SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended December 31, 1998
or
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file No. 0-12641
IMAGING TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 33-0021693
(State or other jurisdiction of
incorporation or organization) (IRS Employer ID No.)
11031 Via Frontera
San Diego, California 92127
(Address of principal executive offices)
Registrant's Telephone Number, Including Area Code: (619) 613-1300
Check 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 past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No |_|
The number of shares outstanding of the registrant's common stock as of February
18, 1999, was 16,320,151.
<PAGE>
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets
December 31, 1998 (unaudited) and June 30, 1998 (audited) 2
Consolidated Statements of Operations
Three months ended December 31, 1998 and 1997 (unaudited) 3
Consolidated Statements of Cash Flows
Three months ended December 31, 1998 and 1997 (unaudited) 4
Notes to Consolidated Financial Statements. 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 18
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 19
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 21
ITEM 5. OTHER INFORMATION 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 22
SIGNATURES 23
2
<PAGE>
<TABLE>
<CAPTION>
IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
ASSETS
December 31, June 30,
1998 1998
<S> <C> <C>
Current assets
Cash $ 203 $ 3,023
Accounts receivable, net 4,430 4,133
Inventories 5,131 6,287
Prepaid expenses and other 1,378 1,401
-------- --------
Total current assets 11,142 14,844
Property and equipment, net 1,286 1,525
Capitalized software, net 5,567 3,655
Other 1,024 937
-------- --------
$ 19,019 $ 20,961
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities
Borrowings under bank lines of credit $ 5,141 $ 5,203
Short-term debt 4,450 1,998
Current portion of long-term debt 1,575 903
Accounts payable 5,687 5,027
Accrued expenses 1,384 1,398
-------- --------
Total current liabilities 18,237 14,529
Long-term debt, less current portion 2,456 1,828
-------- --------
Total liabilities 20,693 16,357
-------- --------
Shareholders' equity (deficit)
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
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 (38,557) (33,987)
-------- --------
Total shareholders' equity (deficit) (1,674) 4,604
-------- --------
$ 19,019 $ 20,961
======== ========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
(unaudited)
Three Months Ended Six Months Ended
December December December December
31, 1998 31, 1997 31, 1998 31, 1997
<S> <C> <C> <C> <C>
Revenues
Sales of products $4,195 $8,219 $10,916 $14,497
Engineering fees - 1,531 395 3,047
Licenses and royalties - - 163 -
-------- ------- -------- --------
4,195 9,750 11,474 17,544
-------- ------- -------- --------
Costs and expenses
Costs of products sold 3,309 5,913 7,356 10,186
Selling, general, and administrative 3,676 2,169 7,316 4,293
Cost of engineering fees 230 572 815 1,169
-------- ------- -------- --------
7,215 8,654 15,487 15,649
-------- ------- -------- --------
Income (loss) from operations (3,020) 1,096 (4,013) 1,896
Other expense
Interest, net (335) (16) (543) (44)
-------- ------- -------- --------
Income (loss) before income taxes (3,355) 1,080 (4,556) 1,852
Income tax expense (10) - (14) (4)
-------- ------- -------- --------
Net income (loss) $(3,365) $1,080 $ (4,570) $ 1,848
======== ======= ======== ========
Earnings (loss) per common share
Basic $(0.26) $ 0.10 $(0.36) $ 0.18
Diluted $(0.26) $ 0.08 $(0.36) $ 0.14
Weighted average common shares 12,852 10,430 12,852 10,111
Weighted average common shares -
assuming dilution 12,852 13,651 12,852 13,412
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
(in thousands, except share data)
(unaudited)
1998 1997
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $(4,570) $ 1,848
Adjustments to reconcile net income (loss)
to net cash from operating activities
Depreciation and amortization 310 298
Changes in operating assets and liabilities
Accounts receivable (297) (3,028)
Inventories 1,156 (497)
Prepaid expenses and other (65) (982)
Accounts payable and accrued expenses 646 149
Deferred revenue - (258)
------- -------
Net cash from operating activities (2,820) (2,470)
------- -------
Cash flows from investing activities
Capitalized software (1,912) (1,079)
Capital expenditures (71) (104)
------- -------
Net cash from investing activities (1,983) (1,183)
------- -------
Cash flows from financing activities
Net borrowings under bank lines of credit (62) 1,234
Net borrowings under short-term notes payable 2,642 12
Net proceeds from issuance of common stock 1,250 581
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 (294) (326)
------- -------
Net cash from financing activities 1,983 6,501
------- -------
Net increase (decrease) in cash (2,820) 2,848
Cash, beginning of period 3,023 255
------- -------
Cash, end of period $ 203 $3,103
======= =======
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
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 December 31, 1998, and for the six
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 expects to
raise these funds through a combination of debt and equity financing and is
actively pursuing such matters. However, no assurance can be given that the
financing will be obtained and that the Company will achieve profitable
operations. 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
5
<PAGE>
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>
December 31, 1997
Net income $ 1,848
Preferred dividends (10)
---------
Basic EPS 1,838 10,111 $ 0.18
Effect of options and warrants - 1,970
Effective of convertible notes payable 4 64
Effect of convertible preferred stock 10 1,267
--------- -------
Diluted EPS $ 1,852 13,412 $ 0.14
========= =======
Earnings (loss) Shares Per-Share
(Numerator) (Denominator) Amount
December 31, 1998
Net loss $ (4,570)
Preferred dividends (12)
---------
Basic and diluted EPS $ (4,582) 12,852 $(0.36)
========= ========
Note 4. Inventories
December 31, June 30,
1998 1998
Inventories
Materials and supplies $ 319 $2,081
Finished goods 4,812 4,206
------- -------
$5,131 $6,287
====== ======
</TABLE>
Note 5. Bank Lines of Credit
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. 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.
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, would 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 and $1 million in subordinated notes. 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
6
<PAGE>
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. This price is based on
the average of the closing bid prices for ITEC's common stock for the five
trading days ended September 14, 1998.
Note 7. Subsequent Events
As of January 13, 1999, the Company entered into a Securities Purchase Agreement
(the "Series D Agreement") with certain investors contemplating a potential
funding of up to $2.4 million (the "Series D Funding"). The Series D Funding
provides for the private placement by the Company of up to 1,200 units (the
"Units"), each Unit consisting of (i) one share of Series D Convertible
Preferred Stock (the "Series D Stock") and (ii) 2,000 warrants (the "Series D
Warrants" and, collectively, with the Series D Stock, the "Series D Securities")
exercisable for shares of Common Stock. Pursuant to the Series D Agreement, the
Company shall issue and sell to the investors the Series D Stock and the Series
D Warrants in three tranches in the following amounts: (i) $600,000 of the
stated value of the Series D Stock in the first tranche; (ii) $600,000 of the
stated value of the Series D Stock in the second tranche; and (iii) $1,200,000
of the stated value of the Series D Stock in the third tranche. The first
tranche was funded at the signing of the Series D Agreement; the second tranche
was funded on February 5, 1999; and the third tranche will be funded on a date
after the Company, among other things, (i) provides a written notice to the
investors requiring such investors to purchase up to $1,200,000 of the stated
value of the Series D Stock and (ii) has, and has had for 30 days prior to
receiving any funding pursuant to the third tranche, an effective registration
statement (the "Registration Statement") filed with the Securities and Exchange
Commission (the "SEC"). The Series D Stock is convertible into shares of the
Company's Common Stock at the lesser of (A) $.50 and (B) an amount equal to 70
percent of the closing bid price per share of Common Stock on the Nasdaq
SmallCap Market (the "Series D Closing Price") for the three trading days having
the lowest closing price during the 30 trading days prior to the date on which
the investor gives to the Company a notice of conversion of Series D Stock;
except that all Series D Stock converted prior to February 26, 1999 would be
converted at $.50. However, each of the investors has agreed that in no event
shall it be permitted to convert any shares of Series D Stock in excess of the
number of such shares upon the conversion of which, the sum of (i) the number of
shares of Common Stock owned by such investor (other than shares of Common Stock
issuable upon conversion of Series D Stock or upon exercise of Series D
Warrants) plus (ii) the number of shares of Common Stock issuable upon
conversion of such shares of Series D Preferred Stock or exercise of Series D
Warrants, would be equal to or exceed 9.999 percent of the number of shares of
Common Stock then issued and outstanding, including the shares that would be
issuable upon conversion of the Series D Stock or exercise of Series D Warrants
held by such investor. Each investor in Series D Stock shall have the right to
vote, except as otherwise required by Delaware law, on all matters on which
holders of Common Stock have the right to vote on with each such investor having
the right to cast one vote for each whole share of Common Stock into which each
share of the Series D Preferred Stock held by such investor is convertible
immediately prior to the record date for the determination of stockholders
entitled to vote; provided, however, that in no event shall a holder be entitled
to vote more than 9.999 percent of the number of shares entitled to be voted on
any matter. Upon the completion of each tranche of Series D Funding, each of the
investors will receive the number of Series D Warrants that directly corresponds
with the dollar amount such investor invested in such tranche; the Series D
Warrants are immediately exercisable upon issuance at an exercise price of $.875
per share and expire five years after the date of their issuance.
As of February 2, 1999, the Company entered into a Securities Purchase Agreement
(the "Series E Agreement") with certain investors (including one of whom is a
director of the Company) contemplating a potential funding and exchange of
indebtedness of up to $3,000,000 and as of February 18, 1999, the Company
contemplates entering into an Exchange Agreement (the "Exchange Agreement") with
certain investors contemplating a potential exchange of indebtedness of
approximately $1,150,000 (the Series E Agreement and the Exchange Agreement
being together the "Series E Funding"). The Series E Funding provides for the
private placement by the Company of up to 1,250 units (the "Units"), each Unit
consisting of (i) one share of Series E Convertible Preferred Stock (the "Series
E Stock") and (ii) 5,000 warrants (the "Series
7
<PAGE>
E Warrants" and, collectively, with the Series E Stock, the "Series E
Securities") exercisable for shares of Common Stock. Pursuant to the Series E
Agreement, the Company issued and sold to the investors the Series E Securities
in the following amounts: $1,735,000 in cash and $1,265,000 in exchange and/or
cancellation of indebtedness, and pursuant to the Exchange Agreement, the
Company contemplates issuing to the investors Series E Securities in exchange
and/or cancellation of indebtedness of approximately $1,150,000. All of the
investors of the Series E Agreement funded at the time of execution of the
Series E Agreement except that two of the investors agreed to purchase the
Series E Securities in three tranches (the "Series E Tranche Investors"). To
date, $300,000 has been funded and the balance of $450,000 will be funded on a
date after the Company, among other things, (i) provides a written notice to the
investors requiring such investors to purchase up to $450,000 of the stated
value of the Series E Stock and (ii) has, and has had for 30 days prior to
receiving any funding pursuant to the third tranche, an effective Registration
Statement filed with the SEC. All of the investors of the Exchange Agreement
would exchange their indebtedness for Series E Securities within five days of
the Company obtaining Shareholder Approval. The Series E Stock is convertible
into shares of the Company's Common Stock at the lesser of (A) $.50 and (B) an
amount equal to 70 percent of the closing bid price per share of Common Stock on
the Nasdaq SmallCap Market (the "Series E Closing Price") for the three trading
days having the lowest closing price during the 30 trading days prior to the
date on which the applicable investor gives to the Company notice of conversion
of Series E Stock; except that all Series E Stock converted prior to February
26, 1999 would be converted at $.50. Each investor in Series E Stock shall have
the right to vote, except as otherwise required by Delaware law, on all matters
on which holders of Common Stock have the right to vote on with each such
investor having the right to cast one vote for each whole share of Common Stock
into which each share of the Series E Preferred Stock held by such investor is
convertible immediately prior to the record date for the determination of
stockholders entitled to vote. Upon the Series E Funding, each of the investors
will receive the number of Series E Warrants that directly corresponds with the
dollar amount such investor invested in the Series E Funding, except that
Tranche Investors will receive the number of Series E Warrants that directly
corresponds with the dollar amount such investor invested in each completed
tranche; the Series E Warrants are immediately exercisable upon issuance at an
exercise price of $.875 per share and expire five years after their date of
issuance.
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, and software to
improve the accuracy of color reproduction.
In recent months, ITEC has undertaken a number of actions as part of an
ongoing realignment of the Company's operations around its core imaging
businesses. The Company continues to shift 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 is in a transitional phase and
there are important short-term operational and liquidity
8
<PAGE>
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 December 31, 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."
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
9
<PAGE>
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 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.
RESULTS OF OPERATIONS NET REVENUES
Revenues were $4.2 million and $9.8 million for the quarters ended
December 31, 1998 and 1997, respectively. Sales of product were $4.2 million and
$8.2 million for the quarters ended December 31, 1998 and 1997, respectively.
For the six months ended December 31, 1998 sales of product were $ 10.9 million
compared to $ 14.5 million for the six months ended December 31, 1997. The
decrease in product sales from 1997 to 1998 was due primarily to a decrease in
sales of printer products. Engineering fees were $0.0 million and $1.5 million
for the quarters ended December 31, 1998 and 1997, respectively. For the six
months ended December 31, 1998 engineering fees were $ 0.4 million compared to $
3.0 million for the six months ended December 31, 1997. 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 $0.0 million for the quarter
ended December 31, 1998 and the Company did not recognize any license fees
during the quarter ended December 31, 1997. For the six months ended December
31, 1998 license fees were $ 163,000 compared to $ 0.0 million for the six
months ended December 31, 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 $3.3 million or 79% of product sales and
$5.9 million or 72% of product sales for the quarters ended December 31, 1998
and 1997, respectively. For the six months ended December 31, 1998 cost of
products sold were $ 7.4 million compared to $ 10.2 million for the six months
ended December 31, 1997. The percentage increase in 1998 as compared to 1997 was
primarily due to end of life product sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $3.7 million or 87%
of total revenue and $2.2 million or 26% of total revenues for the quarters
ended December 31, 1998 and 1997, respectively. For the six months ended
December 31, 1998 selling, general and administrative expenses were $ 7.3
million compared to $ 4.3 million for the six months ended December 31, 1997.
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 December 31, 1998 as compared to the quarter ended December 31, 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 $0.2 million and $0.6 million for the quarters
ended December 31, 1998 and December 31, 1997. For the six months ended December
31, 1998 engineering costs were $ 0.8 million compared to $ 1.2 million for the
six months ended December 31, 1997. The increase in costs as a percentage of
engineering revenues from 1998 compared to 1997 resulted primarily from the
reduction of billable engineering contracts.
LIQUIDITY AND CAPITAL RESOURCES
10
<PAGE>
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 December 31, 1998, the Company had a deficit working capital of
$7.1 million, a decrease of $4.3 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 December 31, 1998, were lines of credit with Imperial Bank
aggregating $7 million. Borrowing under these lines of credit at December 31,
1998 totaled $4.6 million. The Company also has a term loan with Imperial Bank,
the principal balance of which at December 31, 1998, was $2.2 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 December 31, 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. 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. 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 timely repay all indebtedness owed to
Imperial Bank would have a material adverse effect on the Company.
Net cash used in operating activities increased to $2.8 million during
the quarter ended December 31, 1998, from $2.5 million during the quarter ended
December 31, 1997.
Net cash used in investing activities increased to $2.0 million during
the quarter ended December 31, 1998, from $1.2 million during the quarter ended
December 31, 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 by the
Company's Board of Directors (but such dividends may only be paid out of surplus
or net profits legally available for the payment thereof), at an annual rate of
$50.00 per share. The aggregate amount of such dividends in arrears at December
31, 1998, was approximately $0.5 million, which amount has not been declared by
the Company's Board of Directors.
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
11
<PAGE>
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. 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
12
<PAGE>
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 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
13
<PAGE>
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 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.
14
<PAGE>
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
15
<PAGE>
its Company proprietary source code available to OEM customers only under
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,
16
<PAGE>
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 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 December 31, 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.
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.
17
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
18
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On or about February 2, 1999, American Industries, Inc., Ellison Carl
Morgan and entities related to Ellison Carl Morgan (the "Plaintiffs") filed a
summons against the Company and certain officers and directors of the Company in
the circuit court of the State of Oregon for the county of Multnomah, alleging
that the Company and the other defendants violated certain Oregon Securities
Laws in connection with the Plaintiffs' investments in the Company, breached the
contracts with the Plaintiffs and committed fraud in connection with such
contracts. Plaintiffs seek to recover for all of their investments in the
Company made between November 14, 1997 and December 10, 1998, which Plaintiffs
estimate to be in excess of $5 million. The Company believes the claims are
without merit and intend to answer Plaintiffs' complaint by denying all of
Plaintiffs' allegations.
On February 16, 1999, the Plaintiffs filed an ex parte motion for TRO,
Provisional Process and Show Cause Order seeking to restrain the Company from
negotiating, commingling or spending any proceeds of the collateral securing a
Letter of Credit Reimbursement Agreement, dated November 13, 1998, and requiring
the Company to notify all purchasers of the collateral to pay any outstanding
sums directly to the Plaintiffs and to pay, endorse or transfer to Plaintiffs
upon receipt all proceeds received by the Company directly from purchasers of
the collateral. At the hearing, the court required the Plaintiffs to issue a
bond for $100,000 and issued a restraining order against the Company as to the
collateral security, the Letter of Credit Agreement.
Furthermore, 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.
