions, including finance, accounting, facilities and legal,
advertising and other marketing related expenses, and fees for professional
services. The increase both in absolute dollars and as a percentage of net
revenues in selling, general and administrative expenses in the quarter ended
September 30, 1998 as compared to the quarter ended September 30, 1997 was
due primarily to an increase in administrative personnel and overhead
expenses incurred as part of the acquisition of three subsidiaries and the
formation of a European sales office in Fiscal year 1998.
COST OF ENGINEERING
Engineering costs were $0.6 million or 148% of engineering revenue and
$0.6 million or 39% of related engineering revenues for the quarters ended
September 30, 1998 and September 30, 1997. The increase in costs as a
percentage of engineering revenues from 1998 compared to 1997 resulted
primarily from cost overruns on a contract that was substantially completed
during the quarter.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its operations primarily through
cash generated from operations, debt financing, and from the sale of equity
securities. In August 1997, the Company completed a private placement of
500 shares of Series C Convertible Preferred Stock providing aggregate
proceeds of $5.0 million. A portion of the shares were converted by the
holders and on September 18, 1998, the Company redeemed all 237 outstanding
shares of the Series C Convertible Preferred Stock. The Company paid
$2.23 million in cash, issued $1.0 million in subordinated promissory notes
and warrants to purchase 300,000 shares of Common Stock to the holders of the
Series C Convertible Preferred Stock in connection with the redemption.
The Company has received and anticipates that it will continue to
receive the majority of its cash from collections of accounts receivable from
its customers, distributors and OEMs. However, an increasing amount of
international sales is likely to increase accounts receivable balances due to
traditionally slower payments by international customers. In addition, the
economies of certain foreign countries, particularly in Asia, have weakened
recently creating greater risk of nonpayment for the Company from these
areas. Any failure of the Company's customers, distributors or OEMs to pay,
or any significant delay in the payment of, a material portion of the amounts
owing to the Company would have a material adverse effect on the Company.
As of September 30, 1998, the Company had a deficit working capital of
$2.8 million, a decrease of $3.1 million as compared to June 30, 1998. The
decrease is primarily the result of the operating loss and the conversion of
preferred stock to short term debt. The Company's other principal source of
liquidity at September 30, 1998, were lines of credit with Imperial Bank
aggregating $7 million. Borrowing under these lines of credit at September 30,
1998 totaled $3.8 million. The Company also has a term loan with Imperial
Bank, the principal balance of which at September 30, 1998, was $2.4 million.
The lines of credit and the term loan bear interest at Imperial Bank's prime
rate plus 0.75% per annum. The applicable interest rate at September 30,
1998, was 9.25%. The Company's obligations under the lines of credit and the
term loan are secured by all of the Company's accounts receivable,
inventories, and other assets. In September 1998, Imperial Bank ceased
funding under the lines of credit and notified the Company that it intended
to terminate its banking relationship with the Company. After further
discussions, on November 4, 1998 the Company and Imperial Bank executed a
Forbearance Agreement pursuant to which Imperial Bank has resumed funding to
the Company under the lines of credit and the Company has agreed to repay all
outstanding indebtedness owed to Imperial Bank by January 15, 1999. Although
the Company is in discussions with several lenders regarding new financing
for the Company, there can be no assurance that the Company will secure new
financing by January 15, 1999, if ever. The failure of Imperial Bank to
continue to provide funding to the Company under the lines of credit or the
failure of the Company to secure sufficient new financing to repay all
indebtedness owed to Imperial Bank on or before January 15, 1999, would have
a material adverse effect on the Company.
As of September 30, 1998, the Company also had a line of credit with the
Bank of Yorba Linda with a principal balance of $0.4 million. The loan bears
interest at prime plus 3% per annum and matured on August 13,
8
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1998. The Company currently plans to refinance this obligation as part of the
new financing it is attempting to secure. There can be no assurance, however,
that the Company will be able to secure new financing to repay the Bank of
Yorba Linda loan, and the Company's failure to do so could have a material
adverse effect on the Company.
Net cash used in operating activities increased to $2.3 million during
the quarter ended September 30, 1998, from $2.1 million during the quarter
ended September 30, 1997.
Net cash used in investing activities increased to $1.0 million during
the quarter ended September 30, 1998, from $0.8 million during the quarter
ended September 30, 1997.
The Company has no material commitments for capital expenditures. The
Company's 5% convertible preferred stock (which ranks prior to the Company's
common stock), carries cumulative dividends, when and as declared, at an
annual rate of $50.00 per share. The aggregate amount of such dividends in
arrears at September 30, 1998, was approximately $0.5 million.
The Company's capital requirements depend on numerous factors, including
market acceptance of the Company's products, the scope and success of the
Company's product development efforts, the resources the Company devotes to
marketing and selling its products, and other factors. The Company
anticipates that its capital requirements will increase in future periods as
it continues to develop new products and increases its sales and marketing
efforts. The report of the Company's independent auditors accompanying the
Company's June 30, 1998 financial statements includes an explanatory
paragraph indicating there is a substantial doubt about the Company's ability
to continue as a going concern, due primarily to the decreases in the
Company's working capital and net worth. To address the Company's working
capital needs, on September 17, 1998, the Company raised an aggregate of
$4.38 million through the issuance of shares of its Common Stock and
subordinated notes to several private investors. While this financing
improved the Company working capital position, the Company needs to raise
additional funds to operate its business effectively. The Company has
recently engaged a financial advisor to assist with additional fund raising
efforts and the Company intends to attempt to raise additional funds in the
near future. There can be no assurance, however, that the Company will be
able to complete any additional debt or equity financings on favorable terms
or at all, or that any such financings, if completed, will be adequate to
meet the Company's capital requirements. Any additional equity or convertible
debt financings could result in substantial dilution to the Company's
stockholders. If adequate funds are not available, the Company may be
required to delay, reduce or eliminate some or all of its planned activities.
The Company's inability to fund its capital requirements would have a
material adverse effect on the Company. See Risks and Uncertainties--Future
Capital Needs."
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code
in existing computer systems as the year 2000 approaches. The "year 2000
problem" is pervasive and complex as virtually every computer operation will
be affected in some way by the rollover of the two digit year value to 00.
The issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. The Company has procured a new business system that is year 2000
compliant and plans are to implement the new system in Quarters three and
four of the 1999 fiscal year ending June 30, 1999.
Management does not anticipate that the Company will incur significant
operating expenses or be required to invest heavily in other computer systems
improvements to be year 2000 compliant. The Company plans to devote the
necessary resources to resolve significant year 2000 issues in a timely
manner; however, if the Company, its customers, vendors or others with whom
it does significant business are unable to resolve external processing issues
in a timely manner, it could result in material adverse effect on the Company.
The Company has performed an analysis of all of its products manufactured
after January 1, 1997 and has determined that all such products are year 2000
compliant. This analysis covered the Company's printer controller technology,
laser and dye-sublimation printers, as well as software products and computer
and digital camera memory modules. The Company's printers do not currently
contain any internal clock devises that monitor or recognize the change of
the date and therefore the change of year from 1999 to 2000 should not effect
their operation. However, software drivers are used to modify and direct the
output and performance of these printers.
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While these drivers do not generate time-specific codes, they mirror time
codes resident in the applicable operating system. In the event a
modification is required to a software driver to accommodate year 2000
modifications instituted by a manufacturer of a software package, computer
platform or operating system that the Company is currently supporting, the
Company currently plans to update that driver free-of-charge and make it
available to customers for down-loading from the Internet.
RISKS AND UNCERTAINTIES
FUTURE CAPITAL NEEDS
There can be no assurance with respect to the Company's future
profitability or revenue growth. Losses may occur on a quarterly or annual
basis for a number of reasons outside the Company's control. See "Potential
Fluctuation in Quarterly Performance." The growth of the Company's business
will require the commitment of substantial capital resources. If funds are
not available from operations, the Company will need additional funds. The
Company may seek such additional funding through public and private
financing, including debt or equity financing. Adequate funds for these
purposes, whether through financial markets or from other sources, may not be
available when needed or, if available, not on terms acceptable to the
Company. Insufficient funds may require the Company to delay, reduce or
eliminate some or all of its planned activities. See "--Liquidity and Capital
Resources."
POTENTIAL FLUCTUATION IN QUARTERLY PERFORMANCE
The Company's quarterly operating results can fluctuate significantly
depending on factors such as the timing of product announcements and
subsequent introductions of products by the Company and its competitors,
availability and cost of components, timing of shipments of the Company's
products, mix of product families shipped, market acceptance of new products,
seasonality, currency fluctuations, changes in prices by the Company and its
competitors, and price protection for selling price reductions offered to
distributors and OEMs. In addition, the timing of expenditures for staffing
and related support costs, advertising, trade show attendance, promotion,
research and development expenditures, and, of course, changes in general
economic conditions can impact quarterly performance. Any one of these
factors could have a material adverse effect on the Company's results of
operations. The Company may experience significant quarterly fluctuations in
total revenues as well as operating expenses with respect to future new
product introductions. In addition, the Company's component purchases,
production and spending levels are based upon forecast demand for the
Company's products. Accordingly, any inaccuracy in forecasting could
adversely affect the Company's financial condition and results of operations.
Demand for the Company's products could be adversely affected by a slowdown
in the overall demand for computer systems, printer products or digitally
printed images. The Company's failure to complete shipments during a quarter
could have a material adverse effect on the Company's results of operations
for that quarter. Quarterly results are not necessarily indicative of future
performance for any particular period.
HIGHLY COMPETITIVE INDUSTRY
The markets for the Company's products are highly competitive and
rapidly changing. Some of the Company's current and prospective competitors
have significantly greater financial, technical, manufacturing and marketing
resources than the Company. The Company's ability to compete in its markets
depends on a number of factors within and outside its control, including the
success and timing of product introductions by the Company and its
competitors, selling prices, product performance, product distribution,
marketing ability and customer support. A key element of the Company's
strategy is to provide competitively priced, quality products. There can be
no assurance that the Company's products will continue to be competitively
priced. The Company has reduced prices on certain of its products in the past
and will likely continue to do so in the future. Price reductions, if not
offset by similar reductions in product costs, will affect gross margins and
may adversely affect the Company's financial condition and results of
operations. See "Short Product Lives and Technological Change."
SHORT PRODUCT LIVES AND TECHNOLOGICAL CHANGE
The markets for the Company's products are characterized by rapidly
evolving technology, frequent new product introductions and significant price
competition. Consequently, short product life cycles and reductions in unit
selling prices due to competitive pressures over the life of a product are
common. The Company's future success will depend on its ability to continue
to develop and manufacture competitive products and achieve cost reductions
for its existing products. In addition, the Company monitors new technology
developments and coordinates with suppliers, distributors and dealers to
enhance existing products and lower costs. Advances in
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technology will require increased investment to maintain the Company's market
position. The Company's financial condition and results of operations could
be adversely affected if the Company is unable to develop and manufacture
new, competitive products in a timely manner.
DEVELOPING MARKETS AND APPLICATIONS
The markets for the Company's products are relatively new and are still
developing. The Company believes that there has been growing market
acceptance for color printers and related technologies and supplies. There
can be no assurance that such markets will continue to grow. Other
technologies are constantly evolving and improving. There can be no assurance
that products based on these other technologies will not have a material
adverse effect on the demand for the Company's products.
DEPENDENCE ON ADOBE RELATIONSHIP
The Company's relationship with Adobe as an authorized Co-development
Partner to implement the inclusion of Adobe's PostScript language on printer
controllers and in software products is an integral part of its business
strategy. There can be no assurance that this relationship will be successful
or that it will remain in force for some time to come. Loss of the Adobe
relationship could have a substantial negative effect on future revenues.
DEPENDENCE UPON SUPPLIERS
At present, many of the Company's products use technology licensed from
outside suppliers. The Company relies heavily on Adobe for upgrades and
support of the PostScript language. In the case of its font products, the
Company licenses such fonts from outside suppliers, including Adobe, who also
own the intellectual property rights to such fonts. The reliance on
third-party suppliers involves risk, including limited control over potential
hardware and software incompatibilities with the Company's products.
Furthermore, there can be no assurance that all of the suppliers of products
marketed by the Company will continue to license their products to the
Company indefinitely, or that these suppliers will not license to other
companies simultaneously.
RISKS RELATED TO ACQUISITIONS
During Fiscal 1998, ITEC made a number of acquisitions to complement its
technical position in the imaging market. CSI, a producer of color management
software was acquired in a stock transaction. McMican, a two-year-old
manufacturer of digital memory products for data storage and exchange between
digital cameras and imaging systems was acquired in a stock transaction. ITEC
also acquired the assets of AMT, the European sales and distribution
subsidiary of Singapore-based Lam Soon. AMT had been ITEC's master stocking
distributor of printers and supplies in the EC and on the European Continent.
The Company's future performance will depend in part on its ability to
integrate and grow these acquired businesses.
Acquisitions involve a number of risks, including: the integration of
acquired products and technologies in a timely manner; the integration of
businesses and employees with the Company's business; the management of
geographically-dispersed operations; adverse effects on the Company's
reported operating results from acquisition-related charges and amortization
of goodwill; potential increases in stock compensation expense and increased
compensation expense resulting from newly-hired employees; the diversion of
management attention; the assumption of unknown liabilities; potential
disputes with the sellers of one or more acquired entities; the inability of
the Company to maintain customers or goodwill of an acquired business; the
need to divest unwanted assets or products; and the possible failure to
retain key acquired personnel. Client satisfaction or performance problems
with an acquired business could also have a material adverse effect on the
reputation of the Company as a whole, and any acquired business could
significantly under perform relative to the Company's expectations. The
Company is currently facing all of these challenges and its ability to meet
them over the long term has not been established. As a result, there can be
no assurance that the Company will be able to integrate acquired businesses,
products or technologies successfully or in a timely manner in accordance
with its strategic objectives, which could have a material adverse effect on
the Company.
In order to grow its business, the Company may continue to acquire
businesses that it believes are complementary. The successful implementation
of this strategy depends on the Company's ability to identify suitable
acquisition candidates, acquire such companies on acceptable terms, integrate
their operations and technology successfully with those of the Company,
retain existing customers and maintain the goodwill of the
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<PAGE>
acquired business. There can be no assurance that the Company will be able to
identify additional suitable acquisition candidates, acquire any such
candidates on acceptable terms, integrate their operations or technology
successfully, or retain customers or maintain the goodwill of the acquired
business. Moreover, in pursuing acquisition opportunities, the Company may
compete for acquisition targets with other companies with similar growth
strategies. Some of these competitors may be larger and have greater
financial and other resources than the Company. Competition for these
acquisition targets likely could also result in increased prices of
acquisition targets and a diminished pool of companies available for
acquisition. In addition, the Company would likely face the same integration
issues described above with respect to any future acquisitions. If the
Company is unable to manage internal or acquisition-based growth effectively,
the Company would be materially and adversely affected.
Due to all of the foregoing, the Company's execution on an acquisition
strategy or any individual completed or future acquisition may have a
material adverse effect on the Company. In addition, if the Company issues
equity securities as consideration for any future acquisitions, existing
stockholders will experience further ownership dilution and such equity
securities could have rights, preferences, privileges or other rights
superior to those of the Common Stock. See "--Future Capital Needs," and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON KEY PERSONNEL
The success of the Company is dependent, in part, on its ability to
attract and retain qualified management and technical personnel. Competition
for such personnel is intense, and the inability to attract additional key
employees or the loss of one or more key employees could adversely affect the
Company. There can be no assurance that the Company will retain its key
personnel.
COMPONENT AVAILABILITY AND COST; DEPENDENCE ON SINGLE SOURCES
ITEC presently outsources the production of most of its manufactured
products through a number of vendors located in California. These vendors
assemble products, utilizing components purchased by the Company from other
sources or from their own internal inventory. The terms of supply contracts
are negotiated separately in each instance. The Company believes that its
present vendors have sufficient capacity to meet projected market demand for
the Company's products or that alternate production sources are available
without undue disruption. ITEC has not experienced any difficulty over the
past several years in engaging contractors or in purchasing components.
ITEC's contract vendors generally perform multi-step quality control
testing prior to shipping their products to the Company. ITEC, in turn,
includes appropriate software, performs additional tests on the products,
then packages and ships products into the distribution channels. In addition
to buying such items as printed circuit boards and other components from
outside vendors, the Company purchases and/or licenses software programs,
including operating systems and intellectual property modules (pre-written
software code to execute a specifically defined operation). ITEC purchases
these products from vendors who have licenses to sell such software to the
Company from the originators of such software, and has, from time to time,
directly licensed system software that is either embedded or otherwise
incorporated in certain ITEC products.
While most components are available locally from multiple vendors,
certain components used in the Company's products are only available from
single sources. Although alternate suppliers are readily available for many
of these components, for some components the process of qualifying replacement
suppliers, replacing tooling or ordering and receiving replacement components
could take several months and cause substantial disruption to the Company's
operations. Any significant increase in component prices or decrease in
component availability could have a material adverse effect on the Company.
POSSIBILITY OF CHALLENGE TO COMPANY'S PRODUCTS OR INTELLECTUAL PROPERTY RIGHTS
The Company's software products, hardware designs, and circuit layouts
are copyrighted. However, copyright protection does not prevent other
companies from emulating the features and benefits provided by the Company's
software, hardware designs or the integration of the two. The Company
protects its software source code as trade secrets and makes its Company
proprietary source code available to OEM customers only under
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<PAGE>
limited circumstances and specific security and confidentiality constraints.
In many product hardware designs, the Company develops ASICs which
encapsulate proprietary technology and are installed on the circuit board.
This can serve to significantly reduce the risk of duplication by
competitors, but in no way ensures the complete lack of potential for a
competitor to replicate a feature or the benefit in a similar product. The
Company currently holds no patents. Because computer and printer imaging
technology is such a rapidly changing business environment, the Company
believes the effectiveness of patents, trade secrets, and copyright
protection are less important in influencing long term success than the
experience of the Company's technical team, contractual relationships, and a
continuous focus on technical advancement.
The Company has obtained U.S. registration for several of its trade
names or trademarks, including: PCPI, NewGen, ColorBlind, LaserImage,
ColorImage, ImageScript, ImageFont, ImagePress, and ImageNet. These trade
names are used to distinguish the Company's products in the marketplace.
Pending trademarks for which registration is currently being sought include:
dfilm, Xtinguisher, ChroMATCH, ChromaxPro, ImagerPro, DuoSetter, ImagerPlus,
and DesignXP.
From time to time, certain competitors have asserted patent rights
relevant to the Company's business. The Company expects that this will
continue. The Company carefully evaluates each assertion relating to its
products. If the Company is not successful in establishing that asserted
rights have not been violated, the Company could be prohibited from marketing
the products that incorporate such technology. The Company could also incur
substantial costs to redesign its products or to defend any legal action
taken against the Company. If the Company's products should be found to
infringe upon the intellectual property rights of others, the Company could
be enjoined from further infringement and be liable for any damages. The
Company relies on a combination of trade secret, copyright and trademark
protection and non-disclosure agreements to protect its proprietary rights.
There can be no assurance, however, that the measures adopted by the Company
for the protection of its intellectual property will be adequate to protect
its interests, or that the Company's competitors will not independently
develop technologies that are substantially equivalent or superior to the
Company's technologies.
INTERNATIONAL OPERATIONS
The Company conducts business globally. Accordingly, the Company's
future results could be adversely affected by a variety of uncontrollable and
changing factors including foreign currency exchange rates; regulatory,
political or economic conditions in a specific country or region; trade
protection measures and other regulatory requirements; government spending
patterns; and natural disasters, among other factors. In Fiscal 1998, the
Company experienced contract cancellations and the write-off of significant
receivables related to continuing economic deterioration in foreign
countries, particularly in Asian countries. Any or all of these factors could
have a material adverse impact on the Company's future international business
in these or other countries and on the Company's financial condition and
results of operations.
DEPENDENCE ON EXPORT SALES
The Company intends to pursue international markets as key avenues for
growth and to increase the percentage of sales generated in international
markets. In Fiscal 1998, 1997, and 1996, sales outside the United States
represented approximately 56%, 57% and 81% of the Company's net sales,
respectively. In 1998, the Company established a European Headquarters to
facilitate its European sales operations. Located in Bracknell, Berkshire,
near London, ITEC Europe provides both sales and support functions to
customers within the United Kingdom, EC and Eastern European Block for ITEC's
printer and imaging products. In addition, at the close of Fiscal 1998, ITEC
acquired the European-based assets and operations of AMT. AMT was the
European sales and distribution arm of Singapore-based Lam Soon, manufacturer
of dot matrix, laser and inkjet printers and plotters for specialized
applications.
The Company expects export sales to continue to represent a significant
portion of its sales. International sales and operations are subject to risks
such as the imposition of governmental controls, export license requirements,
restrictions on the export of critical technology, currency exchange
fluctuations, political instability, trade restrictions, changes in tariffs,
difficulties in staffing and managing international operations and collecting
accounts receivable. In addition, the laws of certain countries do not
protect the Company's products and intellectual property rights to the same
extent as the laws of the United States. As the Company continues to
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<PAGE>
expand its international business, there can be no assurance that these
factors will not have an adverse effect on the Company.
RELIANCE ON INDIRECT DISTRIBUTION
The Company's products are marketed and sold through an established
distribution channel of VARs, manufacturer's representatives, retail vendors,
and systems integrators. ITEC has a network of dealers and distributors in
the United States and Canada, in the EC and on the European Continent, as
well as a growing number of resellers in Africa, Asia, the Middle East, Latin
America, and Australia. ITEC supports its worldwide distribution network and
end-user customers through centralized manufacturing, distribution, and
repair operations headquartered in San Diego, which serve North and South
America, the Pacific Rim and Asia. In addition, ITEC Europe Ltd., located in
a suburb of London, manages distribution and service for customers in Europe,
Africa and the Middle East. As of September 30, 1998, the Company directly
employed 32 individuals involved in marketing and sales activities. The sales
and marketing operation is headquartered in ITEC's Silicon Valley offices in
Northern California.
The Company's sales are principally made through distributors which may
carry competing product lines. Such distributors could reduce or discontinue
sales of the Company's products which could have a material adverse effect on
the Company's financial condition and results of operations. There can be no
assurance that these independent distributors will devote the resources
necessary to provide effective sales and marketing support of the Company's
products. In addition, the Company is dependent upon the continued viability
and financial stability of these distributors, many of which are small
organizations with limited capital. These distributors, in turn, are
substantially dependent on general economic conditions and other unique
factors affecting the Company's markets. The Company believes that its future
growth and success will continue to depend in large part upon its
distribution channels. There can be no assurance that actual bad debts from
the Company's distributors will not exceed recorded allowances resulting in a
material adverse effect on the Company's financial condition and results of
operations. To expand its distribution channels, the Company has entered into
select OEM arrangements that allow it to address specific market segments or
geographic areas. In order to prevent inventory write-downs, to the extent
that OEM customers do not purchase products as anticipated, the Company may
need to convert such products to make them salable to other customers.
VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock historically has
fluctuated significantly. The Company believes that factors such as general
stock market trends, announcements of developments related to the Company's
business, fluctuations in the Company's operating results, general conditions
in the computer peripheral market and the markets served by the Company or in
the worldwide economy, a shortfall in revenue or earnings from securities
analysts' expectations, announcements of technological innovations or new
products or enhancements by the Company or its competitors, developments in
patents or other intellectual property rights and developments in the
Company's relationships with its customers and suppliers could cause a
further significant fluctuation in the price of the Company's Common Stock.
In addition, in recent years the stock market in general, and the market for
shares of technology stocks in particular, have experienced extreme price
fluctuations, which have often been unrelated to the operating performance of
affected companies. There can be no assurance that the market price of the
Company's Common Stock will not experience significant fluctuations that are
unrelated to the Company's operating performance.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code
in existing computer systems as the year 2000 approaches. The "year 2000
problem" is pervasive and complex as virtually every computer operation will
be affected in some way by the rollover of the two digit year value to 00.
The issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. The Company has procured a new business system that is year 2000
compliant and plans are to implement the new system in Quarters three and
four of the 1999 fiscal year ending June 30, 1999.
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Management does not anticipate that the Company will incur significant
operating expenses or be required to invest heavily in other computer systems
improvements to be year 2000 compliant. The Company plans to devote the
necessary resources to resolve significant year 2000 issues in a timely
manner; however, if the Company, its customers, vendors or others with whom
it does significant business are unable to resolve external processing issues
in a timely manner, it could result in material adverse effect on the Company.
The Company has performed an analysis of all of its products
manufactured after January 1, 1997 and has determined that all such products
are year 2000 compliant. This analysis covered the Company's printer
controller technology, laser and dye-sublimation printers, as well as
software products and computer and digital camera memory modules. The
Company's printers do not currently contain any internal clock devises that
monitor or recognize the change of the date and therefore the change of year
from 1999 to 2000 should not effect their operation. However, software
drivers are used to modify and direct the output and performance of these
printers. While these drivers do not generate time-specific codes, they
mirror time codes resident in the applicable operating system. In the event a
modification is required to a software driver to accommodate year 2000
modifications instituted by a manufacturer of a software package, computer
platform or operating system that the Company is currently supporting, the
Company currently plans to update that driver free-of-charge and make it
available to customers for down-loading from the Internet.
ABSENCE OF DIVIDENDS
No cash dividends have been paid on the Company's Common Stock to date
and the Company does not anticipate paying cash dividends in the foreseeable
future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company may be involved in litigation relating to
claims arising out of its operations in the normal course of business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Sales of Unregistered Securities.
On September 17, 1998, the Company issued in a private placement (i)
500,000 newly issued shares of Common Stock at $2.50 per share, (ii)
$2,450,000 in non-convertible subordinated promissory notes (the
"Non-Convertible Notes"), (iii) warrants to purchase up to 490,000 shares of
Common Stock at an exercise price of $2.025 per share (the "Warrants"), and
(iv) $675,000 in convertible subordinated promissory notes (the "Convertible
Notes") (collectively, the "Securities"). The aggregate consideration
received by the Company for the Securities sold in the private placement was
$4,375,000 in cash. Net proceeds to the Company from the sale of the
Securities were approximately $4,000,000. All of the promissory notes bear
interest at 16% per year. The Convertible Notes mature in two years and are
convertible, at the option of each investor, at any time into shares of
Common Stock at $2.025 per share (subject to adjustment under certain
circumstances). The Non-Convertible Notes mature in one year and are not
convertible. The Securities were offered and sold to three accredited
investors (one of whom is a Director of the Company) (the "Purchasers").
As part of a separate transaction, on September 18, 1998, the Company
issued in a private placement $1,000,000 in non-convertible subordinated
promissory notes (the "Redemption Notes") and warrants to purchase up to
300,000 shares of Common Stock (together with the Redemption Notes, the
"Redemption Securities"), 200,000 of which have an exercise price of $2.025
per share and 100,000 of which have an exercise price of $4.00 per share.
The Redemption Securities were issued to two accredited investors (the
"Series C Holders") in
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connection with the Company's redemption of all of its outstanding Series C
Convertible Preferred Stock. The Redemption Notes bear interest at 16% per
year, are not convertible and mature in one year.
The offers and sales to the Purchasers and to the Series C Holders were
made pursuant to a claim of exemption under Section 4(2) of the Securities
Act of 1933, as amended (the "Securities Act"). The Company did not use any
general advertisement or solicitation in connection with the offer or sale of
the Securities to the Purchasers, nor did the Company use any general
advertisement or solicitation in connection with the offer or sale of the
Redemption Securities to the Series C Holders. Each of the Purchasers and
the Series C Holders represented and warranted, among other things, that he
or it was purchasing the Securities or the Redemption Securities, as
applicable, for investment only and not with a view to distribution and that
he or it was an "accredited investor" (as defined in Regulation D
promulgated by the Securities and Exchange Commission). Appropriate legends
were affixed to the certificates for each of the Securities and the
Redemption Securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Common Stock Purchase Agreement, dated September 17, 1998, among
the Company and the parties listed on Schedule A thereto.
10.2 Form of Subordinated Note Purchase Agreement, dated September 17,
1998, among the Company and the parties listed on Schedule A thereto.
10.3 Form of Non-Convertible Subordinated Promissory Note, dated
September 17, 1998, between the Company and the purchasers thereof.
*10.4 Form of Convertible Subordinated Promissory Note, dated
September 17, 1998, between the Company and the purchasers thereof.
10.5 Form of Common Stock Purchase Warrant to purchase shares of Common
Stock of the Company at $2.025 per share, dated September 17, 1998, between
the Company and the purchasers thereof.
10.6 Registration Rights Agreement, dated September 17, 1998, among the
Company and the parties listed on Schedule A thereto.
10.7 Settlement and Mutual Release Agreement, dated September 18, 1998,
among the Company and the parties listed on the signature pages thereto.
10.8 Amendment No. 1 to Registration Rights Agreement, dated
September 18, 1998, among the Company and the parties listed on the
signature pages thereto.
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10.9 Form of Common Stock Purchase Warrant to purchase 50,000 shares of
Common Stock of the Company at $4.00 per share, dated September 18, 1998,
between the Company and each of NP Partners and Olympus Securities, Ltd.
10.10 Subordinate Note Purchase Agreement, dated September 18, 1998,
among the Company and NP Partners and Olympus Securities, Ltd.
10.11 Form of Non-Convertible Subordinated Promissory Note, dated
September 18, 1998, between the Company and each of NP Partners and Olympus
Securities, Ltd.
10.12 Form of Common Stock Purchase Warrant to purchase 100,000 shares of
Common Stock of the Company at $2.025 per share, dated September 18, 1998,
between the Company and each of NP Partners and Olympus Securities, Ltd.
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the quarter
ended September 30, 1998.
* Certain confidential portions of this Exhibit were omitted by means of
redacting a portion of the text (the "Mark"). This Exhibit has been filed
separately with the Secretary of the Commission without the Mark pursuant
to the Company's Application Requesting Confidential Treatment under
Rule 24b-2 under the Exchange Act.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 16, 1998
IMAGING TECHNOLOGIES CORPORATION
(Registrant)
By: /s/ MICHAEL K. CLEMENS
----------------------------
Michael K. Clemens
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
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Exhibit 10.1
IMAGING TECHNOLOGIES CORPORATION
COMMON STOCK PURCHASE AGREEMENT
SEPTEMBER 17, 1998
TABLE OF CONTENTS
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<S> <C>
SECTION 1 AUTHORIZATION AND SALE OF COMMON STOCK . . . . . . . . . . . . . 1
1.1 AUTHORIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 SALE OF COMMON STOCK.. . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2 CLOSING DATE; DELIVERY . . . . . . . . . . . . . . . . . . . . . 1
2.1 CLOSING DATE.. . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 DELIVERY.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. . . . . . . . . . 1
3.1 ORGANIZATION AND STANDING. . . . . . . . . . . . . . . . . . . . 2
3.2 CORPORATE POWER; AUTHORIZATION.. . . . . . . . . . . . . . . . . 2
3.3 ISSUANCE AND DELIVERY OF THE SHARES. . . . . . . . . . . . . . . 2
3.4 CONSENTS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.5 SEC DOCUMENTS; FINANCIAL STATEMENTS. . . . . . . . . . . . . . . 2
3.6 NO MATERIAL MISSTATEMENT.. . . . . . . . . . . . . . . . . . . . 3
3.7 NO MATERIAL ADVERSE CHANGE.. . . . . . . . . . . . . . . . . . . 3
SECTION 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASERS. . . . . . . . . 3
4.1 AUTHORIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.2 INVESTMENT EXPERIENCE. . . . . . . . . . . . . . . . . . . . . . 3
4.3 INVESTMENT INTENT. . . . . . . . . . . . . . . . . . . . . . . . 3
4.4 REGISTRATION OR EXEMPTION REQUIREMENTS.. . . . . . . . . . . . . 4
4.5 NO LEGAL, TAX OR INVESTMENT ADVICE.. . . . . . . . . . . . . . . 4
4.6 LEGENDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 5 CONDITIONS TO CLOSING OF PURCHASERS. . . . . . . . . . . . . . . 4
5.1 REPRESENTATIONS AND WARRANTIES.. . . . . . . . . . . . . . . . . 4
5.2 PERFORMANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.3 QUALIFICATIONS.. . . . . . . . . . . . . . . . . . . . . . . . . 5
5.4 COMPLIANCE CERTIFICATE.. . . . . . . . . . . . . . . . . . . . . 5
5.5 OPINION OF COMPANY COUNSEL.. . . . . . . . . . . . . . . . . . . 5
5.6 REGISTRATION RIGHTS AGREEMENT. . . . . . . . . . . . . . . . . . 5
SECTION 6 CONDITIONS TO CLOSING OF COMPANY . . . . . . . . . . . . . . . . 5
6.1 REPRESENTATIONS AND WARRANTIES.. . . . . . . . . . . . . . . . . 5
6.2 PERFORMANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.3 QUALIFICATIONS.. . . . . . . . . . . . . . . . . . . . . . . . . 5
6.4 REGISTRATION RIGHTS AGREEMENT. . . . . . . . . . . . . . . . . . 5
SECTION 7 MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.1 AMENDMENTS AND WAIVERS.. . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
7.2 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.3 SURVIVAL.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.4 SUCCESSORS AND ASSIGNS.. . . . . . . . . . . . . . . . . . . . . 6
7.5 ENTIRE AGREEMENT.. . . . . . . . . . . . . . . . . . . . . . . . 6
7.6 NOTICES, ETC.. . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.7 SEVERABILITY OF THIS AGREEMENT.. . . . . . . . . . . . . . . . . 7
7.8 COUNTERPARTS.. . . . . . . . . . . . . . . . . . . . . . . . . . 7
7.9 FURTHER ASSURANCES.. . . . . . . . . . . . . . . . . . . . . . . 7
7.10 EACH PURCHASER ACTING SEVERALLY. . . . . . . . . . . . . . . . . 7
7.11 ACKNOWLEDGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . 8
SCHEDULE A --SCHEDULE OF PURCHASERS
Schedule B --Schedule of Exceptions
Exhibit A -- Registration Rights Agreement
Exhibit B -- Form of Legal Opinion
</TABLE>
ii
<PAGE>
IMAGING TECHNOLOGIES CORPORATION
COMMON STOCK PURCHASE AGREEMENT
This Common Stock Purchase Agreement (the "Agreement") is made as of
September 17, 1998, by and among Imaging Technologies Corporation, a Delaware
corporation (the "Company"), with its principal office at 11031 Via Frontera,
San Diego, California 92127, and the purchasers listed on SCHEDULE A hereto
(each a "Purchaser" and together the "Purchasers").
SECTION 1
AUTHORIZATION AND SALE OF COMMON STOCK
1.1 AUTHORIZATION. The Company has authorized the sale and issuance of 500,000
shares of its Common Stock pursuant to this Agreement (the "Shares").
1.2 SALE OF COMMON STOCK. Subject to the terms and conditions of this Agreement,
the Company agrees to issue and sell to each Purchaser and each Purchaser
agrees, severally, to purchase from the Company that number of shares of the
Company's Common Stock set forth opposite each such Investor's name on SCHEDULE
A hereto for the purchase price set forth thereon (the "Purchase Price").
SECTION 2
CLOSING DATE; DELIVERY
2.1 CLOSING DATE. The closing of the purchase and sale of the Shares hereunder
(the "Closing") shall be held at the offices of Brobeck, Phleger & Harrison LLP,
550 West "C" Street, Suite 1200, San Diego, California 92101 at 11:00 a.m. on
September 17, 1998, or at such other time and place upon which the Company and
the Purchasers shall mutually agree. The date of the Closing is hereinafter
referred to as the "Closing Date."
2.2 DELIVERY. At the Closing, the Company will deliver to each Purchaser a
certificate, registered in such Purchaser's name, representing the number of
Shares to be purchased by the Purchaser. Such delivery shall be against payment
of the purchase price therefor by check or wire transfer in the amount of the
Purchase Price.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each Purchaser as of the
Closing Date that, except as set forth on the Schedule of Exceptions attached
hereto as SCHEDULE B (the "Schedule of Exceptions"), which exceptions shall be
deemed to be representations and warranties as if made hereunder:
1
<PAGE>
3.1 ORGANIZATION AND STANDING. The Company is a corporation duly organized and
validly existing under, and by virtue of, the laws of the State of Delaware and
is in good standing as a domestic corporation under the laws of said state.