As of January 13, 1999, the Company entered into a Securities Purchase
Agreement (the "Series D Agreement") with certain investors contemplating a
potential funding of up to $2.4 million (the "Series D Funding"). The Series D
Funding provides for the private placement by the Company of up to 1,200 units
(the "Units"), each Unit consisting of (i) one share of Series D Convertible
Preferred Stock (the "Series D Stock") and (ii) 2,000 warrants (the "Series D
Warrants" and, collectively, with the Series D Stock, the "Series D Securities")
exercisable for shares of Common Stock. Pursuant to the Series D Agreement, the
Company shall issue and sell to the investors the Series D Stock and the Series
D Warrants in three tranches in the following amounts: (i) $600,000 of the
stated value of the Series D Stock in the first tranche; (ii) $600,000 of the
stated value of the Series D Stock in the second tranche; and (iii) $1,200,000
of the stated value of the Series D Stock in the third tranche. The first
tranche was funded at the signing of the Series D Agreement; the second tranche
was funded on February 5, 1999; and the third tranche will be funded on a date
after the Company, among other things, (i) provides a written notice to the
investors requiring such investors to purchase up to $1,200,000 of the stated
value of the Series D Stock and (ii) has, and has had for 30 days prior to
receiving any funding pursuant to the third tranche, an effective registration
statement (the "Registration Statement") filed with the Securities and Exchange
Commission (the "SEC"). The Series D Stock is convertible into shares of the
Company's Common Stock at the lesser of (A) $.50 and (B) an amount equal to 70
percent of the closing bid price per share of Common Stock on the Nasdaq
SmallCap Market (the "Series D Closing Price") for the three trading days having
the lowest closing price during the 30 trading days prior to the date on which
the investor gives to the Company a notice of conversion of Series D Stock;
except that all Series D Stock converted prior to February 26, 1999 would be
converted at $.50. However, each of the investors has agreed that in no event
shall it be permitted to convert any shares of Series D Stock in excess of the
number of such shares upon the conversion of which, the sum of (i) the number of
shares of Common Stock owned by such investor (other than shares of Common Stock
issuable upon conversion of Series D Stock or upon exercise of Series D
Warrants) plus (ii) the number of shares of Common Stock issuable upon
conversion of such shares of Series D Preferred Stock or exercise of Series D
Warrants, would be equal to
19
<PAGE>
or exceed 9.999 percent of the number of shares of Common Stock then issued and
outstanding, including the shares that would be issuable upon conversion of the
Series D Stock or exercise of Series D Warrants held by such investor. Each
investor in Series D Stock shall have the right to vote, except as otherwise
required by Delaware law, on all matters on which holders of Common Stock have
the right to vote on with each such investor having the right to cast one vote
for each whole share of Common Stock into which each share of the Series D
Preferred Stock held by such investor is convertible immediately prior to the
record date for the determination of stockholders entitled to vote; provided,
however, that in no event shall a holder be entitled to vote more than 9.999
percent of the number of shares entitled to be voted on any matter. Upon the
completion of each tranche of Series D Funding, each of the investors will
receive the number of Series D Warrants that directly corresponds with the
dollar amount such investor invested in such tranche; the Series D Warrants are
immediately exercisable upon issuance at an exercise price of $.875 per share
and expire five years after the date of their issuance.
As of February 2, 1999, the Company entered into a Securities Purchase
Agreement (the "Series E Agreement") with certain investors (including one of
whom is a director of the Company) contemplating a potential funding and
exchange of indebtedness of up to $3,000,000 and as of February 18, 1999, the
Company contemplates entering into an Exchange Agreement (the "Exchange
Agreement") with certain investors contemplating a potential exchange of
indebtedness of approximately $1,150,000 (the Series E Agreement and the
Exchange Agreement being together the "Series E Funding"). The Series E Funding
provides for the private placement by the Company of up to 1,250 units (the
"Units"), each Unit consisting of (i) one share of Series E Convertible
Preferred Stock (the "Series E Stock") and (ii) 5,000 warrants (the "Series E
Warrants" and, collectively, with the Series E Stock, the "Series E Securities")
exercisable for shares of Common Stock. Pursuant to the Series E Agreement, the
Company issued and sold to the investors the Series E Securities in the
following amounts: $1,735,000 in cash and $1,265,000 in exchange and/or
cancellation of indebtedness, and pursuant to the Exchange Agreement, the
Company contemplates issuing to the investors Series E Securities in exchange
and/or cancellation of indebtedness of approximately $1,150,000. All of the
investors of the Series E Agreement funded at the time of execution of the
Series E Agreement except that two of the investors agreed to purchase the
Series E Securities in three tranches (the "Series E Tranche Investors"). To
date, $300,000 has been funded and the balance of $450,000 will be funded on a
date after the Company, among other things, (i) provides a written notice to the
investors requiring such investors to purchase up to $450,000 of the stated
value of the Series E Stock and (ii) has, and has had for 30 days prior to
receiving any funding pursuant to the third tranche, an effective Registration
Statement filed with the SEC. All of the investors of the Exchange Agreement
would exchange their indebtedness for Series E Securities within five days of
the Company obtaining Shareholder Approval. The Series E Stock is convertible
into shares of the Company's Common Stock at the lesser of (A) $.50 and (B) an
amount equal to 70 percent of the closing bid price per share of Common Stock on
the Nasdaq SmallCap Market (the "Series E Closing Price") for the three trading
days having the lowest closing price during the 30 trading days prior to the
date on which the applicable investor gives to the Company notice of conversion
of Series E Stock; except that all Series E Stock converted prior to February
26, 1999 would be converted at $.50. Each investor in Series E Stock shall have
the right to vote, except as otherwise required by Delaware law, on all matters
on which holders of Common Stock have the right to vote on with each such
investor having the right to cast one vote for each whole share of Common Stock
into which each share of the Series E Preferred Stock held by such investor is
convertible immediately prior to the record date for the determination of
stockholders entitled to vote. Upon the Series E Funding, each of the investors
will receive the number of Series E Warrants that directly corresponds with the
dollar amount such investor invested in the Series E Funding, except that
Tranche Investors will receive the number of Series E Warrants that directly
corresponds with the dollar amount such investor invested in each completed
tranche; the Series E Warrants are immediately exercisable upon issuance at an
exercise price of $.875 per share and expire five years after their date of
issuance.
The offers and sales to the Series D and E investors were made pursuant
to a claim of exemption under Section 4(2) of the Securities Act, as amended
(the "Securities Act"). The Company did not use any general advertisement or
solicitation in connection with the offer or sale of the Series D and E
Securities to the Series D and E investors. Each of the Series D and E investors
represented and warranted, among other things, that he or it was purchasing the
Series D and E Securities, as applicable, for investment purposes and not with a
view to distribution and that he or it was an "accredited investor" (as defined
in Regulation D promulgated by the SEC). Appropriate legends were affixed to the
certificates for each of the Series D and E.
20
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(b) 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 by the
Company's Board of Directors (but such dividends may only be paid out of surplus
or net profits legally available for the payment thereof), at an annual rate of
$50.00 per share. The aggregate amount of such dividends in arrears at December
31, 1998, was approximately $0.5 million, which amount has not been declared by
the Company's Board of Directors.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
21
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.1 Certificate of Amendment of Certificate of Incorporation, filed with
the Secretary of State of the State of Delaware on January 12, 1999.
3.2 Certificate Eliminating Reference to Certain Series of Shares of
Stock from the Certificate of Incorporation, filed with the Secretary
of State of the State of Delaware on January 12, 1999.
3.3 Certificate of Designation, Powers, Preferences and Rights of the
Series of Preferred Stock to be Designated Series D Convertible
Preferred Stock, filed with the Secretary of State of the State of
Delaware on January 13, 1999.
3.4 Certificate of Designation, Powers, Preferences and Rights of the
Series of Preferred Stock to be Designated Series E Convertible
Preferred Stock, filed with the Secretary of State of the State of
Delaware on January 28, 1999.
10.1 Forbearance Agreement, entered into as of November 4, 1998, by and
among the Company, certain of the Company's subsidiaries and Imperial
Bank.
10.2 Letter of Credit Reimbursement Agreement, dated as of November 13,
1998, by and between the Company and American Industries, Inc.
10.3 Securities Purchase Agreement, dated as of January 13, 1999, by and
among the Company and the applicable parties named therein.
10.4 Registration Rights Agreement, dated as of January 13, 1999, by and
among the Company and the applicable parties named therein.
10.5 Form of Warrant to Purchase Shares of Common Stock of the Company at
$.875 per share, dated January 13, 1999, between the Company and each
of the applicable parties named in Exhibit 10.3 hereto.
10.6 Securities Purchase Agreement, dated as of February 2, 1999, by and
among the Company and the applicable parties named therein.
10.7 Registration Rights Agreement, dated as of February 2, 1999, by and
among the Company and the applicable parties named therein.
10.8 Form of Warrant to Purchase Shares of Common Stock of the Company at
$.875 per share, dated February 2, 1999, between the Company and each
of the applicable parties named in Exhibit 10.6 hereto.
10.9 Exchange Agreement, dated as of February 19, 1999, by and among the
Company and the applicable parties named therein.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended December 31,
1998.
22
<PAGE>
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: February 22, 1999
IMAGING TECHNOLOGIES CORPORATION (Registrant)
By: /s/ BRIAN BONAR
---------------------------------
Brian Bonar
Chief Executive Officer
(Principal Executive Officer)
By: /s/ CHRISTOPHER W. MCKEE
----------------------------------
Christopher W. McKee
Vice President of Finance and Operations
(Principal Financial and Accounting Officer)
23
<PAGE>
EXHIBIT INDEX
Exhibit
No. DESCRIPTION
- -------- -----------
3.1 Certificate of Amendment of Certificate of Incorporation, filed with
the Secretary of State of the State of Delaware on January 12, 1999.
3.2 Certificate Eliminating Reference to Certain Series of Shares of
Stock from the Certificate of Incorporation, filed with the Secretary
of State of the State of Delaware on January 12, 1999.
3.3 Certificate of Designation, Powers, Preferences and Rights of the
Series of Preferred Stock to be Designated Series D Convertible
Preferred Stock, filed with the Secretary of State of the State of
Delaware on January 13, 1999.
3.4 Certificate of Designation, Powers, Preferences and Rights of the
Series of Preferred Stock to be Designated Series E Convertible
Preferred Stock, filed with the Secretary of State of the State of
Delaware on January 28, 1999.
10.1 Forbearance Agreement, entered into as of November 4, 1998, by and
among the Company, certain of the Company's subsidiaries and Imperial
Bank.
10.2 Letter of Credit Reimbursement Agreement, dated as of November 13,
1998, by and between the Company and American Industries, Inc.
10.3 Securities Purchase Agreement, dated as of January 13, 1999, by and
among the Company and the applicable parties named therein.
10.4 Registration Rights Agreement, dated as of January 13, 1999, by and
among the Company and the applicable parties named therein.
10.5 Form of Warrant to Purchase Shares of Common Stock of the Company at
$.875 per share, dated January 13, 1999, between the Company and each
of the applicable parties named in Exhibit 10.3 hereto.
10.6 Securities Purchase Agreement, dated as of February 2, 1999, by and
among the Company and the applicable parties named therein.
10.7 Registration Rights Agreement, dated as of February 2, 1999, by and
among the Company and the applicable parties named therein.
10.8 Form of Warrant to Purchase Shares of Common Stock of the Company at
$.875 per share, dated February 2, 1999, between the Company and each
of the applicable parties named in Exhibit 10.6 hereto.
10.9 Exchange Agreement, dated as of February 19, 1999, by and among the
Company and the applicable parties named therein.
27.1 Financial Data Schedule.
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
IMAGING TECHNOLOGIES CORPORATION, a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
FIRST: That a resolution was duly adopted by the Board of
Directors of the Corporation setting forth a proposed amendment to the
Certificate of Incorporation of the Corporation, and declaring said amendment to
be advisable and recommended for approval by the stockholders of the
Corporation. The resolution setting forth the proposed amendment was as follows:
RESOLVED, that the second sentence of Section (1) of Article FOURTH of the
Certificate of Incorporation of the Corporation shall be amended to read in full
as follows:
"The number of shares of Preferred Stock authorized to be issued is 10,000, par
value $1,000.00 per share, and the number of shares of Common Stock authorized
to be issued is 100,000,000, par value $0.005 per share."
SECOND: That, thereafter, the stockholders of said Corporation
approved the amendment by written consent in accordance with Section 228 of the
Delaware General Corporation Law, and written notice has been given as provided
in such Section 228.
THIRD: That said amendment was duly adopted in accordance with
the provisions of Section 242 of the Delaware General Corporation Law.
<PAGE>
FOURTH: That the capital of said Corporation shall not be
reduced under or by reason of said amendment.
IN WITNESS WHEREOF, the Corporation has caused this
certificate to be signed and attested to by Brian Bonar and Gerry B. Berg, the
President and the Secretary of the Corporation, respectively, this 13th day of
January, 1999.
BY: /s/ Brian Bonar
----------------------
Brian Bonar, President
ATTEST:
/s/ Gerry B. Berg
- ---------------------------------
Gerry B. Berg, Secretary
-2-
CERTIFICATE ELIMINATING
REFERENCE TO CERTAIN SERIES
OF SHARES OF STOCK FROM THE
CERTIFICATE OF INCORPORATION
OF
IMAGING TECHNOLOGIES CORPORATION
Pursuant to the provisions of Section 151(g) of the General Corporation
Law of the State of Delaware, it is hereby certified that:
1. The name of the corporation (hereinafter referred to as the
"Corporation") is IMAGING TECHNOLOGIES CORPORATION.
2. The designation of the series of shares of stock of the Corporation
to which this certificate relates are:
(i) SERIES A CONVERTIBLE PREFERRED STOCK (the "Series A Convertible");
(ii) SERIES B CONVERTIBLE PREFERRED STOCK (the "Series B Convertible");
(iii) SPECIAL PREFERRED STOCK the ("Special Preferred");
(iv) 5% SERIES B CONVERTIBLE PREFERRED STOCK (the "5% Series B
Convertible");
and
(v) SERIES C REDEEMABLE CONVERTIBLE PREFERRED STOCK (the "Series C
Convertible").
3. The voting powers, designations, preferences and the relative,
participating, optional or other special rights, and the qualifications,
limitations and restrictions of the Series A Convertible and the Series B
Convertible were provided for in amendments to the Certificate of Incorporation
of the
<PAGE>
Corporation filed with the Secretary of State of Delaware on October 31, 1983,
November 9, 1983 and December 31, 1984, pursuant to the provisions of Section
228 and 242 of the General Corporation Law of the State of Delaware. The voting
powers, designations, preferences and the relative, participating, optional or
other special rights, and the qualifications, limitations and restrictions of
the Special Preferred, the 5% Series B Convertible and the Series C Convertible
were provided for in resolutions adopted by the Board of Directors of the
Corporation pursuant to authority expressly vested in it by the provisions of
the Certificate of Incorporation of the Corporation. Certificates setting forth
such resolutions have been heretofore filed with the Secretary of State of the
State of Delaware on October 2, 1990 (for the Special Preferred), February 8,
1995 (for the 5% Series B Convertible) and August 21, 1997 (for the Series C
Convertible), respectively, pursuant to the provisions of Section 151 of the
General Corporation Law of the State of Delaware.
4. The Board of Directors of the Corporation has adopted the following
preambles and resolutions:
RESOLVED, that none of the authorized shares of the
Corporation's Series A Convertible, Series B Convertible,
Special Preferred, 5% Series B Convertible and Series C
Convertible designated by the Board of Directors are
outstanding; and further
RESOLVED, that none of such series of the shares of
stock of the Corporation will be issued; and further
RESOLVED, that (i) all shares of the Corporation's
Preferred Stock, par value $1.00 per share, heretofore
designated as shares of the Corporation's Series A Convertible
and Series B Convertible be, (ii) all shares of the
Corporation's Preferred Stock, par value $5.00 per share,
heretofore designated as shares of the Corporation's Special
Preferred be, and (iii) all shares of the Corporation's
Preferred Stock, par value $1,000 per share, heretofore
designated as shares of the Corporation's 5% Series B
Convertible and Series C Convertible be, and they hereby are,
returned
-2-
<PAGE>
to the status of authorized unissued shares of the
Corporation's Preferred Stock, par value $1.00 per share,
without designation and, and they hereby are, returned; and
further
RESOLVED, that the proper officers of the Corporation
be, and each hereby is, authorized and empowered to file a
Certificate setting forth this resolution with the Secretary
of State of the State of Delaware pursuant to the provisions
of Section 151(g) of the General Corporation Law of the State
of Delaware for the purpose of eliminating from the
Certificate of Incorporation of the Corporation all reference
to all such series of shares of stock.
Signed on January 12, 1999
/s/ Brian Bonar
--------------------------
Name: Brian Bonar
Title: President and Chief
Executive Officer
-3-
CERTIFICATE OF DESIGNATION, POWERS,
PREFERENCES AND RIGHTS OF THE SERIES
OF
PREFERRED STOCK
OF
IMAGING TECHNOLOGIES CORPORATION
TO BE DESIGNATED
SERIES D CONVERTIBLE PREFERRED STOCK
Pursuant to Section 151(g) of the General Corporation Law of the State
of Delaware, we, the undersigned, Brian Bonar and Gerry B. Berg, being
respectively the President and the Secretary of Imaging Technologies Corporation
(the "Corporation"), a corporation organized and existing under the General
Corporation Law of the State of Delaware, DO HEREBY CERTIFY that the following
resolution was duly adopted by the Board of Directors of the Corporation by
unanimous written consent:
RESOLVED, that, pursuant to authority expressly granted to and vested
in the Board of Directors by the provisions of the Certificate of Incorporation,
as amended, the Board of Directors hereby creates a series of a series of Series
D Preferred Stock of the Corporation, par value $1,000 per share and a stated
value of $2,000 per share, to be designated "Series D Convertible Preferred
Stock" and to consist of one thousand two hundred (1,200) shares, and hereby
fixes the powers, designations, preferences and relative, participating,
optional and other rights of the shares of such series, and the qualifications,
limitations, or restrictions thereof (in addition to those provisions set forth
in the Certificate of the Incorporation, as amended, which are applicable to the
Series D Convertible Preferred Stock), as follows:
Section 1. Designation, Amount, Par Value, Stated Value and Rank. The
series of Preferred stock shall be designated as Series D Convertible Preferred
Stock (the "Series D Preferred Stock"), and the number of shares so designated
shall be 1,200 (which shall not be subject to increase without the consent of
the holders of the Series D Preferred Stock ("Holders")). Each share of Series D
Preferred Stock shall have a par value of $1,000 per share and a stated value of
$2000 per share (the "Stated Value").
The Series D Preferred Stock shall rank senior to the Junior Securities
(as defined below) and pari passu with all other series of preferred stock of
the Company issued and outstanding on the Original Issue Date as to
distributions and upon liquidation, dissolution or winding up.
Section 2. Junior Securities. So long as any Series D Preferred Stock
shall remain outstanding, neither the Company nor any subsidiary thereof shall
redeem, purchase or otherwise acquire otherwise than upon conversion or exchange
directly or indirectly any Junior Securities, nor shall the Company directly or
indirectly pay or declare any dividend or make any distribution (other than a
dividend or distribution described in Section 5) upon, nor shall any
distribution be made in respect of, any Junior Securities, nor shall any monies
be set aside for or applied to the
<PAGE>
purchase or redemption (through a sinking fund or otherwise) of any Junior
Securities.