3.2 CORPORATE POWER; AUTHORIZATION. The Company has all requisite legal and
corporate power and has taken all requisite corporate action to execute and
deliver this Agreement and the Registration Rights Agreement of even date
herewith in the form attached hereto as EXHIBIT A (the "Registration Rights
Agreement"), to sell and issue the Shares and to carry out and perform all of
its obligations under this Agreement and the Registration Rights Agreement. This
Agreement and the Registration Rights Agreement each constitutes the legal,
valid and binding obligation of the Company, enforceable in accordance with its
terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization or similar laws relating to or affecting the enforcement of
creditors' rights generally and (ii) as limited by equitable principles
generally. The execution and delivery of this Agreement and the Registration
Rights Agreement does not, and the performance of this Agreement and the
Registration Rights Agreement, the compliance with the provisions hereof and
thereof and the issuance, sale and delivery of the Shares by the Company will
not, materially conflict with, or result in a material breach or violation of
the terms, conditions or provisions of, or constitute a material default under,
or result in the creation or imposition of any material lien pursuant to the
terms of, the Certificate of Incorporation or Bylaws of the Company or any
statute, law, rule or regulation or any state or federal order, judgment or
decree or any indenture, mortgage, lease or other material agreement or
instrument to which the Company or any of its properties is subject.
3.3 ISSUANCE AND DELIVERY OF THE SHARES. The Shares, when issued in compliance
with the provisions of this Agreement for the consideration expressed herein,
will be validly issued, fully paid and nonassessable. The issuance and delivery
of the Shares is not subject to preemptive or any other similar rights of the
stockholders of the Company or any liens or encumbrances.
3.4 CONSENTS. No consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any federal, state, or
local governmental authority on the part of the Company is required in
connection with the consummation of the transactions contemplated by this
Agreement except for (i) the filing of a Notice of Transaction pursuant to
Section 25102(f) of the California Corporate Securities Law of 1968, as amended,
and the rules thereunder (the "Law"), which filing will be effected within the
time prescribed by law; and (ii) such other qualifications or filings under the
Securities Act of 1933, as amended (the "Securities Act"), and the regulations
thereunder and all other applicable securities laws as may be required in
connection with the transactions contemplated by this Agreement, which filings
will be effected within the time prescribed by law. The Company has obtained all
consents, waivers and approvals under any of the Company's agreements,
contracts, licenses or leases required to be obtained in connection with the
consummation of the transactions contemplated by this Agreement.
3.5 SEC DOCUMENTS; FINANCIAL STATEMENTS. As of their respective filing dates,
all documents (the "SEC Documents") filed by the Company with the Securities and
Exchange Commission (the "SEC") complied in all material respects with the
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") or the Securities Act, as applicable. None of the SEC Documents as of
their respective dates contained any untrue statement of material fact or
2
<PAGE>
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances under which they
were made, not misleading.
3.6 NO MATERIAL MISSTATEMENT. None of the representations or warranties of the
Company contained in this Agreement or in the Registration Rights Agreement, and
none of the other information furnished to the Purchasers or their
representatives in connection with this Agreement, when considered as a whole,
contains, or will contain, any misstatement of a material fact or omits to state
any fact necessary in light of the circumstances under which made, to make those
statements which have been made, not misleading.
3.7 NO MATERIAL ADVERSE CHANGE. Except as otherwise disclosed herein, since
March 31, 1998, there have not been any changes in the assets, liabilities,
financial condition, business prospects or operations of the Company from that
reflected in the SEC Documents except changes in the ordinary course of business
which have not been, either individually or in the aggregate, materially
adverse.
Section 4
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASERS
Each Purchaser hereby represents and warrants to the Company,
separately and not jointly, of the Closing Date as follows:
4.1 AUTHORIZATION. Purchaser represents and warrants to the Company that: (i)
Purchaser has all requisite legal and corporate or other power and capacity and
has taken all requisite corporate or other action to execute and deliver this
Agreement and the Registration Rights Agreement, to purchase the Shares and to
carry out and perform all of its obligations under this Agreement; and (ii) this
Agreement and the Registration Rights Agreement each constitutes the legal,
valid and binding obligation of the Purchaser, enforceable in accordance with
its terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, or similar laws relating to or affecting the enforcement of
creditors' rights generally and (b) as limited by equitable principles
generally.
4.2 INVESTMENT EXPERIENCE. Purchaser is an "accredited investor" as defined in
Rule 501(a) under the Securities Act. Purchaser is aware of the Company's
business affairs and financial condition and has had access to and has acquired
sufficient information about the Company to reach an informed and knowledgeable
decision to acquire his or its Shares. Purchaser has such business and financial
experience as is required to give it the capacity to protect his or its own
interests in connection with the purchase of his or its Shares.
4.3 INVESTMENT INTENT. Purchaser is purchasing the Shares for his or its own
account as principal, for investment purposes only, and not with a present view
to, or for, resale, distribution or fractionalization thereof, in whole or in
part, within the meaning of the Securities Act. Purchaser understands that its
acquisition of the Shares has not been registered under the Securities Act or
registered or qualified under any state securities law in reliance on specific
exemptions therefrom, which exemptions may depend upon, among other things, the
bona fide nature of Purchaser's investment intent as expressed herein. Purchaser
will not, directly or indirectly, offer, sell, pledge, transfer or otherwise
dispose of (or solicit any offers to buy,
3
<PAGE>
purchase or otherwise acquire or take a pledge of) any of the Shares except in
compliance with the Securities Act, and the rules and regulations promulgated
thereunder.
4.4 REGISTRATION OR EXEMPTION REQUIREMENTS. Purchaser further acknowledges and
understands that the Shares may not be resold or otherwise transferred except in
a transaction registered under the Securities Act or unless an exemption from
such registration is available.
4.5 NO LEGAL, TAX OR INVESTMENT ADVICE. Purchaser understands that nothing in
this Agreement or any other materials presented to Purchaser in connection with
the purchase and sale of the Shares constitutes legal, tax or investment advice.
Purchaser has consulted such legal, tax and investment advisors as he or it, in
his or its sole discretion, has deemed necessary or appropriate in connection
with his or its purchase of the Shares.
4.6 LEGENDS. To the extent applicable, each certificate or other document
evidencing any of the Shares shall be endorsed with the legends set forth below,
and the Purchaser covenants that, except to the extent such restrictions are
waived by the Company, the Purchaser shall not transfer the Shares represented
by any such certificate without complying with the restrictions on transfer
described in the legends endorsed on such certificate:
(a)"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION
THEREOF UNDER SUCH ACT OR COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT,
OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, SATISFACTORY TO THE
COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED."
(b)"THE SHARES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND
CONDITIONS OF A CERTAIN REGISTRATION RIGHTS AGREEMENT, AS AMENDED FROM TIME TO
TIME, WHICH INCLUDE, WITHOUT LIMITATION, MARKET STAND-OFF RIGHTS IN FAVOR OF THE
COMPANY. THE COMPANY WILL UPON WRITTEN REQUEST FURNISH A COPY OF SUCH AGREEMENT
TO THE HOLDER HEREOF WITHOUT CHARGE."
SECTION 5
CONDITIONS TO CLOSING OF PURCHASERS
Each Purchaser's obligation to purchase his or its Shares at the
Closing is, at the option of the Purchaser, subject to the fulfillment or waiver
as of the Closing Date of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the
Company contained in Section 3 shall be true on and as of the Closing Date with
the same effect as though such representations and warranties had been made on
and as of the date of such Closing Date.
4
<PAGE>
5.2 PERFORMANCE. The Company shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
5.3 QUALIFICATIONS. All authorizations, approvals, or permits, if any, of any
governmental authority or regulatory body of the United States or of any state
that are required as of the Closing in connection with the lawful issuance and
sale of the Shares pursuant to this Agreement shall have been duly obtained and
shall be effective as of the Closing.
5.4 COMPLIANCE CERTIFICATE. The President and Chief Executive Officer of the
Company shall have delivered to Purchaser a certificate certifying that the
conditions specified in Sections 5.1, 5.2 and 5.3 have been fulfilled.
5.5 OPINION OF COMPANY COUNSEL. Each Purchaser shall have received from Brobeck,
Phleger & Harrison LLP, counsel for the Company, an opinion dated the date of
the Closing, in substantially the form as EXHIBIT B attached hereto.
5.6 REGISTRATION RIGHTS AGREEMENT. The Company and each Purchaser shall have
entered into the Registration Rights Agreement in the form attached hereto as
EXHIBIT A.
SECTION 6
CONDITIONS TO CLOSING OF COMPANY
The Company's obligation to sell and issue the Shares at the Closing
is, at the option of the Company, subject to the fulfillment or waiver as of the
Closing Date of the following conditions:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the
Purchasers contained in Section 4 shall be true on and as of the Closing Date
with the same effect as though such representations and warranties had been made
on and as of the date of such Closing Date.
6.2 PERFORMANCE. The Purchasers shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by the Purchasers on or before the
Closing.
6.3 QUALIFICATIONS. All authorizations, approvals, or permits, if any, of any
governmental authority or regulatory body of the United States or of any state
that are required as of the Closing in connection with the lawful issuance and
sale of the Shares pursuant to this Agreement shall have been duly obtained and
shall be effective as of the Closing.
6.4 REGISTRATION RIGHTS AGREEMENT. The Company and each Purchaser shall have
entered into the Registration Rights Agreement in the form attached hereto as
EXHIBIT A.
5
<PAGE>
SECTION 7
MISCELLANEOUS
7.1 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the holders of a majority of the Shares
purchased hereunder. Any amendment or waiver effected in accordance with this
Section shall be binding upon each holder of any securities purchased under this
Agreement at the time outstanding, each future holder of all such securities,
and the Company.
7.2 GOVERNING LAW. This Agreement shall be governed in all respects by and
construed in accordance with the laws of the State of California without any
regard to conflicts of laws principles.
7.3 SURVIVAL. The representations, warranties, covenants and agreements made in
this Agreement shall survive any investigation made by the Company or the
Purchasers and the Closing.
7.4 SUCCESSORS AND ASSIGNS. The provisions hereof shall inure to the benefit of,
and be binding upon, the successors, assigns, heirs, executors and
administrators of the parties to this Agreement. Notwithstanding the foregoing,
no Purchaser shall assign his or its rights or obligations under this Agreement
without the prior written consent of the Company.
7.5 ENTIRE AGREEMENT. This Agreement, together with the Registration Rights
Agreement, constitutes the full and entire understanding and agreement between
the parties with regard to the subjects hereof and thereof.
7.6 NOTICES, ETC. All notices and other communications required or permitted
under this Agreement shall be in writing and may be delivered in person, by
facsimile, overnight delivery service or registered or certified mail, addressed
to the Company at the address set forth at the beginning of this Agreement, or
to the Purchasers at their respective addresses set forth on the signature pages
hereto, or at such other address as the Company or each Purchaser shall have
furnished to the other parties in writing. All notices and other communications
shall be effective upon the earlier of actual receipt thereof by the person to
whom notice is directed or (i) in the case of notices and communications sent by
personal delivery or facsimile, one business day after such notice or
communication arrives at the applicable address or was successfully sent to the
applicable facsimile number, (ii) in the case of notices and communications sent
by overnight delivery service, at noon (local time) on the second business day
following the day such notice or communication was sent, and (iii) in the case
of notices and communications sent by United States mail, seven days after such
notice or communication shall have been deposited in the United States mail.
7.7 SEVERABILITY OF THIS AGREEMENT. If any provision of this Agreement shall be
judicially determined to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
6
<PAGE>
7.8 COUNTERPARTS. This Agreement may be executed in any number of counterparts,
each of which shall be an original, but all of which together shall constitute
one instrument.
7.9 FURTHER ASSURANCES. Each party to this Agreement shall do and perform or
cause to be done and performed all such further acts and things and shall
execute and deliver all such other agreements, certificates, instruments and
documents as the other party hereto may reasonably request in order to carry out
the intent and accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.
7.10 EACH PURCHASER ACTING SEVERALLY. Each Purchaser undertakes his or its
obligations hereunder and makes the representations, warranties and covenants as
set forth hereunder severally and not jointly.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
7
<PAGE>
7.11 ACKNOWLEDGEMENT. By executing this Agreement, each Purchaser hereby
acknowledges and agrees that Brobeck, Phleger & Harrison LLP represents the
Company solely and that the Purchasers have each had an opportunity to consult
with their own attorney in connection with this Agreement and the Registration
Rights Agreement.
The foregoing agreement is hereby executed as of the date first above
written.
"COMPANY"
IMAGING TECHNOLOGIES CORPORATION,
a Delaware corporation
By: /S/ BRIAN BONAR
-------------------------------
Brian Bonar, President and
Chief Executive Officer
"PURCHASERS"
AMERICAN INDUSTRIES, INC., An Oregon corporation
By: /S/ HOWARD HEDINGER
-------------------------------
Howard Hedinger
Its: PRESIDENT
Address: 1750 NW Front Avenue, Suite 106
Portland, Oregon 97209
/S/ ELLISON MORGAN
-------------------------------
Ellison Morgan
Address: 11510 SW Summerville Street
Portland, Oregon 97219
[SIGNATURE PAGE TO COMMON STOCK PURCHASE AGREEMENT]
8
<PAGE>
SCHEDULE A
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
Purchase Price Number of Shares
Purchaser Name Paid at Closing to be Issued at Closing
-------------- --------------- -----------------------
<S> <C> <C>
American Industries, Inc. $1,000,000 400,000
Ellison Morgan $ 250,000 100,000
---------- -------
TOTAL $1,250,000 500,000
---------- -------
---------- -------
</TABLE>
SCHEDULE A-1
<PAGE>
SCHEDULE B
SCHEDULE OF EXCEPTIONS
The following are exceptions to the representations and warranties of Imaging
Technologies Corporation (the "Company") set forth in that certain Common Stock
Purchase Agreement dated as of September __, 1998 (the "Agreement"), with
reference to the Section designations of the Agreement. The references to
specific Sections are not meant and should not be construed as limiting the
noted exceptions to a particular Section. Although the Company has used its
reasonable best efforts to cross-reference the exceptions to all applicable
representations and warranties, no assurance can be given that all necessary
cross-references have been identified and any exception noted below is therefore
deemed disclosed for purposes of all relevant Sections whether or not
cross-referenced. Capitalized terms not otherwise defined in this Schedule of
Exceptions have the meaning given them in the Agreement. Nothing herein
constitutes an admission of any liability or obligation of the Company nor an
admission against the Company's interest. The inclusion of any agreement or
other matter herein or any exhibit hereto should not be interpreted as
indicating that the Company has determined that such an agreement or other
matter is necessarily material to the Company.
<TABLE>
<CAPTION>
SECTION NUMBER EXCEPTIONS
- -------------- -----------------------------------------------------------------
<S> <C>
Section 3.3 ISSUANCE AND DELIVERY OF THE SHARES.
Pursuant to the Agreement, the Company has agreed to issue and
sell to the Purchasers the Shares. Under the terms of Section
4(g) of that certain Securities Purchase Agreement dated August
21, 1997, between the Company and the holders of the outstanding
shares of the Company's Series C Preferred Stock (the "Series C
Holders"), the Company is required to offer any equity or
convertible debt securities it intends to issue to the Series C
Holders prior to offering the securities to any third party. The
Company has not offered the Shares to the Series C Holders, who
will retain their right of first offer until the closing of the
Company's settlement with the Series C Holders, which will not
occur until after the Company has issued the Shares to the
Purchasers.
Section 3.7 NO MATERIAL ADVERSE CHANGE.
1. On June 19, 1998, the Company delivered notice to the Series C
Holders of its election to redeem for cash all shares of Series C
Preferred Stock tendered for conversion in lieu of converting
such shares. Certain disputes have arisen between the Company and
the Series C Holders with respect to such notice and the
Company's right to redeem all shares of Series C Preferred Stock
tendered for conversion in lieu of converting such shares. The
Series C Holders have asserted that the Company is in default of
its obligations to them.
</TABLE>
SCHEDULE B-1
<PAGE>
<TABLE>
<S> <C>
2. The Company has recently been informed by Imperial Bank, the
Company's primary lender, that the Company is not in compliance
with all of the provisions of its loan agreements with Imperial
Bank, including without limitation, the provisions regarding
certain minimum ratios the Company is required to maintain. The
Company's noncompliance with many of these provisions results
from the expected one-time charge to earnings that the Company
intends to include in its financial statements as of and for the
fiscal year ended June 30, 1998, which one-time charge the
Company currently anticipates will be as much as approximately
$9,000,000.
3. On September 3, 1998, the Company issued unsecured promissory
notes to certain investors in the aggregate principal amount of
$500,000. Pursuant to its agreements with Imperial Bank, the
Company was required to obtain Imperial Bank's consent prior to
issuing these notes. The Company did not obtain Imperial Bank's
consent.
4. See the disclosures in Section 3.3 above.
</TABLE>
2
<PAGE>
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
See Exhibit 10.6
EXHIBIT A-1
<PAGE>
EXHIBIT B
FORM OF LEGAL OPINION
EXHIBIT B-1
<PAGE>
[FORM OF LEGAL OPINION]
September 17, 1998
To the Investors Listed on Schedule A
to the Imaging Technologies Corporation
Common Stock Purchase Agreement
dated September 17, 1998
Ladies and Gentlemen:
We have acted as counsel for Imaging Technologies Corporation,
a Delaware corporation (the "Company"), in connection with the issuance and sale
of shares of its Common Stock pursuant to the Imaging Technologies Corporation
Common Stock Purchase Agreement dated September 17, 1998 (the "Stock Purchase
Agreement") among the Company and you. This opinion letter is being rendered to
you pursuant to Section 5.5 of the Stock Purchase Agreement in connection with
the Closing of the sale of the Common Stock. Capitalized terms not otherwise
defined in this opinion letter have the meaning given them in the Stock Purchase
Agreement.
In connection with the opinions expressed herein we have made
such examination of matters of law and of fact as we considered appropriate or
advisable for purposes hereof. As to matters of fact material to the opinions
expressed herein, we have relied upon the representations and warranties as to
factual matters contained in and made by the Company pursuant to the Stock
Purchase Agreement and upon certificates and statements of government officials
and of officers of the Company. We have also examined originals or copies of
such corporate documents or records of the Company as we have considered
appropriate for the opinions expressed herein. We have assumed for the purposes
of this opinion letter the genuineness of all signatures, the legal capacity of
natural persons, the authenticity of the documents submitted to us as originals,
the conformity to the original documents of all documents submitted to us as
certified, facsimile or photostatic copies, and the authenticity of the
originals of such copies.
In rendering this opinion letter we have also assumed: (A)
that the Stock Purchase Agreement and the Registration Rights Agreement
(collectively, the "Transaction Agreements") have been duly and validly executed
and delivered by you or on your behalf, that each of you has the power to enter
into and perform all your obligations thereunder, and that the Transaction
Agreements constitute valid, legal, binding and enforceable obligations upon
you; (B) that the representations and warranties made in the Stock Purchase
Agreement by you are true and correct; (C) that any wire
<PAGE>
To the Investors Listed on September 17, 1998
Schedule A to the Common Page 2
Stock Purchase Agreement
transfers, drafts or checks tendered by you will be honored; and (D) if you are
a corporation or other entity, that you have filed any required state franchise,
income or similar tax returns and have paid any required state franchise, income
or similar taxes.
As used in this opinion letter, the expression "we are not
aware" or the phrase "to our knowledge", or any similar expression or phrase
with respect to our knowledge of matters of fact, means as to matters of fact
that, based on the actual knowledge of individual attorneys within the firm
principally responsible for handling current matters for the Company (and not
including any constructive or imputed notice of any information), and after an
examination of documents referred to herein and after inquiries of certain
officers of the Company, no facts have been disclosed to us that have caused us
to conclude that the opinions expressed are factually incorrect; but beyond that
we have made no factual investigation for the purposes of rendering this opinion
letter. Specifically, but without limitation, we have made no inquiries of
securities holders or employees of the Company, other than such officers.
This opinion letter relates solely to the laws of the State of
California, the General Corporation Law of the State of Delaware and the federal
law of the United States and we express no opinion with respect to the effect or
application of any other laws. Special rulings of authorities administering such
laws or opinions of other counsel have not been sought or obtained.
Based upon our examination of and reliance upon the foregoing
and subject to the limitations, exceptions, qualifications and assumptions set
forth below and except as set forth in the Stock Purchase Agreement or the
Schedule of Exceptions thereto, we are of the opinion that as of the date
hereof:
1. The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware, and the
Company has the requisite corporate power and authority to own its properties
and to conduct its business as, to our knowledge, it is presently conducted.
2. The Company is qualified to do business as a foreign
corporation in California and is in good standing under the laws of the State of
California.
3. The Company has the requisite corporate power and authority
to execute, deliver and perform the Transaction Agreements. Each of the
foregoing has been duly and validly authorized by the Company, duly executed and
delivered by an authorized officer of the Company and constitutes a legal, valid
and binding obligation of the Company, enforceable by you against the Company in
accordance with its terms.
<PAGE>
To the Investors Listed on September 17, 1998
Schedule A to the Common Page 3
Stock Purchase Agreement
4. The Company's execution and delivery of, and its
performance and compliance as of the date hereof with the terms of, the
Transaction Agreements do not violate any provision of any federal or California
law, rule or regulation applicable to the Company or any provision of the
Company's Certificate of Incorporation, as amended, or Bylaws, and do not
conflict with or constitute a default under the material provisions of any
agreement specifically identified on Schedule A attached hereto.
Our opinions expressed above are specifically subject to the
following limitations, exceptions, qualifications and assumptions:
(A) The legality, validity, binding nature and enforceability
of the Company's obligations under the Transaction Agreements may be subject to
or limited by (1) bankruptcy, insolvency, reorganization, arrangement,
moratorium, fraudulent transfer and other similar laws affecting the rights of
creditors generally; (2) general principles of equity (whether relief is sought
in a proceeding at law or in equity), including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing, and the discretion of
any court of competent jurisdiction in awarding specific performance or
injunctive relief and other equitable remedies; and (3), without limiting the
generality of the foregoing, the effect of California court decisions and
statutes which indicate that provisions of the Transaction Agreements which
permit any of you to take action or make determinations may be subject to a
requirement that such action be taken or such determinations be made on a
reasonable basis in good faith or that it be shown that such action is
reasonably necessary for your protection.
(B) We express no opinion as to the Company's compliance or
noncompliance with applicable federal or state antifraud or antitrust statutes,
laws, rules and regulations.
(C) We express no opinion concerning the past, present or
future fair market value of any securities.
(D) We express no opinion as to the enforceability under
certain circumstances of any provisions prohibiting waivers of any terms of the
Transaction Agreements other than in writing, or prohibiting oral modifications
thereof or modification by course of dealing.
(E) Our opinions are subject to the effect of judicial
decisions which may permit the introduction of extrinsic evidence to interpret
the terms of written contracts.
(F) We express no opinion as to the effect of Section 1670.5
of the California Civil Code or any other California law, federal law or
equitable principle
<PAGE>
To the Investors Listed on September 17, 1998
Schedule A to the Common Page 4
Stock Purchase Agreement
which provides that a court may refuse to enforce, or may limit the application
of, a contract or any clause thereof which the court finds to have been
unconscionable at the time it was made or contrary to public policy.
(G) We express no opinion as to your compliance with any
Federal or state law relating to your legal or regulatory status or the nature
of your business.
(H) We express no opinion as to the compliance of the Company,
any Investor or the sale of the Common Stock to the Investors with the
provisions of the Small Business Investment Act of 1958, as amended, or any of
the regulations promulgated thereunder.
(I) We express no opinion as to:
(1) The enforceability under certain circumstances of
provisions indemnifying a party against, or requiring contributions toward, that
party's liability for its own wrongful or negligent acts, or where
indemnification or contribution is contrary to public policy or prohibited by
law. In this regard, we advise you that in the opinion of the Securities and
Exchange Commission indemnification of directors, officers and controlling
persons of an issuer against liabilities arising under the Securities Act of
1933, as amended, is against public policy and is therefore unenforceable;
(2) The enforceability under certain circumstances of
provisions expressly or by implication waiving broadly or vaguely stated rights,
unknown future rights, or defenses to obligations or rights granted by law, when
such waivers are against public policy or prohibited by law;
(3) The enforceability under certain circumstances of
provisions to the effect that rights or remedies are not exclusive, that every
right or remedy is cumulative and may be exercised in addition to or with any
other right or remedy, that election of a particular remedy or remedies does not
preclude recourse to one or more remedies, that rights or remedies may be
exercised without notice, or that failure to exercise or delay in exercising
rights or remedies will not operate as a waiver of any such right or remedy;
(4) Any provision providing for the exclusive
jurisdiction of a particular court or purporting to waive rights to trial by
jury, service of process or objections to the laying of venue or to forum on the
basis of forum non conveniens, in connection with any litigation arising out of
or pertaining to the Transaction Agreements;
<PAGE>
To the Investors Listed on September 17, 1998
Schedule A to the Common Page 5
Stock Purchase Agreement
(5) Section 7.2 of the Stock Purchase Agreement and
Section 2.2 of the Registration Rights Agreement, to the extent that they
purport to exclude conflict of law principles under California law;
(6) The effect of any California law, federal law or
equitable principles which limit the amount of attorneys' fees that can be
recovered under certain circumstances; and
(7) The effect of Section 1717 of the California
Civil Code, which provides that, among other things, where a contract permits
one party to the contract to recover attorneys' fees, the prevailing party in
any action to enforce any provision of the contract shall be entitled to recover
its reasonable attorneys' fees.
This opinion letter is rendered as of the date first written
above solely for your benefit in connection with the Stock Purchase Agreement
and may not be delivered to, quoted or relied upon by any person other than you,
or for any other purpose, without our prior written consent. Our opinion is
expressly limited to the matters set forth above and we render no opinion,
whether by implication or otherwise, as to any other matters relating to the
Company. We assume no obligation to advise you of facts, circumstances, events
or developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinions expressed herein.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
<PAGE>
To the Investors Listed on September 17, 1998
Schedule A to the Common Page 6
Stock Purchase Agreement
SCHEDULE A
1. Promissory Note between Imperial Bank and the Company, dated June 23,
1998.
2. Security and Loan Agreement and Addendum thereto (Eximbank Facility)
between Imperial Bank and the Company, dated June 23, 1998.
3. Security and Loan Agreement and Addendum thereto (Foreign Insured A/R
Line) between Imperial Bank and the Company, dated June 23, 1998.
4. Security and Loan Agreement and Addendum thereto (Domestic Line) between
Imperial Bank and the Company, dated June 23, 1998.
5. Corporate Resolution to Borrow by the Company, dated June 23, 1998 (re:
Loan No 711062536-4).
6. Promissory Note between Bank of Yorba Linda and McMican Corporation dba
New Media Memory, dated June 17, 1997 ("Loan No. 1054468601").
7. Loan Agreement between Bank of Yorba Linda and McMican Corporation dba
New Media Memory, dated October 20, 1997.
8. Change in Terms Agreement (to Loan No 1054468601) between BYL Bank Group
and McMican Corporation (dba New Media Memory), dated May 17, 1998.
9. Commercial Security Agreement between Bank of Yorba Linda and McMican
Corporation dba New Media Memory, dated June 17, 1997.
10. Commercial Guaranty by Timothy E. McCanna in connection with Loan No
1054468601, dated May 17, 1998.
11. Commercial Guaranty by the Company in connection with Loan No
1054468601, dated May 17, 1998.
12. Corporate Resolution to Borrow by McMican Corporation (dba New Media
Memory), dated May 17, 1998 (re: Loan No 1054468601).
13. Export-Import Bank of the United States Working Capital Guarantee
Program, Borrower Agreement between the Company and Imperial Bank, dated
June 29, 1998.
<PAGE>
To the Investors Listed on September 17, 1998
Schedule A to the Common Page 7
Stock Purchase Agreement
14. Imperial Bancorp Registration Rights Agreement, dated June 23, 1998.
15. Development and Manufacturing Agreement between the Company and Elesys,
Inc., dated September 30, 1997.
16. Development and Manufacturing Agreement between the Company. and Nissei
Sangyo America, Ltd., dated June 30, 1998.
17. Amendment No. 1 to Postscript Software Development and OEM Distribution
License Agreement between the Company and Adobe Systems Incorporated,
dated October 13, 1997.
18. Licensed System Appendix No. 3 to the Postscript Software Development and
OEM Distribution License Agreement between the Company and Adobe Systems
Incorporated, dated October 13, 1997.
19. Multi-Tenant Industrial Lease between Sunhala Enterprises, LLC and the
Company, dated April 1998.
20. Standard Industrial/Commercial Single-Tenant Lease between Robert C.
Meyer Trust and the Company, dated May 2, 1997.
21. Stipulation for Entry of Judgment in Dornsife & Associates, Inc. v. Color
Solutions, Inc.- Settlement for a 10/1/95 promissory note.
22. Promissory Note between the Company and Franz Herbert and Dornsife &
Associates, Inc., dated October 1, 1995
23. Convertible Promissory Note between Harry J. Saal and the Company,
dated December 31, 1997.
24. Promissory Note between the Company and Dataproducts Corporation, dated
as of June 30, 1998.
25. Stipulation for Entry of Judgment in Syquest Technology, Inc. v. Prima
International.
26. Consulting Agreement between the Company and Irwin Roth, dated April 1,
1994 and Amendments thereto dated June 12, 1998 and January 22, 1997,
respectively.
27. Executive Employment Agreement between the Company and Brian Bonar, dated
September 1, 1994 and Amendments thereto dated January 22, 1997 and April
1, 1998, respectively.
<PAGE>
To the Investors Listed on September 17, 1998
Schedule A to the Common Page 8
Stock Purchase Agreement
28. Executive Employment Agreement between the Company and Edward Savarese,
dated July 1, 1990, as amended February 25, 1994, and Amendments thereto
dated January 22, 1997, April 1, 1998 and June 12, 1998, respectively.
<PAGE>
Exhibit 10.2
- --------------------------------------------------------------------------------
IMAGING TECHNOLOGIES CORPORATION
SUBORDINATED NOTE PURCHASE AGREEMENT
September 17, 1998
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Section 1 AUTHORIZATION AND SALE OF SUBORDINATED PROMISSORY NOTES AND WARRANTS . . .1
1.1 AUTHORIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 SALE OF SUBORDINATED NOTES AND WARRANTS. . . . . . . . . . . . . . . . . .1
Section 2 CLOSING DATE; DELIVERY . . . . . . . . . . . . . . . . . . . . . . . . . .1
2.1 CLOSING DATE.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2.2 DELIVERY.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 3 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY . . . . . . . . .2
3.1 ORGANIZATION AND STANDING. . . . . . . . . . . . . . . . . . . . . . . . .2
3.2 CORPORATE POWER; AUTHORIZATION.. . . . . . . . . . . . . . . . . . . . . .2
3.3 ISSUANCE AND DELIVERY OF THE SECURITIES. . . . . . . . . . . . . . . . . .2
3.4 GOVERNMENTAL CONSENTS. . . . . . . . . . . . . . . . . . . . . . . . . . .3
3.5 SEC DOCUMENTS; FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . .3
3.6 NO MATERIAL MISSTATEMENT . . . . . . . . . . . . . . . . . . . . . . . . .3
3.7 NO MATERIAL ADVERSE CHANGE.. . . . . . . . . . . . . . . . . . . . . . . .3
3.8 USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Section 4 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASERS. . . . . . . .3
4.1 AUTHORIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
4.2 INVESTMENT EXPERIENCE. . . . . . . . . . . . . . . . . . . . . . . . . . .4
4.3 INVESTMENT INTENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
4.4 REGISTRATION OR EXEMPTION REQUIREMENTS.. . . . . . . . . . . . . . . . . .4
4.5 NO LEGAL, TAX OR INVESTMENT ADVICE.. . . . . . . . . . . . . . . . . . . .4
4.6 LEGENDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Section 5 CONDITIONS TO CLOSING OF PURCHASERS. . . . . . . . . . . . . . . . . . . .5
5.1 REPRESENTATIONS AND WARRANTIES.. . . . . . . . . . . . . . . . . . . . . .5
5.2 PERFORMANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
5.3 QUALIFICATIONS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
5.4 COMPLIANCE CERTIFICATE.. . . . . . . . . . . . . . . . . . . . . . . . . .5
5.5 FULL PARTICIPATION.. . . . . . . . . . . . . . . . . . . . . . . . . . . .5
5.6 OPINION OF COMPANY COUNSEL.. . . . . . . . . . . . . . . . . . . . . . . .5
Section 6 CONDITIONS TO CLOSING OF COMPANY . . . . . . . . . . . . . . . . . . . . .6
6.1 REPRESENTATIONS AND WARRANTIES.. . . . . . . . . . . . . . . . . . . . . .6
6.2 COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
6.3 QUALIFICATIONS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Section 7 MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
7.1 AMENDMENTS AND WAIVERS.. . . . . . . . . . . . . . . . . . . . . . . . . .6
7.2 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
7.3 SURVIVAL.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
7.4 SUCCESSORS AND ASSIGNS.. . . . . . . . . . . . . . . . . . . . . . . . . .7
7.5 ENTIRE AGREEMENT.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
7.6 NOTICES, ETC.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
7.7 SEVERABILITY OF THIS AGREEMENT.. . . . . . . . . . . . . . . . . . . . . .7
7.8 COUNTERPARTS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
7.9 FURTHER ASSURANCES.. . . . . . . . . . . . . . . . . . . . . . . . . . . .7
7.10 EXPENSES.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
7.11 ACKNOWLEDGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
</TABLE>
Schedule A -- Schedule of Purchasers
Schedule B -- Schedule of Exceptions
Exhibit A-1 -- Form of Non-Convertible Subordinated Promissory Note
Exhibit A-2 -- Form of Convertible Subordinated Promissory Note
Exhibit B -- Form of Warrant
Exhibit C -- Form of Opinion of Company Counsel
ii
<PAGE>
The Company also entered into another Subordinated Note Purchase Agreement,
substantially identical in all material respects to this Exhibit 10.2, except
for the following details:
<TABLE>
<CAPTION>
Principal Amount of Principal Amount of Number of
Investor Convertible Note Non-Convertible Note Warrants Governing Law
- -------- ------------------- -------------------- --------- -------------
<S> <C> <C> <C> <C>
Harry Saal 0 $1,500,000 $300,000 California
</TABLE>
IMAGING TECHNOLOGIES CORPORATION
SUBORDINATED NOTE PURCHASE AGREEMENT
This Subordinated Note Purchase Agreement (the "Agreement") is made as
of September 17, 1998, by and among Imaging Technologies Corporation, a Delaware
corporation (the "Company"), with its principal office at 11031 Via Frontera,
San Diego, California 92127, and the purchasers set forth on SCHEDULE A hereto
(the "Purchasers").
Section 1
AUTHORIZATION AND SALE OF SUBORDINATED PROMISSORY NOTES AND WARRANTS
1.1 AUTHORIZATION. The Company has authorized the sale and issuance of
non-convertible subordinated promissory notes in the form of EXHIBIT A-1
attached hereto (the "Non-Convertible Notes") and convertible subordinated
promissory notes in the form of EXHIBIT A-2 attached hereto (the "Convertible
Notes" and together with the Non-Convertible Notes, the "Subordinated Notes") in
the aggregate principal amounts as set forth on Schedule A attached hereto under
the headings "Principal Amount of Non-Convertible Note" and "Principal Amount of
Convertible Note," respectively (collectively, the "Proceeds") and warrants in
the form of EXHIBIT B attached hereto ("the Warrants") to purchase up to the
number of shares of the Company's Common Stock (the "Common Stock") set forth
opposite each such Purchaser's name on SCHEDULE A hereto under the heading
"Number of Warrant Shares."
1.2 SALE OF SUBORDINATED NOTES AND WARRANTS. Subject to the terms and
conditions of this Agreement, the Company agrees to issue and sell to each
Purchaser, and each Purchaser agrees severally and not jointly to purchase from
the Company, both a Non-Convertible Note and a Convertible Note in the principal
amounts set forth opposite such Purchaser's name on SCHEDULE A attached hereto
under the headings "Principal Amount of Non-Convertible Note" and "Principal
Amount of Convertible Note," respectively (collectively, the "Purchase Price"),
and a Warrant to purchase up to the number of shares of Common Stock set forth
opposite the Purchaser's name on SCHEDULE A hereto under the heading "Number of
Warrant Shares.".
Section 2
CLOSING DATE; DELIVERY
2.1 CLOSING DATE. The closing of the purchase and sale of the
Subordinated Notes hereunder (the "Closing") shall be held at the offices of
Tonkon Torp LLP, 1600 Pioneer Tower, 888 SW Fifth Avenue, Portland, Oregon
97204, at 11:00 a.m. on September 17, 1998, or at such other time and place upon
which the Company and the Purchasers shall agree. The date of the Closing is
hereinafter referred to as the "Closing Date."
<PAGE>
2.2 DELIVERY. At the Closing, the Company will deliver to each
Purchaser a Non-Convertible Note and a Convertible Note each made payable to
such Purchaser in the principal amounts as set forth opposite the Purchaser's
name on SCHEDULE A hereto under the headings "Principal Amount of
Non-Convertible Note" and "Principal Amount of Convertible Note," respectively,
and a Warrant to purchase up to the number of shares of Common Stock set forth
opposite the Purchaser's name on SCHEDULE A hereto under the heading "Number of
Warrant Shares." Such delivery shall be against payment of the purchase price
therefor by check or wire transfer to the Company in the amount of the Purchase
Price.
Section 3
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
The Company represents and warrants to each Purchaser as of the
Closing Date that, except as set forth on the Schedule of Exceptions attached
hereto as SCHEDULE B (the "Schedule of Exceptions"), which exceptions shall be
deemed to be representations and warranties as if made hereunder:
3.1 ORGANIZATION AND STANDING. The Company is a corporation duly
organized and validly existing under, and by virtue of, the laws of the State of
Delaware and is in good standing as a domestic corporation under the laws of
said state.
3.2 CORPORATE POWER; AUTHORIZATION. The Company has all requisite
legal and corporate power and has taken all requisite corporate action to
execute and deliver this Agreement, to sell and issue the Subordinated Notes and
the Warrants (collectively, the "Securities") and to carry out and perform all
of its obligations under this Agreement and the Securities. This Agreement and
the Securities each constitute the legal, valid and binding obligation of the
Company, enforceable in accordance with their respective terms, except (i) as
limited by applicable bankruptcy, insolvency, reorganization or similar laws
relating to or affecting the enforcement of creditors' rights generally and (ii)
as limited by equitable principles generally. The execution and delivery of this
Agreement and the Securities does not, and the performance of this Agreement and
the Securities and the compliance with the provisions hereof and thereof and the
issuance, sale and delivery of the Securities by the Company will not,
materially conflict with, or result in a material breach or violation of the
terms, conditions or provisions of, or constitute a material default under, or
result in the creation or imposition of any material lien pursuant to the terms
of, the Certificate of Incorporation or Bylaws of the Company or any statute,
law, rule or regulation or any state or federal order, judgment or decree or any
indenture, mortgage, lease or other material agreement or instrument to which
the Company or any of its properties is subject.
3.3 ISSUANCE AND DELIVERY OF THE SECURITIES. The issuance and delivery
of the Securities is not subject to preemptive or any other similar rights of
the stockholders of the Company or any liens or encumbrances.
2
<PAGE>
3.4 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement except for: (i) the filing of a Notice of
Transaction pursuant to Section 25102(f) of the California Corporate Securities
Law of 1968, as amended, and the rules thereunder (the "Law"), which filing will
be effected within the time prescribed by law; and (ii) such other
qualifications or filings under the Securities Act of 1933, as amended (the
"Securities Act"), and the regulations thereunder and all other applicable
securities laws as may be required in connection with the transactions
contemplated by this Agreement, which filings will be effected within the time
prescribed by law.
3.5 SEC DOCUMENTS; FINANCIAL STATEMENTS. As of their respective filing
dates, all documents (the "SEC Documents") filed by the Company with the
Securities and Exchange Commission (the "SEC") complied in all material respects
with the requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") or the Securities Act, as applicable. None of the SEC Documents
as of their respective dates contained any untrue statement of material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances under which they
were made, not misleading.
3.6 NO MATERIAL MISSTATEMENT None of the representations or warranties
of the Company contained in this Agreement or in the Securities, and none of the
other information furnished to Purchasers or their representatives in connection
with this Agreement, when considered as a whole, contains, or will contain, any
misstatement of a material fact or omits to state any fact necessary in light of
the circumstances under which made, to make those statements which have been
made, not misleading.
3.7 NO MATERIAL ADVERSE CHANGE. Except as otherwise disclosed herein,
since March 31, 1998, there have not been any changes in the assets,
liabilities, financial condition, business prospects or operations of the
Company from that reflected in the SEC Documents except changes in the ordinary
course of business which have not been, either individually or in the aggregate,
materially adverse.
3.8 USE OF PROCEEDS. The Company shall use the Proceeds for the
purposes of redeeming outstanding shares of its Series C Preferred Stock and for
working capital.
Section 4
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASERS
Each Purchaser hereby represents and warrants to the Company as of the
Closing Date as follows:
4.1 AUTHORIZATION. Purchaser represents and warrants to the Company
that: (i) Purchaser has all requisite legal and corporate or other power and
capacity and has taken all
3
<PAGE>
requisite corporate or other action to execute and deliver this Agreement and
his or its Securities, to purchase his or its Securities and to carry out and
perform all of his or its obligations under this Agreement; and (ii) this
Agreement and his or its Securities each constitute the legal, valid and binding
obligation of the Purchaser, enforceable in accordance with its terms, except
(a) as limited by applicable bankruptcy, insolvency, reorganization, or similar
laws relating to or affecting the enforcement of creditors' rights generally and
(b) as limited by equitable principles generally.
4.2 INVESTMENT EXPERIENCE. Purchaser is an "accredited investor" as
defined in Rule 501(a) under the Securities Act. Purchaser is aware of the
Company's business affairs and financial condition and has had access to and has
acquired sufficient information about the Company to reach an informed and
knowledgeable decision to purchase his or its Securities. Purchaser has such
business and financial experience as is required to give it the capacity to
protect his or its own interests in connection with the purchase of his or its
Securities.
4.3 INVESTMENT INTENT. Purchaser is purchasing his or its Securities
for his or its own account as principal, for investment purposes only, and not
with a present view to, or for, resale, distribution or fractionalization
thereof, in whole or in part, within the meaning of the Securities Act.
Purchaser understands that its acquisition of his or its Securities has not been
registered under the Securities Act or registered or qualified under any state
securities law in reliance on specific exemptions therefrom, which exemptions
may depend upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein. Purchaser has, in connection with his or
its decision to purchase his or its Securities, relied solely upon the SEC
Documents and the representations and warranties of the Company contained
herein. Purchaser will not, directly or indirectly, offer, sell, pledge,
transfer or otherwise dispose of (or solicit any offers to buy, purchase or
otherwise acquire or take a pledge of) his or its Securities except in
compliance with the Securities Act, and the rules and regulations promulgated
thereunder.
4.4 REGISTRATION OR EXEMPTION REQUIREMENTS. Purchaser further
acknowledges and understands that his or its Securities may not be resold or
otherwise transferred except in a transaction registered under the Securities
Act or unless an exemption from such registration is available.
4.5 NO LEGAL, TAX OR INVESTMENT ADVICE. Purchaser understands that
nothing in this Agreement or any other materials presented to Purchaser in
connection with the purchase and sale of his or its Securities constitutes
legal, tax or investment advice. Purchaser has consulted such legal, tax and
investment advisors as he or it, in his or its sole discretion, has deemed
necessary or appropriate in connection with his or its purchase of his or its
Securities.
4.6 LEGENDS. To the extent applicable, each of the Securities shall be
endorsed with the legend set forth below:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE
4
<PAGE>
SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE OFFERED, SOLD OR TRANSFERRED
FOR VALUE DIRECTLY OR INDIRECTLY, IN THE ABSENCE OF SUCH REGISTRATION UNDER THE
ACT AND QUALIFICATION UNDER APPLICABLE STATE LAWS, OR PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE ACT AND QUALIFICATION UNDER APPLICABLE STATE LAWS,
THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE REASONABLE SATISFACTION OF
THE COMPANY."
Section 5
CONDITIONS TO CLOSING OF PURCHASERS
Each Purchaser's obligation to purchase his or its Securities at the
Closing is, at the option of the Purchaser, subject to the fulfillment or waiver
as of the Closing Date of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained in Section 3 shall be true on and as of the Closing
with the same effect as though such representations and warranties had been made
on and as of the date of such Closing.
5.2 PERFORMANCE. The Company shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
5.3 QUALIFICATIONS. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required as of the Closing in connection with the lawful issuance
and sale of his or its Securities pursuant to this Agreement shall have been
duly obtained and shall be effective as of the Closing.
5.4 COMPLIANCE CERTIFICATE. The President and Chief Executive Officer
of the Company shall have delivered to Purchaser a certificate certifying that
the conditions specified in Sections 5.1 and 5.2 have been fulfilled.
5.5 FULL PARTICIPATION. Each other Purchaser shall have purchased the
Securities in the principal amounts set forth opposite such Purchaser's name on
SCHEDULE A attached hereto and Harry Saal (the "Other Investor"), who is
purchasing a subordinated note and warrant under a certain Subordinated Note
Purchase Agreement dated the date hereof, shall have purchased the subordinated
note and warrant in the amounts set forth opposite the Other Investor's name on
SCHEDULE A attached thereto.
5
<PAGE>
5.6 OPINION OF COMPANY COUNSEL. Each Purchaser shall have received
from Brobeck, Phleger & Harrison LLP, counsel for the Company, an opinion dated
the date of the Closing, in substantially the form as EXHIBIT C attached hereto.
Section 6
CONDITIONS TO CLOSING OF COMPANY
The Company's obligation to sell and issue the Securities at the
Closing is, at the option of the Company, subject to the fulfillment or waiver
of the following conditions:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of each Purchaser contained in Section 4 shall be true on and as of the Closing
with the same effect as though such representations and warranties had been made
on and as of the date of such Closing.
6.2 COVENANTS. Each Purchaser shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by the Purchaser on or before the
Closing.
6.3 QUALIFICATIONS. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required as of the Closing in connection with the lawful issuance
and sale of his or its Securities pursuant to this Agreement shall have been
duly obtained and shall be effective as of the Closing.
Section 7
MISCELLANEOUS
7.1 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively but only
if so expressly stated), only with the written consent of the Company and the
holders of a majority of the aggregate principal amount of the Subordinated
Notes purchased hereunder. Any amendment or waiver effected in accordance with
this Section shall be binding upon each holder of any of the Securities
purchased under this Agreement at the time outstanding, each future holder of
all such Securities, and the Company.
7.2 GOVERNING LAW. This Agreement shall be governed in all respects by
and construed in accordance with the laws of the State of Oregon without any
regard to conflicts of laws principles. Each party hereby irrevocably submits to
the non-exclusive jurisdiction of the state and federal courts sitting in
Portland, Multnomah County, Oregon, for the adjudication of any dispute
hereunder or in connection herewith, and hereby waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the
6
<PAGE>
venue of such suit, action or proceeding is improper. Each party hereby waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
7.3 SURVIVAL. The representations, warranties, covenants and
agreements made in this Agreement shall survive any investigation made by the
Company or the Purchasers and the Closing.
7.4 SUCCESSORS AND ASSIGNS. The provisions hereof shall inure to the
benefit of, and be binding upon, the successors, assigns, heirs, executors and
administrators of the parties to this Agreement. Notwithstanding the foregoing,
no Purchaser shall assign its rights or obligations under this Agreement without
the prior written consent of the Company.
7.5 ENTIRE AGREEMENT. This Agreement, together with the Securities,
constitutes the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof.
7.6 NOTICES, ETC. All notices and other communications required or
permitted under this Agreement shall be in writing and may be delivered in
person, by facsimile, overnight delivery service or registered or certified
mail, addressed to the Company at the address set forth at the beginning of this
Agreement, or to the Purchasers at their respective addresses set forth on the
signature pages hereto or at such other address as the Company or each Purchaser
shall have furnished to the other parties in writing. All notices and other
communications shall be effective upon the earlier of actual receipt thereof by
the person to whom notice is directed or (i) in the case of notices and
communications sent by personal delivery or facsimile, one business day after
such notice or communication arrives at the applicable address or was
successfully sent to the applicable facsimile number, (ii) in the case of
notices and communications sent by overnight delivery service, at noon (local
time) on the second business day following the day such notice or communication
was sent, and (iii) in the case of notices and communications sent by United
States mail, seven days after such notice or communication shall have been
deposited in the United States mail.
7.7 SEVERABILITY OF THIS AGREEMENT. If any provision of this Agreement
shall be determined to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
7.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
7.9 FURTHER ASSURANCES. Each party to this Agreement shall do and
perform or cause to be done and performed all such further acts and things and
shall execute and deliver all such other agreements, certificates, instruments
and documents as the other party hereto may
7
<PAGE>
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.
7.10 EXPENSES. Irrespective of whether the Closing is effected, the
Company shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this Agreement and the
Securities. If the Closing is effected, the Company shall, at the Closing,
reimburse the reasonable fees of a single special counsel for Mr. Morgan and
American Industries, Inc. and shall, upon receipt of a bill therefor, reimburse
the out of pocket expenses of such counsel.
7.11 ACKNOWLEDGEMENT. By executing this Agreement, each Purchaser
hereby acknowledges and agrees that Brobeck, Phleger & Harrison LLP represents
the Company solely and that the Purchasers have each had an opportunity to
consult with their own attorney in connection with this Agreement and the
Securities.
8
<PAGE>
The foregoing agreement is hereby executed as of the date first above
written.
"COMPANY"
IMAGING TECHNOLOGIES CORPORATION,
a Delaware corporation
By: /S/ BRIAN BONAR
--------------------------------------
Brian Bonar, President and
Chief Executive Officer
"PURCHASERS"
AMERICAN INDUSTRIES, INC.,
An Oregon corporation
By /S/ HOWARD HEDINGER
--------------------------------------
Its: PRESIDENT
--------------------------------------
Address: 1750 NW Front Avenue, Suite 106
Portland, Oregon 97209
By: /S/ ELLISON MORGAN
--------------------------------------
Ellison Morgan
Address: 11510 SW Summerville Street
Portland, Oregon 97219
[SIGNATURE PAGE TO SUBORDINATED NOTE PURCHASE AGREEMENT]
<PAGE>
SCHEDULE A
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
Principal Principal
Amount of Amount of Total Principal Number
Purchaser Non-Convertible Convertible Amount of of Warrant
Name Note Note Notes Shares
---------------------- --------------- ----------- -------------- ----------
<S> <C> <C> <C> <C>
American Industries, Inc. $ 950,000 $ 437,500 $1,387,500 190000
Ellison Morgan $ --- $ 237,500 $ 237,500 $ ---
--------------- ----------- -------------- ----------
TOTALS $ 950,000 $ 675,000 $1,625,000 190000
--------------- ----------- -------------- ----------
--------------- ----------- -------------- ----------
</TABLE>
<PAGE>
SCHEDULE B
SCHEDULE OF EXCEPTIONS
The following are exceptions to the representations and warranties of Imaging
Technologies Corporation (the "Company") set forth in that certain Subordinated
Note Purchase Agreement dated as of September __, 1998 (the "Agreement"), with
reference to the Section designations of the Agreement. The references to
specific Sections are not meant and should not be construed as limiting the
noted exceptions to a particular Section. Although the Company has used its
reasonable best efforts to cross-reference the exceptions to all applicable
representations and warranties, no assurance can be given that all necessary
cross-references have been identified and any exception noted below is therefore
deemed disclosed for purposes of all relevant Sections whether or not
cross-referenced. Capitalized terms not otherwise defined in this Schedule of
Exceptions have the meaning given them in the Agreement. Nothing herein
constitutes an admission of any liability or obligation of the Company nor an
admission against the Company's interest. The inclusion of any agreement or
other matter herein or any exhibit hereto should not be interpreted as
indicating that the Company has determined that such an agreement or other
matter is necessarily material to the Company.
SECTION NUMBER EXCEPTIONS
Section 3.2 CORPORATE POWER; AUTHORIZATION.
1. Pursuant to the terms of that certain Promissory Note
between McMican Corporation dba New Media Memory and Bank of
Yorba Linda (the "Lender"), dated June 17, 1997, that
certain Commercial Security Agreement between McMican
Corporation dba New Media Memory and Lender, dated June 17,
1997, that certain Loan Agreement between McMican
Corporation dba New Media Memory and Lender, dated October
20, 1997 and that certain Change in Terms Agreement between
McMican Corporation dba New Media Memory and Lender, dated
May 17, 1998 (collectively, the "Yorba Linda Line of
Credit"), the Company has outstanding approximately $390,000
in principal amount of indebtedness. The Yorba Linda Line of
Credit matured on August 15, 1998 and requires that the
Company obtain Lender's written consent prior to issuing the
Subordinated Notes. The Company is currently in the process
of obtaining additional credit from Imperial Bank to pay off
all amounts owed to the Lender under the Yorba Linda Line of
Credit. As a result, the Company has not obtained Lender's
written consent to issuing the Subordinated Notes.
<PAGE>
2. Pursuant to its agreements with Imperial Bank, the
Company is required to obtain the written consent of
Imperial Bank prior to the sale and issuance of Notes and
Warrants pursuant to the Agreement, and prior to the sale of
certain other notes and warrants and certain shares of the
Company's common stock being sold in connection herewith.
The Company has not obtained Imperial Bank's written
consent.
Section 3.3 ISSUANCE AND DELIVERY OF SECURITIES.
The Company has agreed to issue the Warrants to the
Purchasers pursuant to the Agreement, and certain warrants
(the "Other Warrants") to other investors (the "Other
Investors") under separate purchase agreements. In addition,
pursuant to the Agreement, the Company has agreed to issue
and sell to the Purchasers the Convertible Notes, which are
convertible at the option of the Purchasers into shares of
the Company's Common Stock. Under the terms of Section 4(g)
of that certain Securities Purchase Agreement dated August
21, 1997, between the Company and the holders of the
outstanding shares of the Company's Series C Preferred Stock
(the "Series C Holders"), the Company is required to offer
any equity or convertible debt securities it intends to
issue to the Series C Holders prior to offering the
securities to any third party. The Company has not offered
the Warrants, the Convertible Notes or the Other Warrants to
the Series C Holders, who will retain their right of first
offer until the closing of the Company's settlement with the
Series C Holders, which will not occur until after the
Company has issued the Warrants and the Convertible Notes to
the Purchasers and the Other Warrants to the Other
Investors.
Section 3.4 GOVERNMENTAL CONSENTS.
In connection with the issuance of the Subordinated Notes
and the Warrants under this Agreement, the Company was
required to obtain and has obtained a qualification by
permit from the Commissioner of Corporations of the State of
California to exempt the payment of the interest under the
Subordinated Notes from the usury laws of the State of
California.
Section 3.7 NO MATERIAL ADVERSE CHANGE.
1. On June 19, 1998, the Company delivered notice to the
Series C Holders of its election to redeem for cash all
shares of Series C Preferred Stock tendered for conversion
in lieu of converting such shares. Certain disputes have
arisen between the Company and the Series C Holders with
respect to such notice and the Company's right to redeem all
shares of Series C Preferred Stock tendered for conversion
in lieu of converting
<PAGE>
such shares. The Series C Holders have asserted that the
Company is in default of its obligations to them.
2. The Company has recently been informed by Imperial Bank,
the Company's primary lender, that the Company is not in
compliance with all of the provisions of its loan agreements
with Imperial Bank, including without limitation, the
provisions regarding certain minimum ratios the Company is
required to maintain. The Company's noncompliance with many
of these provisions results from the expected one-time
charge to earnings that the Company intends to include in
its financial statements as of and for the fiscal year ended
June 30, 1998, which one-time charge the Company currently
anticipates will be as much as approximately $9,000,000.
3. On September 3, 1998, the Company issued unsecured
promissory notes to certain investors in the aggregate
principal amount of $500,000. Pursuant to its agreements
with Imperial Bank, the Company was required to obtain
Imperial Bank's consent prior to issuing these notes. The
Company did not obtain Imperial Bank's consent.
4. See the disclosures in Section 3.3 above.
<PAGE>
EXHIBIT A-1
FORM OF NON-CONVERTIBLE SUBORDINATED PROMISSORY NOTE
See Exhibit 10.3
<PAGE>
EXHIBIT A-2
FORM OF CONVERTIBLE SUBORDINATED PROMISSORY NOTE
See Exhibit 10.4
<PAGE>
EXHIBIT B
FORM OF WARRANT
See Exhibit 10.5
<PAGE>
EXHIBIT C
FORM OF LEGAL OPINION
<PAGE>
[FORM OF LEGAL OPINION]
September 17, 1998
To the Purchasers Listed
on Schedule A to the
Imaging Technologies Corporation
Subordinated Note Purchase Agreement
dated September 17, 1998
Ladies and Gentlemen:
We have acted as counsel for Imaging Technologies Corporation,
a Delaware corporation (the "Company"), in connection with the issuance and sale
of its Subordinated Promissory Notes pursuant to the Imaging Technologies
Corporation Subordinated Note Purchase Agreement dated September 17, 1998 (the
"Note Purchase Agreement") among the Company and you. This opinion letter is
being rendered to you pursuant to Section 5.6 of the Note Purchase Agreement in
connection with the Closing of the sale of the Subordinated Promissory Notes.
Capitalized terms not otherwise defined in this opinion letter have the meaning
given them in the Note Purchase Agreement.
In connection with the opinions expressed herein we have made
such examination of matters of law and of fact as we considered appropriate or
advisable for purposes hereof. As to matters of fact material to the opinions
expressed herein, we have relied upon the representations and warranties as to
factual matters contained in and made by the Company pursuant to the Note
Purchase Agreement and upon certificates and statements of government officials
and of officers of the Company. We have also examined originals or copies of
such corporate documents or records of the Company as we have considered
appropriate for the opinions expressed herein. We have assumed for the purposes
of this opinion letter the genuineness of all signatures, the legal capacity of
natural persons, the authenticity of the documents submitted to us as originals,
the conformity to the original documents of all documents submitted to us as
certified, facsimile or photostatic copies, and the authenticity of the
originals of such copies.
As used in this opinion letter, the expression "we are not
aware" or the phrase "to our knowledge", or any similar expression or phrase
with respect to our knowledge of matters of fact, means as to matters of fact
that, based on the actual knowledge of individual attorneys within the firm
principally responsible for handling this matter for the Company (and not
including any constructive or imputed notice of any
<PAGE>
To the Purchasers listed on September 17, 1998
Schedule A to the Subordinated Page 2
Note Purchase Agreement
information), and after an examination of documents referred to herein and after
inquiries of certain officers of the Company, no facts have been disclosed to us
that have caused us to conclude that the opinions expressed are factually
incorrect; but beyond that we have made no factual investigation for the
purposes of rendering this opinion letter. Specifically, but without limitation,
we have made no inquiries of securities holders or employees of the Company,
other than such officers.
This opinion letter relates solely to the laws of the State of
California, the Delaware General Corporation Law and the federal law of the
United States, and we express no opinion with respect to the effect or
application of any other laws. Special rulings of authorities administering such
laws or opinions of other counsel have not been sought or obtained.
Based upon our examination of and reliance upon the foregoing
and subject to the limitations, exceptions, qualifications and assumptions set
forth below and except as set forth in the Note Purchase Agreement or the
Schedule of Exceptions thereto, we are of the opinion that as of the date
hereof:
1. The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware, and the
Company has the requisite corporate power and authority to own its properties
and to conduct its business as, to our knowledge, it is presently conducted.
2. The Company is qualified to do business as a foreign
corporation in California and is in good standing under the laws of the State of
California.
3. The Company has the requisite corporate power and authority
to execute, deliver and perform the Note Purchase Agreement, the Subordinated
Promissory Notes and the Warrants. Each of the foregoing has been duly and
validly authorized by the Company, and duly executed and delivered by an
authorized officer of the Company.
4. The Company's execution and delivery of, and its
performance and compliance as of the date hereof with the terms of, the Note
Purchase Agreement, the Subordinated Promissory Notes and the Warrants do not
violate any provision of any federal or California law, rule or regulation
applicable to the Company or any provision of the Company's Certificate of
Incorporation, as amended, or Bylaws, and do not conflict with or constitute a
default under the material provisions of any agreement specifically identified
on Schedule A attached hereto, other than a default under the agreements related
to the Company's loans from Imperial Bank and Bank of Yorba Linda, one or more
of which require the Company to obtain Imperial Bank's and Bank of Yorba Linda's
prior written consent (which consent the Company has not obtained prior
<PAGE>
To the Purchasers listed on September 17, 1998
Schedule A to the Subordinated Page 3
Note Purchase Agreement
to entering into the Note Purchase Agreement and consummating the transactions
contemplated thereby).
5. The Purchasers' loans to the Company evidenced by the
Subordinated Promissory Notes are exempt from the usury laws of the State of
California.
We express no opinion as to the Company's compliance or
noncompliance with applicable federal or state antifraud or antitrust statutes,
laws, rules and regulations.
We express no opinion concerning the past, present or future
fair market value of any securities.
We assume that all of the information contained in the
applications for qualification by permit filed by the Company on July 17, 1998
and September 15, 1998, under Section 25113 of the California Corporations Code,
including without limitation all of the information contained in any amendments
or supplements to the applications, was accurate, that no information required
to be included in the applications or in any amendments or supplements to the
applications was not so included, and that the qualifications by permit were
therefore properly obtained by the Company.
This opinion letter is rendered as of the date first written
above solely for your benefit in connection with the Note Purchase Agreement and
may not be delivered to, quoted or relied upon by any person other than you, or
for any other purpose, without our prior written consent. Our opinion is
expressly limited to the matters set forth above and we render no opinion,
whether by implication or otherwise, as to any other matters relating to the
Company. We assume no obligation to advise you of facts, circumstances, events
or developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinions expressed herein.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
<PAGE>
To the Purchasers listed on September 17, 1998
Schedule A to the Subordinated Page 4
Note Purchase Agreement
SCHEDULE A
1. Promissory Note between Imperial Bank and the Company, dated June 23,
1998.
2. Security and Loan Agreement and Addendum thereto (Eximbank Facility)
between Imperial Bank and the Company, dated June 23, 1998.
3. Security and Loan Agreement and Addendum thereto (Foreign Insured A/R
Line) between Imperial Bank and the Company, dated June 23, 1998.
4. Security and Loan Agreement and Addendum thereto (Domestic Line)
between Imperial Bank and the Company, dated June 23, 1998.
5. Corporate Resolution to Borrow by the Company, dated June 23, 1998 (re:
Loan No 711062536-4).
6. Promissory Note between Bank of Yorba Linda and McMican Corporation dba
New Media Memory, dated June 17, 1997 ("Loan No. 1054468601").
7. Loan Agreement between Bank of Yorba Linda and McMican Corporation dba
New Media Memory, dated October 20, 1997.
8. Change in Terms Agreement (to Loan No 1054468601) between BYL Bank
Group and McMican Corporation (dba New Media Memory), dated May 17,
1998.
9. Commercial Security Agreement between Bank of Yorba Linda and McMican
Corporation dba New Media Memory, dated June 17, 1997.
10. Commercial Guaranty by Timothy E. McCanna in connection with Loan No
1054468601, dated May 17, 1998.
11. Commercial Guaranty by the Company in connection with Loan No
1054468601, dated May 17, 1998.
12. Corporate Resolution to Borrow by McMican Corporation (dba New Media
Memory), dated May 17, 1998 (re: Loan No 1054468601).
13. Export-Import Bank of the United States Working Capital Guarantee
Program, Borrower Agreement between the Company and Imperial Bank,
dated June 29, 1998.
<PAGE>
To the Purchasers listed on September 17, 1998
Schedule A to the Subordinated Page 5
Note Purchase Agreement
14. Imperial Bancorp Registration Rights Agreement, dated June 23, 1998.
15. Development and Manufacturing Agreement between the Company and Elesys,
Inc., dated September 30, 1997.
16. Development and Manufacturing Agreement between the Company. and Nissei
Sangyo America, Ltd., dated June 30, 1998.
17. Amendment No. 1 to Postscript Software Development and OEM Distribution
License Agreement between the Company and Adobe Systems Incorporated,
dated October 13, 1997.
18. Licensed System Appendix No. 3 to the Postscript Software Development
and OEM Distribution License Agreement between the Company and Adobe
Systems Incorporated, dated October 13, 1997.
19. Multi-Tenant Industrial Lease between Sunhala Enterprises, LLC and the
Company, dated April 1998.
20. Standard Industrial/Commercial Single-Tenant Lease between Robert C.
Meyer Trust and the Company, dated May 2, 1997.
21. Stipulation for Entry of Judgment in Dornsife & Associates, Inc. v.
Color Solutions, Inc.- Settlement for a 10/1/95 promissory note.
22. Promissory Note between the Company and Franz Herbert and Dornsife &
Associates, Inc., dated October 1, 1995
23. Convertible Promissory Note between Harry J. Saal and the Company,
dated December 31, 1997.
24. Promissory Note between the Company and Dataproducts Corporation, dated
as of June 30, 1998.
25. Stipulation for Entry of Judgment in Syquest Technology, Inc. v. Prima
International.
26. Consulting Agreement between the Company and Irwin Roth, dated April 1,
1994 and Amendments thereto dated June 12, 1998 and January 22, 1997,
respectively.
<PAGE>
To the Purchasers listed on September 17, 1998
Schedule A to the Subordinated Page 6
Note Purchase Agreement
27. Executive Employment Agreement between the Company and Brian Bonar,
dated September 1, 1994 and Amendments thereto dated January 22, 1997
and April 1, 1998, respectively.
28. Executive Employment Agreement between the Company and Edward Savarese,
dated July 1, 1990, as amended February 25, 1994, and Amendments
thereto dated January 22, 1997, April 1, 1998 and June 12, 1998,
respectively.
<PAGE>
Exhibit 10.3
The Company also issued another Non-Convertible Subordinated Promissory
Note, substantially identical in all material respects to this Exhibit 10.3,
except for the following details:
<TABLE>
<CAPTION>
Principal Amount of
Investor Non-Convertible Note
-------- --------------------
<S> <C>
Harry Saal $1,500,000
</TABLE>
THIS SUBORDINATED PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY OTHER APPLICABLE SECURITIES LAWS. IT MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED UNDER CIRCUMSTANCES THAT WOULD RESULT IN A
VIOLATION OF THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933 OR SUCH
OTHER LAWS.
IMAGING TECHNOLOGIES CORPORATION
NON-CONVERTIBLE SUBORDINATED PROMISSORY NOTE
$950,000.00 September 17, 1998
Imaging Technologies Corporation, a Delaware corporation (the
"Company"), for value received, hereby promises to pay to the order of American
Industries, Inc. (the "Holder"), the principal sum of Nine Hundred Fifty
Thousand Dollars ($950,000), together with simple interest on the unpaid balance
from the date hereof until paid in accordance with the terms hereof at a rate of
sixteen percent (16%) per annum, interest to accrue on the basis of a 365-day
year for the number of days actually elapsed. Interest shall be payable monthly
in arrears with the first interest payment due September 30, 1998. Unless
otherwise provided in Sections 3 and 4 hereof, both principal and all
outstanding interest shall be due and payable on September 16, 1999 (the
"Maturity Date").
This Promissory Note is issued pursuant to that certain Subordinated
Note Purchase Agreement, dated as of the date hereof (the "Purchase Agreement"),
between the Company and the purchasers listed on SCHEDULE A attached thereto,
and is entitled to the benefits thereof. All terms not otherwise defined herein
shall have the meaning given such terms in the Purchase Agreement.
Section 1 PAYMENT. All payments made in accordance with this
Promissory Note are to be made in lawful money of the United States of America
at the address of the Holder as indicated on the signature page hereof, or at
such other location as the Holder may designate from time to time by written
notice to the Company.
The Company shall pay all costs and expenses, including reasonable
attorney's fees, for services to collect this Promissory Note, regardless of
whether litigation ensues and, if so, for services prior to trial or hearing, on
trial and in any appeal or appeals therefrom. The Company hereby waives notice
of default, presentment or demand for payment, protest or notice of nonpayment
or dishonor and all other notices or demands relative to this instrument.
Section 2 PREPAYMENT. The Company, at its option, may at any time on
or after the date hereof, prepay in whole or in part, without penalty, the
principal sum, together with accrued interest to the date of payment,
outstanding under this Promissory Note by giving written notice (the "Prepayment
Notice") to the Holder at least ten (10) days prior to the date of such
prepayment (the "Prepayment Date"). The Company shall not prepay any of the
other
<PAGE>
Subordinated Notes, the non-convertible subordinated promissory note
issued pursuant to that certain Subordinated Note Purchase Agreement, dated as
of the date hereof between the Company and Mr. Harry Saal (the "Saal Note"), the
non-convertible subordinated promissory notes issued pursuant to that certain
Subordinated Note Purchase Agreement, dated as of the date hereof among the
Company and NP Partners and Olympus Securities, Ltd. (together with the
Subordinated Notes and the Saal Note, the "Notes"), or any other subordinated
debt of the same rank as the Notes (the "Other Subordinated Debt") unless, at
the time of such prepayment, the Company pays to the holders of all of the Notes
(including the holder of this Promissory Note) a prepayment in the same
proportionate amount as the prepayment made to the holders of the other Notes or
to the holders of the Other Subordinated Debt (based on the total amount owed to
the holders of the other Notes or to the holders of the Other Subordinated
Debt).
Section 3 ACCELERATION OF MATURITY DATE OF PROMISSORY NOTE.
3.1 GENERAL. Upon the occurrence of an Acceleration Event (as
hereinafter defined), the entire unpaid principal amount, together with the
accrued but unpaid interest thereon, of this Promissory Note shall become
immediately due and payable in cash subject to Section 4 hereof (hereinafter,
the "Acceleration").
3.2 ACCELERATION EVENTS. An "Acceleration Event" shall be deemed to
have occurred upon the earlier of (i) (A) the acquisition by any person (as such
term is defined in Section 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended (the "1934 Act") of the power to direct the management and
business of the Company, whether by ownership of voting securities, by contract
or by other arrangement; (B) the individuals who, as of the date of this
Promissory Note, are directors of the Company shall cease for any reason to
constitute a majority of the Board of Directors of the Company, unless the
election or appointment, or nomination for election or appointment, of any new
member of the Board of Directors was approved by a vote of a majority of the
Board of Directors, in which event such new member shall, for purposes of this
Promissory Note, be considered as a member of the Board of Directors; (C) a
merger or consolidation involving the Company, if the stockholders of the
Company immediately before such merger or consolidation, do not, as a result of
such merger or consolidation, own, directly or indirectly, more than 50 percent
of the combined voting power or ownership interests of the Company or the entity
resulting from such merger or consolidation; or (D) the dissolution or the
complete or partial liquidation, or the sale or other disposition of all or
substantially all of the assets, of the Company; (ii) the commencement by or
against the Company of any case or proceeding under any bankruptcy,
reorganization, insolvency or moratorium law, or any other law or laws for the
relief of debtors, or the appointment of any receiver, trustee or assignee to
take possession of the properties of the Company; provided, however, that in the
event that such case, proceeding or appointment does not occur with the consent
of the Company, then the Acceleration Event shall be deemed to occur only in the
event that such case, proceeding or appointment is not dismissed within ninety
(90) days of the commencement of such case, proceeding or appointment; (iii) the
liquidation or dissolution of the Company; (iv) the commencement of any lawsuit
or foreclosure proceeding against the Company by the holders of any Senior
Indebtedness (as defined in Section 4); (v) the Company's failure in a material
respect to observe any covenant or obligation binding on it under the Purchase
Agreement or this Promissory Note; (vi) any of the representations and
warranties of the Company contained in Section 3 of the Purchase Agreement being
false or misleading in a
2
<PAGE>
material respect on and as of the Closing (as defined in the Purchase
Agreement); (vii) acceleration of the maturity date of any Senior Indebtedness
resulting from the Company's breach or default thereunder; or (viii) upon the
closing of any equity or convertible debt financing in which the Company
receives net proceeds in excess of $5,000,000.
3.3 SPECIAL LIMITED ACCELERATION. Upon the closing of any equity or
convertible debt financing in which the Company receives net proceeds in excess
of $2,000,000 but less than or equal to $5,000,000, fifty percent (50%) of the
entire unpaid principal amount, together with fifty percent (50%) of the accrued
but unpaid interest thereon, of this Promissory Note shall become immediately
due and payable in cash subject to Section 4 hereof (hereinafter, the "Special
Limited Acceleration").
3.4 ADDITIONAL INTEREST ON UNPAID AMOUNTS. All amounts due and owing
to Holder hereunder that are not paid by the Company when due shall accrue
additional interest at the rate of two percent (2%) per annum in excess of the
interest rate set forth hereunder, interest to accrue from the date of such
non-payment on the basis of a 365 day year for the number of days actually
elapsed.
Section 4 SUBORDINATION.
4.1 SENIOR INDEBTEDNESS. As used herein, the term "Senior
Indebtedness" shall mean the principal of and unpaid interest on the following
indebtedness of the Company: (i) all secured indebtedness of the Company,
whether now existing or hereinafter incurred, (ii) the principal of and unpaid
interest on any amounts borrowed or to be borrowed from, or owing to, a bank,
trust company, insurance company or other financial institutions regularly
engaged in the business of lending money, or a combination thereof, on an
unsecured basis, whether now existing or hereinafter incurred, and (iii) amounts
owed or to be owed to equipment lessors pursuant to equipment lease lines
approved by the Company's Board of Directors, whether now existing or
hereinafter incurred. In no event (a) will the Senior Indebtedness owing to
Imperial Bank and/or any other financial institution that may lend money to the
Company to replace all or a portion of the debt owed to Imperial Bank exceed
$12,000,000 in the aggregate or (b) will all other Senior Indebtedness exceed
$8,000,000 in the aggregate. The Company shall give notice to the Holder of any
additional Senior Indebtedness incurred after the date hereof within a
reasonable time period after the date such additional Senior Indebtedness is
incurred.