Section 3. Voting Rights. The holders of Series D Preferred Stock shall
have the right to vote, together with the holders of all the outstanding shares
of Common Stock (and the holders of every other class or series entitled to vote
together with such holders) and not by class, except as otherwise required by
Delaware law, on all matters on which holders of Common Stock shall have the
right to vote. Each holder of Series D Preferred Stock shall have the right to
cast one vote for each whole share of Common Stock into which each share of
Series D Preferred Stock held by such holder is convertible immediately prior to
the record date for the determination of shareholders entitled to vote;
provided, however, that in no event shall a holder be entitled to vote more than
9.999% of the number of shares entitled to be voted on any matter. In addition,
so long as any shares of Series D Preferred Stock are outstanding, the Company
shall not and shall cause its subsidiaries not to, without the affirmative vote
of the holders of 66 2/3% of the shares of the Series D Preferred Stock then
outstanding, (a) amend, alter or change the preferences or rights of any series
or class of capital stock of the Corporation (including the Series D Preferred
Stock) or the qualifications, limitations or restrictions thereof if such
amendment, alteration or change adversely affects the powers, preferences or
rights given to the Series D Preferred Stock, (b) alter or amend this
Certificate of Designation, (c) authorize or create any class or series of any
class of capital stock ranking as to distribution of assets upon a Liquidation
(as defined in Section 4) or otherwise senior to the Series D Preferred Stock,
(d) amend its Certificate of Incorporation, bylaws or other charter documents so
as to affect adversely any rights of any Holders, (e) increase the authorized
number of shares of Series D Preferred Stock, and (f) enter into any agreement
with respect to the foregoing.
Section 4. Liquidation. Upon any liquidation, dissolution or winding-up
of the Company, whether voluntary or involuntary (a "Liquidation"), the Holders
shall be entitled to receive out of the assets of the Company, whether such
assets are capital or surplus, for each share of Series D Preferred Stock an
amount equal to the Stated Value before any distribution or payment shall be
made to the holders of any Junior Securities, and if the assets of the Company
shall be insufficient to pay in full such amounts, then the entire assets to be
distributed to the holders of Series D Preferred Stock shall be distributed
among the holders of Series D Preferred Stock and the holders of all securities
ranking pari passu to the Series D Preferred Stock ratably in accordance with
the respective amounts that would be payable on such shares if all amounts
payable thereon were paid in full. A sale, conveyance or disposition of all or
substantially all of the assets of the Company or the effectuation by the
Company of a transaction or series of related transactions in which more than
50% of the voting power of the Company is disposed of, or a consolidation or
merger of the Company with or into any other company or companies shall not be
treated as a Liquidation, but instead shall be subject to the provisions of
Section 5(c)(ii). The Company shall mail written notice of any such Liquidation,
not less than 45 days prior to the payment date stated therein, to each record
holder of Series D Preferred Stock.
Section 5. Conversion.
(a) (i) Each share of Series D Preferred Stock shall be convertible
into shares of Common Stock (subject to Section 5(a)(ii) and Section 5(a)(iii))
at the Conversion Ratio (as
2
<PAGE>
defined in Section 6) at the option of the Holder in whole or in part at any
time after the Original Issue Date. The Holders shall effect conversions by
surrendering the certificate or certificates representing the shares of Series D
Preferred Stock to be converted to the Company, together with the form of
conversion notice attached hereto as Exhibit A (the "Conversion Notice"). Each
Conversion Notice shall specify the number of shares of Series D Preferred Stock
to be converted. The date on which such conversion is to be effected shall be
the date the Holder delivers such Conversion Notice by facsimile (the
"Conversion Date"). Subject to Sections 5(a)(ii) and 5(b) hereof, each
Conversion Notice, once given, shall be irrevocable. If the Holder is converting
less than all shares of Series D Preferred Stock represented by the certificate
or certificates tendered by the Holder with the Conversion Notice, or if a
conversion hereunder cannot be effected in full for any reason, the Company
shall promptly deliver to such Holder (in the manner and within the time set
forth in Section 5(b)) a certificate for such number of shares as have not been
converted.
(ii) If on the Conversion Date applicable to any conversion,
(A) the Common Stock is then listed for trading on the Nasdaq National
Market, the New York Stock Exchange, the American Stock Exchange or The
Nasdaq Small Cap Market, (B) the Conversion Price then in effect is
such that the aggregate number of shares of Common Stock that would
then be issuable upon conversion of all outstanding shares of Series D
Preferred Stock, together with any shares of Common Stock previously
issued upon conversion of Series D Preferred Stock, would equal or
exceed 20% of the number of shares of Common Stock outstanding on the
Original Issue Date (the "Issuable Maximum"), and (C) the Company has
not previously obtained (or attempted pursuant to clause (1) of this
subsection to obtain) Shareholder Approval (as defined below), then the
Company shall issue to any Holder so requesting conversion of Series D
Preferred Stock its pro rata portion of the Issuable Maximum in the
same ratio that the number of shares of Series D Preferred Stock held
by any such Holder bears to all shares of Series D Preferred Stock then
outstanding and, with respect to any shares of Common Stock that
otherwise would have been issuable to such Holder in respect of the
Conversion Notice at issue in excess of the Issuable Maximum, the
Company shall at the Holder's request, (1) as promptly as possible but
in no event later than 45 days after such Conversion Date, convene a
meeting of the holders of the Common Stock and use its best efforts to
obtain the Shareholder Approval or a waiver of such approval from The
Nasdaq Stock Market or the appropriate exchange, and (2) as promptly as
possible from time to time, after a written request by the Holder,
issue shares of Common Stock at a Conversion Price equal to the Per
Share Market Value on the Trading Day immediately preceding the date of
such request for all or a portion of the shares of Series D Preferred
Stock held by such Holder as would cause the number of shares of Common
Stock issuable upon such conversion to exceed the Issuable Maximum.
"Shareholder Approval" means the approval by a majority of the total
votes cast on the proposal, in person or by proxy, at a meeting of the
shareholders of the Company held in accordance with the Company's
Certificate of Incorporation and bylaws, of the issuance by the Company
of shares of Common Stock exceeding the Issuable Maximum as a
consequence of the conversion of Series D Preferred Stock into Common
Stock at a price less than the greater of the book or market value on
the Original Issue Date as and to the extent required pursuant to Rule
4460(i) of
3
<PAGE>
The Nasdaq Stock Market, Inc.'s Marketplace Rules (or any successor
or replacement provision thereof).
(iii) In no event shall a Holder be permitted to convert any
shares of Series D Preferred Stock in excess of the number of such
shares upon the conversion of which, (x) the number of shares of Common
Stock owned by such Holder (other than shares of Common Stock issuable
upon conversion of shares of Series D Preferred Stock or upon exercise
of the Warrants (as defined in the Purchase Agreement)) plus (y) the
number of shares of Common Stock issuable upon such conversion of such
shares of Series D Preferred Stock, would be equal to or exceed (z)
9.999% of the number of shares of Common Stock then issued and
outstanding, including shares issuable on conversion of the Series D
Preferred Stock held by such Holder after application of this Section
5(a)(iii). As used herein, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act and the rules and
regulations thereunder. To the extent that the limitation contained in
this Section 5(a)(iii) applies, the determination of whether shares of
Series D Preferred Stock are convertible (in relation to other
securities owned by a Holder) and of which shares of Series D Preferred
Stock are convertible shall be in the sole discretion of such Holder,
and the submission of shares of Series D Preferred Stock for conversion
shall be deemed to be such Holder's determination of whether such
shares of Series D Preferred Stock are convertible (in relation to
other securities owned by a Holder) and of which shares of Series D
Preferred Stock are convertible, in each case subject to such aggregate
percentage limitation, and the Company shall have no obligation to
verify or confirm the accuracy of such determination. Nothing contained
herein shall be deemed to restrict the right of a Holder to convert
such shares of Series D Preferred Stock at such time as such conversion
will not violate the provisions of this paragraph. The provisions of
this Section 5(a)(iii) may be waived by a Holder of Series D Preferred
Stock as to itself (and solely as to itself) upon not less than 75 days
prior notice to the Company, and the provisions of this Section
5(a)(iii) shall continue to apply until such 75th day (or later, if
stated in the notice of waiver). No conversion in violation of this
paragraph but otherwise in accordance with this Certificate of
Designation shall affect the status of the securities issued upon such
conversion as validly issued, fully-paid and nonassessable.
(b) (i) Not later than three (3) Trading Days after any Conversion
Date, the Company will deliver to the applicable Holder by express courier(A) a
certificate or certificates which shall be free of restrictive legends and
trading restrictions (other than those required by Section 3.1(b) of the
Purchase Agreement) representing the number of shares of Common Stock being
acquired upon the conversion of shares of Series D Preferred Stock (subject to
reduction pursuant to Section 5(a)(ii) and Section 5(a)(iii)), and (B) one or
more certificates representing the number of shares of Series D Preferred Stock
not converted. If in the case of any Conversion Notice such certificate or
certificates are not delivered to or as directed by the applicable Holder by the
third Trading Day after the Conversion Date (the "Delivery Date"), the holder
shall be entitled by written notice to the Company at any time on or before its
receipt of such certificate or certificates thereafter, to rescind such
conversion, in which event the Company shall immediately return the certificates
representing the shares of Series D Preferred Stock tendered for conversion,
whereupon the Company and the Holder shall each be restored to their respective
4
<PAGE>
positions immediately prior to the delivery of such notice of revocation, except
that any amounts described in Sections 5(b)(ii) and (iii) shall be payable
through the date notice of rescission is given to the Company.
(ii) The Company understands that a delay in the delivery of
the shares of Common Stock upon conversion of shares of Series D
Preferred Stock and failure to deliver certificates representing the
unconverted shares of Series D Preferred Stock beyond the Delivery Date
could result in economic loss to the Holder. If the Company fails to
deliver to the Holder such certificate or certificates pursuant to this
Section hereunder by the Delivery Date, the Company shall pay to such
Holder, in cash, an amount per Trading Day for each Trading Day until
such certificates are delivered, together with interest on such amount
at a rate of 15% per annum, accruing until such amount and any accrued
interest thereon is paid in full, equal to (i) 1% of the Stated Value
of the shares of Series D Preferred Stock requested to be converted for
the first five Trading Days after the Delivery Date and (ii) 2% of the
Stated Value of the shares of Series D Preferred Stock requested to be
converted for each Trading Day thereafter (which amounts shall be paid
as liquidated damages and not as a penalty). Nothing herein shall limit
a Holder's right to pursue actual damages for the Company's failure to
deliver certificates representing shares of Common Stock upon
conversion within the period specified herein (including, without
limitation, damages relating to any purchase of shares of Common Stock
by such Holder to make delivery on a sale effected in anticipation of
receiving certificates representing shares of Common Stock upon
conversion, as provided in Section 5(b)(iii) below), and such Holder
shall have the right to pursue all remedies available to it at law or
in equity (including, without limitation, a decree of specific
performance and/or injunctive relief).
(iii) In addition to any other rights available to the Holder,
if the Company fails to deliver to the Holder such certificate or
certificates pursuant to Section 5(b)(i) by the Delivery Date and if
after the Delivery Date the Holder purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Holder of the Underlying Shares which
the Holder anticipated receiving upon such conversion (a "Buy-In"),
then the Company shall pay in cash to the Holder (in addition to any
remedies available to or elected by the Holder) the amount by which (A)
the Holder's total purchase price (including brokerage commissions, if
any) for the shares of Common Stock so purchased exceeds (B) the
aggregate Stated Value of the shares of Series D Preferred Stock for
which such conversion was not timely honored, together with interest
thereon at a rate of 15% per annum, accruing until such amount and any
accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For example, if the Holder
purchases shares of Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted conversion of
$10,000 aggregate Stated Value of the shares of Series D Preferred
Stock, the Company shall be required to pay the Holder $1,000, plus
interest. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In.
5
<PAGE>
(c) (i) The conversion price for each share of Series D Preferred Stock
(the "Conversion Price") in effect on any Conversion Date shall be the lesser of
(A) $.50 and (B) an amount equal to 70% of the average Per Share Market Value
for the three Trading Days having the lowest Per Share Market Value during the
thirty Trading Days prior to the Conversion Date, except that if during any
period (a "Black-out Period"), a Holder is unable to trade any Common Stock
issued or issuable upon conversion of Series D Preferred Stock immediately due
to the postponement of filing or delay or suspension of effectiveness of a
registration statement or because the Company has otherwise informed such Holder
that an existing prospectus cannot be used at that time in the sale or transfer
of such Common Stock, such Holder shall have the option but not the obligation
on any Conversion Date within ten Trading Days following the expiration of the
Black-out Period of using the Conversion Price applicable on such Conversion
Date or any Conversion Price selected by such Holder that would have been
applicable had such Conversion Date been at any earlier time during the
Black-out Period or within the ten Trading Days thereafter.
(ii) In case the Company after the Original Issue Date shall
do any of the following (each, a "Triggering Event") (a) consolidate
with or merge into any other person and the Company shall not be the
continuing or surviving corporation of such consolidation or merger,
or (b) permit any other person to consolidate with or merge into the
Company and the Company shall be the continuing or surviving person
but, in connection with such consolidation or merger, any capital
stock of the Company shall be changed into or exchanged for securities
of any other person or cash or any other property, or (c) transfer all
or substantially all of its properties or assets to any other person,
or (d) effect a capital reorganization or reclassification of its
capital stock, the holders of the Series D Preferred Stock then
outstanding shall have the right thereafter to convert such shares
only into the shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of Common Stock
following such Triggering Event, and the holders of the Series D
Preferred Stock shall be entitled upon such event to receive such
amount of securities, cash or property as the shares of the Common
Stock of the Company into which such shares of Series D Preferred
Stock could have been converted immediately prior to such Triggering
Event would have been entitled. The terms of any such Triggering Event
shall include such terms so as to continue to give to the holder of
Series D Preferred Stock the right to receive the securities, cash or
property set forth in this Section 5(c)(ii) upon any conversion
following such Triggering Event. This provision shall similarly apply
to successive Triggering Events.
(iii) If:
A. the Company shall declare a dividend (or any
other distribution) on its Common Stock; or
B. the Company shall declare a special
nonrecurring cash dividend on or a
redemption of its Common Stock; or
6
<PAGE>
C. the Company shall authorize the granting to
all holders of the Common Stock rights or
warrants to subscribe for or purchase any
shares of capital stock of any class or of
any rights; or
D. the approval of any shareholders of the
Company shall be required in connection with
any Triggering Event; or
E. the Company shall authorize the voluntary or
involuntary dissolution, liquidation or
winding up of the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Series D Preferred Stock, and shall cause to be
mailed to the Holders of Series D Preferred Stock at their last addresses as
they shall appear upon the stock books of the Company, at least 30 calendar days
prior to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided, however, that
the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. Holders are entitled to convert shares of Series D Preferred
Stock during the 30-day period commencing the date of such notice to the
effective date of the event triggering such notice.
(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued Common Stock solely for the purpose
of issuance upon conversion of Series D Preferred Stock free from preemptive
rights or any other actual contingent purchase rights of persons other than the
holders of Series D Preferred Stock, not less than such number of shares of
Common Stock as shall (subject to any additional requirements of the Company as
to reservation of such shares set forth in the Purchase Agreement) be issuable
(taking into account the adjustments and restrictions of Section 5(c)) upon the
conversion of all outstanding shares of Series D Preferred Stock. The Company
covenants that all shares of Common Stock that shall be so issuable shall, upon
issue, be duly and validly authorized, issued and fully paid, nonassessable and
freely tradable.
(e) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of Common Stock, but
may if otherwise permitted, make a cash payment in respect of any final fraction
of a share based on the Per Share Market Value at such time. If the Company
elects not, or is unable, to make such a cash payment, the holder of a share of
Series D Preferred Stock shall be entitled to receive, in lieu of the final
fraction of a share, one whole share of Common Stock.
7
<PAGE>
(f) The issuance of certificates for shares of Common Stock on
conversion of Series D Preferred Stock shall be made without charge to the
holders thereof for any documentary stamp or similar taxes that may be payable
in respect of the issue or delivery of such certificate.
(g) Shares of Series D Preferred Stock converted into Common Stock
shall be canceled and shall have the status of authorized but unissued shares of
undesignated preferred stock.
(h) Any and all notices or other communications or deliveries to be
provided by the holders of the Series D Preferred Stock hereunder, including,
without limitation, any Conversion Notice, shall be in writing and delivered
personally, by facsimile or sent by a nationally recognized overnight courier
service, addressed to the attention of the President and to the Secretary of the
Company at the facsimile telephone number or address of the principal place of
business of the Company as set forth in the Purchase Agreement. Any and all
notices or other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile or sent by
a nationally recognized overnight courier service, addressed to each Holder of
Series D Preferred Stock at the facsimile telephone number or address of such
holder appearing on the books of the Company, or if no such facsimile telephone
number or address appears, at the principal place of business of the Holder. Any
notice or other communication or deliveries hereunder shall be deemed given and
effective on the earlier of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 5:00 p.m., New York City time, (ii) the date
after the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section later than
5:00 p.m., New York City time, on any date and earlier than 11:59 p.m., New York
City time, on such date, (iii) receipt, if sent by a nationally recognized
overnight courier service, or (iv) actual receipt by the party to whom such
notice is required to be given.
(i) In the event a Holder shall elect to convert any shares of Series D
Preferred Stock as provided herein, the Company cannot refuse conversion based
on any claim that such Holder or any one associated or affiliated with such
Holder has been engaged in any violation of law, unless, an injunction from a
court, on notice, restraining and or adjoining conversion of all or of said
shares of Series D Preferred Stock shall have issued and the Company posts a
surety bond for the benefit of such Holder in the amount of the difference
between the Conversion Price and the Per Share Market Value on the Trading Day
preceding the date of the attempted conversion multiplied by the number of
shares of Series D Preferred Stock sought to be converted, which bond shall
remain in effect until the completion of arbitration/litigation of the dispute
and the proceeds of which shall be payable to such Holder in the event it
obtains judgment.
Section 6. Definitions. For the purposes hereof, the following terms
shall have the following meanings:
"Common Stock" means the common stock, $.005 par value per share, of
the Company and stock of any other class into which such shares may hereafter
have been reclassified or changed.