4.2 SUBORDINATION. The Company has agreed and the Holder, by its
acceptance of this Promissory Note, covenants, expressly for the benefit of the
present and future holders of Senior Indebtedness, that the payment of the
principal of and interest on this Promissory Note, and all other obligations of
the Company to pay money to the Holder under this Promissory Note, is expressly
subordinated in right of payment to the prior payment, or provision for payment,
in full of the Senior Indebtedness of the Company in accordance with the
provisions of this Section 4.2. The Company shall not pay, and the Holder shall
not be entitled to receive, other than in connection with the purchase of
securities of the Company through forgiveness of the indebtedness evidenced by
this Promissory Note, any amount in respect of the principal of or interest on
this Promissory Note or any other obligation of the Company to pay money to the
Holder on this Promissory Note upon the occurrence and continuance of any of the
following: (a) with respect to any payment that is contractually due hereunder,
prior to the date
3
<PAGE>
on which the payment is contractually due (including, without limitation, any
payments which shall become due and payable on the Maturity Date, in case of an
Acceleration Event or in the event of the Special Limited Acceleration) as
provided under this Promissory Note, (b) an event of default under any agreement
evidencing solely the Senior Indebtedness, or (c) an event of default relating
to the payment when due of the principal of or interest on the Senior
Indebtedness. Notwithstanding any other provision of this Promissory Note or of
the Purchase Agreement to the contrary, the foregoing payment restrictions shall
not apply if (i) in the case of an event of default, such event of default shall
have been cured or permitted by the holder(s) of Senior Indebtedness, (ii) the
event of default, or the benefits of the subordination provisions hereunder,
shall have been waived in writing to the Holder by the holder(s) of the Senior
Indebtedness, (iii) the outstanding Senior Indebtedness shall have been paid in
full, or (iv) no event of default has occurred and is continuing under any of
the Senior Indebtedness and the payment is contractually due (including, without
limitation, any payments which shall become due and payable on the Maturity
Date, in case of an Acceleration Event or in the event of the Special Limited
Acceleration) as provided under this Promissory Note.
Section 5 MISCELLANEOUS.
5.1 TRANSFER OF PROMISSORY NOTE. Except as prohibited or limited by
the terms of the Purchase Agreement, this Promissory Note shall be transferable
or assignable without the prior written consent of the Company. Any attempted
disposition of this Promissory Note (in whole or in part) not in accordance with
the Purchase Agreement shall be void and of no force or effect.
5.2 TITLES AND SUBTITLES. The titles and subtitles used herein are for
convenience only and are not to be considered in construing or interpreting this
Promissory Note.
5.3 NOTICES, ETC. All notices and other communications required or
permitted under this Promissory Note shall be in writing and may be delivered in
person, by facsimile, overnight delivery service or registered or certified
mail, addressed to the Company, or to the Holder at their respective addresses
set forth on the signature pages hereto or at such other address as the Company
or the Holder shall have furnished to the other party in writing. All notices
and other communications shall be effective upon the earlier of actual receipt
thereof by the person to whom notice is directed or (i) in the case of notices
and communications sent by personal delivery or facsimile, one business day
after such notice or communication arrives at the applicable address or was
successfully sent to the applicable facsimile number, (ii) in the case of
notices and communications sent by overnight delivery service, at noon (local
time) on the second business day following the day such notice or communication
was sent, and (iii) in the case of notices and communications sent by United
States mail, seven days after such notice or communication shall have been
deposited in the United States mail.
5.4 AMENDMENTS AND WAIVERS. Any term of this Promissory Note may be
amended and the observance of any term of this Promissory Note may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Holder. Any
amendment or waiver effected in accordance with this Section 5.4 shall be
binding upon the Holder and the Company.
4
<PAGE>
5.5 SEVERABILITY. If any provision of this Promissory Note shall be
determined to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
5.6 GOVERNING LAW. This Promissory Note shall be governed in all
respects by and construed in accordance with the laws of the State of Oregon
without any regard to conflicts of laws principles. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of the state and federal
courts sitting in Portland, Multnomah County, Oregon, for the adjudication of
any dispute hereunder or in connection herewith, and hereby waives, and agrees
not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. Each party hereby waives personal
service of process and consents to process being served in any such suit, action
or proceeding by mailing a copy thereof to such party at the address for such
notices to it under this Promissory Note and agrees that such service shall
constitute good and sufficient service of process and notice thereof.
5.7 ENTIRE AGREEMENT. This Promissory Note, together with the Purchase
Agreement, constitutes the full and entire understanding and agreement between
the parties with regard to the subjects hereof and thereof.
5.8 COUNTERPARTS. This Promissory Note may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
5.9 SUCCESSORS AND ASSIGNS. The provisions hereof shall inure to the
benefit of, and be binding upon, the successors, permitted assigns, heirs,
executors and administrators of the parties to this Promissory Note.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
5
<PAGE>
IN WITNESS WHEREOF, this Promissory Note has been duly executed and
delivered under its corporate seal as of the date first above written.
IMAGING TECHNOLOGIES CORPORATION
By: /S/ BRIAN BONAR
-----------------------------
Brian Bonar, President and
Chief Executive Officer
Address: 11031 Via Frontera
San Diego, CA 92127
ACKNOWLEDGED AND AGREED TO:
AMERICAN INDUSTRIES, INC.
By: /S/ HOWARD HEDINGER
----------------------------
Name: Howard Hedinger
Title: President
Address: 1750 NW Front Avenue, Suite 106
Portland, Oregon 97209
6
<PAGE>
Exhibit 10.4
The Company also issued another Convertible Subordinated Promissory Note,
substantially identical in all material respects to this Exhibit 10.4, except
for the following details:
<TABLE>
<CAPTION>
Principal Amount of
Investor Convertible Note
-------- -------------------
<S> <C>
Ellison Morgan $237,500
</TABLE>
THIS SUBORDINATED PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY OTHER APPLICABLE SECURITIES LAWS. IT MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED UNDER CIRCUMSTANCES THAT WOULD RESULT IN A
VIOLATION OF THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933 OR SUCH
OTHER LAWS.
IMAGING TECHNOLOGIES CORPORATION
CONVERTIBLE SUBORDINATED PROMISSORY NOTE
$ 437,500.00 September 17, 1998
Imaging Technologies Corporation, a Delaware corporation (the
"Company"), for value received, hereby promises to pay to the order of American
Industries, Inc. (the "Holder"), the principal sum of Four Hundred Thirty Seven
Thousand Five Hundred Dollars ($437,500), together with simple interest on the
unpaid balance from the date hereof until paid in accordance with the terms
hereof at a rate of sixteen percent (16%) per annum, interest to accrue on the
basis of a 365-day year for the number of days actually elapsed. Interest shall
be payable monthly in arrears with the first interest payment due September 30,
1998. Unless otherwise provided in Sections 3 and 4 hereof, both principal and
all outstanding interest shall be due and payable on September 16, 2000 (the
"Maturity Date").
This Promissory Note is issued pursuant to that certain Subordinated
Note Purchase Agreement, dated as of the date hereof (the "Purchase Agreement"),
between the Company and the purchasers listed on SCHEDULE A attached thereto,
and is entitled to the benefits thereof. All terms not otherwise defined herein
shall have the meaning given such terms in the Purchase Agreement.
Section 1 PAYMENT. All payments made in accordance with this
Promissory Note are to be made in lawful money of the United States of America
at the address of the Holder as indicated on the signature page hereof, or at
such other location as the Holder may designate from time to time by written
notice to the Company.
The Company shall pay all costs and expenses, including reasonable
attorney's fees, for services to collect this Promissory Note, regardless of
whether litigation ensues and, if so, for services prior to trial or hearing, on
trial and in any appeal or appeals therefrom. The Company hereby waives notice
of default, presentment or demand for payment, protest or notice of nonpayment
or dishonor and all other notices or demands relative to this instrument.
Section 2 PREPAYMENT. The Company, at its option, may at any time on
or after the date hereof, prepay in whole or in part, without penalty, the
principal sum, together with accrued interest to the date of payment,
outstanding under this Promissory Note by giving written notice (the "Prepayment
Notice") to the Holder at least fifteen (15) days prior to the date of such
prepayment (the "Prepayment Date"). The Company shall not prepay any of the
other Subordinated Notes, the non-convertible subordinated promissory note
issued pursuant to that
*** Certain confidential portions of this Exhibit were omitted by means of
blackout of the text (the "Mark"). This Exhibit has been filed separately with
the Secretary of the Commission without the Mark pursuant to the Company's
Application Requesting Confidential Treatment under Rule 24b-2 under the 1934
Act.
<PAGE>
certain Subordinated Note Purchase Agreement, dated as of the date hereof
between the Company and the purchaser listed on SCHEDULE A thereto (together
with the Subordinated Notes, the "Notes"), or any other subordinated debt of the
same rank as the Notes (the "Other Subordinated Debt") unless, at the time of
such prepayment, the Company pays to the holders of all of the Notes (including
the holder of this Promissory Note) a prepayment in the same proportionate
amount as the prepayment made to the holders of the other Notes or to the
holders of the Other Subordinated Debt (based on the total amount owed to the
holders of the other Notes or to the holders of the Other Subordinated Debt).
Section 3 ACCELERATION OF MATURITY DATE OF PROMISSORY NOTE.
3.1 GENERAL. Upon the occurrence of an Acceleration Event (as
hereinafter defined), the entire unpaid principal amount, together with the
accrued but unpaid interest thereon, of this Promissory Note shall become
immediately due and payable in cash subject to Section 4 hereof (hereinafter,
the "Acceleration").
3.2 ACCELERATION EVENTS. An "Acceleration Event" shall be deemed to
have occurred upon the earlier of (i) (A) the acquisition by any person (as such
term is defined in Section 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended (the "1934 Act") of the power to direct the management and
business of the Company, whether by ownership of voting securities, by contract
or by other arrangement; (B) the individuals who, as of the date of this
Promissory Note, are directors of the Company shall cease for any reason to
constitute a majority of the Board of Directors of the Company, unless the
election or appointment, or nomination for election or appointment, of any new
member of the Board of Directors was approved by a vote of a majority of the
Board of Directors, in which event such new member shall, for purposes of this
Promissory Note, be considered as a member of the Board of Directors; (C) a
merger or consolidation involving the Company, if the stockholders of the
Company immediately before such merger or consolidation, do not, as a result of
such merger or consolidation, own, directly or indirectly, more than 50 percent
of the combined voting power or ownership interests of the Company or the entity
resulting from such merger or consolidation; or (D) the dissolution or the
complete or partial liquidation, or the sale or other disposition of all or
substantially all of the assets, of the Company; (ii) the commencement by or
against the Company of any case or proceeding under any bankruptcy,
reorganization, insolvency or moratorium law, or any other law or laws for the
relief of debtors, or the appointment of any receiver, trustee or assignee to
take possession of the properties of the Company; provided, however, that in the
event that such case, proceeding or appointment does not occur with the consent
of the Company, then the Acceleration Event shall be deemed to occur only in the
event that such case, proceeding or appointment is not dismissed within ninety
(90) days of the commencement of such case, proceeding or appointment; (iii) the
liquidation or dissolution of the Company; (iv) the commencement of any lawsuit
or foreclosure proceeding against the Company by the holders of any Senior
Indebtedness (as defined in Section 4); (v) the Company's failure in a material
respect to observe any covenant or obligation binding on it under the Purchase
Agreement or this Promissory Note; (vi) any of the representations and
warranties of the Company contained in Section 3 of the Purchase Agreement being
false or misleading in a material respect on and as of the Closing (as defined
in the Purchase Agreement); (vii) acceleration of the maturity date of any
Senior Indebtedness resulting from the Company's
2
<PAGE>
breach or default thereunder; or (viii) upon the closing of any equity or
convertible debt financing in which the Company receives net proceeds in excess
of $5,000,000.
3.3 SPECIAL LIMITED ACCELERATION. Upon the closing of any equity or
convertible debt financing in which the Company receives net proceeds in excess
of $2,000,000 but less than or equal to $5,000,000, fifty percent (50%) of the
entire unpaid principal amount, together with fifty percent (50%) of the accrued
but unpaid interest thereon, of this Promissory Note shall become immediately
due and payable in cash subject to Section 4 hereof (hereinafter, the "Special
Limited Acceleration").
3.4 ADDITIONAL INTEREST ON UNPAID AMOUNTS. All amounts due and owing
to Holder hereunder that are not paid by the Company when due shall accrue
additional interest at the rate of two percent (2%) per annum in excess of the
interest rate set forth hereunder, interest to accrue from the date of such
non-payment on the basis of a 365 day year for the number of days actually
elapsed.
Section 4 SUBORDINATION.
4.1 SENIOR INDEBTEDNESS. As used herein, the term "Senior
Indebtedness" shall mean the principal of and unpaid interest on the following
indebtedness of the Company: (i) all secured indebtedness of the Company,
whether now existing or hereinafter incurred, (ii) the principal of and unpaid
interest on any amounts borrowed or to be borrowed from, or owing to, a bank,
trust company, insurance company or other financial institutions regularly
engaged in the business of lending money, or a combination thereof, on an
unsecured basis, whether now existing or hereinafter incurred, and (iii) amounts
owed or to be owed to equipment lessors pursuant to equipment lease lines
approved by the Company's Board of Directors, whether now existing or
hereinafter incurred. In no event (a) will the Senior Indebtedness owing to
Imperial Bank and/or any other financial institution that may lend money to the
Company to replace all or a portion of the debt owed to Imperial Bank exceed
$12,000,000 in the aggregate or (b) will all other Senior Indebtedness exceed
$8,000,000 in the aggregate. The Company shall give notice to the Holder of any
additional Senior Indebtedness incurred after the date hereof within a
reasonable time period after the date such additional Senior Indebtedness is
incurred.
4.2 SUBORDINATION. The Company has agreed and the Holder, by its
acceptance of this Promissory Note, covenants, expressly for the benefit of the
present and future holders of Senior Indebtedness, that the payment of the
principal of and interest on this Promissory Note, and all other obligations of
the Company to pay money to the Holder under this Promissory Note, is expressly
subordinated in right of payment to the prior payment, or provision for payment,
in full of the Senior Indebtedness of the Company in accordance with the
provisions of this Section 4.2. The Company shall not pay, and the Holder shall
not be entitled to receive, other than in connection with the purchase of
securities of the Company through forgiveness of the indebtedness evidenced by
this Promissory Note, any amount in respect of the principal of or interest on
this Promissory Note or any other obligation of the Company to pay money to the
Holder on this Promissory Note upon the occurrence and continuance of any of the
following: (a) with respect to any payment that is contractually due hereunder,
prior to the date on which the payment is contractually due (including, without
limitation, any payments which shall become due and payable on the Maturity
Date, in case of an Acceleration Event or in the
3
<PAGE>
event of the Special Limited Acceleration) as provided under this Promissory
Note, (b) an event of default under any agreement evidencing solely the Senior
Indebtedness, or (c) an event of default relating to the payment when due of the
principal of or interest on the Senior Indebtedness. Notwithstanding any other
provision of this Promissory Note or of the Purchase Agreement to the contrary,
the foregoing payment restrictions shall not apply if (i) in the case of an
event of default, such event of default shall have been cured or permitted by
the holder(s) of Senior Indebtedness, (ii) the event of default, or the benefits
of the subordination provisions hereunder, shall have been waived in writing to
the Holder by the holder(s) of the Senior Indebtedness, (iii) the outstanding
Senior Indebtedness shall have been paid in full, or (iv) no event of default
has occurred and is continuing under any of the Senior Indebtedness and the
payment is contractually due (including, without limitation, any payments which
shall become due and payable on the Maturity Date, in case of an Acceleration
Event or in the event of the Special Limited Acceleration) as provided under
this Promissory Note.
Section 5 CONVERSION.
5.1 OPTION TO CONVERT PROMISSORY NOTE. The Holder shall have the
option, exercisable in the manner set forth in Section 5.3 below prior to the
Maturity Date or earlier payment in full of the entire principal amount and any
accrued but unpaid interest on this Promissory Note, to convert at any time and
from time to time in minimum increments of $100,000 all or any portion of the
principal amount outstanding on this Promissory Note into fully paid and
nonassessable shares of the Company's Common Stock. The number of shares of
Common Stock to be issued upon such conversion shall be equal to the quotient
obtained by dividing (x) the entire principal amount of this Promissory Note by
(y) $2.025 (the "Conversion Price," which is subject to adjustment as provided
in Section 5.2 below).
5.2 ADJUSTMENT TO CONVERSION PRICE. In the event the Company does
not, *** the Conversion Price with respect to ten percent (10%) of the
outstanding principal amount of this Promissory Note will be reduced to
$1.0125; PROVIDED, HOWEVER, that the Conversion Price with respect to all of
the remaining outstanding principal amount of this Promissory Note shall
remain at $2.025.
5.3 MECHANICS AND EFFECT OF CONVERSION. No fractional shares of Common
Stock will be issued upon any conversion of this Promissory Note. In lieu of any
fractional share to which the Holder would otherwise be entitled, the Company
will pay to the Holder in cash that amount of the unconverted principal and
interest on this Promissory Note. Upon any conversion of this Promissory Note
pursuant to this Section 5, the Holder shall surrender this Promissory Note,
duly endorsed, at the principal offices of the Company or any transfer agent for
the Company. At its expense, the Company will, as soon as practicable
thereafter, issue and deliver to the Holder at such principal office, a
certificate or certificates for the number of shares of Common Stock to which
the Holder is entitled upon such conversion, together with the payment
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
4
<PAGE>
of all accrued but unpaid interest on this Promissory Note and any cash payable
in lieu of any fractional share to which the Holder is entitled upon such
conversion under the terms of this Promissory Note. The conversion will be
deemed effective on the date the Holder surrenders this Promissory Note to the
Company and, from and after such date, the Company will be forever released from
all its obligations and liabilities under this Promissory Note with regard to
the entire principal amount and accrued interest, including without limitation
the obligation to pay such principal amount and accrued interest.
5.4 NOTICES TO HOLDER. In the event of: (i) any taking by the Company
of a record of the holders of the Company's Common Stock for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend payable out of earned surplus at the same rate as that of
the last such cash dividend theretofore paid) or other distribution, or any
right to subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right; or
(ii) any capital reorganization of the Company, any reclassification or
recapitalization of the Company's Common Stock or any transfer of all or
substantially all of the assets of the Company to any other person, or any
consolidation or merger involving the Company; or (iii) any voluntary or
involuntary dissolution, liquidation or winding-up of the Company; the Company
will mail to the Holder, at least fifteen (15) days prior to any record date or
prior to any date on which any such reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation or winding-up is expected to
become effective, a notice specifying: (a) the date on which any such record is
to be taken for the purpose of such dividend, distribution or right, and the
amount and character of such dividend, distribution or right; and (b) the date
on which any such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding-up is expected to become effective
and the record date for determining the stockholders entitled to vote thereon,
if any.
Section 6 MISCELLANEOUS.
6.1 TRANSFER OF PROMISSORY NOTE. Except as prohibited or limited by
the terms of the Purchase Agreement, this Promissory Note shall be transferable
or assignable without the prior written consent of the Company. Any attempted
disposition of this Promissory Note (in whole or in part) not in accordance with
the Purchase Agreement shall be void and of no force or effect.
6.2 TITLES AND SUBTITLES. The titles and subtitles used herein are for
convenience only and are not to be considered in construing or interpreting this
Promissory Note.
6.3 NOTICES, ETC. All notices and other communications required or
permitted under this Promissory Note shall be in writing and may be delivered in
person, by facsimile, overnight delivery service or registered or certified
mail, addressed to the Company, or to the Holder at their respective addresses
set forth on the signature pages hereto or at such other address as the Company
or the Holder shall have furnished to the other party in writing. All notices
and other communications shall be effective upon the earlier of actual receipt
thereof by the person to whom notice is directed or (i) in the case of notices
and communications sent by personal delivery or facsimile, one business day
after such notice or communication arrives at the applicable address or was
successfully sent to the applicable facsimile number, (ii) in the case
5
<PAGE>
of notices and communications sent by overnight delivery service, at noon (local
time) on the second business day following the day such notice or communication
was sent, and (iii) in the case of notices and communications sent by United
States mail, seven days after such notice or communication shall have been
deposited in the United States mail.
6.4 AMENDMENTS AND WAIVERS. Any term of this Promissory Note may be
amended and the observance of any term of this Promissory Note may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Holder. Any
amendment or waiver effected in accordance with this Section 6.4 shall be
binding upon the Holder and the Company.
6.5 SEVERABILITY. If any provision of this Promissory Note shall be
determined to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
6.6 GOVERNING LAW. This Promissory Note shall be governed in all
respects by and construed in accordance with the laws of the State of Oregon
without any regard to conflicts of laws principles. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of the state and federal
courts sitting in Portland, Multnomah County, Oregon, for the adjudication of
any dispute hereunder or in connection herewith, and hereby waives, and agrees
not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. Each party hereby waives personal
service of process and consents to process being served in any such suit, action
or proceeding by mailing a copy thereof to such party at the address for such
notices to it under this Promissory Note and agrees that such service shall
constitute good and sufficient service of process and notice thereof.
6.7 ENTIRE AGREEMENT. This Promissory Note, together with the Purchase
Agreement, constitutes the full and entire understanding and agreement between
the parties with regard to the subjects hereof and thereof.
6.8 COUNTERPARTS. This Promissory Note may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
6.9 SUCCESSORS AND ASSIGNS. The provisions hereof shall inure to the
benefit of, and be binding upon, the successors, permitted assigns, heirs,
executors and administrators of the parties to this Promissory Note.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
6
<PAGE>
IN WITNESS WHEREOF, this Promissory Note has been duly executed and
delivered under its corporate seal as of the date first above written.
IMAGING TECHNOLOGIES CORPORATION
By: /S/ BRIAN BONAR
------------------------------
Brian Bonar, President and
Chief Executive Officer
Address: 11031 Via Frontera
San Diego, CA 92127
ACKNOWLEDGED AND AGREED TO:
AMERICAN INDUSTRIES, INC.
By: /S/ HOWARD HEDINGER
----------------------------
Name:
---------------------------
Title: President
Address: 1750 NW Front Avenue, Suite 106
Portland, Oregon 97209
7
<PAGE>
SCHEDULE 1
NAME
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and file separately with the Commission.
<PAGE>
Exhibit 10.5
The Company also issued another Common Stock Purchase Warrant, substantially
identical in all material respects to this Exhibit 10.5, except for the
following details:
Number of
Investor Warrant Shares
-------- --------------
Harry Saal 300,000
THE TRANSFER OF THIS WARRANT IS SUBJECT TO
RESTRICTIONS CONTAINED HEREIN. THE SECURITIES REPRESENTED
HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE
BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF
COUNSEL, INV GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR
UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
IMAGING TECHNOLOGIES CORPORATION
Common Stock Purchase Warrant
To Purchase 190,000 Shares of September 17, 1998
the Common Stock of
Imaging Technologies Corporation
THIS CERTIFIES that, for value received, American Industries, Inc. or its
registered assigns (the "Holder"), is entitled to purchase from Imaging
Technologies Corporation, a Delaware corporation (hereinafter called the
"Corporation"), up to 190,000 shares (subject to adjustment as provided in
Section 4) (the "Warrant Shares") of fully paid and non-assessable Common Stock
of the Corporation (the "Common Stock"), subject to the provisions and upon the
terms and conditions set forth herein.
1. TERM OF WARRANT. Subject to the terms and conditions set forth herein,
this Warrant shall be exercisable, in whole or in part, during the term
commencing on the date hereof (the "Exercise Date") and ending at 5:00 p.m.
Pacific Daylight Time on the date three (3) years after the Exercise Date (the
"Exercise Period").
2. EXERCISE PRICE. The exercise price at which this Warrant may be
exercised shall be $2.025 per share of Common Stock (the "Exercise Price), as
adjusted from time to time pursuant to Section 4 hereof. The parties hereto
acknowledge that this in no way is an attempt to identify the fair market value
of shares of Common Stock, but is rather an arbitrary assignment of value for
the purposes of this Warrant only.
3. EXERCISE OF WARRANT.
(a) Subject to the terms and conditions hereof, this Warrant may be
exercised by the Holder, in whole or in part, at any time during the Exercise
Period by (i) delivery of the completed purchase form annexed hereto, which
purchase form shall specify the number of Warrant Shares to be purchased, (ii)
payment to the Corporation of an amount equal to the
<PAGE>
Exercise Price multiplied by the number of Warrant Shares as to which the
Warrant is being exercised (plus any applicable issue or transfer taxes) (the
"Aggregate Exercise Price") in cash or by check or wire transfer, and (iii) the
surrender of this Warrant, at the principal office of the Corporation; provided,
that if such Warrant Shares are to be issued in any name other than that of the
Holder, such issuance shall be deemed a transfer and the provisions of Section
13 shall be applicable. In the event of any exercise of the rights represented
by this Warrant in compliance with this Section 3(a), a certificate or
certificates for the Warrant Shares so purchased, in such denominations as may
be requested by the Holder and registered in the name of, or as directed by, the
Holder, shall be delivered at the Corporation's expense to, or as directed by,
the Holder as soon as practicable after such rights shall have been so
exercised, and in any event no later than three business days after such
exercise.
(b) Unless the rights represented by this Warrant shall have expired
or shall have been fully exercised, the Corporation shall, as soon as
practicable and in no event later than ten business days after any exercise and
at its own expense, issue a new Warrant identical in all respects to the Warrant
exercised except (i) it shall represent rights to purchase the number of Warrant
Shares purchasable immediately prior to such exercise under the Warrant
exercised, less the number of Warrant Shares with respect to which such Warrant
is exercised, and (ii) the Holder thereof shall be deemed for all corporate
purposes to have become the Holder of record of such Warrant Shares immediately
prior to the close of business on the date on which the Warrant is surrendered
and payment of the amount due in respect of such exercise and any applicable
taxes is made, irrespective of the date of delivery of certificates evidencing
such Warrant Shares, except that, if the date of such surrender and payment is a
date when the stock transfer books of the Corporation are properly closed, such
person shall be deemed to have become the holder of such Warrant Shares at the
opening of business on the next succeeding date on which the stock transfer
books are open.
(c) No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock issued
upon exercise of this Warrant shall be rounded up or down to the nearest whole
number.
4. STOCK SPLITS, CONSOLIDATION, MERGER AND SALE. In the event that before
the issuance of the shares of Common Stock into which this Warrant may be
exercised the outstanding shares of Common Stock shall be split, combined or
consolidated, by dividend, reclassification or otherwise, into a greater or
lesser number of shares of Common Stock, the Exercise Price in effect
immediately prior to such combination or consolidation and the number of shares
purchasable under this Warrant shall, concurrently with the effectiveness of
such combination or consolidation, be proportionately adjusted. If there shall
be effected any consolidation or merger of the Corporation with another
corporation, or a sale of all or substantially all of the Corporation's assets
to another corporation, and if the holders of Common Stock shall be entitled
pursuant to the terms of any such transaction to receive stock, securities or
assets with respect to or in exchange for Common Stock, then, as a condition of
such consolidation, merger or sale, lawful and adequate provisions shall be made
whereby the Holder of this Warrant shall thereafter have the right to receive,
upon the basis and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock immediately theretofore receivable upon the exercise
of such Warrant, such shares of stock, securities or assets as may be issuable
or payable with respect to or in exchange for a number of outstanding shares of
such Common Stock equal to the
2
<PAGE>
number of shares of such Common Stock immediately theretofore so receivable had
such consolidation, merger or sale not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the Holder to the end that the provisions hereof shall thereafter be applicable,
as nearly as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise of this Warrant. In the event the
Corporation shall declare a distribution payable in securities of other persons,
evidences of indebtedness issued by the Corporation or other persons, assets
(excluding cash dividends) or options or rights not otherwise referred to in
this Section 4, then, in each such case, upon exercise of this Warrant the
Holder shall be entitled to a proportionate share of any such distribution as
though the Holder was the holder of the number of shares of Common Stock of the
Corporation issuable upon exercise of this Warrant as of the record date fixed
for the determination of the holders of Common Stock of the Corporation entitled
to receive such distribution.
5. STOCK TO BE RESERVED. The Corporation will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon the exercise of this Warrant as herein provided, such number of shares of
Common Stock as shall then be issuable upon the exercise of this Warrant. The
Corporation shall from time to time in accordance with applicable law increase
the authorized amount of its Common Stock if at any time the number of shares of
Common Stock remaining unissued and available for issuance shall not be
sufficient to permit exercise of this Warrant. The Corporation covenants that
all shares of Common Stock which shall be so issued shall be duly and validly
issued and fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issue thereof, and, without limiting the generality
of the foregoing, the Corporation will take all such action as may be necessary
to assure that all such shares of Common Stock may be so issued without
violation of any applicable law or regulation, or of any requirements of any
national securities exchange upon which shares of capital stock of the
Corporation may be listed.
6. ISSUE TAX. The issuance of certificates for shares of Common Stock upon
exercise of this Warrant shall be made without charge to the Holder for any
issuance tax in respect thereof provided that the Corporation shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any certificate in a name other than that of the
Holder of this Warrant.
7. CLOSING OF BOOKS. The Corporation will at no time close its transfer
books against the transfer of the shares of Common Stock issued or issuable upon
the exercise of this Warrant in any manner which interferes with the timely
exercise of this Warrant.
8. NOTICES OF RECORD DATES. In the event of:
(a) any taking by the Corporation of a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution (other than cash
dividends out of earned surplus), or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation or
any transfer of all or substantially all
3
<PAGE>
the assets of the Corporation to or consolidation or merger of the Corporation
with or into any other corporation, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Corporation,
then and in each such event the Corporation will give notice to the Holder of
this Warrant specifying (i) the date on which any such record is to be taken for
the purpose of such dividend, distribution or right and stating the amount and
character of such dividend, distribution or right, and (ii) the date on which
any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take place,
and the time, if any is to be fixed, as of which the holders of record of Common
Stock will be entitled to exchange their shares of Common Stock for securities
or other property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up. Such notice shall be given at least ten (10) days and not more than
ninety (90) days prior to the date therein specified, and such notice shall
state that the action in question or the record date is subject to the
effectiveness of a registration statement under the Securities Act of 1933, as
amended (the "Securities Act") or to a favorable vote of stockholders, if either
is required.
9. NO STOCKHOLDER RIGHTS OR LIABILITIES. Subject to Sections 4 and 8 of
this Warrant, this Warrant shall not entitle the Holder hereof to any voting
rights or other rights as a stockholder of the Corporation. No provision hereof,
in the absence of affirmative action by the Holder hereof to purchase shares of
Common Stock, and no mere enumeration hereon of the rights or privileges of the
Holder hereof, shall give rise to any liability of such Holder for the Exercise
Price or as a stockholder of the Corporation, whether such liability is asserted
by the Corporation or by creditors of the Corporation.
10. LISTING. The Corporation shall use its best efforts to cause all of the
shares of Common Stock issuable upon exercise of this Warrant to be approved for
listing on the Nasdaq SmallCap Market. The Corporation shall maintain the Common
Stock's authorization for quotation on the Nasdaq National Market, the Nasdaq
SmallCap Market, the New York Stock Exchange, Inc. ("NYSE") or the American
Stock Exchange, Inc. ("AMEX"). Neither the Corporation nor any of its
subsidiaries shall take any action which may result in the delisting or
suspension of the Common Stock on the Nasdaq SmallCap Market, the Nasdaq
National Market, NYSE or AMEX. The Corporation shall promptly provide Holder
copies of any notices it receives from the Nasdaq SmallCap Market, the Nasdaq
National Market, NYSE or AMEX regarding the continued eligibility of the Common
Stock for listing on such automated quotation system or securities exchange. The
Corporation shall pay all fees and expenses in connection with satisfying its
obligation under this Section 10.
11. TRANSFER AGENT INSTRUCTIONS. The Corporation shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, to issue
certificates, registered in the name of the Holder or its respective nominee(s),
for the Warrant Shares in such amounts as specified from time to time by the
Holder to the Corporation upon exercise of this Warrant (the "Irrevocable
Transfer Agent Instructions"). All such certificates shall bear the restrictive
legend specified in Section 12 of this Warrant. The Corporation warrants that no
instruction other than
4
<PAGE>
the Irrevocable Transfer Agent Instructions referred to in this Section 11 and
the stop transfer instructions to give effect to Section 12 hereof will be given
by the Corporation to its transfer agent and that the Warrant Shares shall
otherwise be freely transferable on the books and records of the Corporation as
and to the extent provided in this Warrant and that certain Subordinated Note
Purchase Agreement dated as of the date hereof, among the Corporation and the
entities listed on the signature pages thereto. If Holder provides the
Corporation with an opinion of counsel, reasonably satisfactory in form, and
substance to the Corporation, that registration of a resale by such Holder of
any of such Warrant Shares is not required under the Securities Act, the
Corporation shall permit the transfer, and promptly instruct its transfer agent
to issue one or more certificates in such name and in such denominations as
specified by such Holder and without any restrictive legends. The Corporation
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holder hereof by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Corporation acknowledges that
the remedy at law for a breach of its obligations under this Section 11 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Corporation of the provisions of this Section 11, that the Holder shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
12. COMPLIANCE WITH SECURITIES LAWS.
(a) The Holder of this Warrant, by acceptance hereof, acknowledges
that this Warrant and the shares of Common Stock to be issued upon exercise
hereof (collectively, the "Securities") are being acquired solely for the
Holder's own account for investment only and not with a view towards, or for
resale in connection with, the public sale or distribution thereof, except
pursuant to sales registered or exempted under the Securities Act; provided,
however, that by making the representations herein, the Holder does not agree to
hold any of the Securities for any minimum or other specific term.
(b) This Warrant and the stock certificates representing the Warrant
Shares, except as set forth below, shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN
OPINION OF COUNSEL, IN GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR
5
<PAGE>
UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed and the Corporation shall issue a
certificate without such legend to the Holder of the Warrant Shares upon which
it is stamped, if, unless otherwise required by state securities laws, (i) such
Warrant Shares are registered for sale under the Securities Act, (ii) in
connection with a sale transaction, such Holder provides the Corporation with an
opinion of counsel, in a generally acceptable form, to the effect that a public
sale, assignment or transfer of such Warrant Shares may be made without
registration under the Securities Act, or (iii) such Holder provides the
Corporation with reasonable assurances that such Warrant Shares can be sold
pursuant to Rule 144 without any restriction as to the number of securities
acquired as of a particular date that can then be immediately sold. The Holder
acknowledges, covenants and agrees to sell the Warrant Shares represented by a
certificate(s) from which the legend has been removed, only pursuant to (i) a
registration statement effective under the Securities Act, or (ii) advice of
counsel that such sale is exempt from registration required by Section 5 of the
Securities Act.
13. TRANSFER. Subject to the terms and conditions contained in Section 12
hereof, this Warrant and all rights hereunder are transferable in whole or in
part by the Holder and any successor transferee; provided, however, in no event
shall the aggregate number of transfers of the rights and interests in all of
the Warrants exceed three (3) transfers. The transfer shall be recorded on the
books of the Corporation upon receipt by the Corporation of an assignment form
in the form attached hereto ("Assignment Form"), at its principal office and the
payment to the Corporation of all transfer taxes and other governmental charges,
if any, imposed on such transfer.
14. PRESENTMENT. Prior to due presentment of this Warrant together with a
completed Assignment Form for registration of transfer, the Corporation may deem
and treat the Holder as the absolute owner of the Warrant, notwithstanding any
notation of ownership or other writing thereon, for the purpose of any exercise
thereof and for all other purposes, and the Corporation shall not be affected by
any notice to the contrary.
15. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant is lost,
stolen, mutilated or destroyed, the Corporation may, on such terms as to
indemnity or otherwise as it may in its discretion reasonably impose (which
shall, in the case of a mutilated Warrant, include the surrender thereof), issue
a new Warrant of like denomination and tenor as the Warrant so lost, stolen,
mutilated or destroyed.
16. GOVERNING LAW. This Warrant shall be governed in all respects by and
construed in accordance with the laws of the State of Oregon without any regard
to conflicts of laws principles. Each party hereby irrevocably submits to the
non-exclusive jurisdiction of the state and federal courts sitting in Portland,
Multnomah County, Oregon, for the adjudication of any dispute hereunder or in
connection herewith, and hereby waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby waives personal service of process and consents to
process being served in any such suit, action or proceeding by mailing
6
<PAGE>
a copy thereof to such party at the address for such notices to it under this
Warrant and agrees that such service shall constitute good and sufficient
service of process and notice thereof.
17. SUCCESSORS, ASSIGNS. All the terms and provisions of the Warrant shall
be binding upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto.
18. AMENDMENT. This Warrant may only be modified, amended or terminated by
a writing signed by the Corporation and the Holder.
19. SEVERABILITY. If any provision of this Warrant shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Warrant in that
jurisdiction or the validity or enforceability of any provision of this Warrant
in any other jurisdiction.
7
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be
duly executed and delivered on and as of the day and year first above written by
one of its officers thereunto duly authorized.
IMAGING TECHNOLOGIES CORPORATION
Dated: September 17, 1998 By: /S/ BRIAN BONAR
----------------------------
Brian Bonar, President and
Chief Executive Officer
The undersigned Holder agrees and accepts this Warrant and
acknowledges that it has read and confirms each of the representations contained
in Section 12.
AMERICAN INDUSTRIES, INC.
By: /S/ HOWARD HEDINGER
----------------------------
Howard Hedinger
Its: PRESIDENT
Address: 1750 NW Front Avenue, Suite 106
Portland, Oregon 97209
[SIGNATURE PAGE TO COMMON STOCK PURCHASE WARRANT]
<PAGE>
PURCHASE FORM
(To be executed by the Warrant Holder if he desires to exercise the Warrant in
whole or in part)
To: Imaging Technologies Corporation
The undersigned, whose Social Security or other identifying
number is ______________, hereby irrevocably elects the right of purchase
represented by the within Warrant for, and to purchase thereunder,
__________________________ shares of Common Stock provided for therein and
tenders payment herewith to the order of
Imaging Technologies Corporation
in the amount of
$
------------------
The undersigned requests that certificates for such shares be issued as follows:
Name:
Address:
Deliver to:
Address:
and, if said number of shares shall not be all the shares purchasable hereunder,
that a new Warrant for the balance remaining of the shares purchasable under the
within Warrant be registered in the name of, and delivered to, the undersigned
at the address stated below
Address:
--------------------------------------
Dated: _____________, 19___
Signature
------------------------------------------------
(Signature must conform in all respects to the
name of the Warrant Holder as specified on
the face of the Warrant, without alteration,
enlargement or any change whatsoever)
<PAGE>
ASSIGNMENT
(To be executed by the Warrant Holder if he desires to effect a transfer of the
Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto ______________________________________________________ whose
Social Security or other identification number is _________________________
[residing/located] at __________________________ the attached Warrant, and
appoints ___________________ residing at
the undersigned's attorney-in-fact to transfer said Warrant on the books of the
Corporation, with full power of substitution in the premises.
Dated: ______________, 19___.
In the presence of:
- -------------------------- -------------------------------------------
(Signature must conform in all respects to
the name of the Warrant Holder as specified
on the face of the Warrant, without
alteration, enlargement or any change
whatsoever).
<PAGE>
Exhibit 10.6
----------------------------------------------
IMAGING TECHNOLOGIES CORPORATION
REGISTRATION RIGHTS AGREEMENT
SEPTEMBER 17, 1998
----------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Registration Rights.. . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Mandatory Registration.. . . . . . . . . . . . . . . . . . . . . . 2
1.3 Obligations of the Company.. . . . . . . . . . . . . . . . . . . . 2
1.4 Furnish Information. . . . . . . . . . . . . . . . . . . . . . . . 3
1.5 Expenses of Registration.. . . . . . . . . . . . . . . . . . . . . 4
1.6 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.7 Reports Under Securities Exchange Act of 1934. . . . . . . . . . . 6
1.8 "Market Stand-Off" Agreement.. . . . . . . . . . . . . . . . . . . 6
1.9 Termination of Registration Rights.. . . . . . . . . . . . . . . . 6
1.10 Other Registration Rights; Eligibility for Form S-3. . . . . . . . 6
1.11 Payment upon Effectiveness of Registration Statement.. . . . . . . 7
2. Miscellaneous.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.1 Successors and Assigns.. . . . . . . . . . . . . . . . . . . . . . 7
2.2 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.3 Counterparts.. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.4 Titles and Subtitles.. . . . . . . . . . . . . . . . . . . . . . . 7
2.5 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.6 Expenses.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.7 Amendments and Waivers.. . . . . . . . . . . . . . . . . . . . . . 8
2.8 Severability.. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.9 Entire Agreement.. . . . . . . . . . . . . . . . . . . . . . . . . 8
2.10 Each Investor Acting Severally.. . . . . . . . . . . . . . . . . . 8
2.11 Representation.. . . . . . . . . . . . . . . . . . . . . . . . . . 8
Schedule A Schedule of Investors
</TABLE>
i
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of the 17th day of September
1998 (the "Effective Date"), by and between Imaging Technologies Corporation, a
Delaware corporation (the "Company"), and the investors listed on SCHEDULE A
hereto, each of which is herein referred to individually as an "Investor" and
all of which are herein referred to collectively as the "Investors."
RECITALS
WHEREAS, the Company and two of the Investors are parties to the Common
Stock Purchase Agreement of even date herewith (the "Stock Purchase Agreement")
pursuant to which the Company has agreed to sell and such Investors have agreed
to purchase shares of the Common Stock of the Company;
WHEREAS, the Company has entered into certain Subordinated Note Purchase
Agreements of even date herewith with the Investors (the "Note Purchase
Agreements" and together with the Stock Purchase Agreement, the "Purchase
Agreements") pursuant to which the Company has agreed to sell and two of the
Investors have each agreed to purchase a subordinated promissory note (the
"Notes") and warrant (the "Warrants") to purchase up to an aggregate of 490,000
shares of the Common Stock of the Company; and
WHEREAS, in order to induce the Company to enter into the Purchase
Agreements and to induce the Investors to purchase shares of the Common Stock
and the Notes and Warrants from the Company, as applicable, pursuant to the
Purchase Agreements, the Investors and the Company hereby agree that this
Agreement shall govern the rights of the Investors to cause the Company to
register the shares of Common Stock sold by the Company and purchased by certain
of the Investors pursuant to the Stock Purchase Agreement and to register the
490,000 shares of Common Stock issuable upon exercise of the Warrants (the
"Warrant Shares") sold by the Company and purchased by the Investors pursuant to
the Note Purchase Agreements and certain other matters as set forth herein.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
1.1 DEFINITIONS. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the SEC which permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the SEC.
<PAGE>
(c) The term "1934 Act" means the Securities Exchange Act of
1934, as amended.
(d) The term "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(e) The term "Registrable Securities" means (i) the Common Stock
purchased by the Investors pursuant to the Stock Purchase Agreement as set forth
on SCHEDULE A hereto, (ii) the Warrant Shares issued or issuable upon exercise
of the Warrants purchased by the Investors pursuant to the Note Purchase
Agreements as set forth on SCHEDULE A hereto and (iii) any Common Stock of the
Company issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of the shares referenced
in (i) and/or (ii) above.
(f) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are Registrable Securities.
(g) The term "SEC" shall mean the Securities and Exchange
Commission.
1.2 MANDATORY REGISTRATION. The Company shall prepare, and, on or
prior to sixty (60) days after the Effective Date, file with the SEC a
registration statement on Form S-3 (or, if such form is unavailable for such a
registration, on such other form as is available for such a registration,
subject to the consent of the Investors holding a majority of the Registrable
Securities which consent will not be unreasonably withheld), covering the resale
of all of the Registrable Securities. The Company shall use its best efforts to
have the registration statement declared effective by the SEC as soon as
practicable, but in no event later than one hundred fifty (150) days after the
Effective Date.
1.3 OBLIGATIONS OF THE COMPANY. In connection with the registration
statement filed pursuant to Section 1.2, the Company shall:
(a) Keep such registration statement effective for a period of up
to the earlier of one hundred twenty (120) days or until the distribution
contemplated in the Registration Statement has been completed; provided,
however, that (i) such 120-day period shall be extended for a period of time
equal to (A) the period the Investor refrains from selling any securities
included in such registration at the request of an underwriter of Common Stock
(or other securities) of the Company plus (B) the period, if any, during which
the Investor's ability to sell its Registrable Securities pursuant to the
registration statement has been deferred by the Company pursuant to this Section
1.3(a); and (ii) in the case of any registration of Registrable Securities on
Form S-3 which are intended to be offered on a continuous or delayed basis, such
120-day period shall be extended, if necessary, to keep the registration
statement effective until all such Registrable Securities are sold, provided
that Rule 415, or any successor rule under the Act, permits an offering on a
continuous or delayed basis, and provided further that applicable rules under
the Act governing the obligation to file a post-effective amendment permit, in
lieu of
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filing a post-effective amendment which (I) includes any prospectus required by
Section 10(a)(3) of the Act or (II) reflects facts or events representing a
material or fundamental change in the information set forth in the registration
statement, the incorporation by reference of information required to be included
in (I) and (II) above to be contained in periodic reports filed pursuant to
Section 13 or 15(d) of the 1934 Act in the registration statement. In order to
sell any Registrable Securities pursuant to such registration statement, the
Investor must first give written notice to the Company's Chief Financial Officer
of such Investor's present intention to sell some or all of such Registrable
Securities (a "Notice of Resale"). Upon receipt of such Notice of Resale, the
Company will give written notice to the Investor as soon as practicable, but in
no event more than three (3) business days after such receipt, that the
prospectus contained in the registration statement is current and that the sale
may commence or that the Company is required under the Securities Act to amend
the registration statement in order to cause the prospectus to be current. In
the event that the Company determines an amendment to the registration statement
is necessary, it will file and cause the amendment to become effective as soon
as practicable, whereupon it will notify the Investor that the sale may
commence. Furthermore, if the Company furnishes to the Investor a certificate
signed by the President of the Company stating that, in the good faith judgment
of the Board of Directors of the Company, it would be seriously detrimental to
the Company and its shareholders for such Form S-3 registration to be effected
or amended at such time due to the existence of a material development or
potential material development involving the Company which the Company would be
obligated to disclose in the prospectus contained in the Form S-3 registration
statement, which disclosure would in the good faith judgment of the Board of
Directors of the Company be premature or otherwise inadvisable at such time and
would have a material adverse affect upon the Company and its shareholders, the
Company will have the right to defer the sale by an Investor pursuant to the
Form S-3 registration statement for a period of not more than forty-five (45)
days after receipt of the Notice of Resale; PROVIDED, HOWEVER, that the Company
will not utilize this right more than twice in any twelve (12) month period.
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Investors such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Investors;
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
1.4 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Investor that such Investor
shall furnish to the Company such
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<PAGE>
information regarding itself, the Registrable Securities held by it, and the
intended method of disposition of such securities as shall be required to effect
the registration of such Investor's Registrable Securities.
1.5 EXPENSES OF REGISTRATION. The Company shall bear and pay
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.2 for each Investor, including (without limitation) all
registration, filing, and qualification fees and printers and accounting fees
relating or apportionable thereto, but excluding underwriting discounts and
commissions relating to Registrable Securities and fees and disbursements of
counsel for the selling Investors.
1.6 INDEMNIFICATION. In the event any Registrable Securities
are included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Investor, any underwriter (as defined in the
Act) for such Investor and each person, if any, who controls such Investor or
underwriter within the meaning of the Act or the 1934 Act, against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Act, or the 1934 Act, insofar as such losses, claims, damages,
or liabilities (or actions in respect thereof) arise out of or are based upon
any of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the Act, the 1934 Act, or any rule or regulation promulgated under
the Act, or the 1934 Act; and the Company will pay to each such Investor,
underwriter or controlling person, any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability, or action; PROVIDED, HOWEVER, that the indemnity
agreement contained in this subsection 1.6(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
to an Investor, underwriter or controlling person for any such loss, claim,
damage, liability, or action to the extent that it arises out of or is based
upon a Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
such Investor, underwriter or controlling person.
(b) To the extent permitted by law, each selling
Investor will indemnify and hold harmless the Company, each of its directors,
each of its officers who has signed the registration statement, each person, if
any, who controls the Company within the meaning of the Act, any underwriter,
any other Investor selling securities in such registration statement and any
controlling person of any such underwriter or other Investor, against any
losses, claims, damages, or liabilities (joint or several) to which any of the
foregoing persons may become subject, under the Act, or the 1934 Act, insofar as
such losses, claims, damages, or liabilities (or actions in respect thereto)
arise out of or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with
4
<PAGE>
written information furnished by such Investor expressly for use in connection
with such registration; and each such Investor will pay any legal or other
expenses reasonably incurred by any person intended to be indemnified pursuant
to this subsection 1.6(b), in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this subsection 1.6(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Investor, which
consent shall not be unreasonably withheld; provided further that in no event
shall any indemnity under this subsection 1.6(b) exceed the gross proceeds from
the offering received by such Investor.
(c) Promptly after receipt by an indemnified party under
this Section 1.6 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.6, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.6, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.6.
(d) If the indemnification provided for in this Section
1.6 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage, or expense
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that
the provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
5
<PAGE>
(f) The obligations of the Company and Investors under
this Section 1.6 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1 and the termination
of this Agreement.
1.7 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a
view to making available to the Investors the benefits of Rule 144 promulgated
under the Act and any other rule or regulation of the SEC that may at any time
permit an Investor to sell securities of the Company to the public without
registration, the Company agrees to:
(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at all times after the date
hereof;
(b) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Investor, so long as the Investor
owns any Registrable Securities, forthwith upon request (i) a written statement
by the Company that it has complied with the reporting requirements of SEC Rule
144, the Act and the 1934 Act (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested in
availing any Investor of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
1.8 "MARKET STAND-OFF" AGREEMENT. Each Investor hereby
agrees that during the period of duration not to exceed 90 days specified by the
Company and an underwriter of capital stock of the Company, following the
effective date of a registration statement pursuant to which the Company is
offering securities under the Securities Act, it shall not, to the extent
requested by the Company and such underwriter (and provided the same restriction
is agreed to by the officers and directors of the Company), 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. In order to enforce the foregoing covenant, the Company
may impose stop-transfer instructions with respect to all securities of the
Company held by such Investor (and the shares or securities of every other
person subject to the foregoing restriction) until the end of such period.
1.9 TERMINATION OF REGISTRATION RIGHTS. No Investor shall be
entitled to exercise any right provided for in this Section 1 after the earlier
of (i) such time as Rule 144 or another similar exemption under the Act is
available for the sale of all of such Investor's Registrable Securities during a
three (3)-month period without registration or (ii) after all of such Investor's
Registrable Securities have been sold under a registration statement filed
pursuant to the provisions of this Section 1.
1.10 OTHER REGISTRATION RIGHTS; ELIGIBILITY FOR FORM S-3.
The Company represents and warrants that as of the date hereof it has entered
into agreements granting registration rights to the holders of certain warrants
to purchase an aggregate of 360,000 shares of its Common Stock, which number of
shares under each of such warrants is subject to certain
6
<PAGE>
antidilution and other adjustments. The Company further represents and warrants
that as of the date hereof it meets the requirements for use of Form S-3 for
registration of the resale by the Investors of the Registrable Securities and
the Company has filed all reports required to be filed by the Company with the
SEC so as to obtain such eligibility for the use of Form S-3.
1.11 PAYMENT UPON EFFECTIVENESS OF REGISTRATION STATEMENT.
Within five (5) business days after the date (the "Measurement Date") the SEC
declares effective the registration statement filed pursuant to Section 1.2
above, the Company shall pay to each Investor an amount equal to the quotient
obtained by dividing (i) the aggregate purchase price paid by such Investor for
such Investor's Registrable Securities multiplied by the product of (a) the
number of calendar days elapsed between the date of this Agreement and the
Measurement Date and (b) 0.16, by (ii) 365.
2. MISCELLANEOUS.
2.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties
(including transferees of any shares of Registrable Securities). Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
2.2 GOVERNING LAW. This Agreement shall be governed in all
respects by and construed in accordance with the laws of the State of California
without any regard to conflicts of laws principles.
2.3 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
2.4 TITLES AND SUBTITLES. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
2.5 NOTICES. Unless otherwise provided, any notice required
or permitted under this Agreement shall be sent to the address indicated for
such party on the signature page hereof (provided that any party at any time may
change its address by ten (10) days' advance written notice to the other
parties), and shall be deemed effectively given upon the earlier of actual
receipt thereof by the person to whom notice is directed or (i) in the case of
notices and communications sent by personal delivery or facsimile, one business
day after such notice or communication arrives at the applicable address or was
successfully sent to the applicable facsimile number, (ii) in the case of
notices and communications sent by overnight delivery service, at noon (local
time) on the second business day following the day such notice or communication
was sent, and (iii) in the case of notices and communications sent by United
States mail, seven days after such notice or communication shall have been
deposited in the United States mail.
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<PAGE>
2.6 EXPENSES. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
2.7 AMENDMENTS AND WAIVERS. Any term of this Agreement may
be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Registrable Securities then outstanding. Any amendment or
waiver effected in accordance with this Section shall be binding upon each
holder of any Registrable Securities then outstanding, each future holder of all
such Registrable Securities, and the Company.
2.8 SEVERABILITY. If any provision of this Agreement shall
be judicially determined to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
2.9 ENTIRE AGREEMENT. This Agreement, together with the
Purchase Agreements, constitutes the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof.
2.10 EACH INVESTOR ACTING SEVERALLY. Each Investor
undertakes his or its obligations hereunder and makes the representations,
warranties and covenants as set forth hereunder severally and not jointly.
2.11 REPRESENTATION. By executing this Agreement, each
Investor acknowledges and agrees that Brobeck, Phleger & Harrison LLP represents
the Company solely and that such Investor has been advised to, and has had an
opportunity to, consult with its own attorney in connection with this Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
THE COMPANY:
IMAGING TECHNOLOGIES CORPORATION,
a Delaware corporation
By: /s/ BRIAN BONAR
--------------------------
Brian Bonar, President and
Chief Executive Officer
Address: 11031 Via Frontera
San Diego, CA 92127
INVESTORS:
AMERICAN INDUSTRIES, INC.,
An Oregon corporation
By: /s/ HOWARD HEDINGER
-------------------------
Its: PRESIDENT
-------------------------
Address: 1750 NW Front Avenue, Suite 106
Portland, Oregon 97209
/s/ ELLISON MORGAN
-------------------------
Ellison Morgan
Address: 11510 SW Summerville Street
Portland, Oregon 97219
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE>
/s/ HARRY SAAL
------------------------
Harry Saal
Address: c/o Imaging Technologies Corporation
11031 Via Frontera
San Diego, CA 92127
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE>
SCHEDULE A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
Registrable Securities
Name Common Stock Warrant Shares
---- ------------ --------------
<S> <C> <C>
American Industries, Inc. 400,000 190,000
Ellison Morgan 100,000 0
Harry Saal 0 300,000
</TABLE>
A-1
<PAGE>
Exhibit 10.7
SETTLEMENT
AND MUTUAL RELEASE AGREEMENT
This Settlement and Mutual Release Agreement (this "Agreement") is
entered into as of this 18th day of September, 1998, by and among Imaging
Technologies Corporation, a Delaware corporation ("ITEC"), and each of NP
Partners, formerly known as Nelson Partners ("Nelson"), Olympus Securities, Ltd.
("Olympus"), Ramius Fund, Ltd. ("Ramius"), Raphael, L.P. ("Raphael"), AG Super
Fund International Partners, L.P. ("AG"), GAM Arbitrage Investments, Inc.
("GAM"), Hick Investments, Ltd. ("Hick"), Leonardo, L.P. ("Leonardo"), Themis
Partners L.P. ("Themis"), Heracles Fund ("Heracles") and Samyang Merchant Bank
("Samyang," and together with Nelson, Olympus, Ramius, Raphael, AG, GAM, Hick,
Leonardo, Themis and Heracles, the "Series C Investors").
R E C I T A L S:
WHEREAS, ITEC and the Series C Investors entered into a Securities
Purchase Agreement, dated as of August 21, 1997 (the "Purchase Agreement"),
pursuant to which ITEC sold, and the Series C Investors purchased, an aggregate
of 500 shares of ITEC's Series C Redeemable Convertible Preferred Stock, par
value $1,000 per share (the "Series C Preferred Stock"), which were convertible
into shares of ITEC's Common Stock, par value $0.005 per share (the "Common
Stock"), in accordance with the terms of the Certificate of Designations,
Preferences and Rights of Series C Convertible Preferred Stock of Imaging
Technologies Corporation as filed with the Secretary of State of the State of
Delaware on August 21, 1997 (the "Certificate of Designations");
WHEREAS, in connection with the sale and purchase of the Series C
Preferred Stock pursuant to the Purchase Agreement, ITEC also issued, and the
Series C Investors also received, warrants (the "Warrants") to acquire 400
shares of Common Stock for each share of Series C Preferred Stock purchased by
the Series C Investors;
WHEREAS, in connection with the sale and purchase of the Series C
Preferred Stock pursuant to the Purchase Agreement, ITEC and the Series C
Investors also entered into a Registration Rights Agreement dated as of August
21, 1997 (the "Registration Rights Agreement"), providing the Series C Investors
with certain rights of registration and certain other rights as set forth
therein;
WHEREAS, on various dates between June 9, 1998 and June 29, 1998,
Nelson, Olympus, Ramius and Raphael tendered for conversion into Common Stock an
aggregate of 235 shares of Series C Preferred Stock (the "Tendered Shares"),
representing all shares of Series C Preferred held by such Series C Investors;
WHEREAS, on June 19, 1998, ITEC delivered notice (the "Redemption
Notice") to Nelson, Olympus, Ramius, Raphael and Themis (the "Remaining
Holders") of its election to redeem for cash all shares of Series C Preferred
Stock tendered for conversion in lieu of converting such shares;
<PAGE>
WHEREAS, certain disputes have arisen between ITEC and Nelson,
Olympus, Ramius and Raphael with respect to the Redemption Notice and ITEC's
right to redeem all shares of Series C Preferred Stock tendered for conversion
in lieu of converting such shares;
WHEREAS, although no disputes have arisen between ITEC and Themis,
ITEC has requested, and Themis has agreed, to permit ITEC to redeem the
remaining 1 share of Series C Preferred Stock now held by Themis and to grant
the mutual release and other agreements between the parties set forth herein;
and
WHEREAS, the parties wish to settle (i) all disputes, claims, causes
of action, offsets, defenses and all other matters related to, arising out of or
in connection with the Series C Investors' purchase and ownership of the Series
C Preferred Stock and the Warrants including, but not limited to, all disputes,
claims, causes of action, offsets, defenses and all other matters related to,
arising out of or connected in any way to the Purchase Agreement, the
Registration Rights Agreement, the Warrants, the Certificate of Designations,
the Redemption Notice and all other agreements, letters, documents, instruments,
conduct and actions related to, arising out of or connected in any way to the
Series C Investors' purchase and ownership of the Series C Preferred Stock and
the Warrants (collectively, the "Series C Documents"), and (ii) all other
disputes, claims, causes of action, offsets, defenses and all other matters that
may exist between ITEC and each of the Series C Investors, and the parties
further wish to fix and establish in this Agreement their respective rights and
future obligations.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and for other good and sufficient consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. TERMS OF SETTLEMENT.
1.1 CLOSING. The closing of the settlement set forth in this Agreement and
the consummation of the transactions contemplated hereby shall take place at the
offices of Brobeck, Phleger & Harrison LLP, 550 West C Street, Suite 1300, San
Diego, California 92101, at 10:00 A.M. local time, on September 18, 1998, or at
such other time and place as the parties hereto mutually agree orally or in
writing (which time and place are designated as the "Closing"). At the Closing,
ITEC shall execute and deliver to each of the Series C Investors the
deliverables set forth in Section 1.2 hereto, and each of the Series C Investors
shall execute and deliver to ITEC this Agreement and such other applicable
documents as set forth herein.
1.2 DELIVERIES BY ITEC. At the Closing, ITEC shall deliver to the Series C
Investors an originally executed copy of this Agreement and the Amendment No. 1
to Registration Rights Agreement, in substantially the form attached hereto as
EXHIBIT A (the "Amendment"), and shall:
(A) CASH PAYMENTS.
(1) Pay to Nelson the amount of one million dollars ($1,000,000)
by wire transfer in accordance with the wire transfer instructions provided by
Nelson;
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(2) Pay to Olympus the amount of one million dollars ($1,000,000)
by wire transfer in accordance with the wire transfer instructions provided by
Olympus;
(3) Pay to Ramius the amount of sixty two thousand five hundred
dollars ($62,500) by wire transfer in accordance with the wire transfer
instructions provided by Ramius;
(4) Pay to Raphael the amount of one hundred twenty-five thousand
dollars ($125,000) by wire transfer in accordance with the wire transfer
instructions provided by Raphael; and
(5) Pay to Themis the amount of twenty-seven thousand five
hundred dollars ($27,500) by wire transfer in accordance with the wire transfer
instructions provided by Themis.
(6) Pay to Heracles the amount of twelve thousand five hundred
dollars ($12,500) by wire transfer in accordance with the wire transfer
instructions provided by Heracles.
(B) SUBORDINATED PROMISSORY NOTES AND WARRANTS.
(1) Deliver to Nelson a subordinated promissory note (the "Nelson
Subordinated Note") in the principal amount of $500,000 and a warrant (the
"Nelson Warrant") to purchase up to 100,000 shares of Common Stock, all pursuant
to a certain Subordinated Note Purchase Agreement dated as of the date hereof
among the Company and Nelson and Olympus (the "Subordinated Note Purchase
Agreement"); and
(2) Deliver to Olympus a subordinated promissory note (the
"Olympus Subordinated Note") in the principal amount of $500,000 and a warrant
(the "Olympus Warrant") to purchase up to 100,000 shares of Common Stock, all
pursuant to the Subordinated Note Purchase Agreement.
(C) COMMON STOCK.
(1) Deliver to Ramius seventy seven thousand seven hundred twenty
six (77,726) shares of Common Stock; and
(2) Deliver to Raphael fifty thousand four hundred thirty five
(50,435) shares of Common Stock.
(D) NEW WARRANTS.
(1) Deliver to Nelson a Warrant, in substantially the form
attached hereto as EXHIBIT B (the "New Warrant"), to purchase 50,000 shares of
Common Stock; and
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(2) Deliver to Olympus a New Warrant to purchase 50,000 shares of
Common Stock.
1.3 DELIVERIES BY THE SERIES C IVESTORS.
(A) NELSON AND OLYMPUS. At the Closing, each of Nelson and Olympus
shall deliver to ITEC (1) an originally executed copy of this Agreement, the
Amendment, the New Warrants and the Subordinated Note Purchase Agreement, and
(2) the certificates for all outstanding shares of Series C Preferred Stock held
by them, each properly endorsed for transfer to ITEC. In addition, Nelson shall
deliver to ITEC an originally executed copy of the Nelson Subordinated Note and
the Nelson Warrant and Olympus shall deliver to ITEC an originally executed copy
of the Olympus Subordinated Note and the Olympus Warrant
(B) RAMIUS, RAPHAEL, AG, GAM, HICK AND LEONARDO. At the Closing, each
of Ramius, Raphael, AG, GAM, Hick and Leonardo shall deliver to ITEC (1) an
originally executed copy of this Agreement and the Amendment and (2) all
certificates for any outstanding shares of Series C Preferred Stock held by
them, each properly endorsed for transfer to ITEC.
(C) THEMIS, HERACLES AND SAMYANG. At the Closing, each of Themis,
Heracles and Samyang shall deliver to ITEC (1) an originally executed copy of
this Agreement and the Amendment and (2) all certificates for any outstanding
shares of Series C Preferred Stock held by them, each properly endorsed for
transfer to ITEC.
1.4 TERMINATION OF RIGHTS UNDER SERIES C DOCUMENTS. ITEC and each of the
Series C Investors hereby agree that, effective as of the Closing, all rights,
privileges, restrictions, obligations, duties and terms contained in the Series
C Documents shall be terminated in their entirety and shall be of no further
force or effect; PROVIDED, HOWEVER, that (A) each of the Series C Investors
shall retain their respective Warrants, and all rights, privileges,
restrictions, obligations, duties and terms set forth therein shall survive and
remain effective after the Closing in accordance with the terms of the Warrants
and (B) all rights, privileges, restrictions, obligations, duties and terms set
forth in the Registration Rights Agreement, as amended by the Amendment (the
"Amended Registration Rights Agreement"), shall survive and remain effective
after the Closing in accordance with the terms set forth therein.
1.5. RELEASE OF CLAIMS.
(A) RELEASE BY ITEC.
(1) Effective as of the Closing and except as provided in
subsection 1.5(A)(2) below, ITEC, on behalf of itself and its predecessors,
successors, former or current subsidiaries, affiliates, officers, directors,
shareholders, agents, attorneys, representatives, investment advisors, insurers,
employees and assigns (collectively with ITEC, the "ITEC Releasees"), hereby
releases and forever discharges each of the Series C Releasees (as defined
below) and all persons acting by, through, under, or in concert with them, or
any of them, from any and all liabilities, obligations, indebtedness, claims,
causes of action, rights or defenses, and any legal, equitable or other
obligations or duties, whether known or unknown, liquidated or
4
<PAGE>
contingent, matured or unmatured, of any kind whatsoever which existed, arose or
occurred at any time prior to or concurrently with the Closing, including, but
not limited to, any and all liabilities, obligations, indebtedness, claims,
causes of action, rights or defenses, and any legal, equitable or other
obligations or duties, whether known or unknown, liquidated or contingent,
matured or unmatured, of any kind whatsoever that arise out of, relate to or are
connected in any way to the Series C Investors' purchase and ownership of the
Series C Preferred Stock and/or any of the Series C Documents.
(2) ITEC hereby acknowledges and agrees, on behalf of itself and
each of the other ITEC Releasees, that the release contained in subsection
1.5(A)(1) shall not apply to, and the Series C Releasees shall retain after the
Closing, all rights, privileges, restrictions, obligations, duties and terms set
forth in (i) the Warrants, (ii) the Amended Registration Rights Agreement,
including but not limited to any claims for indemnification under Section 6 of
the Amended Registration Rights Agreement, (iii) this Agreement, (iv) the New
Warrants, (v) the Nelson Subordinated Note and the Olympus Subordinated Note,
(vi) the Nelson Warrant and the Olympus Warrant and (vii) the Subordinated Note
Purchase Agreement.
(B) RELEASE BY SERIES C INVESTORS.
(1) Effective as of the Closing and except as provided in
subsection 1.5(B)(2) below, each of the Series C Investors, on behalf of itself
and its predecessors, successors, former or current subsidiaries, affiliates,
officers, directors, shareholders, agents, attorneys, representatives,
investment advisors, insurers, employees and assigns (collectively with the
Series C Investors, the "Series C Releasees"), hereby releases and forever
discharges each of the ITEC Releasees and all persons acting by, through, under,
or in concert with them, or any of them, from any and all liabilities,
obligations, indebtedness, claims, causes of action, rights or defenses, and any
legal, equitable or other obligations or duties, whether known or unknown,
liquidated or contingent, matured or unmatured, of any kind whatsoever which
existed, arose or occurred at any time prior to or concurrently with the
Closing, including, but not limited to, any and all liabilities, obligations,
indebtedness, claims, causes of action, rights or defenses, and any legal,
equitable or other obligations or duties, whether known or unknown, liquidated
or contingent, matured or unmatured, of any kind whatsoever that arise out of,
relate to or are connected in any way to the Series C Investors' purchase and
ownership of the Series C Preferred Stock and/or any of the Series C Documents.
(2) Each of the Series C Investors hereby acknowledges and
agrees, on behalf of itself and each of the other Series C Releasees, that the
release contained in subsection 1.5(B)(1) shall not apply to, and the ITEC
Releasees shall retain after the Closing, all rights, privileges, restrictions,
obligations, duties and terms set forth in (i) the Warrants, (ii) the Amended
Registration Rights Agreement, including but not limited to any claims for
indemnification under Section 6 of the Amended Registration Rights Agreement,
(iii) this Agreement, (iv) the New Warrants, (v) the Nelson Subordinated Note
and the Olympus Subordinated Note, (vi) the Nelson Warrant and the Olympus
Warrant and (vii) the Subordinated Note Purchase Agreement.
5
<PAGE>
(C) NO ADMISSION BY EITHER PARTY. ITEC denies that any of the Series C
Releasees has any claim, cause of action, defense or offset which has been or
could be asserted against any of the ITEC Releasees, including, but not limited
to, any claim, cause of action, defense or offset arising out of, relating to,
or connected in any way to the Series C Investors' purchase and ownership of the
Series C Preferred Stock and/or any of the Series C Documents. Each of the
Series C Investors denies that any of the ITEC Releasees has any claim, cause of
action, defense or offset which has been or could be asserted against any of the
Series C Releasees, including, but not limited to, any claim, cause of action,
defense or offset arising out of, relating to, or connected in any way to the
Series C Investors' purchase and ownership of the Series C Preferred Stock
and/or any of the Series C Documents. ITEC and each of the Series C Investors
understands and agrees that this Agreement shall not be construed (nor shall it
be admissible in any legal action or proceeding) as an admission by ITEC or any
of the other ITEC Releasees, on the one hand, or by any of the Series C
Investors or any of the other Series C Releasees, on the other hand, of the
existence of any liability, indebtedness, claim, cause of action, defense,
offset or other right or obligation within the scope of this Agreement. This
Agreement and the negotiations, discussions and other communications between the
parties hereto leading to execution of this Agreement constitute offers to
compromise as contemplated by California Evidence Code Section 1152 and Rule 408
of the Federal Rules of Evidence.
(D) ADDITIONAL FACTS. ITEC and each of the Series C Investors each
acknowledges and agrees that it may discover facts different from or in addition
to those which it now knows or believes to be true with respect to the
liabilities, indebtedness, claims, causes of action, defenses, offsets and other
rights and obligations released pursuant to this Agreement, and agrees that this
Agreement shall continue and remain in effect in all respects notwithstanding
the discovery or existence of such different or additional facts.
(E) WAIVER OF CIVIL CODE SECTION 1542. ITEC and each of the Series C
Investors acknowledges that it has been advised by legal counsel and is familiar
with the provisions of California Civil Code Section 1542, which provides as
follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING A
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY EFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
ITEC AND EACH OF THE SERIES C INVESTORS EACH AGREES TO ASSUME THE RISK OF ANY
AND ALL UNKNOWN, UNANTICIPATED OR MISUNDERSTOOD LIABILITIES, INDEBTEDNESS,
CLAIMS, CAUSES OF ACTION, DEFENSES, OFFSETS AND OTHER RIGHTS AND OBLIGATIONS
WHICH ARE RELEASED HEREBY IN FAVOR OF ANY AND/OR ALL OTHER PARTIES TO WHICH THE
RELEASES CONTAINED HEREIN APPLY, AND EACH HEREBY WAIVES AND RELEASES ALL RIGHTS
AND BENEFITS WHICH IT MIGHT OTHERWISE HAVE UNDER THE AFOREMENTIONED SECTION 1542
OF THE CALIFORNIA CIVIL CODE WITH REGARD TO THE RELEASE OF SUCH UNKNOWN,
UNANTICIPATED OR MISUNDERSTOOD LIABILITIES, INDEBTEDNESS, CLAIMS, CAUSES OF
6
<PAGE>
ACTION, DEFENSES, OFFSETS AND OTHER RIGHTS AND OBLIGATIONS. TO THE EXTENT (IF
ANY) WHICH SUCH LAWS MAY BE APPLICABLE, EACH PARTY WAIVES AND RELEASES (TO THE
MAXIMUM EXTENT PERMITTED BY LAW) ANY RIGHT OR DEFENSE WHICH IT MIGHT OTHERWISE
HAVE UNDER ANY OTHER LAW OF ANY APPLICABLE JURISDICTION WHICH MIGHT LIMIT OR
RESTRICT THE EFFECTIVENESS OR SCOPE OF ANY OF ITS WAIVERS OR RELEASES HEREUNDER.
1.6 WAIVER OF CERTAIN ADJUSTMENTS UNDER WARRANTS. Each of the Investors
hereby agrees that the issuance and sale by ITEC of up to 500,000 shares of its
Common Stock at a purchase price per share less than the current Warrant
Exercise Price (as defined in the Investor's Warrant), the issuance by ITEC of
warrants to purchase up to 925,000 shares of its Common Stock at an exercise
price per share less than the current Warrant Exercise Price and the issuance by
ITEC of promissory notes in the aggregate principal amount of $675,000
convertible into shares of its Common Stock at a price per share less than the
current Warrant Exercise Price in connection with the transactions contemplated
by this Agreement shall not cause or result in any adjustment to the Warrant
Exercise Price (as defined in the Investor's Warrant) of the Investor's Warrant
or the number of shares of Common Stock issuable upon exercise of the Investor's
Warrant, and each of the Investors hereby waives any and all rights it may have
under its Warrant, including without limitation any and all rights under Section
8 of its Warrant, to receive an adjustment to the Warrant Exercise Price (as
defined in the Investor's Warrant) of the Investor's Warrant or the number of
shares of Common Stock issuable upon exercise of the Investor's Warrant arising
from the issuance and sale by ITEC of such Common Stock, warrants and promissory
notes.