8
<PAGE>
"Conversion Ratio" means, at any time, a fraction, of which the
numerator is Stated Value and of which the denominator is the Conversion Price
at such time.
"Independent Appraiser" means a nationally recognized or major regional
investment banking firm or firm of independent certified public accountants of
recognized standing (which may be the firm that regularly examines the financial
statements of the Company) that is regularly engaged in the business of
appraising the capital stock or assets of corporations or other entities as
going concerns, and which is not affiliated with either the Company or any
Holder.
"Junior Securities" means the Common Stock and all other equity
securities of the Company which are junior in rights and liquidation preference
to the Series D Preferred Stock.
"NASDAQ" means the National Association of Securities Dealers Automated
Quotation System.
"Original Issue Date" shall mean the date of the first issuance of any
shares of the Series D Preferred Stock regardless of the number of transfers of
any particular shares of Series D Preferred Stock and regardless of the number
of certificates which may be issued to evidence such Series D Preferred Stock.
"Per Share Market Value" means on any particular date (a) the closing
bid price per share of the Common Stock on such date on The Nasdaq Small-Cap
Market, the Nasdaq National Market or other registered national stock exchange
on which the Common Stock is then listed or if there is no such price on such
date, then the closing bid price on such exchange or quotation system on the
date nearest preceding such date, or (b) if the Common Stock is not listed then
on The Nasdaq Small-Cap Market, the Nasdaq National Market or any registered
national stock exchange, the closing bid price for a share of Common Stock in
the over-the-counter market, as reported by NASDAQ or in the National Quotation
Bureau Incorporated or similar organization or agency succeeding to its
functions of reporting prices) at the close of business on such date, or (c) if
the Common Stock is not then reported by the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions of
reporting prices), then the average of the "Pink Sheet" quotes for the relevant
conversion period, as determined in good faith by the holder, or (d) if the
Common Stock is not then publicly traded the fair market value of a share of
Common Stock as determined by an Independent Appraiser selected in good faith by
the holders of a majority in interest of the shares of the Series D Preferred
Stock; provided, however, that the Company, after receipt of the determination
by such Independent Appraiser, shall have the right to select an additional
Independent Appraiser, in which case, the fair market value shall be equal to
the average of the determinations by each such Independent Appraiser; and
provided, further that all determinations of the Per Share Market Value shall be
appropriately adjusted for any stock dividends, stock splits or other similar
transactions during such period. The determination of fair market value by an
Independent Appraiser shall be based upon the fair market value of the Issuer
determined on a going concern basis as between a willing buyer and a willing
seller and taking into account all relevant factors determinative of value, and
shall be final and binding on all parties. In determining the fair market value
of any shares of Common Stock, no consideration
9
<PAGE>
shall be given to any restrictions on transfer of the Common Stock imposed by
agreement or by federal or state securities laws, or to the existence or absence
of, or any limitations on, voting rights.
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.
"Purchase Agreement" means the Securities Purchase Agreement, dated as
of the Original Issue Date, among the Company and the original holders of the
Series D Preferred Stock.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, by and among the Company and the
original Holders.
"Trading Day" means (a) a day on which the Common Stock is traded on
The Nasdaq Small-Cap Market, the Nasdaq National Market or other registered
national stock exchange on which the Common Stock has been listed, or (b) if the
Common Stock is not listed on The Nasdaq Small-Cap Market, the Nasdaq National
Market or any registered national stock exchange, a day or which the Common
Stock is traded in the over-the-counter market, as reported by the OTC Bulletin
Board, or (c) if the Common Stock is not quoted on the OTC Bulletin Board, a day
on which the Common Stock is quoted in the over-the-counter market as reported
by the National Quotation Bureau Incorporated (or any similar organization or
agency succeeding its functions of reporting prices); provided, however, that in
the event that the Common Stock is not listed or quoted as set forth in (a), (b)
and (c) hereof, then Trading Day shall mean any day except Saturday, Sunday and
any day which shall be a legal holiday or a day on which banking institutions in
the State of New York are authorized or required by law or other government
action to close.
"Underlying Shares" means the number of shares of Common Stock into
which the Shares are convertible in accordance with the terms hereof and the
Purchase Agreement.
10
<PAGE>
IN WITNESS WHEREOF, we have subscribed this document on the date set
opposite each of our names below and do hereby affirm, under the penalties of
perjury, that the statements contained therein have been examined by us and are
true and correct.
Date: January 13, 1999
/s/ Brian Bonar
------------------------------------
Name: Brian Bonar
Title: President
/s/ Gerry B. Berg
------------------------------------
Name: Gerry B. Berg
Title: Secretary
11
<PAGE>
EXHIBIT A
----------
IMAGING TECHNOLOGIES CORPORATION
CONVERSION NOTICE
Reference is made to the Certificate of Designation, Powers, Preferences and
Rights of the Series of Preferred Stock of Imaging Technologies Corporation to
be Designated Series D Convertible Preferred Stock (the "Certificate of
Designation"). In accordance with and pursuant to the Certificate of
Designation, the undersigned hereby elects to convert the number of shares of
Series D Convertible Preferred Stock, par value $1,000 per share and stated
value $2,000 per share (the "Preferred Shares"), of Imaging Technologies
Corporation, a Delaware corporation (the "Corporation"), indicated below into
shares of Common Stock, par value $005 per share (the "Common Stock"), of the
Corporation, by tendering the stock certificates(s) representing the share(s) of
Preferred Shares specified below as of the date specified below.
Date of Conversion:
Number of Preferred Shares to be converted:
Stock certificate no(s). of Preferred Shares to be converted:
The Common Stock have been sold pursuant to the Registration Statement
(as defined in the Registration Rights Agreement): YES_____ NO_____
Please confirm the following information:
Conversion Price: $______________
Number of shares of Common Stock to be issued:
------------------------
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Corporation
in the following name and to the following address:
Issued to: ___________________________________________
Facsimile Number: ___________________________________
Authorization: _______________________________________
By:________________________________________
<PAGE>
Title: ________________________________________
Dated: _____________________________________________
Account Number: ____________________________________
(if electronic book entry transfer)
Transaction Code Number: _____________________________
(if electronic book entry transfer)
PRICES ATTACHED
CERTIFICATE OF DESIGNATION, POWERS,
PREFERENCES AND RIGHTS OF THE SERIES
OF
PREFERRED STOCK
OF
IMAGING TECHNOLOGIES CORPORATION
TO BE DESIGNATED
SERIES E CONVERTIBLE PREFERRED STOCK
Pursuant to Section 151(g) of the General Corporation Law of the State
of Delaware, we, the undersigned, Brian Bonar and Gerry B. Berg, being
respectively the President and the Secretary of Imaging Technologies Corporation
(the "Company"), a corporation organized and existing under the General
Corporation Law of the State of Delaware, DO HEREBY CERTIFY that the following
resolution was duly adopted by the Board of Directors of the Company.
RESOLVED, that, pursuant to authority expressly granted to and vested
in the Board of Directors by the provisions of the Certificate of Incorporation,
as amended, the Board of Directors hereby creates a series of Series E Preferred
Stock of the Company, par value $1,000 per share and stated value $5,000 per
share, to be designated "Series E Convertible Preferred Stock" and to consist of
one thousand two hundred fifty (1,250) shares, and hereby fixes the powers,
designations, preferences and relative, participating, optional and other rights
of the shares of such series, and the qualifications, limitations, or
restrictions thereof (in addition to those provisions set forth in the
Certificate of the Incorporation, as amended, which are applicable to the Series
E Convertible Preferred Stock), as follows:
Section 1. Designation, Amount, Par Value, Stated Value and Rank. The
series of Preferred stock shall be designated as Series E Convertible Preferred
Stock (the "Series E Preferred Stock"), and the number of shares so designated
shall be 1,250 (which shall not be subject to increase without the consent of
the holders of the Series E Preferred Stock ("Holders")). Each share of Series E
Preferred Stock shall have a par value of $1,000 per share and a stated value of
$5,000 per share (the "Stated Value").
The Series E Preferred Stock shall rank senior to the Junior Securities
(as defined below) and pari passu with all other series of preferred stock of
the Company issued and outstanding on the Original Issue Date (as defined below)
as to distributions and upon liquidation, dissolution or winding up.
Section 2. Junior Securities. So long as any Series E Preferred Stock
shall remain outstanding, neither the Company nor any subsidiary thereof shall
redeem, purchase or otherwise acquire otherwise than upon conversion or exchange
directly or indirectly any Junior Securities, nor shall the Company directly or
indirectly pay or declare any dividend or make any distribution (other than a
dividend or distribution described in Section 5) upon, nor shall any
distribution be made in respect of, any Junior Securities, nor shall any monies
be set aside for or applied to the purchase or redemption (through a sinking
fund or otherwise) of any Junior Securities.
1
<PAGE>
Section 3. Voting Rights. The holders of Series E Preferred Stock shall
have the right to vote, together with the holders of all the outstanding shares
of Common Stock (and the holders of every other class or series entitled to vote
together with such holders) and not by class, except as otherwise required by
Delaware law, on all matters on which holders of Common Stock shall have the
right to vote. Each holder of Series E Preferred Stock shall have the right to
cast one vote for each whole share of Common Stock into which each share of
Series E Preferred Stock held by such holder is convertible immediately prior to
the record date for the determination of shareholders entitled to vote (based on
the Per Share Market Value on the date immediately preceding the Original
Issuance Date). In addition, so long as any shares of Series E Preferred Stock
are outstanding, the Company shall not and shall cause its subsidiaries not to,
without the affirmative vote of the holders of 66 2/3% of the shares of the
Series E Preferred Stock then outstanding, (a) amend, alter or change the
preferences or rights of any series or class of capital stock of the Company
(including the Series E Preferred Stock) or the qualifications, limitations or
restrictions thereof if such amendment, alteration or change adversely affects
the powers, preferences or rights given to the Series E Preferred Stock, (b)
alter or amend this Certificate of Designation, (c) authorize or create any
class or series of any class of capital stock ranking as to distribution of
assets upon a Liquidation (as defined in Section 4) or otherwise senior to the
Series E Preferred Stock, (d) amend its Certificate of Incorporation, bylaws or
other charter documents so as to affect adversely any rights of any Holders, (e)
increase the authorized number of shares of Series E Preferred Stock, or (f)
enter into any agreement with respect to the foregoing.
Section 4. Liquidation. Upon any liquidation, dissolution or winding-up
of the Company, whether voluntary or involuntary (a "Liquidation"), the Holders
shall be entitled to receive out of the assets of the Company, whether such
assets are capital or surplus, for each share of Series E Preferred Stock an
amount equal to the Stated Value before any distribution or payment shall be
made to the holders of any Junior Securities, and if the assets of the Company
shall be insufficient to pay in full such amounts, then the entire assets to be
distributed to the holders of Series E Preferred Stock shall be distributed
among the holders of Series E Preferred Stock and the holders of all securities
ranking pari passu to the Series E Preferred Stock ratably in accordance with
the respective amounts that would be payable on such shares if all amounts
payable thereon were paid in full. A sale, conveyance or disposition of all or
substantially all of the assets of the Company or the effectuation by the
Company of a transaction or series of related transactions in which more than
50% of the voting power of the Company is disposed of, or a consolidation or
merger of the Company with or into any other company or companies shall not be
treated as a Liquidation, but instead shall be subject to the provisions of
Section 5(c)(ii). The Company shall mail written notice of any such Liquidation,
not less than 45 days prior to the payment date stated therein, to each record
holder of Series E Preferred Stock.
Section 5. Conversion.
(a) (i) Each share of Series E Preferred Stock held by the Holders
listed on Schedule A shall be convertible into shares of Common Stock (subject
to Section 5(a)(ii)) at the Conversion Ratio (as defined in Section 6) at the
option of such Holders in whole or in part at any time after the Original
Issuance Date; provided, however, that the number of shares of Common Stock
issued by the Company to such Holders shall not exceed the number of shares set
forth opposite each of the Holders' names on Schedule A attached hereto until
the date on which the Company receives
2
<PAGE>
Shareholder Approval. Each Holder not listed on Schedule A attached hereto shall
not convert shares of Series E Preferred Stock until the earlier of (i) the date
on which the Company receives Shareholder Approval and (ii) the date which is 65
days after the Original Issuance Date. If the Company does not obtain
Shareholder Approval and on a Conversion Date (as defined below) the Company is
listed for trading on the Nasdaq National Market, the New York Stock Exchange,
the American Stock Exchange or the Nasdaq SmallCap Market, each share of Series
E Preferred Stock shall be convertible in accordance with Section 5(a)(ii)
below. The Holders shall effect conversions by surrendering the certificate or
certificates representing the shares of Series E Preferred Stock to be converted
to the Company, together with the form of conversion notice attached hereto as
Exhibit A (the "Conversion Notice"). Each Conversion Notice shall specify the
number of shares of Series E Preferred Stock to be converted. The date on which
such conversion is to be effected shall be the date the Holder delivers such
Conversion Notice by facsimile (the "Conversion Date"). Subject to Sections
5(a)(ii) and 5(b) hereof, each Conversion Notice, once given, shall be
irrevocable. If the Holder is converting less than all shares of Series E
Preferred Stock represented by the certificate or certificates tendered by the
Holder with the Conversion Notice, or if a conversion hereunder cannot be
effected in full for any reason, the Company shall promptly deliver to such
Holder (in the manner and within the time set forth in Section 5(b)) a
certificate for such number of shares as have not been converted.
(ii) If on the Conversion Date applicable to any conversion,
(A) the Common Stock is then listed for trading on the Nasdaq National
Market, the New York Stock Exchange, the American Stock Exchange or The
Nasdaq SmallCap Market, (B) the Conversion Price then in effect is such
that the aggregate number of shares of Common Stock that would then be
issuable upon conversion of all outstanding shares of Series E
Preferred Stock, together with any shares of Common Stock previously
issued upon conversion of Series E Preferred Stock, would equal or
exceed 20% of the number of shares of Common Stock outstanding on the
Original Issue Date (the "Issuable Maximum"), and (C) the Company has
not previously obtained (or attempted pursuant to clause (1) of this
subsection to obtain) Shareholder Approval, then the Company shall
issue to any Holder so requesting conversion of Series E Preferred
Stock its pro rata portion of the Issuable Maximum less the aggregate
number of shares of Common Stock set forth on Schedule A attached
hereto in the same ratio that the number of shares of Series E
Preferred Stock held by any such Holder bears to all shares of Series E
Preferred Stock then outstanding and, with respect to any shares of
Common Stock that otherwise would have been issuable to such Holder in
respect of the Conversion Notice at issue in excess of the Issuable
Maximum, the Company shall at the Holder's request, (1) as promptly as
possible but in no event later than 65 days after such Conversion Date,
convene a meeting of the holders of the Common Stock and use its best
efforts to obtain the Shareholder Approval or a waiver of such approval
from The Nasdaq Stock Market or the appropriate exchange, and (2) as
promptly as possible from time to time, after a written request by the
Holder, issue shares of Common Stock at a Conversion Price equal to the
Per Share Market Value on the Trading Day immediately preceding the
date of such request for all or a portion of the shares of Series E
Preferred Stock held by such Holder as would cause the number of shares
of Common Stock issuable upon such conversion to exceed the Issuable
Maximum. "Shareholder Approval" means the approval by a majority of the
total votes cast on the proposal, in person or by proxy, at a meeting
of the shareholders of the Company held in accordance with the
Company's Certificate of Incorporation and
3
<PAGE>
bylaws, of the issuance by the Company of shares of Common Stock
exceeding the Issuable Maximum as a consequence of the conversion of
Series E Preferred Stock into Common Stock at a price less than the
greater of the book or market value on the Original Issue Date as and
to the extent required pursuant to Rule 4460(i) of The Nasdaq Stock
Market, Inc.'s Marketplace Rules (or any successor or replacement
provision thereof).
(b) (i) Not later than three (3) Trading Days after any Conversion
Date, the Company will deliver to the applicable Holder by express courier (A) a
certificate or certificates which shall be free of restrictive legends and
trading restrictions (other than those required by Section 3.1(b) of the
Purchase Agreement) representing the number of shares of Common Stock being
acquired upon the conversion of shares of Series E Preferred Stock (subject to
reduction pursuant to Section 5(a)(ii))), and (B) one or more certificates
representing the number of shares of Series E Preferred Stock not converted. If
in the case of any Conversion Notice such certificate or certificates are not
delivered to or as directed by the applicable Holder by the third Trading Day
after the Conversion Date (the "Delivery Date"), the holder shall be entitled by
written notice to the Company at any time on or before its receipt of such
certificate or certificates thereafter, to rescind such conversion, in which
event the Company shall immediately return the certificates representing the
shares of Series E Preferred Stock tendered for conversion, whereupon the
Company and the Holder shall each be restored to their respective positions
immediately prior to the delivery of such notice of revocation, except that any
amounts described in Sections 5(b)(ii) and (iii) shall be payable through the
date notice of rescission is given to the Company.
(ii) The Company understands that a delay in the delivery of
the shares of Common Stock upon conversion of shares of Series E
Preferred Stock and failure to deliver certificates representing the
unconverted shares of Series E Preferred Stock beyond the Delivery Date
could result in economic loss to the Holder. If the Company fails to
deliver to the Holder such certificate or certificates pursuant to this
Section hereunder by the Delivery Date, the Company shall pay to such
Holder, in cash, an amount per Trading Day for each Trading Day until
such certificates are delivered, together with interest on such amount
at a rate of 15% per annum, accruing until such amount and any accrued
interest thereon is paid in full, equal to (i) 1% of the Stated Value
of the shares of Series E Preferred Stock requested to be converted for
each of the first five Trading Days after the Delivery Date and (ii) 2%
of the Stated Value of the shares of Series E Preferred Stock requested
to be converted for each Trading Day thereafter (which amounts shall be
paid as liquidated damages and not as a penalty). Nothing herein shall
limit a Holder's right to pursue actual damages for the Company's
failure to deliver certificates representing shares of Common Stock
upon conversion within the period specified herein (including, without
limitation, damages relating to any purchase of shares of Common Stock
by such Holder to make delivery on a sale effected in anticipation of
receiving certificates representing shares of Common Stock upon
conversion, as provided in Section 5(b)(iii) below), and such Holder
shall have the right to pursue all remedies available to it at law or
in equity (including, without limitation, a decree of specific
performance and/or injunctive relief).
(iii) In addition to any other rights available to the Holder,
if the Company fails to deliver to the Holder such certificate or
certificates pursuant to Section 5(b)(i) by the Delivery Date and if
after the Delivery Date the Holder purchases (in an open market
transaction or
4
<PAGE>
otherwise) shares of Common Stock to deliver in satisfaction of a sale
by such Holder of the Underlying Shares (as defined below) which the
Holder anticipated receiving upon such conversion (a "Buy-In"), then
the Company shall pay in cash to the Holder (in addition to any
remedies available to or elected by the Holder) the amount by which (A)
the Holder's total purchase price (including brokerage commissions, if
any) for the shares of Common Stock so purchased exceeds (B) the
aggregate Stated Value of the shares of Series E Preferred Stock for
which such conversion was not timely honored, together with interest
thereon at a rate of 15% per annum, accruing until such amount and any
accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For example, if the Holder
purchases shares of Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted conversion of
$10,000 aggregate Stated Value of the shares of Series E Preferred
Stock, the Company shall be required to pay the Holder $1,000, plus
interest. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In.
(c) (i) The conversion price for each share of Series E Preferred Stock
(the "Conversion Price") in effect on any Conversion Date shall be the lesser of
(A) $.50 and (B) an amount equal to 70% of the average Per Share Market Value
for the three Trading Days having the lowest Per Share Market Value during the
thirty Trading Days prior to the Conversion Date, except that if during any
period (a "Black-out Period"), a Holder is unable to sell shares of Common Stock
issued or issuable upon conversion of Series E Preferred Stock immediately due
to the postponement of filing or delay or suspension of effectiveness of a
registration statement or because the Company has otherwise informed such Holder
that an existing prospectus cannot be used at that time in the sale or transfer
of such Common Stock, such Holder shall have the option but not the obligation
on any Conversion Date within ten Trading Days following the expiration of the
Black-out Period of using the Conversion Price applicable on such Conversion
Date or any Conversion Price selected by such Holder that would have been
applicable had such Conversion Date been at any earlier time during the
Black-out Period or within the ten Trading Days thereafter.
(ii) In case the Company after the Original Issue Date shall
do any of the following (each, a "Triggering Event") (a) consolidate
with or merge into any other Person and the Company shall not be the
continuing or surviving corporation of such consolidation or merger,
or (b) permit any other Person to consolidate with or merge into the
Company and the Company shall be the continuing or surviving Person
but, in connection with such consolidation or merger, any capital
stock of the Company shall be changed into or exchanged for securities
of any other Person or cash or any other property, or (c) transfer all
or substantially all of its properties or assets to any other Person,
or (d) effect a capital reorganization or reclassification of its
capital stock, the holders of the Series E Preferred Stock then
outstanding shall have the right thereafter to convert such shares
only into the shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of Common Stock
following such Triggering Event, and the holders of the Series E
Preferred Stock shall be entitled upon such event to receive such
amount of securities, cash or property as the shares of the Common
Stock of the Company into which such shares of Series E Preferred
Stock could have been converted immediately prior to such Triggering
Event would have been entitled. The terms of any such Triggering Event
shall include such terms so as to continue to give to the holder of
Series E Preferred Stock the right to receive
5
<PAGE>
the securities, cash or property set forth in this Section 5(c)(ii)
upon any conversion following such Triggering Event. This provision
shall similarly apply to successive Triggering Events.
(iii) If:
A. the Company shall declare a dividend (or any
other distribution) on its Common Stock; or
B. the Company shall declare a special nonrecurring
cash dividend on or a redemption of its Common
Stock; or
C. the Company shall authorize the granting to all
holders of the Common Stock rights or warrants
to subscribe for or purchase any shares of
capital stock of any class or of any rights; or
D. the approval of any shareholders of the Company
shall be required in connection with any
Triggering Event; or
E. the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding
up of the affairs of the Company;
then the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of Series E Preferred Stock,
and shall cause to be mailed to the Holders of Series E Preferred Stock
at their last addresses as they shall appear upon the stock books of
the Company, at least 30 calendar days prior to the applicable record
or effective date hereinafter specified (but not prior to the public
announcement thereof), a notice stating (x) the date on which a record
is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the
date as of which the holders of Common Stock of record to be entitled
to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected to
become effective or close, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their
shares of Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale,
transfer or share exchange; provided, however, that the failure to mail
such notice or any defect therein or in the mailing thereof shall not
affect the validity of the corporate action required to be specified in
such notice. Holders are entitled to convert shares of Series E
Preferred Stock during the 30-day period commencing the date of such
notice to the effective date of the event triggering such notice.
(iv) Notwithstanding anything to the contrary in this
Certificate of Designation, if a holder of shares of Series E Preferred
Stock notifies the Company in writing on the first date that such
holder receives shares of Series E Preferred Stock that the provisions
of this Section 5(c)(iv) shall apply to the shares of Series E
Preferred Stock held by such holder and transferees of such shares
(collectively a "5(c)(iv) Holder"), no 5(c)(iv) Holder
6
<PAGE>
shall have the right to convert any shares of Series E Preferred Stock
to the extent that after giving effect to such conversion such 5(c)(iv)
Holder (together with such 5(c)(iv) Holder's affiliates) (A) would
beneficially own in excess of 10.00% of the outstanding shares of the
Common Stock following such conversion or (B) would have acquired,
through conversion of shares of Series E Preferred Stock or otherwise,
beneficial ownership of a number of shares of Common Stock which, when
added to the number of shares of Common Stock beneficially owned at the
beginning of the 60-day period ending on and including the date of
conversion of such shares of Series E Preferred Stock, is in excess of
10.00% of the outstanding shares of the Common Stock following such
conversion during the 60-day period ending on and including such
conversion date. For purposes of the foregoing sentence, the number of
shares of Common Stock beneficially owned by a 5(c)(iv) Holder and its
affiliates shall include the number of shares of Common Stock issuable
upon conversion of the shares of Series E Preferred Stock with respect
to which the determination of such sentence is being made, but shall
exclude the number of shares of Common Stock which would be issuable
upon (i) conversion of the remaining, nonconverted shares of Series E
Preferred Stock beneficially owned by such 5(c)(iv) Holder and its
affiliates and (ii) conversion or exercise of the unconverted or
unexercised portion of any other securities of the Company (including,
without limitation, warrants) beneficially owned by such 5(c)(iv)
Holder and its affiliates subject to a limitation on conversion or
exercise analogous to the limitation contained in this Section
5(c)(iv). Except as set forth in the preceding sentence, for purposes
of this Section 5(c)(iv), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934,
as amended. Notwithstanding anything to the contrary contained herein,
each conversion notice delivered by the 5(c)(iv) Holder shall
constitute a representation by the 5(c)(iv) Holder submitting such
conversion notice that, after giving effect to such conversion notice,
(A) the 5(c)(iv) Holder will not beneficially own (as determined in
accordance with this Section 5(c)(iv)) in excess of 10% of the
outstanding shares of Common Stock and (B) the 5(c)(iv) Holder will not
have acquired, through conversion of shares of Series E Preferred Stock
or otherwise, beneficial ownership of a number of shares of Common
Stock which, when added to the number of shares of Common Stock
beneficially owned at the beginning of the 60-day period ending on and
including such conversion date, is in excess of 10.00% of the
outstanding shares of Common Stock. For purposes of this Section
5(c)(iv), in determining the number of outstanding shares Common Stock
a 5(c)(iv) Holder may rely on the number of outstanding shares of
Common Stock as reflected in (1) the Company's most recent Form 10-Q or
Form 10-K, as the case may be, (2) a more recent public announcement by
the Company or (3) any other notice by the Company or its transfer
agent setting forth the number of shares of Common Stock outstanding.
For any reason at any time, upon the written or oral request of a
5(c)(iv) Holder, the Company shall immediately confirm orally and in
writing to any such 5(c)(iv) Holder the number of shares Common Stock
then outstanding. In any case, the number of outstanding shares of
Common Stock shall be determined after giving effect to conversions of
shares of Series E Preferred Stock by such 5(c)(iv) Holder since the
date as of which such number of outstanding shares of Common Stock was
reported.
7
<PAGE>
(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued Common Stock solely for the purpose
of issuance upon conversion of Series E Preferred Stock free from preemptive
rights or any other actual contingent purchase rights of Persons other than the
holders of Series E Preferred Stock, not less than such number of shares of
Common Stock as shall (subject to any additional requirements of the Company as
to reservation of such shares set forth in the Purchase Agreement) be issuable
(taking into account the adjustments and restrictions of Section 5(c)) upon the
conversion of all outstanding shares of Series E Preferred Stock. The initial
number of shares of Common Stock reserved for conversions of the shares of
Series E Preferred Stock and each increase in the number of shares so reserved
shall be allocated pro rata among the holders of the shares of Series E
Preferred Stock based on the number of shares of Series E Preferred Stock held
by each holder at the time of issuance of the shares of Series E Preferred Stock
or increase in the number of reserved shares, as the case may be. In the event a
holder shall sell or otherwise transfer any of such holder's shares of Series E
Preferred Stock, each transferee shall be allocated a pro rata portion of the
number of reserved shares of Common Stock reserved for such transferor. Any
shares of Common Stock reserved and allocated to any person which ceases to hold
any shares of Series E Preferred Stock shall be allocated to the remaining
holders of shares of Series E Preferred Stock, pro rata based on the number of
shares of Series E Preferred Stock then held by such holders. The Company
covenants that all shares of Common Stock that shall be so issuable shall, upon
issue, be duly and validly authorized, issued and fully paid, nonassessable and
freely tradable.
(e) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of Common Stock, but
may if otherwise permitted, make a cash payment in respect of any final fraction
of a share based on the Per Share Market Value at such time. If the Company
elects not, or is unable, to make such a cash payment, the holder of a share of
Series E Preferred Stock shall be entitled to receive, in lieu of the final
fraction of a share, one whole share of Common Stock.
(f) The issuance of certificates for shares of Common Stock on
conversion of Series E Preferred Stock shall be made without charge to the
holders thereof for any documentary stamp or similar taxes that may be payable
in respect of the issue or delivery of such certificate.
(g) Shares of Series E Preferred Stock converted into Common Stock
shall be canceled and shall have the status of authorized but unissued shares of
undesignated preferred stock.
(h) Any and all notices or other communications or deliveries to be
provided by the holders of the Series E Preferred Stock hereunder, including,
without limitation, any Conversion Notice, shall be in writing and delivered
personally, by facsimile or sent by a nationally recognized overnight courier
service, addressed to the attention of the President and to the Secretary of the
Company at the facsimile telephone number or address of the principal place of
business of the Company as set forth in the Purchase Agreement. Any and all
notices or other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile or sent by
a nationally recognized overnight courier service, addressed to each Holder of
Series E Preferred Stock at the facsimile telephone number or address of such
holder appearing on the books of the Company, or if no such facsimile telephone
number or address appears, at the principal place of business of the Holder. Any
notice or other communication or deliveries hereunder
8
<PAGE>
shall be deemed given and effective on the earlier of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 5:00 p.m., San
Diego time, (ii) the date after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 5:00 p.m., San Diego time, on any date and
earlier than 11:59 p.m., San Diego time, on such date, (iii) receipt, if sent by
a nationally recognized overnight courier service, or (iv) actual receipt by the
party to whom such notice is required to be given.
(i) In the event a Holder shall elect to convert any shares of Series E
Preferred Stock as provided herein, the Company cannot refuse conversion based
on any claim that such Holder or any one associated or affiliated with such
Holder has been engaged in any violation of law, unless, an injunction from a
court, on notice, restraining and or adjoining conversion of all or of said
shares of Series E Preferred Stock shall have been issued and the Company posts
a surety bond for the benefit of such Holder in the amount of the difference
between the Conversion Price and the Per Share Market Value on the Trading Day
preceding the date of the attempted conversion multiplied by the number of
shares of Series E Preferred Stock sought to be converted, which bond shall
remain in effect until the completion of arbitration/litigation of the dispute
and the proceeds of which shall be payable to such Holder in the event it
obtains judgment.
Section 6. Definitions. For the purposes hereof, the following terms
shall have the following meanings:
"Common Stock" means the common stock, $.005 par value per share, of
the Company and stock of any other class into which such shares may hereafter
have been reclassified or changed.
"Conversion Ratio" means, at any time, a fraction, of which the
numerator is Stated Value and of which the denominator is the Conversion Price
at such time.
"Independent Appraiser" means a nationally recognized or major regional
investment banking firm or firm of independent certified public accountants of
recognized standing (which may be the firm that regularly examines the financial
statements of the Company) that is regularly engaged in the business of
appraising the capital stock or assets of corporations or other entities as
going concerns, and which is not affiliated with either the Company or any
Holder.
"Junior Securities" means the Common Stock and all other equity
securities of the Company which are junior in rights and liquidation preference
to the Series E Preferred Stock.
"NASDAQ" means the National Association of Securities Dealers Automated
Quotation System.
"Original Issue Date" shall mean the date of the first issuance of any
shares of the Series E Preferred Stock regardless of the number of transfers of
any particular shares of Series E Preferred Stock and regardless of the number
of certificates which may be issued to evidence such Series E Preferred Stock.
9
<PAGE>
"Per Share Market Value" means on any particular date (a) the closing
bid price per share of the Common Stock on such date on The Nasdaq SmallCap
Market, the Nasdaq National Market or other registered national stock exchange
on which the Common Stock is then listed or if there is no such price on such
date, then the closing bid price on such exchange or quotation system on the
date nearest preceding such date, or (b) if the Common Stock is not listed then
on The Nasdaq SmallCap Market, the Nasdaq National Market or any registered
national stock exchange, the closing bid price for a share of Common Stock in
the over-the-counter market, as reported by NASDAQ or in the National Quotation
Bureau Incorporated (or similar organization or agency succeeding to its
functions of reporting prices) at the close of business on such date, or (c) if
the Common Stock is not then reported by the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions of
reporting prices), then the average of the "Pink Sheet" quotes for the relevant
conversion period, as determined in good faith by the Holder, or (d) if the
Common Stock is not then publicly traded the fair market value of a share of
Common Stock as determined by an Independent Appraiser selected in good faith by
the holders of a majority in interest of the shares of the Series E Preferred
Stock; provided, however, that the Company, after receipt of the determination
by such Independent Appraiser, shall have the right to select an additional
Independent Appraiser, in which case, the fair market value shall be equal to
the average of the determinations by each such Independent Appraiser; and
provided, further that all determinations of the Per Share Market Value shall be
appropriately adjusted for any stock dividends, stock splits or other similar
transactions during such period. The determination of fair market value by an
Independent Appraiser shall be based upon the fair market value of the Company
determined on a going concern basis as between a willing buyer and a willing
seller and taking into account all relevant factors determinative of value, and
shall be final and binding on all parties. In determining the fair market value
of any shares of Common Stock, no consideration shall be given to any
restrictions on transfer of the Common Stock imposed by agreement or by federal
or state securities laws, or to the existence or absence of, or any limitations
on, voting rights.
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.
"Purchase Agreement" means the Securities Purchase Agreement, dated as
of the Original Issue Date, among the Company and the original holders of the
Series E Preferred Stock.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, by and among the Company and the
original Holders.
"Trading Day" means (a) a day on which the Common Stock is listed on
The Nasdaq SmallCap Market, the Nasdaq National Market or other registered
national stock exchange on which the Common Stock has been listed, or (b) if the
Common Stock is not listed on The Nasdaq SmallCap Market, the Nasdaq National
Market or any registered national stock exchange, a day or which the Common
Stock is quoted in the over-the-counter market, as reported by the OTC Bulletin
Board, or (c) if the Common Stock is not quoted on the OTC Bulletin Board, a day
on which the Common Stock is quoted in the over-the-counter market as reported
by the National Quotation Bureau Incorporated (or any similar organization or
agency succeeding its functions of reporting prices); provided, however, that in
the event that the Common Stock is not listed or quoted as set forth in (a),
10
<PAGE>
(b) and (c) hereof, then Trading Day shall mean any day except Saturday, Sunday
and any day which shall be a legal holiday or a day on which banking
institutions in the State of California are authorized or required by law or
other government action to close.
"Underlying Shares" means the number of shares of Common Stock into
which the Shares are convertible in accordance with the terms hereof and the
Purchase Agreement.
IN WITNESS WHEREOF, we have subscribed this document on the date set
opposite each of our names below and do hereby affirm, under the penalties of
perjury, that the statements contained therein have been examined by us and are
true and correct.
Date: January 28, 1999
/s/ Brian Bonar
-------------------------------
Name: Brian Bonar
Title: President
/s/ Gerry B. Berg
------------------------------
Name: Gerry B. Berg
Title: Secretary
11
<PAGE>
EXHIBIT A
IMAGING TECHNOLOGIES CORPORATION
CONVERSION NOTICE
Reference is made to the Certificate of Designation, Powers, Preferences and
Rights of the Series of Preferred Stock of Imaging Technologies Corporation to
be Designated Series E Convertible Preferred Stock (the "Certificate of
Designation"). In accordance with and pursuant to the Certificate of
Designation, the undersigned hereby elects to convert the number of shares of
Series E Convertible Preferred Stock, par value $1,000 per share and stated
value $5,000 per share (the "Preferred Shares"), of Imaging Technologies
Corporation, a Delaware corporation (the "Company"), indicated below into shares
of Common Stock, par value $.005 per share (the "Common Stock"), of the Company,
by tendering the stock certificates(s) representing the share(s) of Preferred
Shares specified below as of the date specified below.