2. REPRESENTATIONS AND WARRANTIES.
2.1 ITEC. ITEC represents and warrants to each of the Series C Investors
that:
(A) It has all requisite corporate power and authority to execute and
deliver, and fulfill its obligations under, this Agreement. This Agreement, upon
execution and delivery by ITEC and assuming due and proper execution and
delivery by each of the Series C Investors, will constitute a valid and binding
obligation of ITEC, enforceable in accordance with its terms, except as such
enforcement may be limited by bankruptcy, insolvency, moratorium and other laws
of general application affecting the enforcement of creditors' rights.
(B) No consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any federal, state or
local governmental authority on the part of ITEC is required in connection with
the execution, delivery and performance of this Agreement by ITEC.
(C) No consent, approval, waiver or other action by any person under
any contract, agreement, indenture, lease, instrument or other document to which
ITEC is a party or by which it is bound is necessary for the execution, delivery
and performance of this Agreement by ITEC.
7
<PAGE>
(D) Neither it, nor any of the other ITEC Releasees, has assigned or
transferred to any other person or entity, either directly or indirectly,
voluntarily or involuntarily, any liability, indebtedness, claim, cause of
action, defense, offset or other right or obligation released hereunder by the
ITEC Releasees. ITEC hereby agrees to indemnify and hold harmless each of the
Series C Releasees from any and all liabilities, indebtedness, claims, causes of
action, defenses, offsets and other rights and obligations released hereunder by
the ITEC Releasees that may be asserted against any of the Series C Releasees by
any third party in the event that the foregoing representation and warranty
shall prove to be false or misleading.
2.2 SERIES C INVESTORS. Each of the Series C Investors represents and
warrants, severally and not jointly, to ITEC that:
(A) It has all requisite corporate power and authority to execute and
deliver, and fulfill its obligations under, this Agreement. This Agreement, upon
execution and delivery by such Series C Investor, and assuming due and proper
execution and delivery by ITEC, will constitute a valid and binding obligation
of such Series C Investor, enforceable in accordance with its terms, except as
such enforcement may be limited by bankruptcy, insolvency, moratorium and other
laws of general application affecting the enforcement of creditors' rights.
(B) No consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any federal, state or
local governmental authority on the part of such Series C Investor is required
in connection with the execution, delivery and performance of this Agreement by
such Series C Investor.
(C) No consent, approval, waiver or other action by any person under
any contract, agreement, indenture, lease, instrument or other document to which
such Series C Investor is a party or by which it is bound is necessary for the
execution, delivery and performance of this Agreement by such Series C Investor.
(D) Neither it, nor any of the other Series C Releasees on whose
behalf such Series C Investor has given the release contained in this Agreement
(the "Series C Investor's Affiliates"), has assigned or transferred to any other
person or entity, either directly or indirectly, voluntarily or involuntarily,
any liability, indebtedness, claim, cause of action, defense, offset or other
right or obligation released hereunder by such Series C Investor or the Series C
Investor's Affiliates. Each of the Series C Investors hereby agrees to indemnify
and hold harmless each of the ITEC Releasees from any and all liabilities,
indebtedness, claims, causes of action, defenses, offsets and other rights and
obligations released hereunder by such Series C Investor or by the Series C
Investor's Affiliates that may be asserted against any of the ITEC Releasees by
any third party in the event that the foregoing representation and warranty
shall prove to be false or misleading.
3. CONFIDENTIALITY. No party to this Agreement shall, except as may be mandated
by statutory or regulatory requirements, as may be required by legal process in
the course of actual litigation or in the case of a subpoena, disclose to others
the fact or terms of this settlement, the amounts referred to in this Agreement
or the fact of the payment of said amounts, except that each such party may make
such disclosure to each such party's attorneys, accountants or other
8
<PAGE>
advisors to whom the disclosure is necessary to effectuate the purposes for
which such party has consulted with such professional advisors and except that
(i) ITEC may file this Agreement and the exhibits hereto with any governmental
or regulatory body, describe it and refer to it in any filing it makes pursuant
to federal and state securities laws or to its Board of Directors or
stockholders, and (ii) ITEC may issue a press release describing the terms of
this Agreement and the exhibits hereto.
4. MISCELLANEOUS.
4.1 SEVERABILITY. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
4.2 PRIOR AGREEMENTS. Except for the Warrants, the Amended Registration
Rights Agreement, the New Warrants, the Subordinated Note Purchase Agreement,
the Nelson Subordinated Note, the Olympus Subordinated Note, the Nelson Warrant
and the Olympus Warrant, this Agreement shall supersede and render null and void
any and all prior agreements between ITEC and/or any of the ITEC Releasees, on
one hand, and any of the Series C Investors and/or any of the Series C
Releasees, on the other hand, including, but not limited to, all of the Series C
Documents.
4.3 SUCCESSORS AND ASSIGNS. This Agreement shall bind and benefit each of
the Series C Investors, each of the other Series C Releasees and each of their
successors and assigns and shall also bind and benefit ITEC, each of the other
ITEC Releasees and each of their successors and assigns.
4.4 GOVERNING LAW; JURISDICTION AND VENUE. This Agreement shall be governed
by and interpreted in accordance with the laws of the State of New York without
regard to the principles of conflict of laws. Each party hereby irrevocably
submits to the non-exclusive jurisdiction of the state and federal courts
sitting the City of New York, borough of Manhattan, for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein, and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or
proceeding is brought in an inconvenient forum or that the venue of such suit,
action or proceeding is improper. Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by mailing a copy thereof to such party at the address for such
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law.
4.5 EXPENSES. ITEC and each of the Series C Investors shall each bear their
own attorneys' fees and costs incurred in connection with this Agreement and the
settlement of the disputes contemplated hereby.
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<PAGE>
4.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
4.7 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
4.8 AMENDMENT AND WAIVER; REMEDIES CUMULATIVE. No amendment, modification
or waiver of this Agreement or any part thereof shall be effective unless it is
in writing and is signed by ITEC and each of the Series C Investors. No delay on
the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part of any party
of any such right, power or privilege, nor any single or partial exercise of any
such right, power or privilege, preclude any further exercise thereof or the
exercise of any other such right, power or privilege.
4.9 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS. The
representations, warranties, covenants and agreements contained in this
Agreement shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
4.10 NOTICES. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically generated and kept on file by the
sending party); (iii) three (3) days after being sent by U.S. certified mail,
return receipt requested, or (iv) one (1) day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
If to ITEC:
Imaging Technologies Corporation
11031 Via Frontera
San Diego, CA 92127
Attention: President
Facsimile: (619) 613-1311
with a copy to:
Brobeck, Phleger & Harrison LLP
550 West C Street, Suite 1300
San Diego, California 92101
Attention: John R. Cook, Esq.
Facsimile: (619) 234-3848
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<PAGE>
If to Nelson or Olympus:
Addressed to the appropriate party
c/o Leeds Management Services
129 Front Street, 5th Floor
Hamilton HM12 Bermuda
Attention: Anne Dupuy
Facsimile: (441) 292-2239
with a copy to:
Citadel Investment Group, L.L.C.
225 West Washington Street
Chicago, Illinois 60606
Attention: Mike Hughes
Facsimile: (312) 338-0780
If to Ramius, Raphael, Leonardo, Gam, AG or Hick:
Addressed to the appropriate party
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue - 26th Floor
New York, New York 10167
Attention: Gary Wolf
Facsimile: (212) 867-6449
If to Themis, Heracles or Samyang:
Addressed to the appropriate party
c/o Promethean Investment Group, L.L.C.
40 West 57th Street, Suite 1520
New York, New York 10019
Attention: James F. O'Brien, Jr.
Facsimile: (212) 698-0505
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party
(provided that notice of a change of address shall be effective only upon
receipt thereof).
7.11 NO STRICT CONSTRUCTION. This Agreement is the result of arms-length
negotiations between the parties hereto and has been prepared jointly by the
parties. In applying and interpreting the provisions of this Agreement, there
shall be no presumption that the Agreement was prepared by any one party or that
the Agreement shall be construed in favor of or against any one party.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
IMAGING TECHNOLOGIES CORPORATION
By: /S/ BRIAN BONAR
----------------------------
Brian Bonar, President and
Chief Executive Officer
SERIES C INVESTORS:
NP PARTNERS, formerly known as Nelson Partners
By: /S/ ILLEGIBLE
----------------------------
Title: AUTHORIZED SIGNATORY
OLYMPUS SECURITIES, LTD.
By: /S/ ILLEGIBLE
----------------------------
Title: AUTHORIZED SIGNATORY
RAMIUS FUND, LTD.
By: /S/ MICHAEL L. GORDON
----------------------------
Title: MANAGING OFFICER
RAPHAEL, L.P.
By: /S/ MICHAEL L. GORDON
----------------------------
Title: CHIEF OPERATING OFFICER
[SIGNATURE PAGE TO SETTLEMENT AND MUTUAL RELEASE AGREEMENT]
<PAGE>
LEONARDO, L.P.
By: /S/ MICHAEL L. GORDON
----------------------------
Its: CHIEF OPERATING OFFICER
GAM ARBITRAGE INVESTMENTS, INC.
By: /S/ MICHAEL L. GORDON
----------------------------
Its: CHIEF OPERATING OFFICER
AG SUPER FUND INTERNATIONAL PARTNERS, L.P.
By: /S/ MICHAEL L. GORDON
----------------------------
Its: CHIEF OPERATING OFFICER
HICK INVESTMENTS, LTD.
By: /S/ MICHAEL L. GORDON
----------------------------
Its: MANAGING OFFICER
THEMIS PARTNERS L.P.
By: /S/ ILLEGIBLE
----------------------------
Its:
[SIGNATURE PAGE TO SETTLEMENT AND MUTUAL RELEASE AGREEMENT]
<PAGE>
HERACLES FUND
By: /S/ ILLEGIBLE
----------------------------
Its:
SAMYANG MERCHANT BANK
By: /S/ ILLEGIBLE
----------------------------
Its:
[SIGNATURE PAGE TO SETTLEMENT AND MUTUAL RELEASE AGREEMENT]
<PAGE>
EXHIBIT A
Amendment No.1 to Registration Rights Agreement
See Exhibit 10.8
A-1
<PAGE>
EXHIBIT B
Form of New Warrant to Purchase 50,000 shares of Common Stock
See Exhibit 10.9
B-1
<PAGE>
Exhibit 10.8
AMENDMENT NO. 1 TO
REGISTRATION RIGHTS AGREEMENT
This Amendment No. 1 to Registration Rights Agreement ("Amendment") is
entered into as of this 18th day of September, 1998, by and among Imaging
Technologies Corporation, a Delaware corporation (the "Company"), and the
undersigned entities (each of which is herein referred to individually as an
"Investor" and all of which are herein referred to collectively as the
"Investors"). Capitalized terms used but not defined herein shall have the
meaning ascribed to them in the Registration Rights Agreement dated as of August
21, 1997, among the Company and the Investors (the "Agreement"):
R E C I T A L S:
WHEREAS, the Company and the Investors entered into the Agreement in
connection with the purchase by the Investors of an aggregate of 500 shares of
the Company's Series C Redeemable Convertible Preferred Stock, par value $1,000
per share (the "Series C Preferred Stock") pursuant to a Securities Purchase
Agreement, dated as of August 21, 1997 among the Company and the Investors (the
"Purchase Agreement");
WHEREAS, certain disputes have arisen between the Company and certain
of the Investors with respect to the Company's right to redeem all shares of
Series C Preferred Stock tendered for conversion in lieu of converting such
shares;
WHEREAS, the terms under which the Company and these Investors have
agreed to settle all of their disputes, as well as the terms regarding other
matters to which all of the other Investors have agreed, are set forth in a
Settlement and Mutual Release Agreement dated as of the date hereof between the
Company and the Investors (the "Settlement Agreement");
WHEREAS, as part of the settlement contemplated by the Settlement
Agreement, the Company has agreed to issue to two of the Investors, Nelson
Partners ("Nelson") and Olympus Securities, Ltd. ("Olympus"), warrants (the
"Settlement Warrants") to purchase up to an aggregate of 100,000 shares of the
Company's Common Stock, par value $0.005 per share (the "Common Stock");
WHEREAS, as part of the settlement contemplated by the Settlement
Agreement, the Company has agreed to issue to Nelson and Olympus non-convertible
subordinated promissory notes and warrants (together with the Settlement
Warrants, the "New Warrants") to purchase up to an aggregate of 200,000 shares
of the Company's Common Stock, par value $0.005 per share (the "Common Stock");
and
WHEREAS, in connection with the closing of the settlement contemplated
by the Settlement Agreement, the Company has agreed to grant certain
registration rights to Nelson and Olympus with respect to the shares of Common
Stock issuable upon exercise of the New Warrants (the "New Warrant Shares"), and
the Company and the Investors have each agreed to amend and restate certain
provisions of the Agreement, all as set forth in this Amendment.
<PAGE>
NOW, THEREFORE, in consideration of the mutual promises contained
herein and for other good and sufficient consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Amendments to Agreement.
1.1 SECTION 1(d). Section 1(d) of the Agreement is amended and restated in
its entirety to read as follows:
"d. "REGISTRABLE SECURITIES" means the Conversion Shares issued
or issuable upon conversion of the Preferred Shares, the Warrant Shares
issued or issuable upon exercise of the Warrants and the New Warrant Shares
(as defined in the Amendment No. 1 to Registration Rights Agreement dated
September 18, 1998, among the Company and the Investors) issued or issuable
upon exercise of the New Warrants (as defined in the Amendment No. 1 to
Registration Rights Agreement dated September 18, 1998, among the Company
and the Investors), and any shares of capital stock issued or issuable with
respect to the Conversion Shares, the Warrant Shares, the New Warrant
Shares, the New Warrants, the Warrants or the Preferred Shares as a result
of any stock split, stock dividend, recapitalization, exchange or similar
event or otherwise."
1.2 SECTION 2(f). A new Section 2(f) is hereby added to the Agreement as
follows:
"f. REGISTRATION OF CERTAIN REGISTRABLE SECURITIES. If at any
time prior to the expiration of the Registration Period the Company
proposes to file with the SEC a Registration Statement relating to an
offering for the account of others under the 1933 Act of any of its
securities, the Company shall promptly send to NP Partners, formerly known
as Nelson Partners ("Nelson"), and Olympus Securities, Ltd. ("Olympus")
written notice of the Company's intention to file a Registration Statement
and of Nelson's and Olympus' rights under this Section 2(f) and, if within
twenty (20) days after receipt of such notice, Nelson and/or Olympus shall
so request in writing, the Company shall include in such Registration
Statement all or any part of the New Warrant Shares and any shares of
capital stock issued or issuable with respect to the New Warrant Shares or
the New Warrants as a result of any stock split, stock dividend,
recapitalization, exchange or similar event or otherwise (collectively, the
"New Warrant Registrable Securities") Nelson and/or Olympus requests to be
registered. In the event the Company has not filed a shelf Registration
Statement pursuant to Rule 415 under the 1933 Act relating to an offering
for the account of others, which is not underwritten, under the 1933 Act of
any of its securities on or before September 17, 2000 (the "Filing
Deadline"), the Company shall prepare and, on or prior to the Filing
Deadline, file with the SEC a Registration Statement on Form S-3 (or, if
such form is unavailable for such registration, on such other form as is
available for such registration, subject to the consent of the Investors
holding a majority of the New Warrant Registrable Securities, which consent
will not be unreasonably withheld), covering the resale of all of the New
Warrant Registrable Securities. The Company shall use its best efforts to
have the Registration Statement declared effective by the SEC as soon as
practicable, but in no event later than 90 days after the Filing Deadline.
The obligations of the Company under this Section 2(f) may be waived by
Investors holding a majority of the New Warrant Registrable Securities. If
an
2
<PAGE>
offering in connection with which Nelson or Olympus is entitled to
registration under this Section 2(f) is an underwritten offering, then
Nelson and/or Olympus shall, if they are participating in the offering and
unless otherwise agreed by the Company, offer and sell such New Warrant
Registrable Securities in an underwritten offering using the same
underwriter or underwriters and, subject to the provisions of this
Agreement, on the same terms and conditions as other shares of Common Stock
included in such underwritten offering. The Company shall have no
obligation under this Section 2(f) to include any of the New Warrant
Registrable Securities in any Registration Statement relating to an
offering for its own account of any of its securities, nor shall the
Company have any obligation to include any of the New Warrant Registrable
Securities in the Registration Statement filed pursuant to Section 2(a) of
this Agreement (Registration No. 333-37245).
1.3 SECTION 3(a). Section 3(a) of the Agreement is amended and restated in
its entirety to read as follows:
"a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities (on or
prior to the forty-fifth (45th) day after the date of issuance of any
Preferred Shares for the registration of Registrable Securities pursuant to
Section 2(a)) and use its best efforts to cause such Registration Statement
relating to the Registrable Securities to become effective as soon as
possible after such filing (but in no event later than 150 days after the
issuance of any Preferred Shares for the registration of Registrable
Securities pursuant to Section 2(a)), and keep such Registration Statement
effective pursuant to Rule 415 at all times until the earlier of (i) the
date as of which the Investors may sell all of the Registrable Securities
without restriction pursuant to Rule 144(k) promulgated under the 1933 Act
(or successor thereto) or (ii) the date on which (A) the Investors shall
have sold all the Registrable Securities and (B) none of the Preferred
Shares, Warrants or New Warrants is outstanding (the "Registration
Period"), which Registration Statement (including any amendments or
supplements thereto and prospectuses contained therein) shall not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading."
1.4 SECTION 9. Section 9 of the Agreement is amended and restated in its
entirety to read as follows:
"9. ASSIGNMENT OF REGISTRATION RIGHTS.
The Rights under this Agreement shall be automatically
assignable by the Investors to any transferee of not less than 50,000
Registrable Securities if: (i) the Investor agrees in writing with the
transferee or assignee to assign such rights, and a copy of such agreement
is furnished to the Company within a reasonable time after such assignment;
(ii) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (a) the name and address of
such transferee or assignee, and (b) the securities with respect to which
such registration rights are being transferred or assigned; (iii)
immediately following such transfer or assignment the further disposition
of such securities by the transferee or assignee is restricted under the
3
<PAGE>
1933 Act and applicable state securities laws; (iv) at or before the time
the Company receives the written notice contemplated by clause (ii) of this
sentence the transferee or assignee agrees in writing with the Company to
be bound by all of the provisions contained herein; and (v) such transferee
shall be an "accredited investor" as that term is defined in Rule 501 of
Regulation D promulgated under the 1933 Act."
1.5 SECTION 11(b). Section 11(b) of the Agreement is amended and restated
in its entirety to read as follows:
"b. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be
in writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided a
confirmation of transmission is mechanically or electronically generated
and kept on file by the sending party); (iii) three (3) days after being
sent by U.S. certified mail, return receipt requested; or (iv) one (1) day
after deposit with a nationally recognized overnight delivery service, in
each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:
If to the Company:
Imaging Technologies Corporation
11031 Via Frontera
San Diego, California 92127
Telephone: (619) 613-1300
Facsimile: (619) 613-1311
Attention: President
With a copy to:
Brobeck, Phleger & Harrison LLP
550 West C Street, Suite 1300
San Diego, California 92101
Telephone: (619) 234-1966
Facsimile: (619) 234-3848
Attention: John R. Cook, Esq.
If to a Buyer, to its address and facsimile number on the
Schedule of Buyers attached hereto, with copies to such Buyer's
counsel as set forth on the Schedule of Buyers.
Each party shall provide five (5) days prior notice to the other party of
any changes in address, phone number or facsimile number."
4
<PAGE>
1.6 DELETED SECTIONS. The following Sections of the Agreement are hereby
deleted in their entirety: Section 2(b), Section 2(c), Section 2(d), Section
3(e), Section 3(i), Section 4(c) and Section 4(e).
2. MISCELLANEOUS.
2.1 EFFECT OF AMENDMENT; CONFLICTS. Except as specifically amended by this
Amendment, the Agreement as previously executed remains in full force and
effect. In the event of any conflict between the terms of the Agreement and the
terms of this Amendment, the terms of this Amendment shall govern and control.
2.2 COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
2.3 ENTIRE AGREEMENT. This Amendment, together with the Agreement,
constitutes the full and entire understanding and agreement among the parties
hereto with regard to the subject hereof and thereof.
2.4 SEVERABILITY. If any provision of this Amendment shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Amendment in that
jurisdiction or the validity or enforceability of any provision of this
Amendment in any other jurisdiction.
2.5 NO STRICT CONSTRUCTION. This Amendment is the result of arms-length
negotiations between the parties hereto and has been prepared jointly by the
parties. In applying and interpreting the provisions of this Amendment, there
shall be no presumption that the Amendment was prepared by any one party or that
the Amendment shall be construed in favor of or against any one party.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
5
<PAGE>
This Amendment No. 1 to Registration Rights Agreement has been executed
effective as of the date first written above.
IMAGING TECHNOLOGIES CORPORATION
By: /S/ BRIAN BONAR
-----------------------
Brian Bonar, President and
Chief Executive Officer
INVESTORS:
NP PARTNERS, formerly known as Nelson Partners
By: /S/ ILLEGIBLE
-----------------------
Title: AUTHORIZED SIGNATORY
OLYMPUS SECURITIES, LTD.
By: /S/ ILLEGIBLE
-----------------------
Title: AUTHORIZED SIGNATORY
RAMIUS FUND, LTD.
By: /S/ MICHAEL L. GORDON
-------------------------
Title: MANAGING OFFICER
RAPHAEL, L.P.
By: /S/ MICHAEL L. GORDON
-----------------------
Title: CHIEF OPERATING OFFICER
[SIGNATURE PAGE TO AMENDMENT NO. 1 TO
REGISTRATION RIGHTS AGREEMENT]
<PAGE>
LEONARDO, L.P.
By: /S/ MICHAEL L. GORDON
-----------------------
Its: CHIEF OPERATING OFFICER
GAM ARBITRAGE INVESTMENTS, INC.
By: /S/ MICHAEL L. GORDON
-----------------------
Its: CHIEF OPERATING OFFICER
AG SUPER FUND INTERNATIONAL PARTNERS, L.P.
By: /S/ MICHAEL L. GORDON
-----------------------
Its: CHIEF OPERATING OFFICER
HICK INVESTMENTS, LTD.
By: /S/ MICHAEL L. GORDON
-----------------------
Its: MANAGING OFFICER
THEMIS PARTNERS L.P.
By: /S/ ILLEGIBLE
-----------------------
Its:
[SIGNATURE PAGE TO AMENDMENT NO. 1 TO
REGISTRATION RIGHTS AGREEMENT]
<PAGE>
HERACLES FUND
By: /S/ ILLEGIBLE
-----------------------
Its:
SAMYANG MERCHANT BANK
By: /S/ ILLEGIBLE
-----------------------
Its:
[SIGNATURE PAGE TO AMENDMENT NO. 1 TO
REGISTRATION RIGHTS AGREEMENT]
<PAGE>
EXHIBIT 10.9
The Company also issued another Common Stock Purchase Warrant, substantially
identical in all material respects to this Exhibit 10.9, except for the
following details:
Investor
--------
NP Partners
THE TRANSFER OF THIS WARRANT IS SUBJECT TO
RESTRICTIONS CONTAINED HEREIN. THE SECURITIES REPRESENTED
HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE
BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF
COUNSEL, IN GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR
UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
IMAGING TECHNOLOGIES CORPORATION
Common Stock Purchase Warrant
To Purchase 50,000 Shares of September 18, 1998
the Common Stock of
Imaging Technologies Corporation
THIS CERTIFIES that, for value received, Olympus Securities, Ltd. or its
registered assigns (the "Holder"), is entitled to purchase from Imaging
Technologies Corporation, a Delaware corporation (hereinafter called the
"Corporation"), up to 50,000 shares (subject to adjustment as provided in
Section 4) (the "Warrant Shares") of fully paid and non-assessable Common Stock
of the Corporation (the "Common Stock"), subject to the provisions and upon the
terms and conditions set forth herein.
1. TERM OF WARRANT. Subject to the terms and conditions set forth herein,
this Warrant shall be exercisable, in whole or in part, during the term
commencing on the date hereof (the "Exercise Date") and ending at 5:00 p.m.
Pacific Daylight Time on the date three (3) years after the Exercise Date (the
"Exercise Period").
2. EXERCISE PRICE. The exercise price at which this Warrant may be
exercised shall be $4.00 per share of Common Stock (the "Exercise Price), as
adjusted from time to time pursuant to Section 4 hereof. The parties hereto
acknowledge that this in no way is an attempt to identify the fair market value
of shares of Common Stock, but is rather an arbitrary assignment of value for
the purposes of this Warrant only.
3. EXERCISE OF WARRANT.
(a) Subject to the terms and conditions hereof, this Warrant may be
exercised by the Holder, in whole or in part, at any time during the Exercise
Period by (i) delivery of the completed purchase form annexed hereto, which
purchase form shall specify the number of Warrant Shares to be purchased, (ii)
payment to the Corporation of an amount equal to the
<PAGE>
Exercise Price multiplied by the number of Warrant Shares as to which the
Warrant is being exercised (plus any applicable issue or transfer taxes) (the
"Aggregate Exercise Price") in cash or by check or wire transfer, and (iii) the
surrender of this Warrant, at the principal office of the Corporation; provided,
that if such Warrant Shares are to be issued in any name other than that of the
Holder, such issuance shall be deemed a transfer and the provisions of Section
13 shall be applicable; provided, further, that in no event shall the Holder be
entitled to exercise this Warrant for a number of Warrant Shares in excess of
that number of Warrant Shares, which, upon giving effect to such exercise, would
cause the aggregate number of shares of Common Stock beneficially owned by the
Holder and its affiliates to exceed 4.9% of the outstanding shares of the Common
Stock following such exercise. For purposes of the foregoing proviso, the
aggregate number of shares of Common Stock beneficially owned by the Holder and
its affiliates shall include the number of shares of Common stock issuable upon
exercise of this Warrant with respect to which the determination of such proviso
is being made, but shall exclude shares of Common Stock which would be issuable
upon (i) exercise of the remaining, unexercised Warrants beneficially owned by
the Holder and its affiliates and (ii) exercise or conversion of the unexercised
or unconverted portion of any other securities of the Company beneficially owned
by the Holder and its affiliates (including, without limitation, any convertible
notes or preferred stock) subject to a limitation on conversion or exercise
analogous to the limitation contained herein. Except as set forth in the
preceding sentence, for purposes of this paragraph, beneficial ownership shall
be calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended. In the event of any exercise of the rights represented by this
Warrant in compliance with this Section 3(a), a certificate or certificates for
the Warrant Shares so purchased, in such denominations as may be requested by
the Holder and registered in the name of, or as directed by, the Holder, shall
be delivered at the Corporation's expense to, or as directed by, the Holder as
soon as practicable after such rights shall have been so exercised, and in any
event no later than three business days after such exercise.
(b) Unless the rights represented by this Warrant shall have expired
or shall have been fully exercised, the Corporation shall, as soon as
practicable and in no event later than ten business days after any exercise and
at its own expense, issue a new Warrant identical in all respects to the Warrant
exercised except (i) it shall represent rights to purchase the number of Warrant
Shares purchasable immediately prior to such exercise under the Warrant
exercised, less the number of Warrant Shares with respect to which such Warrant
is exercised, and (ii) the Holder thereof shall be deemed for all corporate
purposes to have become the Holder of record of such Warrant Shares immediately
prior to the close of business on the date on which the Warrant is surrendered
and payment of the amount due in respect of such exercise and any applicable
taxes is made, irrespective of the date of delivery of certificates evidencing
such Warrant Shares, except that, if the date of such surrender and payment is a
date when the stock transfer books of the Corporation are properly closed, such
person shall be deemed to have become the holder of such Warrant Shares at the
opening of business on the next succeeding date on which the stock transfer
books are open.
(c) No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock issued
upon exercise of this Warrant shall be rounded up or down to the nearest whole
number.
2
<PAGE>
4. STOCK SPLITS, CONSOLIDATION, MERGER AND SALE. In the event that before
the issuance of the shares of Common Stock into which this Warrant may be
exercised the outstanding shares of Common Stock shall be split, combined or
consolidated, by dividend, reclassification or otherwise, into a greater or
lesser number of shares of Common Stock, the Exercise Price in effect
immediately prior to such combination or consolidation and the number of shares
purchasable under this Warrant shall, concurrently with the effectiveness of
such combination or consolidation, be proportionately adjusted. If there shall
be effected any consolidation or merger of the Corporation with another
corporation, or a sale of all or substantially all of the Corporation's assets
to another corporation, and if the holders of Common Stock shall be entitled
pursuant to the terms of any such transaction to receive stock, securities or
assets with respect to or in exchange for Common Stock, then, as a condition of
such consolidation, merger or sale, lawful and adequate provisions shall be made
whereby the Holder of this Warrant shall thereafter have the right to receive,
upon the basis and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock immediately theretofore receivable upon the exercise
of such Warrant, such shares of stock, securities or assets as may be issuable
or payable with respect to or in exchange for a number of outstanding shares of
such Common Stock equal to the number of shares of such Common Stock immediately
theretofore so receivable had such consolidation, merger or sale not taken
place, and in any such case appropriate provisions shall be made with respect to
the rights and interests of the Holder to the end that the provisions hereof
shall thereafter be applicable, as nearly as may be, in relation to any shares
of stock, securities or assets thereafter deliverable upon the exercise of this
Warrant. In the event the Corporation shall declare a distribution payable in
securities of other persons, evidences of indebtedness issued by the Corporation
or other persons, assets (excluding cash dividends) or options or rights not
otherwise referred to in this Section 4, then, in each such case, upon exercise
of this Warrant the Holder shall be entitled to a proportionate share of any
such distribution as though the Holder was the holder of the number of shares of
Common Stock of the Corporation issuable upon exercise of this Warrant as of the
record date fixed for the determination of the holders of Common Stock of the
Corporation entitled to receive such distribution.
5. STOCK TO BE RESERVED. The Corporation will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon the exercise of this Warrant as herein provided, such number of shares of
Common Stock as shall then be issuable upon the exercise of this Warrant. The
Corporation shall from time to time in accordance with applicable law increase
the authorized amount of its Common Stock if at any time the number of shares of
Common Stock remaining unissued and available for issuance shall not be
sufficient to permit exercise of this Warrant. The Corporation covenants that
all shares of Common Stock which shall be so issued shall be duly and validly
issued and fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issue thereof, and, without limiting the generality
of the foregoing, the Corporation will take all such action as may be necessary
to assure that all such shares of Common Stock may be so issued without
violation of any applicable law or regulation, or of any requirements of any
national securities exchange upon which shares of capital stock of the
Corporation may be listed.
6. ISSUE TAX. The issuance of certificates for shares of Common Stock upon
exercise of this Warrant shall be made without charge to the Holder for any
issuance tax in respect thereof provided that the Corporation shall not be
required to pay any tax which may be payable in
3
<PAGE>
respect of any transfer involved in the issuance and delivery of any certificate
in a name other than that of the Holder of this Warrant.
7. CLOSING OF BOOKS. The Corporation will at no time close its transfer
books against the transfer of the shares of Common Stock issued or issuable upon
the exercise of this Warrant in any manner which interferes with the timely
exercise of this Warrant.
8. NOTICES OF RECORD DATES. In the event of:
(a) any taking by the Corporation of a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution (other than cash
dividends out of earned surplus), or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation or
any transfer of all or substantially all the assets of the Corporation to or
consolidation or merger of the Corporation with or into any other corporation,
or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Corporation,
then and in each such event the Corporation will give notice to the Holder of
this Warrant specifying (i) the date on which any such record is to be taken for
the purpose of such dividend, distribution or right and stating the amount and
character of such dividend, distribution or right, and (ii) the date on which
any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take place,
and the time, if any is to be fixed, as of which the holders of record of Common
Stock will be entitled to exchange their shares of Common Stock for securities
or other property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up. Such notice shall be given at least ten (10) days and not more than
ninety (90) days prior to the date therein specified, and such notice shall
state that the action in question or the record date is subject to the
effectiveness of a registration statement under the Securities Act of 1933, as
amended (the "Securities Act") or to a favorable vote of stockholders, if either
is required.
9. NO STOCKHOLDER RIGHTS OR LIABILITIES. Subject to Sections 4 and 8 of
this Warrant, this Warrant shall not entitle the Holder hereof to any voting
rights or other rights as a stockholder of the Corporation. No provision hereof,
in the absence of affirmative action by the Holder hereof to purchase shares of
Common Stock, and no mere enumeration hereon of the rights or privileges of the
Holder hereof, shall give rise to any liability of such Holder for the Exercise
Price or as a stockholder of the Corporation, whether such liability is asserted
by the Corporation or by creditors of the Corporation.
10. LISTING. The Corporation shall use its best efforts to cause all of the
shares of Common Stock issuable upon exercise of this Warrant to be approved for
listing on the Nasdaq SmallCap Market. The Corporation shall maintain the Common
Stock's authorization for
4
<PAGE>
quotation on the Nasdaq National Market, the Nasdaq SmallCap Market, the New
York Stock Exchange, Inc. ("NYSE") or the American Stock Exchange, Inc.
("AMEX"). Neither the Corporation nor any of its subsidiaries shall take any
action which may result in the delisting or suspension of the Common Stock on
the Nasdaq SmallCap Market, the Nasdaq National Market, NYSE or AMEX. The
Corporation shall promptly provide Holder copies of any notices it receives from
the Nasdaq SmallCap Market, the Nasdaq National Market, NYSE or AMEX regarding
the continued eligibility of the Common Stock for listing on such automated
quotation system or securities exchange. The Corporation shall pay all fees and
expenses in connection with satisfying its obligation under this Section 10.
11. TRANSFER AGENT INSTRUCTIONS. The Corporation shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, to issue
certificates, registered in the name of the Holder or its respective nominee(s),
for the Warrant Shares in such amounts as specified from time to time by the
Holder to the Corporation upon exercise of this Warrant (the "Irrevocable
Transfer Agent Instructions"). Prior to registration of the Warrant Shares under
the Securities Act, all such certificates shall bear the restrictive legend
specified in Section 12 of this Warrant. The Corporation warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 11 and the stop transfer instructions to give effect to Section
12 hereof, prior to registration of the Warrant Shares under the Securities Act,
will be given by the Corporation to its transfer agent and that the Warrant
Shares shall otherwise be freely transferable on the books and records of the
Corporation as and to the extent provided in this Warrant and that certain
Registration Rights Agreement dated as of August 21, 1997, among the Corporation
and the entities listed on the signature pages thereto, as amended by that
certain Amendment No. 1 to Registration Rights Agreement dated as of September
18, 1998, among the Corporation and the entities listed on the signature pages
thereto (together, the "Amended Registration Rights Agreement"). If Holder
provides the Corporation with an opinion of counsel, reasonably satisfactory in
form, and substance to the Corporation, that registration of a resale by such
Holder of any of such Warrant Shares is not required under the Securities Act,
the Corporation shall permit the transfer, and promptly instruct its transfer
agent to issue one or more certificates in such name and in such denominations
as specified by such Holder and without any restrictive legends. The Corporation
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holder hereof by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Corporation acknowledges that
the remedy at law for a breach of its obligations under this Section 11 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Corporation of the provisions of this Section 11, that the Holder shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
12. COMPLIANCE WITH SECURITIES LAWS.
(a) The Holder of this Warrant, by acceptance hereof, acknowledges
that this Warrant and the shares of Common Stock to be issued upon exercise
hereof (collectively, the "Securities") are being acquired solely for the
Holder's own account for investment only and not with a view towards, or for
resale in connection with, the public sale or distribution thereof, except
pursuant to sales registered or exempted under the Securities Act; provided,
however, that
5
<PAGE>
by making the representations herein, the Holder does not agree to hold any of
the Securities for any minimum or other specific term.
(b) This Warrant and, until such time as the sale of the Warrant
Shares has been registered under the Securities Act as contemplated by the
Amended Registration Rights Agreement, the stock certificates representing the
Warrant Shares, except as set forth below, shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN
OPINION OF COUNSEL, IN GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD
PURSUANT TO RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed and the Corporation shall issue a
certificate without such legend to the Holder of the Warrant Shares upon which
it is stamped, if, unless otherwise required by state securities laws, (i) such
Warrant Shares are registered for sale under the Securities Act, (ii) in
connection with a sale transaction, such Holder provides the Corporation with an
opinion of counsel, in a generally acceptable form, to the effect that a public
sale, assignment or transfer of such Warrant Shares may be made without
registration under the Securities Act, or (iii) such Holder provides the
Corporation with reasonable assurances that such Warrant Shares can be sold
pursuant to Rule 144 without any restriction as to the number of securities
acquired as of a particular date that can then be immediately sold. The Holder
acknowledges, covenants and agrees to sell the Warrant Shares represented by a
certificate(s) from which the legend has been removed, only pursuant to (i) a
registration statement effective under the Securities Act, or (ii) advice of
counsel that such sale is exempt from registration required by Section 5 of the
Securities Act.