Date of Conversion:
Number of Preferred Shares to be converted:
Stock certificate no(s). of Preferred Shares to be converted:
The Common Stock have been sold pursuant to the Registration Statement
(as defined in the Registration Rights Agreement dated January 28,
1999: YES_____ NO_____
Please confirm the following information:
Conversion Price: $______________
Number of shares of Common Stock to be issued:
------------------------
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issued to: ___________________________________________
Facsimile Number: ____________________________________
Authorization: _______________________________________
By:________________________________________________
12
<PAGE>
Title: ______________________________________________
Dated: _____________________________________________
Account Number: ____________________________________
(if electronic book entry transfer)
Transaction Code Number: _____________________________
(if electronic book entry transfer)
PRICES ATTACHED
13
FORBEARANCE AGREEMENT
---------------------
This Forbearance Agreement ("Forbearance Agreement") is entered into as
of November 4, 1998, by and between Imperial Bank (the "Bank") on the one hand,
and Imaging Technologies Corporation ("ITEC"), Prima International ("Prima"),
Newgen Systems Acquisitions Corporation ("Newgen"), McMican Corporation
("McMican"), Color Solutions, Inc. ("Color Solutions), ITEC Europe Limited
("ITEC Europe"), and AMT Accel UK Limited ("AMT") (Borrower and Co- Borrowers
collectively referred to herein as the "Borrowers"). All capitalized terms not
defined herein shall bear the meanings ascribed to them in the Loan Documents
(as defined below). This Forbearance Agreement is made with reference to the
following facts:
A. The Borrowers are currently indebted to the Bank pursuant to the
Loan Documents (as defined below). The Borrowers acknowledge that they are in
default under the Loan Documents, and the Borrowers desire, inter alia (i) to
repay the Existing Indebtedness (as defined below) in accordance with the terms
set forth in this Forbearance Agreement; and (ii) that the Bank temporarily
forbear from exercising its rights and remedies as to existing defaults under
the Loan Documents as of the date of execution of this Forbearance Agreement.
B. The Bank desires full repayment of the Existing Indebtedness owed by
the Borrowers under the Loan Documents. The Bank is willing to temporarily
forbear from exercising its rights and remedies as to existing defaults under
the Loan Documents only in accordance with the terms and conditions set forth in
this Forbearance Agreement.
C. IT IS THE INTENT OF THE PARTIES HERETO THAT THIS FORBEARANCE
AGREEMENT ADDRESS THE DEBTS AND/OR OBLIGATIONS OF THE BORROWERS TO THE BANK
WHICH ARE FULLY DESCRIBED HEREIN. THIS FORBEARANCE AGREEMENT DOES NOT PERTAIN TO
ANY OTHER INDEBTEDNESS AND/OR OBLIGATIONS OF THE BORROWERS (OR ANY OTHER
PARTIES) TO THE BANK NOT SPECIFICALLY ADDRESSED IN THIS FORBEARANCE AGREEMENT.
ALL TERMS AND PROVISIONS OF ANY AGREEMENTS BETWEEN THE BORROWERS AND THE BANK
INCLUDING, BUT NOT LIMITED TO, THE LOAN DOCUMENTS, NOT SPECIFICALLY MODIFIED
HEREIN, SHALL REMAIN IN FULL FORCE AND EFFECT IN ACCORDANCE WITH THEIR ORIGINAL
TERMS.
NOW, THEREFORE, in consideration of (i) the above recitals and the
mutual promises contained in this Forbearance Agreement; (ii) the execution of
this Forbearance Agreement and all documents, instruments and agreements
required to be executed in accordance with this Forbearance Agreement; (iii) the
satisfaction of all Conditions Precedent set forth below; and for other and
further valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, it is hereby agreed as follows:
<PAGE>
I. ACKNOWLEDGMENT OF THE EXISTING INDEBTEDNESS AND THE LOAN DOCUMENTS.
------------------------------------------------------------------
A. The Security and Loan Agreements. The Borrowers acknowledge and
agree that the Bank has advanced funds to the Borrowers pursuant to: (i) that
certain Security and Loan Agreement and an Addendum to Security and Loan
Agreement dated as of June 23, 1998 in an amount not to exceed Three Million
Five Hundred Thousand Dollars ($3,500,000.00); (ii) that certain Security and
Loan Agreement and an Addendum to Security and Loan Agreement dated June 23,
1998 in an amount not to exceed Two Million Five Hundred Thousand Dollars
($2,500,000.00); (iii) that certain Security and Loan Agreement and an Addendum
to Security and Loan Agreement dated as of June 23, 1998 in an amount not to
exceed One Million Dollars ($1,000,000.00) (the documents referred to in (i),
(ii) and (iii) hereof shall be collectively called "Loan and Security
Agreements" herein); and (iv) that certain Promissory Note dated as of June 23,
1998 in the original principal amount of Two Million Five Hundred Thousand
Dollars ($2,500,000.00) ("Note"). The Borrowers acknowledge and agree that the
Borrowers agreed to repay all amounts advanced by the Bank to the Borrowers
pursuant to the Loan and Security Agreements and the Note, together with
interest thereon at the applicable rates set forth in the Loan and Security
Agreements and the Note, together with all applicable fees and charges set forth
in the Loan and Security Agreements and the Note.
B. Defaults Under Loan and Security Agreements. The Borrowers
acknowledge and agree that: (a) the Borrowers have defaulted on the Loan and
Security Agreements by, inter alia, violating the financial covenants contained
therein and issuing certain notes dated September 21, 1998; (b) the Loan and
Security Agreements constitute a duly authorized, valid, binding and continuing
agreement and obligation of the Borrowers to the Bank, enforceable in accordance
with its terms; and (c) the Borrowers have no claims, cross-claims,
counterclaims, setoffs or defenses of any kind or nature which would in any way
reduce or offset its obligations to the Bank under the Loan and Security
Agreements as of the date of execution of this Forbearance Agreement.
C. The Security Agreements and The Assignments. The Borrowers
acknowledge and agree that as security for, inter alia, the Borrowers'
obligations under the Loan and Security Agreements, the Borrowers granted to the
Bank a first priority security interest in all the Borrowers' personal property
including, but not limited to, accounts, equipment, inventory and intangibles by
the certain Loan and Security Agreements. The Borrowers warrant and represent
that: (a) the Loan and Security Agreements were provided as collateral for the
Borrowers' obligations under the Loan and Security Agreements; (b) the Loan and
Security Agreements have not been amended; and (c) the Loan and Security
Agreements provide the Bank with a first priority, duly authorized, valid,
binding, continuing and perfected lien on the collateral granted thereunder.
D. The Existing Indebtedness. The Borrowers acknowledge that pursuant
to the Loan and Security Agreements, and all documents, instruments and
agreements executed in connection therewith (collectively, "Loan Documents"),
there are presently balances due, owing and unpaid from the Borrowers to the
Bank as of October 30, 1998, as follows:
-2-
<PAGE>
Note #3
Principal $2,378,994.65
Interest $ 32,901.44
Late charge $ 4,004.73
----------------
TOTAL $2,419,900.82
Note #5
Principal $2,062,687.58
Interest $ 27,368.40
Late charge $ 870.79
-----------------
TOTAL $2,090,926.77
Note #6
Principal $1,765,521.96
Interest $ 20,095.99
Late charge $ 572.00
-----------------
TOTAL $1,786,189.95
TOTAL $6,297,017.54
The aggregate amount outstanding is Six Million Two Hundred Ninety-Seven
Thousand Seventeen Dollars and Fifty-Four Cents ($6,297,017.54); together with
all other fees and charges due under the terms of the Loan Documents including,
but not limited to, the Bank's costs and fees, including attorneys' fees, due
under the terms of the Loan Documents. (The aggregate amount currently owed by
the Borrowers to the Bank pursuant to the Loan Documents is hereinafter referred
to as "Existing Indebtedness.")
II. LIMITED SCOPE OF FORBEARANCE AGREEMENT.
--------------------------------------
Nothing contained in this Forbearance Agreement shall be interpreted as
or be deemed a release or a waiver by the Bank of any of the terms and
conditions of the Loan Documents, or any other documents, instruments and
agreements between the parties hereto except as specifically provided in this
Forbearance Agreement. Unless specifically modified herein, all other terms and
provisions of the Loan Documents shall remain in full force and effect in
accordance with their original terms. This Forbearance Agreement does not
constitute a waiver or release by the Bank of any obligations between the
Borrowers and the Bank, or a waiver by the Bank of any defaults by the Borrowers
under the Loan Documents, unless expressly so provided herein, nor between the
Bank and any other person or entity.
III. THE BANK'S AGREEMENT TO FORBEAR DURING FORBEARANCE PERIOD.
---------------------------------------------------------
Subject to the Borrowers' satisfaction of all terms and conditions
hereof, and so long as no Event of Default occurs under this Forbearance
Agreement or the Loan Documents, the Bank hereby
-3-
<PAGE>
agrees to forbear from exercising its rights and remedies with respect to
collecting the Existing Indebtedness and with respect to foreclosing on its
security interests in any personal property of the Borrowers through the close
of business on January 15, 1999 ("Forbearance Period"). The Borrowers
acknowledge and agree that immediately after the Forbearance Period expires, if
the Existing Indebtedness and the obligations of the Borrowers to the Bank
pursuant to this Forbearance Agreement have not been fully repaid, the Bank may
exercise all of the rights and remedies contained in the Loan Documents, in this
Forbearance Agreement, under applicable law and at equity. The Borrowers further
acknowledge and agree that the Bank's agreement to forbear during the
Forbearance Period concerns only the Borrowers' defaults with respect to
existing covenant defaults and payment of outstanding amounts owing under the
Loan Documents which exist as of the date of execution of this Forbearance
Agreement ("Existing Defaults"), but not as to any defaults which may arise in
the future. The Borrowers represent and warrant that they are unaware of any
events of default pursuant to the Loan Documents other than those set forth in
that certain letter dated September 10, 1998 from Mr. Greg Marks of Imperial
Bank to Mr. Brian Bonar and Mr. Michael Clemens, and the issuance by the
Borrowers of those certain subordinated notes dated September 21, 1998.
IV. OVERADVANCE COMPLIANCE.
----------------------
The Borrowers shall not, at any time during the Forbearance Period,
fail to pay, in accordance with the terms of the Loan Documents, any unpaid
balance of their Loan Accounts that exceed the maximum amount of outstanding
loans to which Borrowers are entitled under the Loan Documents, and within the
limits of the Borrowing Base agreed to thereunder. An "Overadvance" shall exist
at any time that line 21 of Bank form AC-1, Accounts Receivable and Inventory
Transaction Report, is a negative number. The Bank reserves its right to charge
interest at the default rate upon any event of default which exists under the
Loan Documents and this Forbearance Agreement which has not been cured within
three (3) business days after the Bank has provided the Borrowers with notice
thereof.
V. PAST DUE PAYMENTS TO BE MADE.
----------------------------
Upon execution of the Forbearance Agreement, the Borrowers shall make
the following payments to the Bank:
Note #3 Principal + Interest (9/30/98 & 10/30/98) $160,189.38
Late charge $ 4,004.73
Note #5 Interest due 10/10/98 $ 17,415.72
Late charge $ 870.79
-4-
<PAGE>
Note #6 Interest due 10/10/98 $ 11,440.03
Late charge $ 572.00
TOTAL $194,492.65
VI. NEW LENDER.
----------
The Borrowers shall, no later than December 15,1998, obtain new loan
commitments (which loans shall fund no later than January 15, 1999) from a new
lender in amounts sufficient to repay in full the Existing Indebtedness to the
Bank ("New Loan Commitments").
VII. INTEREST.
--------
The Borrowers acknowledge that the default rate of interest has been
accruing on the loans since September 15, 1998 and is five percent (5%) per
annum above the applicable interest rate of three fourths of one percent (3/4%)
over the Bank's prime lending rate. The current interest rate is therefore the
Bank's prime lending rate plus five and three fourths percent (5 3/4%) per
annum. The default rate of interest shall be charged from and after September
16, 1998 on the Existing Indebtedness unless (i) the Borrowers shall have
provided the Bank with a copy of a bona fide expression of interest by a new
lender no later than November 15, 1998; (ii) the Bank shall have received
written certification of the Borrowers' Chief Financial Officer no later than
December 15, 1998 that due diligence with respect to its applications for new
loans has been completed; (iii) the Bank shall have received written
certification of the Borrowers' Chief Financial Officer no later than December
31, 1998 that such new loan(s) shall be funded on or before January 15, 1999.
VIII. DEPOSIT ACCOUNT RELATIONSHIPS; FUTURE ADVANCES.
----------------------------------------------
Other than a payroll account which shall be used for payroll purposes
only, and which may be maintained at another financial institution, the
Borrowers shall have consolidated all deposit account relationships with the
Bank no later than November 6, 1998, other than any deposit accounts which
remain outstanding to satisfy checks, or other outstanding drafts issued by the
Borrowers ("Remaining Accounts"). As of the date hereof, no additional deposits
shall be made to the Remaining Accounts. The Remaining Accounts shall be closed
no later than November 15, 1998. During the Forbearance Period, Borrowers shall
maintain a minimum of three accounts with the Bank: a "Domestic Account," a
"Foreign Account" and an "Operating Account." All of Borrowers' collections on
its domestic accounts receivables will be deposited daily in the Domestic
Account, and all of Borrowers' collections on its foreign accounts receivable
will be deposited in the Foreign Account. All deposits in the Domestic Account
and the Foreign Account will be applied daily as loan payments on the Borrowers'
lines of credit. During the Forbearance Period, Borrowers shall also be
permitted to borrow funds from the Bank under their lines of credit, subject to
borrowing base availability and the terms of the existing Loan Documents as
modified by this Forbearance Agreement
-5-
<PAGE>
IX. REIMBURSEMENT OF THE BANK'S FEES AND COSTS.
------------------------------------------
Contemporaneously with the execution of this Forbearance Agreement, the
Borrowers shall reimburse the Bank for all of the Bank's costs and expenses,
including attorneys' fees of the Bank's outside counsel ("Costs"), including
those fees incurred (a) in, advising the Bank of its rights following the
Borrowers' default; and (b) in connection with the negotiation, preparation and
documentation of this Forbearance Agreement.
X. BORROWING BASE CERTIFICATE.
--------------------------
The Borrowers shall provide the Bank with daily borrowing base
certificates, daily sales journals and daily collections reports.
XI. WAVIER OF PREPAYMENT FEES.
-------------------------
The Bank shall waive any prepayment fees and other form of
consideration, if any, due upon an early repayment of any of the Existing
Indebtedness to the Bank.
XII. REFUND OF WARRANTS.
------------------
Provided that the Borrowers have repaid to the Bank all Existing
Indebtedness on or before January 15, 1999, the Bank shall return to the
Borrowers all warrants which the Borrowers issued to the Bank.
XIII. COMPLIANCE CERTIFICATE.
----------------------
The Borrowers shall submit to the Bank within twenty (20) days of each
month end (i) a compliance certificate by the Borrowers' Chief Financial Officer
with respect to existing defaults, (ii) a consolidated statement of profit and
loss, (iii) a statement of cash flow and (iv) a monthly balance sheet for the
immediately preceding month and year to date.
XIV. ROLLING CASH FLOW.
-----------------
The Borrowers shall submit to the Bank an updated rolling thirteen week
cash flow forecast on Monday of each week.
XV. ACCOUNTS RECEIVABLE/ACCOUNTS PAYABLE AGING.
------------------------------------------
On the tenth (10th) day of each month, the Borrowers shall submit to
the Bank monthly accounts receivable and accounts payable aging for the previous
month.
-6-
<PAGE>
XVI. INSURANCE.
---------
Upon execution of this Forbearance Agreement, the Borrowers shall
provide the Bank with evidence that Borrowers are currently maintaining all
insurance policies required under the Loan Documents.
XVII. STATUS OF THE BORROWERS' DEPOSIT ACCOUNTS.
-----------------------------------------
Upon execution of this Forbearance Agreement, any funds then remaining
in the Borrowers' deposit accounts shall be available for the Borrowers' use in
the ordinary course of their businesses.
No overdrafts of the Borrowers' checking accounts shall be permitted.
XVIII. NO PAYMENT ON SUBORDINATED DEBT.
-------------------------------
The Borrowers shall make no payments on the subordinated notes issued
by the Borrowers on September 21, 1998 ("September 21 Notes"), or on any other
indebtedness that by its terms is subordinated to the Existing Indebtedness
until the Existing Indebtedness to the Bank has been repaid in full.
XIX. CONDITIONS PRECEDENT.
--------------------
This Forbearance Agreement shall not be binding upon the Bank unless
and until each of the following conditions precedent ("Conditions Precedent")
are met, or are waived in writing by the Bank:
A. The Borrowers shall have executed and delivered this Forbearance
Agreement to the Bank by no later than 12:00 noon on November 4, 1998.
XX. RELEASE OF CLAIMS.
-----------------
As additional consideration for the Bank to enter into this Forbearance
Agreement, the Borrowers, for themselves, their executors, administrators,
general partners, limited partners, employees, representatives, shareholders,
predecessors, subsidiaries and/or affiliates, parents, heirs, trustees,
trustors, beneficiaries, successors-in-interest, transferees, assigns, officers,
directors, managers, servants, employees, insurers, underwriters, successors,
attorneys, and agents, now and in the future, and all persons acting by,
through, under or in concert with them, and each of them, hereby release and
discharge the Bank, and the Bank's past, present and future administrators,
affiliates, agents, assigns, attorneys, directors, employees, executors, heirs,
officers, parents, partners, predecessors, representatives, parents'
shareholders, subsidiaries and successors, and each of them; and each of their
respective administrators, affiliates, agents, assigns, attorneys, directors,
employees, executors, heirs, officers, parents, partners, predecessors,
representatives, shareholders, subsidiaries and successors, and each of them;
and all persons acting by, through, under or in concert with one or more of
them, from any liabilities, damages, causes of action, defenses, or claims
arising out of,
-7-
<PAGE>
related to or in any way connected with the Loan Documents, this Forbearance
Agreement and the Borrowers' financial relationships with the Bank from the
beginning of time through and including the date of execution of this
Forbearance Agreement (collectively, "Released Matters").
---------------------------
The Borrowers
XXI. REPRESENTATIONS AND WAIVERS CONCERNING RELEASE PROVISIONS.
---------------------------------------------------------
The Borrowers understand and have been advised by their legal counsel
of the provisions of Section 1542 of the California Civil Code, 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 the release, which if known by him must have
materially affected his settlement with the debtor.
The Borrowers understand and hereby waive the provisions of California
Civil Code Section 1542 and declare that they realize they may have damages they
presenty know nothing about and that, as to them, they have been released
pursuant to these release provisions. The Borrowers also declare that they
understand that the Bank would not agree to enter into this Forbearance
Agreement if the release provisions set forth above did not cover damages and
their results which may not yet have manifested themselves or may be unknown to
or not anticipated at the present time by the Borrowers.
The Borrowers represent and warrant that they alone are the owners of
the claims hereby compromised and that they have not heretofore assigned or
transferred, nor purported to assign or transfer, to any person or entity
("Person") any of the Released Matters. The Borrowers further agree to indemnify
and hold harmless the Bank from all liabilities, claims, demands, damages,
costs, expenses, and attorneys' fees incurred by the Bank as the result of any
Person asserting any such assignment or transfer of any rights or claims.