13. TRANSFER. Subject to the terms and conditions contained in Section 12
hereof, this Warrant and all rights hereunder are transferable in whole or in
part by the Holder and any successor transferee; provided, however, in no event
shall the aggregate number of transfers of the rights and interests in all of
the Warrants exceed three (3) transfers. The transfer shall be recorded on the
books of the Corporation upon receipt by the Corporation of an assignment form
in the form attached hereto ("Assignment Form"), at its principal office and the
payment to the
6
<PAGE>
Corporation of all transfer taxes and other governmental charges, if any,
imposed on such transfer.
14. PRESENTMENT. Prior to due presentment of this Warrant together with a
completed Assignment Form for registration of transfer, the Corporation may deem
and treat the Holder as the absolute owner of the Warrant, notwithstanding any
notation of ownership or other writing thereon, for the purpose of any exercise
thereof and for all other purposes, and the Corporation shall not be affected by
any notice to the contrary.
15. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant is lost,
stolen, mutilated or destroyed, the Corporation may, on such terms as to
indemnity or otherwise as it may in its discretion reasonably impose (which
shall, in the case of a mutilated Warrant, include the surrender thereof), issue
a new Warrant of like denomination and tenor as the Warrant so lost, stolen,
mutilated or destroyed.
16. GOVERNING LAW. This Warrant shall be governed by and interpreted in
accordance with the laws of the State of New York without regard to the
principles of conflict of laws. Each party hereby irrevocably submits to the
non-exclusive jurisdiction of the state and federal courts sitting the City of
New York, borough of Manhattan, for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Warrant and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
17. SUCCESSORS, ASSIGNS. All the terms and provisions of the Warrant shall
be binding upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto.
18. AMENDMENT. This Warrant may only be modified, amended or terminated by
a writing signed by the Corporation and the Holder.
19. SEVERABILITY. If any provision of this Warrant shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Warrant in that
jurisdiction or the validity or enforceability of any provision of this Warrant
in any other jurisdiction.
7
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be
duly executed and delivered on and as of the day and year first above written by
one of its officers thereunto duly authorized.
IMAGING TECHNOLOGIES CORPORATION
Dated: September 18, 1998 By: /S/ BRIAN BONAR
--------------------------
Brian Bonar, President and
Chief Executive Officer
The undersigned Holder agrees and accepts this Warrant and
acknowledges that it has read and confirms each of the representations contained
in Section 12.
Olympus Securities, Ltd.
By: /S/ ILLEGIBLE
-------------------------
Its: AUTHORIZED SIGNATORY
Address: c/o Leeds Management Services
129 Front Street, 5th Floor
Hamilton HM12 Bermuda
Attention: Anne Dupuy
[SIGNATURE PAGE TO COMMON STOCK PURCHASE WARRANT]
<PAGE>
PURCHASE FORM
(To be executed by the Warrant Holder if he desires to exercise the Warrant in
whole or in part)
To: Imaging Technologies Corporation
The undersigned, whose Social Security or other identifying
number is ______________, hereby irrevocably elects the right of purchase
represented by the within Warrant for, and to purchase thereunder,
__________________________ shares of Common Stock provided for therein and
tenders payment herewith to the order of
Imaging Technologies Corporation
in the amount of
$
---------------------
The undersigned requests that certificates for such shares be issued as follows:
Name: ________________________________________________________________________
Address:______________________________________________________________________
Deliver to:___________________________________________________________________
Address:______________________________________________________________________
and, if said number of shares shall not be all the shares purchasable hereunder,
that a new Warrant for the balance remaining of the shares purchasable under the
within Warrant be registered in the name of, and delivered to, the undersigned
at the address stated below
Address:
------------------------------------------
Dated: _____________, 19___
Signature
--------------------------------------------
(Signature must conform in all respects to the
name of the Warrant Holder as specified on
the face of the Warrant, without alteration,
enlargement or any change whatsoever)
<PAGE>
ASSIGNMENT
(To be executed by the Warrant Holder if he desires to effect a transfer of the
Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto ______________________________________________________ whose
Social Security or other identification number is _________________________
[residing/located] at __________________________ the attached Warrant, and
appoints ___________________ residing at
the undersigned's attorney-in-fact to transfer said Warrant on the books of the
Corporation, with full power of substitution in the premises.
Dated: ______________, 19___.
In the presence of:
- -------------------------- ------------------------------------------
(Signature must conform in all respects to
the name of the Warrant Holder as specified
on the face of the Warrant, without
alteration, enlargement or any change
whatsoever).
<PAGE>
EXHIBIT 10.10
IMAGING TECHNOLOGIES CORPORATION
SUBORDINATED NOTE PURCHASE AGREEMENT
September 18, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 1 AUTHORIZATION AND SALE OF SUBORDINATED PROMISSORY NOTES AND WARRANT. . . .1
1.1 AUTHORIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 SALE OF SUBORDINATED NOTES AND WARRANT.. . . . . . . . . . . . . . . . .1
Section 2 CLOSING DATE; DELIVERY . . . . . . . . . . . . . . . . . . . . . . . . . .1
2.1 CLOSING DATE.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2.2 DELIVERY.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 3 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY . . . . . . . . .2
3.1 ORGANIZATION AND STANDING. . . . . . . . . . . . . . . . . . . . . . . .2
3.2 CORPORATE POWER; AUTHORIZATION.. . . . . . . . . . . . . . . . . . . . .2
3.3 ISSUANCE AND DELIVERY OF THE SECURITIES. . . . . . . . . . . . . . . . .2
3.4 GOVERNMENTAL CONSENTS. . . . . . . . . . . . . . . . . . . . . . . . . .2
3.5 SEC DOCUMENTS; FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . .3
3.6 NO MATERIAL MISSTATEMENT . . . . . . . . . . . . . . . . . . . . . . . .3
3.7 NO MATERIAL ADVERSE CHANGE.. . . . . . . . . . . . . . . . . . . . . . .3
Section 4 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER . . . . . . . .3
4.1 AUTHORIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
4.2 INVESTMENT EXPERIENCE. . . . . . . . . . . . . . . . . . . . . . . . . .4
4.3 INVESTMENT INTENT. . . . . . . . . . . . . . . . . . . . . . . . . . . .4
4.4 REGISTRATION OR EXEMPTION REQUIREMENTS.. . . . . . . . . . . . . . . . .4
4.5 NO LEGAL, TAX OR INVESTMENT ADVICE.. . . . . . . . . . . . . . . . . . .4
4.6 LEGENDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Section 5 CONDITIONS TO CLOSING OF PURCHASER . . . . . . . . . . . . . . . . . . . .5
5.1 REPRESENTATIONS AND WARRANTIES.. . . . . . . . . . . . . . . . . . . . .5
5.2 PERFORMANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
5.3 QUALIFICATIONS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
5.4 COMPLIANCE CERTIFICATE.. . . . . . . . . . . . . . . . . . . . . . . . .5
5.5 OPINION OF COMPANY COUNSEL.. . . . . . . . . . . . . . . . . . . . . . .5
Section 6 CONDITIONS TO CLOSING OF COMPANY . . . . . . . . . . . . . . . . . . . . .5
6.1 REPRESENTATIONS AND WARRANTIES.. . . . . . . . . . . . . . . . . . . . .5
6.2 COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
6.3 QUALIFICATIONS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Section 7 MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
7.1 AMENDMENTS AND WAIVERS.. . . . . . . . . . . . . . . . . . . . . . . . .6
7.2 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
7.3 SURVIVAL.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
7.4 SUCCESSORS AND ASSIGNS.. . . . . . . . . . . . . . . . . . . . . . . . .7
7.5 ENTIRE AGREEMENT.. . . . . . . . . . . . . . . . . . . . . . . . . . . .7
7.6 NOTICES, ETC.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
7.7 SEVERABILITY OF THIS AGREEMENT.. . . . . . . . . . . . . . . . . . . . .7
7.8 COUNTERPARTS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
7.9 FURTHER ASSURANCES.. . . . . . . . . . . . . . . . . . . . . . . . . . .7
7.10 EXPENSES.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
7.11 ACKNOWLEDGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Schedule A -- Schedule of Purchasers
Schedule B -- Schedule of Exceptions
Exhibit A -- Form of Subordinated Promissory Note
Exhibit B -- Form of Warrant
Exhibit C -- Form of Opinion of Company Counsel
</TABLE>
ii
<PAGE>
IMAGING TECHNOLOGIES CORPORATION
SUBORDINATED NOTE PURCHASE AGREEMENT
This Subordinated Note Purchase Agreement (the "Agreement") is made as
of September 18, 1998, by and among Imaging Technologies Corporation, a Delaware
corporation (the "Company"), with its principal office at 11031 Via Frontera,
San Diego, California 92127, and the purchasers set forth on SCHEDULE A hereto
(the "Purchasers").
Section 1
AUTHORIZATION AND SALE OF SUBORDINATED PROMISSORY NOTES AND WARRANT
1.1 AUTHORIZATION. The Company has authorized the sale and issuance of
subordinated promissory notes in the form of EXHIBIT A attached hereto (the
"Subordinated Notes") in the aggregate principal amounts as set forth on
SCHEDULE A hereto under the heading "Principal Amount of Note" and warrants in
the form of EXHIBIT B attached hereto ("the Warrants") to purchase up to the
number of shares of the Company's Common Stock (the "Common Stock") set forth
opposite each such Purchaser's name on SCHEDULE A hereto under the heading
"Number of Warrant Shares."
1.2 SALE OF SUBORDINATED NOTES AND WARRANT. Subject to the terms and
conditions of this Agreement, the Company agrees to issue and sell to each
Purchaser, and each Purchaser agrees severally and not jointly to purchase from
the Company, a Subordinated Note in the principal amount set forth opposite such
Purchaser's name on SCHEDULE A attached hereto under the heading "Principal
Amount of Note" (the "Purchase Price") and a Warrant to purchase up to the
number of shares of Common Stock set forth opposite such Purchaser's name on
SCHEDULE A hereto under the heading "Number of Warrant Shares."
Section 2
CLOSING DATE; DELIVERY
2.1 CLOSING DATE. The closing of the purchase and sale of the
Subordinated Notes and the Warrants hereunder (the "Closing") shall be held at
the offices of Brobeck, Phleger & Harrison LLP, 550 West C Street, Suite 1300,
San Diego, California 92101, at 11:00 a.m. on September 18, 1998, or at such
other time and place upon which the Company and the Purchasers shall agree. The
date of the Closing is hereinafter referred to as the "Closing Date."
2.2 DELIVERY. At the Closing, the Company will deliver to each
Purchaser a Subordinated Note made payable to such Purchaser in the principal
amount as set forth opposite such Purchaser's name on SCHEDULE A attached hereto
under the heading "Principal Amount of Notes" and a Warrant to purchase up to
the number of shares of Common Stock set forth opposite such Purchaser's name on
SCHEDULE A hereto under the heading "Number of Warrant
<PAGE>
Shares." Such delivery shall be against execution by the Purchasers of that
certain Settlement and Mutual Release Agreement dated as of the date hereof
among the Company and the Series C Investors (as defined therein) (the
"Settlement Agreement") and shall fulfill the Company's obligations to the
Purchasers under Section 1.2(B) of the Settlement Agreement.
Section 3
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
The Company represents and warrants to each Purchaser as of the
Closing Date that, except as set forth on the Schedule of Exceptions attached
hereto as SCHEDULE B (the "Schedule of Exceptions"), which exceptions shall be
deemed to be representations and warranties as if made hereunder:
3.1 ORGANIZATION AND STANDING. The Company is a corporation duly
organized and validly existing under, and by virtue of, the laws of the State of
Delaware and is in good standing as a domestic corporation under the laws of
said state.
3.2 CORPORATE POWER; AUTHORIZATION. The Company has all requisite
legal and corporate power and has taken all requisite corporate action to
execute and deliver this Agreement, to sell and issue the Subordinated Notes and
the Warrants (along with the shares of Common Stock issuable upon exercise of
the Warrants, collectively, the "Securities") and to carry out and perform all
of its obligations under this Agreement and the Securities. This Agreement and
the Securities each constitute the legal, valid and binding obligation of the
Company, enforceable in accordance with their respective terms, except (i) as
limited by applicable bankruptcy, insolvency, reorganization or similar laws
relating to or affecting the enforcement of creditors' rights generally and (ii)
as limited by equitable principles generally. The execution and delivery of this
Agreement and the Securities does not, and the performance of this Agreement and
the Securities and the compliance with the provisions hereof and thereof and the
issuance, sale and delivery of the Securities by the Company will not,
materially conflict with, or result in a material breach or violation of the
terms, conditions or provisions of, or constitute a material default under, or
result in the creation or imposition of any material lien pursuant to the terms
of, the Certificate of Incorporation or Bylaws of the Company or any statute,
law, rule or regulation or any state or federal order, judgment or decree or any
indenture, mortgage, lease or other material agreement or instrument to which
the Company or any of its properties is subject.
3.3 ISSUANCE AND DELIVERY OF THE SECURITIES. The issuance and delivery
of the Securities is not subject to preemptive or any other similar rights of
the stockholders of the Company or any liens or encumbrances. The Company has
duly authorized and reserved for issuance 200,000 shares of Common Stock for
issuance upon exercise of the Warrants. The issuance by the Company of the
Securities is exempt from registration under the Securities Act.
3.4 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, or local
2
<PAGE>
governmental authority on the part of the Company is required in connection with
the consummation of the transactions contemplated by this Agreement except for:
(i) the filing of a Notice of Transaction pursuant to Section 25102(f) of the
California Corporate Securities Law of 1968, as amended, and the rules
thereunder (the "Law"), which filing will be effected within the time prescribed
by law; and (ii) such other qualifications or filings under the Securities Act
of 1933, as amended (the "Securities Act"), and the regulations thereunder and
all other applicable securities laws as may be required in connection with the
transactions contemplated by this Agreement, which filings will be effected
within the time prescribed by law.
3.5 SEC DOCUMENTS; FINANCIAL STATEMENTS. As of their respective filing
dates, all documents (the "SEC Documents") filed by the Company with the
Securities and Exchange Commission (the "SEC") complied in all material respects
with the requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") or the Securities Act, as applicable. None of the SEC Documents
as of their respective dates contained any untrue statement of material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances under which they
were made, not misleading.
3.6 NO MATERIAL MISSTATEMENT None of the representations or warranties
of the Company contained in this Agreement or in the Securities, and none of the
other information furnished to Purchasers or their representatives in connection
with this Agreement, when considered as a whole, contains, or will contain, any
misstatement of a material fact or omits to state any fact necessary in light of
the circumstances under which made, to make those statements which have been
made, not misleading.
3.7 NO MATERIAL ADVERSE CHANGE. Except as otherwise disclosed herein,
since March 31, 1998, there have not been any changes in the assets,
liabilities, financial condition, business prospects or operations of the
Company from that reflected in the SEC Documents except changes in the ordinary
course of business which have not been, either individually or in the aggregate,
materially adverse.
Section 4
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER
Each Purchaser hereby, severally and not jointly, represents and
warrants to the Company as of the Closing Date as follows:
4.1 AUTHORIZATION. Purchaser represents and warrants to the Company
that: (i) Purchaser has all requisite legal and corporate or other power and
capacity and has taken all requisite corporate or other action to execute and
deliver this Agreement, to purchase its Securities and to carry out and perform
all of its obligations under this Agreement; and (ii) this Agreement, the
Subordinated Note and the Warrant each constitute the legal, valid and binding
obligation of the Purchaser, enforceable against it in accordance with its
terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, or similar laws relating to or
3
<PAGE>
affecting the enforcement of creditors' rights generally and (b) as limited by
equitable principles generally.
4.2 INVESTMENT EXPERIENCE. Purchaser is an "accredited investor" as
defined in Rule 501(a) under the Securities Act. Purchaser is aware of the
Company's business affairs and financial condition and has had access to and has
acquired sufficient information about the Company to reach what it believes is
an informed and knowledgeable decision to purchase its Securities. Purchaser has
such business and financial experience as is required to give it the capacity to
protect its own interests in connection with the purchase of its Securities.
4.3 INVESTMENT INTENT. Purchaser is purchasing its Securities for its
own account as principal, for investment purposes only, and not with a present
view to, or for, resale, distribution or fractionalization thereof, in whole or
in part, within the meaning of the Securities Act; provided, however, that by
making the representation herein, such Purchaser does not agree to hold any of
the Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities Act. Purchaser
understands that its acquisition of its Securities has not been registered under
the Securities Act or registered or qualified under any state securities law in
reliance on specific exemptions therefrom, which exemptions may depend upon,
among other things, the bona fide nature of Purchaser's investment intent as
expressed herein. Purchaser has, in connection with its decision to purchase its
Securities, relied solely upon the SEC Documents and the representations and
warranties of the Company contained herein. Purchaser will not, directly or
indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit
any offers to buy, purchase or otherwise acquire or take a pledge of) its
Securities except in compliance with the Securities Act, and the rules and
regulations promulgated thereunder.
4.4 REGISTRATION OR EXEMPTION REQUIREMENTS. Purchaser further
acknowledges and understands that its Securities may not be resold or otherwise
transferred except in a transaction registered under the Securities Act or
unless an exemption from such registration is available.
4.5 NO LEGAL, TAX OR INVESTMENT ADVICE. Purchaser understands that
nothing in this Agreement or any other materials presented to Purchaser in
connection with the purchase and sale of its Securities constitutes legal, tax
or investment advice. Purchaser has consulted such legal, tax and investment
advisors as it, in its sole discretion, has deemed necessary or appropriate in
connection with its purchase of its Securities.
4.6 LEGENDS. To the extent applicable, the Subordinated Note shall be
endorsed with the legend set forth below:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE SECURITIES EVIDENCED BY
THIS CERTIFICATE MAY NOT BE OFFERED, SOLD OR
4
<PAGE>
TRANSFERRED FOR VALUE DIRECTLY OR INDIRECTLY, IN THE ABSENCE OF SUCH
REGISTRATION UNDER THE ACT AND QUALIFICATION UNDER APPLICABLE STATE LAWS, OR
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND QUALIFICATION UNDER
APPLICABLE STATE LAWS, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE
REASONABLE SATISFACTION OF THE COMPANY."
Section 5
CONDITIONS TO CLOSING OF PURCHASER
The Purchaser's obligation to purchase its Securities at the Closing
is, at the option of the Purchaser, subject to the fulfillment or waiver as of
the Closing Date of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained in Section 3 shall be true on and as of the Closing
with the same effect as though such representations and warranties had been made
on and as of the date of such Closing.
5.2 PERFORMANCE. The Company shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
5.3 QUALIFICATIONS. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required as of the Closing in connection with the lawful issuance
and sale of its Securities pursuant to this Agreement shall have been duly
obtained and shall be effective as of the Closing.
5.4 COMPLIANCE CERTIFICATE. The President and Chief Executive Officer
of the Company shall have delivered to Purchaser a certificate certifying that
the conditions specified in Sections 5.1 and 5.2 have been fulfilled.
5.5 OPINION OF COMPANY COUNSEL. Each Purchaser shall have received
from Brobeck, Phleger & Harrison LLP, counsel for the Company, an opinion dated
the date of the Closing, in substantially the form as EXHIBIT C attached hereto.
Section 6
CONDITIONS TO CLOSING OF COMPANY
The Company's obligation to sell and issue the Securities at the
Closing is, at the option of the Company, subject to the fulfillment or waiver
of the following conditions:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of each Purchaser contained in Section 4 shall be true on and as of the Closing
with the same effect as though such representations and warranties had been made
on and as of the date of such Closing.
5
<PAGE>
6.2 COVENANTS. Each Purchaser shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by such Purchaser on or before the
Closing.
6.3 QUALIFICATIONS. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required as of the Closing in connection with the lawful issuance
and sale of its Securities pursuant to this Agreement shall have been duly
obtained and shall be effective as of the Closing.
Section 7
MISCELLANEOUS
7.1 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively but only
if so expressly stated), only with the written consent of the Company and the
Purchasers. Any amendment or waiver effected in accordance with this Section
shall be binding upon the holder of the Securities purchased under this
Agreement at the time outstanding, each future holder of such Securities, and
the Company.
7.2 GOVERNING LAW. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of New York without regard to the
principles of conflict of laws. Each party hereby irrevocably submits to the
non-exclusive jurisdiction of the state and federal courts sitting the City of
New York, borough of Manhattan, for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
7.3 SURVIVAL. The representations, warranties, covenants and
agreements made in this Agreement shall survive any investigation made by the
Company or the Purchasers and the Closing.
7.4 SUCCESSORS AND ASSIGNS. The provisions hereof shall inure to the
benefit of, and be binding upon, the successors, assigns, heirs, executors and
administrators of the parties to this Agreement. Notwithstanding the foregoing,
no Purchaser shall assign its rights or obligations under this Agreement without
the prior written consent of the Company, other than to an affiliate of such
Purchaser, including, without limitation, a person with the same investment
advisors as such Purchaser.
6
<PAGE>
7.5 ENTIRE AGREEMENT. This Agreement, together with the Securities,
the Settlement Agreement, the Amended Registration Rights Agreement (as defined
in the Settlement Agreement) and the New Warrants (as defined in the Settlement
Agreement) constitutes the full and entire understanding and agreement between
the parties with regard to the subjects hereof and thereof.
7.6 NOTICES, ETC. All notices and other communications required or
permitted under this Agreement shall be in writing and may be delivered in
person, by facsimile, overnight delivery service or registered or certified
mail, addressed to the Company at the address set forth at the beginning of this
Agreement, or to the Purchasers at their respective address set forth on the
signature pages hereto in each case with a copy to Citadel Investment Group,
L.L.C., 225 West Washington Street, Chicago, Illinois 60606, Attention: Mike
Hughes, or at such other address as the Company or each Purchaser shall have
furnished to the other party in writing. All notices and other communications
shall be effective upon the earlier of actual receipt thereof by the person to
whom notice is directed or (i) in the case of notices and communications sent by
personal delivery or facsimile, one business day after such notice or
communication arrives at the applicable address or was successfully sent to the
applicable facsimile number, (ii) in the case of notices and communications sent
by overnight delivery service, at noon (local time) on the second business day
following the day such notice or communication was sent, and (iii) in the case
of notices and communications sent by United States mail, seven days after such
notice or communication shall have been deposited in the United States mail.
7.7 SEVERABILITY OF THIS AGREEMENT. If any provision of this Agreement
shall be determined to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
7.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
7.9 FURTHER ASSURANCES. Each party to this Agreement shall do and
perform or cause to be done and performed all such further acts and things and
shall execute and deliver all such other agreements, certificates, instruments
and documents as the other party hereto may reasonably request in order to carry
out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
7.10 EXPENSES. Irrespective of whether the Closing is effected, each
party hereto shall bear its own costs and expenses that it incurs with respect
to the negotiation, execution, delivery and performance of this Agreement and
the Securities.
7.11 ACKNOWLEDGEMENT. By executing this Agreement, each Purchaser
hereby acknowledges and agrees that Brobeck, Phleger & Harrison LLP represents
the Company solely and that such Purchaser has had an opportunity to consult
with its own attorney in connection with this Agreement and the Securities.
7
<PAGE>
The foregoing agreement is hereby executed as of the date first above
written.
"COMPANY"
IMAGING TECHNOLOGIES CORPORATION, a Delaware
corporation
By: /S/ BRIAN BONAR
--------------------------
Brian Bonar, President and
Chief Executive Officer
"PURCHASERS"
NP PARTNERS, formerly known as Nelson Partners
By: /S/ ILLEGIBLE
--------------------------
Its: AUTHORIZED SIGNATORY
Address: c/o Leeds Management Services
129 Front Street, 5th Floor
Hamilton HM12 Bermuda
Attention: Anne Dupuy
OLYMPUS SECURITIES, LTD.
By: /S/ ILLEGIBLE
--------------------------
Its: AUTHORIZED SIGNATORY
Address: c/o Leeds Management Services
129 Front Street, 5th Floor
Hamilton HM12 Bermuda
Attention: Anne Dupuy
[SIGNATURE PAGE TO SUBORDINATED NOTE PURCHASE AGREEMENT]
<PAGE>
SCHEDULE A
SCHEDULE OF PURCHASER
<TABLE>
<CAPTION>
PURCHASER NAME PRINCIPAL AMOUNT OF NOTE NUMBER OF WARRANT SHARES
-------------- ------------------------ ------------------------
<S> <C> <C>
NP Partners $ 500,000 100,000
Olympus Securities, Ltd. $ 500,000 100,000
----------- -------
TOTALS $1,000,000 200,000
----------- -------
----------- -------
</TABLE>
SCHEDULE A-1
<PAGE>
SCHEDULE B
SCHEDULE OF EXCEPTIONS
The following are exceptions to the representations and warranties of Imaging
Technologies Corporation (the "Company") set forth in that certain Subordinated
Note Purchase Agreement dated as of September 18, 1998 (the "Agreement"), with
reference to the Section designations of the Agreement. The references to
specific Sections are not meant and should not be construed as limiting the
noted exceptions to a particular Section. Although the Company has used its
reasonable best efforts to cross-reference the exceptions to all applicable
representations and warranties, no assurance can be given that all necessary
cross-references have been identified and any exception noted below is therefore
deemed disclosed for purposes of all relevant Sections whether or not
cross-referenced. Capitalized terms not otherwise defined in this Schedule of
Exceptions have the meaning given them in the Agreement. Nothing herein
constitutes an admission of any liability or obligation of the Company nor an
admission against the Company's interest. The inclusion of any agreement or
other matter herein or any exhibit hereto should not be interpreted as
indicating that the Company has determined that such an agreement or other
matter is necessarily material to the Company.
<TABLE>
<CAPTION>
SECTION NUMBER EXCEPTIONS
- -------------- -----------------------------------------------------------------
<S> <C>
Section 3.2 CORPORATE POWER; AUTHORIZATION.
1. Pursuant to the terms of that certain Promissory Note between
McMican Corporation dba New Media Memory and Bank of Yorba Linda
(the "Lender"), dated June 17, 1997, that certain Commercial
Security Agreement between McMican Corporation dba New Media
Memory and Lender, dated June 17, 1997, that certain Loan
Agreement between McMican Corporation dba New Media Memory and
Lender, dated October 20, 1997 and that certain Change in Terms
Agreement between McMican Corporation dba New Media Memory and
Lender, dated May 17, 1998 (collectively, the "Yorba Linda Line
of Credit"), the Company has outstanding approximately $390,000
in principal amount of indebtedness. The Yorba Linda Line of
Credit matured on August 15, 1998 and requires that the Company
obtain Lender's written consent prior to issuing the Subordinated
Notes. The Company is currently in the process of obtaining
additional credit from Imperial Bank to pay off all amounts owed
to the Lender under the Yorba Linda Line of Credit. As a result,
the Company has not obtained Lender's written consent to issuing
the Subordinated Notes.
</TABLE>
SCHEDULE B-1
<PAGE>
<TABLE>
<S> <C>
2. Pursuant to its agreements with Imperial Bank, the Company is
required to obtain the written consent of Imperial Bank prior to
the sale and issuance of the Subordinated Notes and the Warrants
pursuant to the Agreement, and prior to the sale of certain other
notes and warrants and certain shares of the Company's common
stock being sold in connection herewith. The Company has not
obtained Imperial Bank's written consent.
Section 3.3 ISSUANCE AND DELIVERY OF SECURITIES.
The Company has agreed to issue the Warrants to the Purchasers
pursuant to the Agreement, and certain warrants (the "Additional
Warrants") to other investors under separate purchase agreements.
In addition, pursuant to a certain subordinated note purchase
agreement among the Company and American Industries, Inc. and
Ellison Morgan (collectively, the "Other Investors"), the Company
has agreed to issue and sell to the Other Investors certain
promissory notes (the "Convertible Notes") that are convertible
at the option of the Other Investors into shares of the Company's
Common Stock and certain warrants (together with the Additional
Warrants, the "Other Warrants") exercisable for shares of the
Company's Common Stock. Under the terms of Section 4(g) of that
certain Securities Purchase Agreement dated August 21, 1997,
between the Company and the holders of the outstanding shares of
the Company's Series C Preferred Stock (the "Series C Holders"),
the Company is required to offer any equity or convertible debt
securities it intends to issue to the Series C Holders prior to
offering the securities to any third party. The Company has not
offered the Warrants, the Convertible Notes or the Other Warrants
to the Series C Holders, who will retain their right of first
offer until the closing of the Company's settlement with the
Series C Holders, which will not occur until after the Company
has issued the Warrants, the Convertible Notes and the Other
Warrants.
Section 3.4 GOVERNMENTAL CONSENTS.
In connection with the issuance of the Subordinated Notes and the
Warrants under this Agreement, the Company was required to obtain
and has obtained a qualification by permit from the Commissioner
of Corporations of the State of California to exempt the payment
of the interest under the Subordinated Notes from the usury laws
of the State of California.
Section 3.7 NO MATERIAL ADVERSE CHANGE.
1. On June 19, 1998, the Company delivered notice to the Series C
Holders of its election to redeem for cash all shares of Series C
Preferred
SCHEDULE B-2
<PAGE>
Stock tendered for conversion in lieu of converting such shares.
Certain disputes have arisen between the Company and the Series C
Holders with respect to such notice and the Company's right to
redeem all shares of Series C Preferred Stock tendered for
conversion in lieu of converting such shares. The Series C
Holders have asserted that the Company is in default of its
obligations to them.
2. The Company has recently been informed by Imperial Bank, the
Company's primary lender, that the Company is not in compliance
with all of the provisions of its loan agreements with Imperial
Bank, including without limitation, the provisions regarding
certain minimum ratios the Company is required to maintain. The
Company's noncompliance with many of these provisions results
from the expected one-time charge to earnings that the Company
intends to include in its financial statements as of and for the
fiscal year ended June 30, 1998, which one-time charge the
Company currently anticipates will be as much as approximately
$9,000,000.
3. On September 3, 1998, the Company issued unsecured promissory
notes to certain investors in the aggregate principal amount of
$500,000. Pursuant to its agreements with Imperial Bank, the
Company was required to obtain Imperial Bank's consent prior to
issuing these notes. The Company did not obtain Imperial Bank's
consent.
4. See the disclosures in Section 3.3 above.
</TABLE>
SCHEDULE B-3
<PAGE>
EXHIBIT A
FORM OF SUBORDINATED PROMISSORY NOTE
See Exhibit 10.11
EXHIBIT A-1
<PAGE>
EXHIBIT B
FORM OF WARRANT
See Exhibit 10.12
EXHIBIT B-1
<PAGE>
EXHIBIT C
FORM OF LEGAL OPINION
EXHIBIT C-1
<PAGE>
[FORM OF LEGAL OPINION]
September 18, 1998
To the Purchasers Listed
on Schedule A to the
Imaging Technologies Corporation
Subordinated Note Purchase Agreement
dated September 18, 1998
Ladies and Gentlemen:
We have acted as counsel for Imaging Technologies Corporation,
a Delaware corporation (the "Company"), in connection with the issuance and sale
of its Subordinated Promissory Notes pursuant to the Imaging Technologies
Corporation Subordinated Note Purchase Agreement dated September 18, 1998 (the
"Note Purchase Agreement") among the Company and you. This opinion letter is
being rendered to you pursuant to Section 5.5 of the Note Purchase Agreement in
connection with the Closing of the sale of the Subordinated Notes. Capitalized
terms not otherwise defined in this opinion letter have the meaning given them
in the Note Purchase Agreement.
In connection with the opinions expressed herein we have made
such examination of matters of law and of fact as we considered appropriate or
advisable for purposes hereof. As to matters of fact material to the opinions
expressed herein, we have relied upon the representations and warranties as to
factual matters contained in and made by the Company pursuant to the Note
Purchase Agreement and upon certificates and statements of government officials
and of officers of the Company. We have also examined originals or copies of
such corporate documents or records of the Company as we have considered
appropriate for the opinions expressed herein. We have assumed for the purposes
of this opinion letter the genuineness of all signatures, the legal capacity of
natural persons, the authenticity of the documents submitted to us as originals,
the conformity to the original documents of all documents submitted to us as
certified, facsimile or photostatic copies, and the authenticity of the
originals of such copies.
As used in this opinion letter, the expression "we are not
aware" or the phrase "to our knowledge", or any similar expression or phrase
with respect to our knowledge of matters of fact, means as to matters of fact
that, based on the actual knowledge of individual attorneys within the firm
principally responsible for handling this matter for the Company (and not
including any constructive or imputed notice of any information), and after an
examination of documents referred to herein and after inquiries of certain
officers of the Company, no facts have been disclosed to us that have caused us
<PAGE>
To the Purchasers Listed on September 18, 1998
Schedule A to the Subordinated Page 2
Note Purchase Agreement
to conclude that the opinions expressed are factually incorrect; but beyond that
we have made no factual investigation for the purposes of rendering this opinion
letter. Specifically, but without limitation, we have made no inquiries of
securities holders or employees of the Company, other than such officers.
This opinion letter relates solely to the laws of the State of
California, the Delaware General Corporation Law and the federal law of the
United States, and we express no opinion with respect to the effect or
application of any other laws. Special rulings of authorities administering such
laws or opinions of other counsel have not been sought or obtained.
Based upon our examination of and reliance upon the foregoing
and subject to the limitations, exceptions, qualifications and assumptions set
forth below and except as set forth in the Note Purchase Agreement or the
Schedule of Exceptions thereto, we are of the opinion that as of the date
hereof:
1. The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware, and the
Company has the requisite corporate power and authority to own its properties
and to conduct its business as, to our knowledge, it is presently conducted.
2. The Company is qualified to do business as a foreign
corporation in California and is in good standing under the laws of the State of
California.
3. The Company has the requisite corporate power and authority
to execute, deliver and perform the Note Purchase Agreement, the Subordinated
Notes and the Warrants. Each of the foregoing has been duly and validly
authorized by the Company, and duly executed and delivered by an authorized
officer of the Company. The Common Stock issuable upon exercise of the Warrants
to be issued at the Closing has been duly and validly reserved for issuance and,
when and if issued upon such exercise pursuant to the terms of the Warrants,
will be validly issued, fully paid and nonassessable.
4. The Company's execution and delivery of, and its
performance and compliance as of the date hereof with the terms of, the Note
Purchase Agreement, the Subordinated Notes and the Warrants do not violate any
provision of any federal, California or Delaware corporate law, rule or
regulation applicable to the Company or any provision of the Company's
Certificate of Incorporation, as amended, or Bylaws, and do not conflict with or
constitute a default under the material provisions of any agreement specifically
identified on Schedule A attached hereto, other than a default under the
agreements related to the Company's loans from Imperial Bank and Bank of Yorba
Linda, one or more of which require the Company to obtain Imperial Bank's and
Bank of Yorba Linda's prior written consent (which consent the Company has not
obtained prior
<PAGE>
To the Purchasers Listed on September 18, 1998
Schedule A to the Subordinated Page 3
Note Purchase Agreement
to entering into the Note Purchase Agreement and consummating the transactions
contemplated thereby).
5. The Purchasers' loans to the Company evidenced by the
Subordinated Notes are exempt from the usury laws of the State of California.
6. Based in part upon the representations of you in the Note
Purchase Agreement, the offer and sale of the Subordinated Notes and the
Warrants to you pursuant to the terms of the Note Purchase Agreement are exempt
from the registration requirements of Section 5 of the Securities Act of 1933,
as amended, by virtue of Section 4(2) thereof and, under the Securities Act of
1933, as amended, as it presently exists, the issuance of Common Stock to you
upon exercise of the Warrants pursuant to the terms of the Warrants would also
be exempt from such registration requirements.
We express no opinion as to the Company's compliance or
noncompliance with applicable federal or state antifraud or antitrust statutes,
laws, rules and regulations.
We express no opinion concerning the past, present or future
fair market value of any securities.
We assume that all of the information contained in the
applications for qualification by permit filed by the Company on July 17, 1998
and September 15, 1998, under Section 25113 of the California Corporations Code,
including without limitation all of the information contained in any amendments
or supplements to the applications, was accurate, that no information required
to be included in the applications or in any amendments or supplements to the
applications was not so included, and that the qualifications by permit were
therefore properly obtained by the Company.
We express no opinion as to the effect of subsequent issuances
of securities of the Company, to the extent that further issuances which may be
integrated with the Closing may include purchasers which do not meet the
definition of "accredited investors" under Rule 501 of Regulation D and to the
extent that notwithstanding its reservation of shares the Company may issue so
many shares of Common Stock (or may issue securities which as a result of
antidilution adjustments reduce the conversion or exercise ratio of any
outstanding derivative securities) that there are not enough remaining
authorized but unissued shares of Common Stock for the exercise of the Warrants.