---------------------------
The Borrowers
XXII. EVENTS OF DEFAULT.
-----------------
In addition to any other Events of Default set forth in this
Forbearance Agreement or the Loan Documents, an "Event of Default" shall exist
herein if any one or more of the following events occur:
A. The Borrowers shall fail to pay when due any payment due under the
Loan Documents or required under this Forbearance Agreement; or
-8-
<PAGE>
B. The Borrowers shall fail to comply with the following ratios during
the Forbearance Period:
(i) Have and maintain a minimum effective Tangible Net Worth ("net
worth, plus subordinated debt, less intangible assets
including but not limited to goodwill, Software, patents,
copyrights, and organizational expenses"), of not less than
$300,000 beginning with the period ending 9/30/98;
(ii) Have and maintain a Trading Ratio, meaning trade assets
("accounts receivable and inventory") to trading liabilities
("accounts payable and bank credit lines outstanding") of at
least 1.05 to 1.0 beginning with the period ending 9/30/98,
and thereafter;
(iii) Have and maintain a maximum ratio of total debt (less
subordinated debt), to Tangible Net Worth (plus subordinated
debt) not to exceed 13.0 to 1.0, beginning with the period
ending 9/30/98, and thereafter;
(iv) Have and maintain trading capital, meaning trading assets
minus trading liabilities (as defined above) of not less than
$1,500,000 for the period ending 9/30/98, and thereafter; and
(v) Have and maintain a Minimum Debt Service Coverage ("earnings
before interest depreciation and amortization divided by
principal plus interest owing") of 2.0 to 1.0 for the period
ending 9/30/98 and thereafter.
(During the Forbearance Period, such ratios shall be used in place of those set
forth in subparagraphs a. through e. of paragraph 6 or paragraph 8, as
applicable, of the Amendment to the Security Agreements); or
C. Any representation or warranty made under this Forbearance
Agreement, or any certificate or statement furnished or made to the Bank
pursuant thereto, shall prove to be untrue or misleading in any material respect
as of the date on which such representation or warranty is made; or
D. The Borrowers shall take any action to the effect that, or make any
claim that, the Loan Documents, or this Forbearance Agreement are not legal,
valid, binding agreements enforceable against any party executing same; or
attempt in any way to terminate or declare ineffective or inoperative the same;
or shall in any way whatsoever cease to give or provide the respective liens,
security interests, rights, titles, interests, remedies, powers or privileges
intended to be created thereby; or
E. A default, other than the Existing Defaults, shall occur in the
performance of any material term, condition, covenant or agreement contained in
the Loan Documents, in this
-9-
<PAGE>
Forbearance Agreement, or in connection with any other obligation owing by the
Borrowers to the Bank; or
F. Any of the following acts or events occur: (i) an order for relief,
judgment or decree shall be entered by any court of competent jurisdiction or
other competent authority approving a petition seeking reorganization of any of
the Borrowers; (ii) an order shall be entered by any court of competent
jurisdiction or other competent authority appointing a receiver, custodian,
trustee, intervenor or liquidator for any of the Borrowers as to all or
substantially all of its or their respective assets, and such order, judgment or
decree shall continue unstayed and in effect for a period of thirty (30) days;
or (iii) an involuntary petition seeking bankruptcy, reorganization or
receivership shall be filed against any of the Borrowers which is not dismissed
within sixty (60) days of the filing thereof.
XXIII. REMEDIES.
--------
If an Event of Default shall occur under this Forbearance Agreement,
the Loan Documents, or any other agreement referenced herein or executed in
connection herewith, the Bank may exercise, at its election, and without notice,
demand, protest or presentment (which notice, demand, protest and presentment
are expressly waived) in addition to all rights and remedies granted to it in
the Loan Documents or this Forbearance Agreement, any or all of the following:
A. The Bank's limited agreement to forbear under this Forbearance
Agreement shall immediately and automatically cease, and the Bank may exercise
all of its rights and remedies and may declare all amounts owed under the Loan
Documents immediately due and payable;
B. The Bank may proceed to enforce the Loan Documents, this Forbearance
Agreement and exercise any or all of the rights and remedies afforded to the
Bank by the California Commercial Code, the California Civil Code, the
California Code of Civil Procedure or otherwise possessed by the Bank;
C. Enforce any of the rights and remedies available to it under the
Loan Documents, this Forbearance Agreement or according to applicable law.
All rights and remedies granted to the Bank hereunder are cumulative,
and the Bank shall have the right to exercise any one or more of such rights and
remedies alternatively, successively or concurrently as the Bank may, in its
sole and absolute discretion, deem advisable.
XXIV. REVIVAL CLAUSE; SOLVENCY.
------------------------
If the incurring of any debt or the payment of money or transfer of
property made to the Bank by or on behalf of the Borrowers should for any reason
subsequently be declared to be "fraudulent" or "preferential" within the meaning
of any state or federal law relating to creditor's rights, including, without
limitation, fraudulent conveyances, preferences or otherwise voidable or
recoverable payments of money or transfers of property, in whole or in part, for
any reason (collectively,
-10-
<PAGE>
"Voidable Transfers") under the Bankruptcy Code or any other federal or state
law, and the Bank is required to repay or restore any such Voidable Transfer or
the amount or any portion thereof, or upon the advice of its in-house counsel or
outside counsel is advised to do so, then, as to such Voidable Transfer or the
amount repaid or restored (including all reasonable costs, expenses and
attorneys' fees of the Bank related thereto), the liability of the Borrowers
under the Loan and Security Agreements, and all of the Bank's rights and
remedies under the Loan and Security Agreements, this Forbearance Agreement
shall automatically be revived, reinstated and restored and shall exist as
though such Voidable Transfer had never been made to the extent of any harm to
the Bank.
The Borrowers represent and warrant that the execution, delivery and
performance of this Forbearance Agreement will not (I) render either Debtor
Insolvent as that term is defined below; (ii) leave either Debtor with remaining
assets which constitute unreasonably small capital given the nature of the
Borrowers' business; or (iii) result in the incurrence of Debts (as defined
below) beyond the Borrowers' ability to pay them when and as they mature and
become due and payable. For the purposes of this paragraph, "Insolvent" means
that the present fair salable value of assets is less than the amount that will
be required to pay the probable liability on existing Debts as they become
absolute and matured. For the purposes of this paragraph, "Debts" includes any
legal liability for indebtedness, whether matured or unmatured, liquidated or
unliquidated, absolute, fixed or contingent. The Borrowers hereby acknowledge
and warrant that they have derived or expect to derive a financial or other
benefit or advantage from this Forbearance Agreement
XXV. CONSENT TO RELIEF FROM AUTOMATIC STAY.
-------------------------------------
The Borrowers hereby agree that, in the event either the Borrowers
shall (i) file with any bankruptcy court of competent jurisdiction or be the
subject of any petition under Title 11 of the U.S. Code, as amended, (ii) be the
subject of any order for relief issued under such Title 11 of the U.S. Code, as
amended, (iii) file or be the subject of any petition seeking any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any present or future federal or state act
or law relating to bankruptcy, insolvency, or other relief for the Borrowers,
(iv) have sought or consent to or acquiesced in the appointment of any trustee,
receiver, conservator, or liquidator, (v) be the subject of any order, judgment,
or decree entered by any court of competent jurisdiction approving a petition
filed against such party for any reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief under any present or
future federal or state act relating to bankruptcy, insolvency, or relief for
the Borrowers, the Bank shall thereupon be entitled to relief from any automatic
stay imposed by Section 362 of Title 11 of the U.S. Code, as amended, or
otherwise, on or against the exercise of the rights and remedies otherwise
available to the Bank as provided under or in connection with the Loan
Documents, or any of them, and as otherwise provided by law.
-11-
<PAGE>
XXVI. REPRESENTATIONS AND WARRANTIES.
------------------------------
The Borrowers hereby represent and warrant that:
A. No Conflict. The execution, delivery and performance of this
Forbearance Agreement do not contravene or conflict with any other agreement,
indenture or undertaking to which the Borrowers are a party or by which the
Borrowers or any of their respective property, may be bound or affected;
B. Litigation. Other than the complaint filed by Data Products in the
Ventura County Superior Court, there is no material litigation or other
proceeding currently pending against the Borrowers;
C. Court Orders. The Borrowers are not in default with respect to any
order, writ, injunction, decree or demand of any court or other governmental or
regulatory authority;
D. Contractual Obligations. The Borrowers are not in default of or, to
the best of the Borrowers' knowledge, bound by any contractual obligations in
any respect which would adversely affect the ability of the Borrowers to perform
its obligations under this Forbearance Agreement.
XXVII. PAYMENT OF EXPENSES.
-------------------
In the event any action (whether or not in a court proceeding) shall be
required to interpret, implement, modify, or enforce the terms and provisions of
this Forbearance Agreement, or to declare rights under same, the prevailing
party in such action shall recover from the losing party all of its fees and
costs, including, but not limited to, reasonable attorneys' fees and costs.
XXVIII. GOVERNING LAW.
-------------
This Forbearance Agreement shall be construed and interpreted in
accordance with and shall be governed by the laws of the State of California.
XXIX. SUCCESSORS, ASSIGNMENT.
----------------------
This Forbearance Agreement shall be binding on and inure to the benefit
of all of the parties hereto, and upon the heirs, executors, administrators,
legal representatives, successors and assigns of the parties hereto, and each of
them. The terms and provisions of this Forbearance Agreement are for the
exclusive benefit of the Borrowers and the Bank, and may not be transferred,
assigned, pledged, set over or negotiated to any person or entity without the
prior express written consent of the Bank. Notwithstanding any other provisions
contained herein, the Bank may sell, transfer, negotiate, assign or grant
participations in all or a portion of its rights in any of the Loan Documents,
in this Forbearance Agreement to any person or entity without prior notice to
the Borrowers,
-12-
<PAGE>
provided, however, that any such assignee shall be bound by the terms and
provisions of the Loan Documents and this Forbearance Agreement.
XXX. COMPLETE AGREEMENT OF PARTIES.
-----------------------------
This Forbearance Agreement constitutes the entire agreement between the
Bank and the Borrowers arising out of, related to or connected with the subject
matter of this Forbearance Agreement. Any supplements, modifications, waivers or
terminations of this Forbearance Agreement shall not be binding unless executed
in writing by the parties to be bound thereby. No waiver of any provision of
this Forbearance Agreement shall constitute a waiver of any other provisions of
this Forbearance Agreement (whether similar or not), nor shall such waiver
constitute a continuing waiver unless otherwise expressly so provided.
XXXI. EXECUTION IN COUNTERPARTS.
-------------------------
This Forbearance Agreement may be executed in any number of
counterparts each of which, when so executed and delivered, shall be deemed an
original, and all of which together shall constitute but one and the same
agreement.
XXXII. CONTRADICTORY TERMS/SEVERABILITY.
--------------------------------
In the event that any term or provision of this Forbearance Agreement
contradicts any term or provision of any other document, instrument or agreement
between the parties including, but not limited to, any of the Loan Documents,
the terms of this Forbearance Agreement shall control. If any provision of this
Forbearance Agreement shall be invalid, illegal or otherwise unenforceable, such
provision shall be severable from all other provisions of this Forbearance
Agreement, and the validity, legality and enforceability of the remaining
provisions of this Forbearance Agreement shall not be adversely affected or
impaired, and shall thereby remain in full force and effect.
XXXIII. HEADINGS.
--------
All headings contained herein are for convenience purposes only, and
shall not be considered when interpreting this Forbearance Agreement
XXXIV. CONTINUING COOPERATION.
----------------------
The parties hereto shall cooperate with each other in carrying out the
terms and intent of this Forbearance Agreement, and shall execute such other
documents, instruments and agreements as are reasonably required to effectuate
the terms and intent of this Forbearance Agreement.
-13-
<PAGE>
XXXV. ALTERNATIVE DISPUTE RESOLUTION.
------------------------------
The "Reference Provision" attached to the Loan and Security Agreements
through Section 12 of the Addendum applies to any disputes under this
Forbearance Agreement.
XXXVI. INSPECTION.
----------
On two days' notice, the Borrowers will permit the Bank or its
designee(s) to inspect the business premises during normal business hours or
weekends. Without limiting the foregoing, such inspections shall include the
taking of any action reasonably necessary to appraise any part of the Bank's
collateral.
AGREED AND ACCEPTED:
IMPERIAL BANK
By:/s/ Larry King
---------------------------------
Larry King
Vice President
IMAGING TECHNOLOGIES
CORPORATION, PRIMA
INTERNATIONAL, NEWGEN SYSTEMS
ACQUISITIONS CORPORATION,
McMICAN CORPORATION, COLOR
SOLUTIONS, INC., ITEC EUROPE
LIMITED, AMT ACCEL UK LIMITED
By:/s/ Brian Bonar
---------------------------------
Brian Bonar, C.E.O.
By: /s/ Michael K. Clemens
---------------------------------
Michael K. Clemens, C.F.O
-14-
LETTER OF CREDIT REIMBURSEMENT AGREEMENT
BETWEEN
IMAGING TECHNOLOGIES CORPORATION
AND
AMERICAN INDUSTRIES, INC.
DATED AS OF NOVEMBER 13,1998
$1,500,000
<PAGE>
LETTER OF CREDIT REIMBURSEMENT AGREEMENT
This Letter of Credit Reimbursement Agreement (the "Agreement"), dated
as of November 13, 1998, is between IMAGING TECHNOLOGIES CORPORATION, a Delaware
corporation doing business as "ITEC" and "IMATECH" at 11031 Via Frontera, San
Diego, California 92127 ("Borrower"), and AMERICAN INDUSTRIES, INC. doing
business at 1750 NW Front Avenue, Suite 106, Portland, Oregon 97209 ("Lender").
PREAMBLE
A. Borrower has requested that Lender make available to Borrower on a
revolving basis one or more commercial and irrevocable standby letters of credit
(individually, a "Letter of Credit" and collectively, the "Letters of Credit")
issued by U.S. Bank National Association (the "Bank") in an aggregate principal
amount not to exceed the sum of $1,500,000 (the "Commitment"). Forms of Bank's
commercial and standby Letters of Credit are attached to this Agreement as
Exhibit A-1 and Exhibit A-2. To induce Lender to enter into this accommodation,
Borrower has issued to Lender warrants to purchase 150,000 shares of Borrower's
common stock at $1.28/share (the "Warrants").
B. To accommodate Borrower, Lender has entered into a Continuing
Agreement for Commercial Letters of Credit and a Continuing Agreement for
Irrevocable Standby Letters of Credit with Bank, each dated November 13, 1998,
copies of which are attached to this Agreement as Exhibit B- I and Exhibit B-2
(the "Bank Agreements").
C. Lender has agreed to make Letters of Credit available to Borrower on
the terms and subject to the conditions set forth below.
TERMS AND CONDITIONS
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definition of Terms. The terms defined in this Agreement
are set forth below.
"Accounts" means accounts, contract rights, instruments,
documents, chattel paper and all other forms of obligations owing to a Person,
including those arising out of the sale or lease of goods, whether or not earned
by performance, and any and all credit insurance, guaranties and other security,
as well as all merchandise returned to or reclaimed.
"Agreement" means this Letter of Credit Reimbursement
Agreement.
-2-
<PAGE>
"Available Amount" means the amount by which the Commitment
exceeds the sum of (a) the maximum amount available to be drawn at any time
under all outstanding Letters of Credit plus (b) the amount of all unreimbursed
Draws, provided that the number is a positive number.
"Bank" has the meaning assigned to that term in Paragraph A of
the Preamble of this Agreement.
"Borrower's Books" means all of Borrower's books and records
(including minute books and ledgers) indicating, summarizing, evidencing or
relating to the Collateral; and all computer programs, disk or tape files,
printouts, runs and other computer prepared information and the equipment
containing such information.
"Business Day" means any day other than a Saturday, a Sunday,
a day on which Banking institutions in the state of Oregon or California are
closed as authorized or obligated by law or administrative order, or a day on
which the New York Stock Exchange is closed.
"Claims" has the meaning assigned to that term in Section
7.5(c) of this Agreement.
"Collateral" means all goods purchased under any Letter of
Credit, whether now in existence or arising or created at any time in the
future, wherever they may be located, including: (a) equipment and fixtures; (b)
inventory, whether held for sale or lease or to be furnished under a contract of
service, including raw materials, work in process, finished goods; (c) goods
held for use or consumption; (d) packing and shipping materials; and (e) all
Accounts and General Intangibles arising therefrom and all other products and
proceeds thereof, and any Negotiable Collateral or other documents of title
representing any of the above, and all of Borrower's Books.
"Commitment" has the meaning assigned to that term in
Paragraph A of the Preamble of this Agreement.
"Credit Termination Date" means October 30, 1999.
"Default Rate" means ten percent (10%) per annum. If the
Default Rate at any time exceeds the rate permitted by law, the Default Rate
will be automatically reduced to the maximum rate permitted by law.
"Deposit Deadline" has the meaning assigned to that term in
Section 2.3 of this Agreement.
"Draw" means any draw under a Letter of Credit.
"Event of Default" has the meaning assigned to that term in
Section 6.1 of this Agreement.
-3-
<PAGE>
"Final Judgment" means an order or judgment that has been
entered by a court and that has not been revised, stayed, modified or amended
and as to which the time to appeal, petition for certiari, or seek re-argument
or rehearing has expired.
"General Intangibles" means general intangibles and other
personal property (including any and all choses or things in action, goodwill,
patents, trade names, trademarks, licenses, permits, blueprints, drawings,
purchase orders, customer lists, computer programs, computer disks, computer
tapes, literature, reports, catalogs, deposit accounts, Tax refunds, life
insurance and other insurance policies).
"including" is not in any way limiting.
"Indebtedness" means all sums for which Borrower may now or at
anytime in the future be indebted or obligated to Lender under this Agreement,
including principal, interest, costs of collection, attorney and paralegal fees
and any other expenses of Lender which Borrower is obligated to pay under this
Agreement, whether such amounts are due or not and whether the obligation to pay
such amounts is direct or indirect, absolute or contingent, joint or several.
"Indebtedness" includes the Reimbursement Obligations and also includes all
other obligations, covenants and duties owing by Borrower to Lender of any kind
and description under this Agreement and under the Related Documents.