This opinion letter is rendered as of the date first written
above solely for your benefit in connection with the Note Purchase Agreement and
may not be delivered to, quoted or relied upon by any person other than you, or
for any other purpose, without our prior written consent. Our opinion is
expressly limited to the matters set forth above and we render no opinion,
whether by implication or otherwise, as to any other matters relating to the
Company. We assume no obligation to advise you of facts, circumstances,
<PAGE>
To the Purchasers Listed on September 18, 1998
Schedule A to the Subordinated Page 4
Note Purchase Agreement
events or developments which hereafter may be brought to our attention and which
may alter, affect or modify the opinions expressed herein.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
<PAGE>
To the Purchasers Listed on September 18, 1998
Schedule A to the Subordinated Page 5
Note Purchase Agreement
SCHEDULE A
1. Promissory Note between Imperial Bank and the Company, dated June 23,
1998.
2. Security and Loan Agreement and Addendum thereto (Eximbank Facility)
between Imperial Bank and the Company, dated June 23, 1998.
3. Security and Loan Agreement and Addendum thereto (Foreign Insured A/R
Line) between Imperial Bank and the Company, dated June 23, 1998.
4. Security and Loan Agreement and Addendum thereto (Domestic Line)
between Imperial Bank and the Company, dated June 23, 1998.
5. Corporate Resolution to Borrow by the Company, dated June 23, 1998 (re:
Loan No 711062536-4).
6. Promissory Note between Bank of Yorba Linda and McMican Corporation dba
New Media Memory, dated June 17, 1997 ("Loan No. 1054468601").
7. Loan Agreement between Bank of Yorba Linda and McMican Corporation dba
New Media Memory, dated October 20, 1997.
8. Change in Terms Agreement (to Loan No 1054468601) between BYL Bank
Group and McMican Corporation (dba New Media Memory), dated May 17,
1998.
9. Commercial Security Agreement between Bank of Yorba Linda and McMican
Corporation dba New Media Memory, dated June 17, 1997.
10. Commercial Guaranty by Timothy E. McCanna in connection with Loan No
1054468601, dated May 17, 1998.
11. Commercial Guaranty by the Company in connection with Loan No
1054468601, dated May 17, 1998.
12. Corporate Resolution to Borrow by McMican Corporation (dba New Media
Memory), dated May 17, 1998 (re: Loan No 1054468601).
13. Export-Import Bank of the United States Working Capital Guarantee
Program, Borrower Agreement between the Company and Imperial Bank,
dated June 29, 1998.
14. Imperial Bancorp Registration Rights Agreement, dated June 23, 1998.
<PAGE>
To the Purchasers Listed on September 18, 1998
Schedule A to the Subordinated Page 5
Note Purchase Agreement
15. Development and Manufacturing Agreement between the Company and Elesys,
Inc., dated September 30, 1997.
16. Development and Manufacturing Agreement between the Company. and Nissei
Sangyo America, Ltd., dated June 30, 1998.
17. Amendment No. 1 to Postscript Software Development and OEM Distribution
License Agreement between the Company and Adobe Systems Incorporated,
dated October 13, 1997.
18. Licensed System Appendix No. 3 to the Postscript Software Development
and OEM Distribution License Agreement between the Company and Adobe
Systems Incorporated, dated October 13, 1997.
19. Multi-Tenant Industrial Lease between Sunhala Enterprises, LLC and the
Company, dated April 1998.
20. Standard Industrial/Commercial Single-Tenant Lease between Robert C.
Meyer Trust and the Company, dated May 2, 1997.
21. Stipulation for Entry of Judgment in Dornsife & Associates, Inc. v.
Color Solutions, Inc.- Settlement for a 10/1/95 promissory note.
22. Promissory Note between the Company and Franz Herbert and Dornsife &
Associates, Inc., dated October 1, 1995
23. Convertible Promissory Note between Harry J. Saal and the Company,
dated December 31, 1997.
24. Promissory Note between the Company and Dataproducts Corporation, dated
as of June 30, 1998.
25. Stipulation for Entry of Judgment in Syquest Technology, Inc. v. Prima
International.
26. Consulting Agreement between the Company and Irwin Roth, dated April 1,
1994 and Amendments thereto dated June 12, 1998 and January 22, 1997,
respectively.
27. Executive Employment Agreement between the Company and Brian Bonar,
dated September 1, 1994 and Amendments thereto dated January 22, 1997
and April 1, 1998, respectively.
<PAGE>
To the Purchasers Listed on September 18, 1998
Schedule A to the Subordinated Page 7
Note Purchase Agreement
28. Executive Employment Agreement between the Company and Edward Savarese,
dated July 1, 1990, as amended February 25, 1994, and Amendments
thereto dated January 22, 1997, April 1, 1998 and June 12, 1998,
respectively.
<PAGE>
EXHIBIT 10.11
The Company also issued another Non-Convertible Subordinated Promissory Note,
substantially identical in all material respects to this Exhibit 10.11, except
for the following details:
Investor
--------
NP Partners
THIS SUBORDINATED PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY OTHER APPLICABLE SECURITIES LAWS. IT MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED UNDER CIRCUMSTANCES THAT WOULD RESULT IN A
VIOLATION OF THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933 OR SUCH
OTHER LAWS.
IMAGING TECHNOLOGIES CORPORATION
NON-CONVERTIBLE SUBORDINATED PROMISSORY NOTE
$500,000 September 18, 1998
Imaging Technologies Corporation, a Delaware corporation (the
"Company"), for value received, hereby promises to pay to the order of Olympus
Securities, Ltd. (the "Holder"), the principal sum of Five Hundred Thousand
Dollars ($500,000), together with simple interest on the unpaid balance from the
date hereof until paid in accordance with the terms hereof at a rate of sixteen
percent (16%) per annum, interest to accrue on the basis of a 365-day year for
the number of days actually elapsed. Interest shall be payable monthly in
arrears with the first interest payment due September 30, 1998. Unless otherwise
provided in Sections 3 and 4 hereof, both principal and all outstanding interest
shall be due and payable on September 17, 1999 (the "Maturity Date").
This Promissory Note is issued pursuant to that certain Subordinated
Note Purchase Agreement, dated as of the date hereof (the "Purchase Agreement"),
between the Company and the purchaser listed on SCHEDULE A thereto, and is
entitled to the benefits thereof. All terms not otherwise defined herein shall
have the meaning given such terms in the Purchase Agreement.
Section 1 PAYMENT. All payments made in accordance with this
Promissory Note are to be made in lawful money of the United States of America
at the address of the Holder as indicated on the signature page hereof, or at
such other location as the Holder may designate from time to time by written
notice to the Company.
The Company shall pay all costs and expenses, including reasonable
attorney's fees, for services to collect this Promissory Note, regardless of
whether litigation ensues and, if so, for services prior to trial or hearing, on
trial and in any appeal or appeals therefrom. The Company hereby waives notice
of default, presentment or demand for payment, protest or notice of nonpayment
or dishonor and all other notices or demands relative to this instrument.
Section 2 PREPAYMENT. The Company, at its option, may at any time on
or after the date hereof, prepay in whole or in part, without penalty, the
principal sum, together with accrued interest to the date of payment,
outstanding under this Promissory Note by giving written notice (the "Prepayment
Notice") to the Holder at least ten (10) days prior to the date of such
prepayment (the "Prepayment Date"). The Company shall not prepay any of the
<PAGE>
subordinated notes issued pursuant to that certain Subordinated Note Purchase
Agreement dated as of the date hereof among the Company and American Industries,
Inc. and Mr. Ellison Morgan (the "Oregon Notes"), the subordinated note issued
pursuant to that certain Subordinated Note Purchase Agreement dated as of the
date hereof among the Company and Mr. Harry Saal (together with this Promissory
Note and the Oregon Notes, the "Notes"), or any other subordinated debt of the
same rank as the Notes (the "Other Subordinated Debt") unless, at the time of
such prepayment, the Company pays to the holders of all of the Notes (including
the holder of this Promissory Note) a prepayment in the same proportionate
amount as the prepayment made to the holders of the other Notes or to the
holders of the Other Subordinated Debt (based on the total amount owed to the
holders of the other Notes or to the holders of the Other Subordinated Debt).
Section 3 ACCELERATION OF MATURITY DATE OF PROMISSORY NOTE.
3.1 GENERAL. Upon the occurrence of an Acceleration Event (as
hereinafter defined), the entire unpaid principal amount, together with the
accrued but unpaid interest thereon, of this Promissory Note shall become
immediately due and payable in cash subject to Section 4 hereof (hereinafter,
the "Acceleration").
3.2 ACCELERATION EVENTS. An "Acceleration Event" shall be deemed to
have occurred upon the earlier of (i) (A) the acquisition by any person (as such
term is defined in Section 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended (the "1934 Act") of the power to direct the management and
business of the Company, whether by ownership of voting securities, by contract
or by other arrangement; (B) the individuals who, as of the date of this
Promissory Note, are directors of the Company shall cease for any reason to
constitute a majority of the Board of Directors of the Company, unless the
election or appointment, or nomination for election or appointment, of any new
member of the Board of Directors was approved by a vote of a majority of the
Board of Directors, in which event such new member shall, for purposes of this
Promissory Note, be considered as a member of the Board of Directors; (C) a
merger or consolidation involving the Company, if the stockholders of the
Company immediately before such merger or consolidation, do not, as a result of
such merger or consolidation, own, directly or indirectly, more than 50 percent
of the combined voting power or ownership interests of the Company or the entity
resulting from such merger or consolidation; or (D) the dissolution or the
complete or partial liquidation, or the sale or other disposition of all or
substantially all of the assets, of the Company; (ii) the commencement by or
against the Company of any case or proceeding under any bankruptcy,
reorganization, insolvency or moratorium law, or any other law or laws for the
relief of debtors, or the appointment of any receiver, trustee or assignee to
take possession of the properties of the Company; provided, however, that in the
event that such case, proceeding or appointment does not occur with the consent
of the Company, then the Acceleration Event shall be deemed to occur only in the
event that such case, proceeding or appointment is not dismissed within ninety
(90) days of the commencement of such case, proceeding or appointment; (iii) the
liquidation or dissolution of the Company; (iv) the commencement of any lawsuit
or foreclosure proceeding against the Company by the holders of any Senior
Indebtedness (as defined in Section 4); (v) the Company's failure in a material
respect to observe any covenant or obligation binding on it under the Purchase
Agreement or this Promissory Note; (vi) any of the representations and
warranties of the Company contained in Section 3 of the Purchase Agreement being
false or misleading in a
2
<PAGE>
material respect on and as of the Closing (as defined in the Purchase
Agreement); (vii) acceleration of the maturity date of any Senior Indebtedness
resulting from the Company's breach or default thereunder; or (viii) upon the
closing of any equity or convertible debt financing in which the Company
receives net proceeds in excess of $5,000,000.
3.3 SPECIAL LIMITED ACCELERATION. Upon the closing of any equity or
convertible debt financing in which the Company receives net proceeds in excess
of $2,000,000 but less than or equal to $5,000,000, fifty percent (50%) of the
entire unpaid principal amount, together with fifty percent (50%) of the accrued
but unpaid interest thereon, of this Promissory Note shall become immediately
due and payable in cash subject to Section 4 hereof (hereinafter, the "Special
Limited Acceleration").
3.4 ADDITIONAL INTEREST ON UNPAID AMOUNTS. All amounts due and
owing to Holder hereunder that are not paid by the Company when due shall accrue
additional interest at the rate of two percent (2%) per annum in excess of the
interest rate set forth hereunder, interest to accrue from the date of such
non-payment on the basis of a 365 day year for the number of days actually
elapsed.
Section 4 SUBORDINATION.
4.1 SENIOR INDEBTEDNESS. As used herein, the term "Senior
Indebtedness" shall mean the principal of and unpaid interest on the following
indebtedness of the Company: (i) all secured indebtedness of the Company,
whether now existing or hereinafter incurred, (ii) the principal of and unpaid
interest on any amounts borrowed or to be borrowed from, or owing to, a bank,
trust company, insurance company or other financial institutions regularly
engaged in the business of lending money, or a combination thereof, on an
unsecured basis, whether now existing or hereinafter incurred, and (iii) amounts
owed or to be owed to equipment lessors pursuant to equipment lease lines
approved by the Company's Board of Directors, whether now existing or
hereinafter incurred. In no event (a) will the Senior Indebtedness owing to
Imperial Bank and/or any other financial institution that may lend money to the
Company to replace all or a portion of the debt owed to Imperial Bank exceed
$12,000,000 in the aggregate or (b) will all other Senior Indebtedness exceed
$8,000,000 in the aggregate. The Company shall give notice to the Holder of any
additional Senior Indebtedness incurred after the date hereof within a
reasonable time period after the date such additional Senior Indebtedness is
incurred.
4.2 SUBORDINATION. The Company has agreed and the Holder, by its
acceptance of this Promissory Note, covenants, expressly for the benefit of the
present and future holders of Senior Indebtedness, that the payment of the
principal of and interest on this Promissory Note, and all other obligations of
the Company to pay money to the Holder under this Promissory Note, is expressly
subordinated in right of payment to the prior payment, or provision for payment,
in full of the Senior Indebtedness of the Company in accordance with the
provisions of this Section 4.2. The Company shall not pay, and the Holder shall
not be entitled to receive, other than in connection with the purchase of
securities of the Company through forgiveness of the indebtedness evidenced by
this Promissory Note, any amount in respect of the principal of or interest on
this Promissory Note or any other obligation of the Company to pay money to the
Holder on this Promissory Note upon the occurrence and continuance of any of the
following: (a) with respect to any payment that is contractually due hereunder,
prior to the date
3
<PAGE>
on which the payment is contractually due (including, without limitation, any
payments which shall become due and payable on the Maturity Date, in case of an
Acceleration Event or in the event of the Special Limited Acceleration) as
provided under this Promissory Note, (b) an event of default under any agreement
evidencing solely the Senior Indebtedness, or (c) an event of default relating
to the payment when due of the principal of or interest on the Senior
Indebtedness. Notwithstanding any other provision of this Promissory Note or of
the Purchase Agreement to the contrary, the foregoing payment restrictions shall
not apply if (i) in the case of an event of default, such event of default shall
have been cured or permitted by the holder(s) of Senior Indebtedness, (ii) the
event of default, or the benefits of the subordination provisions hereunder,
shall have been waived in writing to the Holder by the holder(s) of the Senior
Indebtedness, (iii) the outstanding Senior Indebtedness shall have been paid in
full, or (iv) no event of default has occurred and is continuing under any of
the Senior Indebtedness and the payment is contractually due (including, without
limitation, any payments which shall become due and payable on the Maturity
Date, in case of an Acceleration Event or in the event of the Special Limited
Acceleration) as provided under this Promissory Note.
Section 5 MISCELLANEOUS.
5.1 TRANSFER OF PROMISSORY NOTE. Except as prohibited or limited by
the terms of the Purchase Agreement, this Promissory Note shall be transferable
or assignable without the prior written consent of the Company. Any attempted
disposition of this Promissory Note (in whole or in part) not in accordance with
the Purchase Agreement shall be void and of no force or effect.
5.2 TITLES AND SUBTITLES. The titles and subtitles used herein are for
convenience only and are not to be considered in construing or interpreting this
Promissory Note.
5.3 NOTICES, ETC. All notices and other communications required or
permitted under this Promissory Note shall be in writing and may be delivered in
person, by facsimile, overnight delivery service or registered or certified
mail, addressed to the Company, or to the Holder at their respective addresses
set forth on the signature pages hereto or at such other address as the Company
or the Holder shall have furnished to the other party in writing. All notices
and other communications shall be effective upon the earlier of actual receipt
thereof by the person to whom notice is directed or (i) in the case of notices
and communications sent by personal delivery or facsimile, one business day
after such notice or communication arrives at the applicable address or was
successfully sent to the applicable facsimile number, (ii) in the case of
notices and communications sent by overnight delivery service, at noon (local
time) on the second business day following the day such notice or communication
was sent, and (iii) in the case of notices and communications sent by United
States mail, seven days after such notice or communication shall have been
deposited in the United States mail.
5.4 AMENDMENTS AND WAIVERS. Any term of this Promissory Note may be
amended and the observance of any term of this Promissory Note may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Holder. Any
amendment or waiver effected in accordance with this Section 5.4 shall be
binding upon the Holder and the Company.
4
<PAGE>
5.5 SEVERABILITY. If any provision of this Promissory Note shall be
determined to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
5.6 GOVERNING LAW. This Promissory Note shall be governed by and
interpreted in accordance with the laws of the State of New York without regard
to the principles of conflict of laws. Each party hereby irrevocably submits to
the non-exclusive jurisdiction of the state and federal courts sitting the City
of New York, borough of Manhattan, for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Promissory Note and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner permitted
by law.
5.7 ENTIRE AGREEMENT. This Promissory Note, together with the Purchase
Agreement, the Settlement Agreement, the Amended Registration Rights Agreement
(as defined in the Settlement Agreement) and the New Warrants (as defined in the
Settlement Agreement) constitutes the full and entire understanding and
agreement between the parties with regard to the subjects
hereof and thereof.
5.8 COUNTERPARTS. This Promissory Note may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
5.9 SUCCESSORS AND ASSIGNS. The provisions hereof shall inure to the
benefit of, and be binding upon, the successors, permitted assigns, heirs,
executors and administrators of the parties to this Promissory Note.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
5
<PAGE>
IN WITNESS WHEREOF, this Promissory Note has been duly executed and
delivered under its corporate seal as of the date first above written.
IMAGING TECHNOLOGIES CORPORATION
By: /S/ BRIAN BONAR
--------------------------
Brian Bonar, President and
Chief Executive Officer
Address: 11031 Via Frontera
San Diego, CA 92127
ACKNOWLEDGED AND AGREED TO:
OLYMPUS SECURITIES, LTD.
By: /S/ ILLEGIBLE
-------------------------
Name: ILLEGIBLE
Title: AUTHORIZED SIGNATORY
Address:
--------------------
--------------------
6
<PAGE>
EXHIBIT 10.12
The Company also issued another Common Stock Purchase Warrant, substantially
identical in all material respects to this Exhibit 10.12, except for the
following details:
Investor
--------
NP Partners
THE TRANSFER OF THIS WARRANT IS SUBJECT TO
RESTRICTIONS CONTAINED HEREIN. THE SECURITIES REPRESENTED
HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE
BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF
COUNSEL, IN GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR
UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
IMAGING TECHNOLOGIES CORPORATION
Common Stock Purchase Warrant
To Purchase 100,000 Shares of September 18, 1998
the Common Stock of
Imaging Technologies Corporation
THIS CERTIFIES that, for value received, Olympus Securities, Ltd. or its
registered assigns (the "Holder"), is entitled to purchase from Imaging
Technologies Corporation, a Delaware corporation (hereinafter called the
"Corporation"), up to 100,000 shares (subject to adjustment as provided in
Section 4) (the "Warrant Shares") of fully paid and non-assessable Common Stock
of the Corporation (the "Common Stock"), subject to the provisions and upon the
terms and conditions set forth herein.
1. TERM OF WARRANT. Subject to the terms and conditions set forth herein,
this Warrant shall be exercisable, in whole or in part, during the term
commencing on the date hereof (the "Exercise Date") and ending at 5:00 p.m.
Pacific Daylight Time on the date three (3) years after the Exercise Date (the
"Exercise Period").
2. EXERCISE PRICE. The exercise price at which this Warrant may be
exercised shall be $2.025 per share of Common Stock (the "Exercise Price), as
adjusted from time to time pursuant to Section 4 hereof. The parties hereto
acknowledge that this in no way is an attempt to identify the fair market value
of shares of Common Stock, but is rather an arbitrary assignment of value for
the purposes of this Warrant only.
3. EXERCISE OF WARRANT.
(a) Subject to the terms and conditions hereof, this Warrant may be
exercised by the Holder, in whole or in part, at any time during the Exercise
Period by (i) delivery of the completed purchase form annexed hereto, which
purchase form shall specify the number of Warrant Shares to be purchased, (ii)
payment to the Corporation of an amount equal to the
<PAGE>
Exercise Price multiplied by the number of Warrant Shares as to which the
Warrant is being exercised (plus any applicable issue or transfer taxes) (the
"Aggregate Exercise Price") in cash or by check or wire transfer, and (iii) the
surrender of this Warrant, at the principal office of the Corporation; provided,
that if such Warrant Shares are to be issued in any name other than that of the
Holder, such issuance shall be deemed a transfer and the provisions of Section
13 shall be applicable; provided, further, that in no event shall the Holder be
entitled to exercise this Warrant for a number of Warrant Shares in excess of
that number of Warrant Shares, which, upon giving effect to such exercise, would
cause the aggregate number of shares of Common Stock beneficially owned by the
Holder and its affiliates to exceed 4.9% of the outstanding shares of the Common
Stock following such exercise. For purposes of the foregoing proviso, the
aggregate number of shares of Common Stock beneficially owned by the Holder and
its affiliates shall include the number of shares of Common stock issuable upon
exercise of this Warrant with respect to which the determination of such proviso
is being made, but shall exclude shares of Common Stock which would be issuable
upon (i) exercise of the remaining, unexercised Warrants beneficially owned by
the Holder and its affiliates and (ii) exercise or conversion of the unexercised
or unconverted portion of any other securities of the Company beneficially owned
by the Holder and its affiliates (including, without limitation, any convertible
notes or preferred stock) subject to a limitation on conversion or exercise
analogous to the limitation contained herein. Except as set forth in the
preceding sentence, for purposes of this paragraph, beneficial ownership shall
be calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended. In the event of any exercise of the rights represented by this
Warrant in compliance with this Section 3(a), a certificate or certificates for
the Warrant Shares so purchased, in such denominations as may be requested by
the Holder and registered in the name of, or as directed by, the Holder, shall
be delivered at the Corporation's expense to, or as directed by, the Holder as
soon as practicable after such rights shall have been so exercised, and in any
event no later than three business days after such exercise.
(b) Unless the rights represented by this Warrant shall have expired
or shall have been fully exercised, the Corporation shall, as soon as
practicable and in no event later than ten business days after any exercise and
at its own expense, issue a new Warrant identical in all respects to the Warrant
exercised except (i) it shall represent rights to purchase the number of Warrant
Shares purchasable immediately prior to such exercise under the Warrant
exercised, less the number of Warrant Shares with respect to which such Warrant
is exercised, and (ii) the Holder thereof shall be deemed for all corporate
purposes to have become the Holder of record of such Warrant Shares immediately
prior to the close of business on the date on which the Warrant is surrendered
and payment of the amount due in respect of such exercise and any applicable
taxes is made, irrespective of the date of delivery of certificates evidencing
such Warrant Shares, except that, if the date of such surrender and payment is a
date when the stock transfer books of the Corporation are properly closed, such
person shall be deemed to have become the holder of such Warrant Shares at the
opening of business on the next succeeding date on which the stock transfer
books are open.
(c) No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock issued
upon exercise of this Warrant shall be rounded up or down to the nearest whole
number.
2
<PAGE>
4. STOCK SPLITS, CONSOLIDATION, MERGER AND SALE. In the event that before
the issuance of the shares of Common Stock into which this Warrant may be
exercised the outstanding shares of Common Stock shall be split, combined or
consolidated, by dividend, reclassification or otherwise, into a greater or
lesser number of shares of Common Stock, the Exercise Price in effect
immediately prior to such combination or consolidation and the number of shares
purchasable under this Warrant shall, concurrently with the effectiveness of
such combination or consolidation, be proportionately adjusted. If there shall
be effected any consolidation or merger of the Corporation with another
corporation, or a sale of all or substantially all of the Corporation's assets
to another corporation, and if the holders of Common Stock shall be entitled
pursuant to the terms of any such transaction to receive stock, securities or
assets with respect to or in exchange for Common Stock, then, as a condition of
such consolidation, merger or sale, lawful and adequate provisions shall be made
whereby the Holder of this Warrant shall thereafter have the right to receive,
upon the basis and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock immediately theretofore receivable upon the exercise
of such Warrant, such shares of stock, securities or assets as may be issuable
or payable with respect to or in exchange for a number of outstanding shares of
such Common Stock equal to the number of shares of such Common Stock immediately
theretofore so receivable had such consolidation, merger or sale not taken
place, and in any such case appropriate provisions shall be made with respect to
the rights and interests of the Holder to the end that the provisions hereof
shall thereafter be applicable, as nearly as may be, in relation to any shares
of stock, securities or assets thereafter deliverable upon the exercise of this
Warrant. In the event the Corporation shall declare a distribution payable in
securities of other persons, evidences of indebtedness issued by the Corporation
or other persons, assets (excluding cash dividends) or options or rights not
otherwise referred to in this Section 4, then, in each such case, upon exercise
of this Warrant the Holder shall be entitled to a proportionate share of any
such distribution as though the Holder was the holder of the number of shares of
Common Stock of the Corporation issuable upon exercise of this Warrant as of the
record date fixed for the determination of the holders of Common Stock of the
Corporation entitled to receive such distribution.
5. STOCK TO BE RESERVED. The Corporation will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon the exercise of this Warrant as herein provided, such number of shares of
Common Stock as shall then be issuable upon the exercise of this Warrant. The
Corporation shall from time to time in accordance with applicable law increase
the authorized amount of its Common Stock if at any time the number of shares of
Common Stock remaining unissued and available for issuance shall not be
sufficient to permit exercise of this Warrant. The Corporation covenants that
all shares of Common Stock which shall be so issued shall be duly and validly
issued and fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issue thereof, and, without limiting the generality
of the foregoing, the Corporation will take all such action as may be necessary
to assure that all such shares of Common Stock may be so issued without
violation of any applicable law or regulation, or of any requirements of any
national securities exchange upon which shares of capital stock of the
Corporation may be listed.
6. ISSUE TAX. The issuance of certificates for shares of Common Stock upon
exercise of this Warrant shall be made without charge to the Holder for any
issuance tax in respect thereof provided that the Corporation shall not be
required to pay any tax which may be payable in
3
<PAGE>
respect of any transfer involved in the issuance and delivery of any certificate
in a name other than that of the Holder of this Warrant.
7. CLOSING OF BOOKS. The Corporation will at no time close its transfer
books against the transfer of the shares of Common Stock issued or issuable upon
the exercise of this Warrant in any manner which interferes with the timely
exercise of this Warrant.
8. NOTICES OF RECORD DATES. In the event of:
(a) any taking by the Corporation of a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution (other than cash
dividends out of earned surplus), or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation or
any transfer of all or substantially all the assets of the Corporation to or
consolidation or merger of the Corporation with or into any other corporation,
or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Corporation,
then and in each such event the Corporation will give notice to the Holder of
this Warrant specifying (i) the date on which any such record is to be taken for
the purpose of such dividend, distribution or right and stating the amount and
character of such dividend, distribution or right, and (ii) the date on which
any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take place,
and the time, if any is to be fixed, as of which the holders of record of Common
Stock will be entitled to exchange their shares of Common Stock for securities
or other property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up. Such notice shall be given at least ten (10) days and not more than
ninety (90) days prior to the date therein specified, and such notice shall
state that the action in question or the record date is subject to the
effectiveness of a registration statement under the Securities Act of 1933, as
amended (the "Securities Act") or to a favorable vote of stockholders, if either
is required.
9. NO STOCKHOLDER RIGHTS OR LIABILITIES. Subject to Sections 4 and 8 of
this Warrant, this Warrant shall not entitle the Holder hereof to any voting
rights or other rights as a stockholder of the Corporation. No provision hereof,
in the absence of affirmative action by the Holder hereof to purchase shares of
Common Stock, and no mere enumeration hereon of the rights or privileges of the
Holder hereof, shall give rise to any liability of such Holder for the Exercise
Price or as a stockholder of the Corporation, whether such liability is asserted
by the Corporation or by creditors of the Corporation.
10. LISTING. The Corporation shall use its best efforts to cause all of the
shares of Common Stock issuable upon exercise of this Warrant to be approved for
listing on the Nasdaq SmallCap Market. The Corporation shall maintain the Common
Stock's authorization for
4
<PAGE>
quotation on the Nasdaq National Market, the Nasdaq SmallCap Market, the New
York Stock Exchange, Inc. ("NYSE") or the American Stock Exchange, Inc.
("AMEX"). Neither the Corporation nor any of its subsidiaries shall take any
action which may result in the delisting or suspension of the Common Stock on
the Nasdaq SmallCap Market, the Nasdaq National Market, NYSE or AMEX. The
Corporation shall promptly provide Holder copies of any notices it receives from
the Nasdaq SmallCap Market, the Nasdaq National Market, NYSE or AMEX regarding
the continued eligibility of the Common Stock for listing on such automated
quotation system or securities exchange. The Corporation shall pay all fees and
expenses in connection with satisfying its obligation under this Section 10.
11. TRANSFER AGENT INSTRUCTIONS. The Corporation shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, to issue
certificates, registered in the name of the Holder or its respective nominee(s),
for the Warrant Shares in such amounts as specified from time to time by the
Holder to the Corporation upon exercise of this Warrant (the "Irrevocable
Transfer Agent Instructions"). Prior to registration of the Warrant Shares under
the Securities Act, all such certificates shall bear the restrictive legend
specified in Section 12 of this Warrant. The Corporation warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 11 and the stop transfer instructions to give effect to Section
12 hereof, prior to registration of the Warrant Shares under the Securities Act,
will be given by the Corporation to its transfer agent and that the Warrant
Shares shall otherwise be freely transferable on the books and records of the
Corporation as and to the extent provided in this Warrant and that certain
Subordinated Note Purchase Agreement dated as of the date hereof, among the
Corporation and the entities listed on the signature pages thereto (the
"Subordinated Note Purchase Agreement"). If Holder provides the Corporation with
an opinion of counsel, reasonably satisfactory in form, and substance to the
Corporation, that registration of a resale by such Holder of any of such Warrant
Shares is not required under the Securities Act, the Corporation shall permit
the transfer, and promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by such Holder
and without any restrictive legends. The Corporation acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to the Holder
hereof by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Corporation acknowledges that the remedy at law for a
breach of its obligations under this Section 11 will be inadequate and agrees,
in the event of a breach or threatened breach by the Corporation of the
provisions of this Section 11, that the Holder shall be entitled, in addition to
all other available remedies, to an injunction restraining any breach and
requiring immediate issuance and transfer, without the necessity of showing
economic loss and without any bond or other security being required.
12. COMPLIANCE WITH SECURITIES LAWS.
(a) The Holder of this Warrant, by acceptance hereof, acknowledges
that this Warrant and the shares of Common Stock to be issued upon exercise
hereof (collectively, the "Securities") are being acquired solely for the
Holder's own account for investment only and not with a view towards, or for
resale in connection with, the public sale or distribution thereof, except
pursuant to sales registered or exempted under the Securities Act; provided,
however, that by making the representations herein, the Holder does not agree to
hold any of the Securities for any minimum or other specific term.
5
<PAGE>
(b) This Warrant and, until such time as the sale of the Warrant
Shares has been registered under the Securities Act, the stock certificates
representing the Warrant Shares, except as set forth below, shall bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN
OPINION OF COUNSEL, IN GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD
PURSUANT TO RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed and the Corporation shall
issue a certificate without such legend to the Holder of the Warrant Shares upon
which it is stamped, if, unless otherwise required by state securities laws, (i)
such Warrant Shares are registered for sale under the Securities Act, (ii) in
connection with a sale transaction, such Holder provides the Corporation with an
opinion of counsel, in a generally acceptable form, to the effect that a public
sale, assignment or transfer of such Warrant Shares may be made without
registration under the Securities Act, or (iii) such Holder provides the
Corporation with reasonable assurances that such Warrant Shares can be sold
pursuant to Rule 144 without any restriction as to the number of securities
acquired as of a particular date that can then be immediately sold. The Holder
acknowledges, covenants and agrees to sell the Warrant Shares represented by a
certificate(s) from which the legend has been removed, only pursuant to (i) a
registration statement effective under the Securities Act, or (ii) advice of
counsel that such sale is exempt from registration required by Section 5 of the
Securities Act.
13. TRANSFER. Subject to the terms and conditions contained in Section 12
hereof, this Warrant and all rights hereunder are transferable in whole or in
part by the Holder and any successor transferee; provided, however, in no event
shall the aggregate number of transfers of the rights and interests in all of
the Warrants exceed three (3) transfers. The transfer shall be recorded on the
books of the Corporation upon receipt by the Corporation of an assignment form
in the form attached hereto ("Assignment Form"), at its principal office and the
payment to the Corporation of all transfer taxes and other governmental charges,
if any, imposed on such transfer.
14. PRESENTMENT. Prior to due presentment of this Warrant together with a
completed Assignment Form for registration of transfer, the Corporation may deem
and treat the Holder as
6
<PAGE>
the absolute owner of the Warrant, notwithstanding any notation of ownership or
other writing thereon, for the purpose of any exercise thereof and for all other
purposes, and the Corporation shall not be affected by any notice to the
contrary.
15. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant is lost,
stolen, mutilated or destroyed, the Corporation may, on such terms as to
indemnity or otherwise as it may in its discretion reasonably impose (which
shall, in the case of a mutilated Warrant, include the surrender thereof), issue
a new Warrant of like denomination and tenor as the Warrant so lost, stolen,
mutilated or destroyed.
16. GOVERNING LAW. This Warrant shall be governed by and interpreted in
accordance with the laws of the State of New York without regard to the
principles of conflict of laws. Each party hereby irrevocably submits to the
non-exclusive jurisdiction of the state and federal courts sitting the City of
New York, borough of Manhattan, for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Warrant and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
17. SUCCESSORS, ASSIGNS. All the terms and provisions of the Warrant shall
be binding upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto.
18. AMENDMENT. This Warrant may only be modified, amended or terminated by
a writing signed by the Corporation and the Holder.
19. SEVERABILITY. If any provision of this Warrant shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Warrant in that
jurisdiction or the validity or enforceability of any provision of this Warrant
in any other jurisdiction.
7
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be
duly executed and delivered on and as of the day and year first above written by
one of its officers thereunto duly authorized.
IMAGING TECHNOLOGIES CORPORATION
Dated: September 18, 1998 By: /S/ BRIAN BONAR
--------------------
Brian Bonar, President and
Chief Executive Officer
The undersigned Holder agrees and accepts this Warrant and
acknowledges that it has read and confirms each of the representations contained
in Section 12.
OLYMPUS SECURITIES, LTD.
By: /S/ ILLEGIBLE
--------------------
Its: AUTHORIZED SIGNATORY
Address: c/o Leeds Management Services
129 Front Street, 5th Floor
Hamilton HM12 Bermuda
Attention: Anne Dupuy
[SIGNATURE PAGE TO COMMON STOCK PURCHASE WARRANT]
8
<PAGE>
PURCHASE FORM
(To be executed by the Warrant Holder if he desires to exercise the Warrant in
whole or in part)
To: Imaging Technologies Corporation
The undersigned, whose Social Security or other identifying
number is ______________, hereby irrevocably elects the right of purchase
represented by the within Warrant for, and to purchase thereunder,
__________________________ shares of Common Stock provided for therein and
tenders payment herewith to the order of
Imaging Technologies Corporation
in the amount of
$
----------------
The undersigned requests that certificates for such shares be issued as follows:
Name: _______________________________________________________________
Address: ____________________________________________________________
Deliver to: _________________________________________________________
Address: ____________________________________________________________
and, if said number of shares shall not be all the shares purchasable hereunder,
that a new Warrant for the balance remaining of the shares purchasable under the
within Warrant be registered in the name of, and delivered to, the undersigned
at the address stated below
Address:
-----------------------------------
Dated: _____________, 19___
Signature
----------------------------------------------
(Signature must conform in all respects to the
name of the Warrant Holder as specified on
the face of the Warrant, without alteration,
enlargement or any change whatsoever)
<PAGE>
ASSIGNMENT
(To be executed by the Warrant Holder if he desires to effect a transfer of the
Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto ______________________________________________________ whose
Social Security or other identification number is _________________________
[residing/located] at __________________________ the attached Warrant, and
appoints ___________________ residing at
the undersigned's attorney-in-fact to transfer said Warrant on the books of the
Corporation, with full power of substitution in the premises.
Dated: ______________, 19___.
In the presence of:
- -------------------------- -------------------------------------------
(Signature must conform in all respects to
the name of the Warrant Holder as specified
on the face of the Warrant, without
alteration, enlargement or any change
whatsoever)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1020
<SECURITIES> 0
<RECEIVABLES> 6514
<ALLOWANCES> 716
<INVENTORY> 5104
<CURRENT-ASSETS> 13788
<PP&E> 3223
<DEPRECIATION> 1786
<TOTAL-ASSETS> 20647
<CURRENT-LIABILITIES> 16597
<BONDS> 0
0
420
<COMMON> 67
<OTHER-SE> 1204
<TOTAL-LIABILITY-AND-EQUITY> 20647
<SALES> 6721
<TOTAL-REVENUES> 7279
<CGS> 4047
<TOTAL-COSTS> 8272
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 100
<INTEREST-EXPENSE> 196
<INCOME-PRETAX> (1201)
<INCOME-TAX> 4
<INCOME-CONTINUING> (1205)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1205)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