"Letters of Credit" has the meaning assigned to that term in
Paragraph A of the Preamble of this Agreement.
"Negotiable Collateral" has the meaning assigned to that term
in Section 2.13 of this Agreement.
"Permitted Encumbrances" has the meaning assigned to that term
in Section 4.9 of this Agreement.
"Permitted Substances" has the meaning assigned to that term
in Section 4.7 of this Agreement.
"Person" means an individual or a corporation, partnership,
limited liability company, trust, incorporated or unincorporated association,
joint venture, government (or an agency or political subdivision thereof), or
any entity of any kind.
"Prime Rate" means the variable rate of interest used in the
pricing of loans which is publicly announced from time to time as Bank's "Prime
Rate," which Borrower acknowledges is one of Bank's index rates and may not be
the lowest rate at which Bank calculates interest or extends credit.
-4-
<PAGE>
"Reimbursement Obligations" has the meaning assigned to that
term in Section 2.4 of this Agreement.
"Related Documents" means all agreements, opinions,
instruments, and documents relating to this Agreement, the Bank Agreements and
to the Letters of Credit.
"Special Account" means Account No. 1536-9086-8671 at Bank's
Main Portland, Oregon branch.
"Taxes" means any present or future taxes, levies, imposts,
duties, charges, fees, deductions, withholdings, restrictions or conditions of
any nature whatsoever, now or hereafter imposed, levied, collected, withheld or
assessed by any governmental entity (or by any political subdivision or taxing
authority thereof or therein).
"Warrants" has the meaning assigned to that term in Paragraph
A of the Preamble of this Agreement.
SECTION 1.2 Singular and Plural Forms. The meanings of the terms
defined in Section 1.1 of this Agreement will be equally applicable to both the
singular and plural forms of such terms.
SECTION 1.3 Amendments to Documents. All references in this Agreement
to this Agreement and to the Related Documents will also be considered
references to any amendments, supplements or replacements to those agreements
and documents.
ARTICLE 2
AMOUNT AND TERMS OF THE LETTERS OF CREDIT
SECTION 2.1 The Letters of Credit. In consideration of Borrower's
delivery of the Warrants to Lender, Lender agrees to use commercially reasonable
efforts to cause Bank to issue and deliver one or more Letters of Credit on
behalf of Borrower. The aggregate amount of (a) the maximum amount available to
be drawn under all Letters of Credit outstanding at any time, plus (b) all
unreimbursed Draws, will not at any time exceed the Commitment. No new Credits
will be issued after July 31, 1999. All Letters of Credit will expire on or
before the Credit Termination Date.
SECTION 2.2 Fees. Borrower will pay to Bank the following fees:
(a) A Letter of Credit fee equal to the amount of the fee
charged by Bank to Lender under the Bank Agreements. Such fees will be payable
in advance of and as a condition precedent to the issuance of each Letter of
Credit.
(b) A draw fee equal to the amount of the draw fee charged by
Bank to Lender under the Bank Agreements, plus reasonable costs and expenses
related to such Draw.
-5-
<PAGE>
(c) Upon each transfer of the Letter of Credit in accordance
with its terms, a transfer fee equal to the amount of the transfer fee charged
by Bank to Lender under the Bank Agreements.
(d) Upon each amendment of the Letter of Credit, an amendment
fee equal to the amount of the amendment fee charged by Bank to Lender under the
Bank Agreements.
(e) Any other fees due and owing under the Bank Agreements.
SECTION 2.3 Payment. Immediately upon Borrower's receipt of oral or
written notice from Bank as to the amount of a Draw received by Bank under a
Letter of Credit, Borrower will deposit into the Special Account, in immediately
available Portland, Oregon funds, the full amount of that Draw together with all
fees and other costs payable in connection with that Draw (the "Deposit").
Borrower will make the Deposit into the Special Account by wire transfer as
follows:
U.S. Bank National Association
ABA No. 123 000 220
Re: American Industries, Inc./ITEC Special Account
Account No. 1536-9086-8671
Contact: Janis Coppola at (503) 275-5930
Richard Ferguson at (503) 275-6354
If Borrower fails to make any Deposit with respect to a Draw by 12 noon on the
date Bank pays that Draw (the "Deposit Deadline"), all of Borrower's rights
under this Agreement and under the Bank Agreements will terminate immediately.
SECTION 2.4 Reimbursement. If at any time and for any reason Lender
becomes liable to Bank under the Bank Agreements, Borrower will, without notice
or demand, immediately reimburse Lender for any and all amounts owing by Lender
to Bank under the Bank Agreements, including all Draws under the Letters of
Credit and for all fees payable pursuant to Section 2.2 above (collectively, the
"Reimbursement Obligations"). Borrower will reimburse Lender for the
Reimbursement Obligations and for any other amounts payable under this Agreement
on demand. No payment by Borrower to Lender under this Section 2.4 will in any
way cure Borrower's default under Section 2.2 or under Section 2.3 unless Lender
delivers a written waiver of that default to Bank and to Borrower in the manner
specified in Section 7.2 below.
SECTION 2.5 Interest on Reimbursement Obligations.
(a) If Bank receives from Borrower the Deposit with respect to
a Draw by the Deposit Deadline for that Draw, no interest will accrue on that
Draw.
-6-
<PAGE>
(b) Notwithstanding the interest rate specified in the Bank
Agreements or in any agreement between Bank and Lender, if Bank does not receive
the Deposit from Borrower by the Deposit Deadline, each such Draw will bear
interest at the Default Rate from the Deposit Deadline until Borrower pays the
Deposit, together with all accrued interest, as specified in Section 2.6 below.
Interest will be payable on demand by Lender.
SECTION 2.6 Payments and Computations. All payments by Borrower to
Lender under this Agreement will be made in lawful currency of the United States
of America and in immediately available funds to Lender's operating account at
Bank as follows:
U.S. Bank National Association
ABA No. 123 000 220
Re: American Industries, Inc. Operating Account,
Account No. 1536-0337-3520
Contact: Janis Coppola at (503) 275-5930
Richard Ferguson at (503) 275-6354
or at such other location in the United States as Lender may specify by written
notice to Borrower. Computations of the Prime Rate, the Default Rate, and any
fees or commissions under this Agreement will be made by Lender on the basis of
a year of 360 days for the actual number of days (including the first day but
excluding the last day) elapsed. Whenever any payment to be made under this
Agreement is stated to be due on a day that is not a Business Day, such payment
will be made on the next succeeding Business Day, and such extension of time
will in such case be included in the computation of interest, fees or
commissions, as the case may be.
SECTION 2.7 Increased Costs. If any law or regulation, or any change in
any law or regulation or in any interpretation of any law or regulation, or any
ruling, decree, judgment, guideline or directive (including any imposed by the
Board of Governors of the Federal Reserve System), by any regulatory body,
court, central bank or administrative or government authority charged or
claiming to be charged with the administration of such law or regulation
(including a request or requirement that affects the manner in which Bank
allocates capital resources to its commitments, including its obligations under
the Bank Agreement), occurs and the result is to increase the costs to Lender
under the Bank Agreements in any way, then Borrower will, upon receipt of
written notice to Borrower from Lender, promptly pay to Bank or to Lender all
such additional amounts necessary to compensate Lender for all such increased
costs.
SECTION 2.8 No Reduction by Taxes, Setoffs and Counterclaims. All
payments by Borrower under this Agreement will be made free and clear of, and
without reduction for or on account of, set-off or counterclaim. In addition,
all payments made by Borrower under this Agreement will be made free and clear
of, and without reduction for or on account of, Taxes. If any Taxes are required
to be withheld from any amounts payable to Bank or Lender under this Agreement,
the amounts so payable to Bank or Lender will be increased to the extent
necessary to
-7-
<PAGE>
yield to Bank and Lender (after payment of all Taxes) the full amount of all
interest and other sums payable under this Agreement at the rates or in the
amounts specified in this Agreement.
SECTION 2.9 Evidence of Debt. Lender will maintain, in accordance with
its usual practice, an account or accounts evidencing the Reimbursement
Obligations of Borrower resulting from each Draw under the Letter of Credit and
the amounts of principal, interest and fees payable and paid from time to time
under this Agreement. In any legal action or proceeding in connection with this
Agreement, the entries made in such account or accounts will be conclusive
evidence of the existence and amounts of the Reimbursement Obligations of
Borrower recorded in such account or accounts, absent manifest error by Lender.
SECTION 2.10 Obligations Absolute. The payment obligations of Borrower
under this Agreement are absolute, unconditional and irrevocable, and will be
paid strictly in accordance with the terms of this Agreement under all
circumstances, including the following circumstances:
(a) Any lack of validity or enforceability of all or any of
the Letters of Credit or any of the other Related Documents;
(b) Any amendment or waiver of, or any consent to departure
from, any of the ten- ns and conditions of all or any of the Letters of Credit
or any of the other Related Documents;
(c) The existence of any claim, set-off, defense or other
rights that Borrower may have at any time against any beneficiary of a Letter of
Credit, any transferee of a Letter of Credit (or any Person for whom or for
which any such beneficiary, or any such transferee may be acting), Lender, Bank
or any other Person, whether in connection with this Agreement, the Related
Documents or any unrelated transaction;
(d) Any certificate, statement or any other document presented
under all or any of the Letters of Credit proves to be forged, fraudulent,
invalid or insufficient in any respect, or any statement in such document proves
to be untrue or inaccurate in any respect;
(e) Payment by Bank under any Letter of Credit against
presentation by any Person of a draft or certificate that does not comply with
the terms of that Letter of Credit; or
(f) Any other circumstances or happening whatsoever, whether
or not similar to any of the preceding.
SECTION 2.13 Grant of Purchase Money Security Interest. To secure
prompt repayment of any and all Indebtedness, Borrower hereby grants to Lender a
continuing security interest in all presently existing Collateral and all
Collateral arising or acquired at any time in the future, and in all proceeds of
every nature whatsoever. Lender's security interest in the Collateral will
attach to all Collateral without further action on the part of Lender or
Borrower. In the event that any Collateral, including proceeds, is evidenced by
or consists of a letter of credit, advice of credit, instrument,
-8-
<PAGE>
money, negotiable documents, chattel paper or similar property (the "Negotiable
Collateral"), Borrower will immediately upon receipt of any Negotiable
Collateral, endorse and assign such Negotiable Collateral over to Lender and
deliver actual physical possession of the Negotiable Collateral to Borrower.
THIS IS A PURCHASE MONEY SECURITY INTEREST; consequently, notwithstanding any
other agreement or understanding between Borrower and Lender, whether now in
existence or arising or created at any time in the future, the Collateral
secures only the Indebtedness and does not secure any other obligation or
indebtedness of Borrower to Lender. Borrower expressly authorizes and directs
Lender to give any and all notices to Borrower's other creditors that are
necessary to ensure that Lender has a purchase money security interest in the
Collateral from time to time without further notice to or consent of Borrower.
ARTICLE 3
CONDITIONS OF ISSUANCE
SECTION 3.1 Conditions Precedent to Issuance of the Letter of Credit.
The obligation of Lender to use commercially reasonable efforts to cause the
Bank to issue one or more Letters of Credit is subject to the following
conditions precedent:
(a) Fees Payable. Borrower has paid all fees that are required
to be paid on or before the issuance of the Letter of Credit as specified under
the Bank Agreements and has made all Deposits and paid all other sums that are
otherwise required to be paid under this Agreement.
(b) No Default. No event has occurred and is continuing that
constitutes an Event of Default or would constitute an Event of Default but for
the giving of notice, the lapse of time, or both.
(c) New Developments. No material adverse change has occurred
in Borrower's operations or condition since the date of Borrower's most recent
audited financial statements except as disclosed in writing to and accepted in
writing by Lender.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants and, upon each request for issuance of
a Letter of Credit and upon each Draw, reaffirms each of the following:
SECTION 4.1 Status. Borrower is a corporation duly formed and validly
existing under the laws of the state of Delaware. Borrower has all requisite
power and authority to own its properties and to conduct its business in all of
the states in which it owns property and conducts business.
-9-
<PAGE>
SECTION 4.2 Authority. The execution, delivery and performance by
Borrower of this Agreement and the Related Documents are within Borrower's power
and authority, have been duly authorized by all necessary corporate action, and
do not contravene (i) any provision of Borrower's Certificate of Incorporation
or Bylaws, or (ii) any law, regulation, contract, agreement, or other
restriction binding on or affecting Borrower, and (except as provided in, or
contemplated by, this Agreement or the Related Documents) do not result in or
require the creation of a lien, security interest or other charge or encumbrance
upon or with respect to any of Borrower's properties.
SECTION 4.3 Governmental Authorization. No authorization, approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution., delivery and performance by
Borrower of this Agreement and the Related Documents to which it is a party,
except as have been duly obtained or made (including filings and recordings with
respect to the Related Documents) and are in full force and effect.
SECTION 4.4 Binding Obligations. This Agreement and the Related
Documents are legal, valid and binding obligations of Borrower, enforceable
against Borrower in accordance with their respective terms, except as such
enforceability may be limited by Bankruptcy, insolvency, reorganization,
moratorium or other equitable principles or laws relating to or limiting a
creditors' rights or contractual obligations generally.
SECTION 4.5 No Conflict. There is no provision of any existing
mortgage, indenture, undertaking or agreement binding upon Borrower, or
affecting its assets or properties, which would conflict with or in any way
prevent the execution, delivery and full performance of this Agreement and the
Related Documents, and the execution, delivery and performance of this Agreement
and the Related Documents will not result in the breach of any provision of any
such mortgage, indenture, undertaking or other agreement.
SECTION 4.6 Knowledge of Borrower. There is no fact known to Borrower
that materially and adversely affects, or in the future may materially and
adversely affect, the business, property, assets or financial condition of
Borrower.
SECTION 4.7 Hazardous Waste. No hazardous substance is currently being
used, generated, stored or disposed of on or in the Real Property or any Other
Real Property except for chemicals and fuels stored or used in the ordinary
course of Borrower's business in compliance with all laws (the "Permitted
Substances"). All Permitted Substances are being used, generated, stored or
disposed of in accordance with all local, state and federal laws governing the
use, generation, storage and disposal of such chemicals and fuels. To the best
of Borrower's knowledge, other than Permitted Substances, neither Borrower nor
any other Person has ever caused or permitted any hazardous substance to be
used, generated, stored or disposed of on or in any real property. To the best
of Borrower's knowledge, neither Borrower nor any other Person has ever used any
real property as a dump site, permanent storage site or transfer station for any
hazardous substance. Borrower has not received any notice of, nor is Borrower
aware of, any actual or alleged violation with respect to any real property of
any federal, state or local statute, ordinance, rule, regulation or other law
relating
-10-
<PAGE>
to hazardous substances. There is no action or proceeding pending before or
appealable from any court, quasi-judicial body or administrative agency relating
to any hazardous substances affecting or alleged to be affecting any real
property owned, lease or otherwise used by Borrower.
SECTION 4.8 Litigation. There are no actions, suits or proceedings
pending or threatened against Borrower before any court, arbiter, governmental
or administrative agency affecting any of Borrower's assets or properties which,
if adversely determined, would have a material adverse effect on the business or
financial condition of Borrower. Borrower is not in violation or default with
respect to any applicable laws or regulations which materially affect the
operation or financial condition of Borrower.
SECTION 4.9 Ownership. Borrower is the record and beneficial owner of
all of the Collateral, free and clear of all mortgages, deeds of trust, pledges,
liens, security interests and other charges or encumbrances, except for the
encumbrances described in Exhibit 4.9 (the "Permitted Encumbrances").
SECTION 4.10 Taxes. Borrower has filed or caused to be filed all tax
returns which are required to be filed by it and has paid all Taxes which have
become due. Borrower knows of no proposed material tax assessment or lien
against it or any of its properties. The charges, accruals and reserves on
Borrower's books with respect to Taxes are adequate.
SECTION 4.11 Offices. The chief executive office and principal place of
business of Borrower and the office where Borrower keeps it records concerning
the Collateral, is at the address set forth in Section 7.2 of this Agreement.
SECTION 4.12 Accuracy. All information furnished or to be furnished by
Borrower to Lender in connection with this Agreement, the Related Documents or
any transaction contemplated by this Agreement or the Related Documents is or
will be true and accurate in every material respect on the date such information
is furnished or certified. No such information is or will be incomplete by
omitting to state any material fact necessary to make such information not
misleading.
SECTION 4.13 Financial Statements. All balance sheets, statements of
income and expenses, statements of changes in financial position and other
financial information which have been or may in the future be furnished by or on
behalf of Borrower to Lender in connection with this Agreement have been or will
be prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, and each presents or will
present fairly the financial condition of Borrower or other Persons covered and
the results of operations for the periods covered.
SECTION 4.14 Absence of Default. Borrower is not in default in the
payment of any indebtedness to any Person or under any law or governmental
regulation or court decree or order materially affecting any of its assets or
properties or its business; nor is Borrower aware of any facts or circumstances
which would give rise to any such default.
-11-
<PAGE>
SECTION 4.15 Compliance with OSHA and ERISA. Borrower is in compliance
with the federal Occupational Safety and Health Administration and has not
received notice of any noncompliance. The provisions of each of Borrower's
pension, profit sharing or retirement plan which is covered by Title IV of the
Retirement Income Security Act of 1974, as amended, (ERISA) and with respect to
which Borrower is an "Employer" as defined in Section 3(5) of ERISA, comply in
all material respects with all applicable requirements of ERISA. Borrower has
not incurred any "accumulated funding deficiency" within the meaning of ERISA
which is material and has not incurred any material liability to the Pension
Benefit Guaranty Corporation in connection with any such pension, profit sharing
or retirement plan.
SECTION 4.19 Incorporation of Bank Agreements and other Related
Documents. The Bank Agreements and the Related Documents are incorporated in
this Agreement by this reference. Borrower hereby agrees to pay and perform all
of Lender's obligations to Bank under the Bank Agreements and the Related
Documents and to indemnify, defend and hold Lender harmless for all losses,
claims, demands, liabilities, damages, actions, causes of actions paid or
payable by Lender to Bank or to any other Person under the Bank Agreements and
the Related Documents, as fully and completely as if Borrower were expressly
named in the Bank Agreements and the Related Documents. Without limiting the
preceding, all of the statements, representations, warranties and covenants made
by Lender in the Bank Agreements and/or in the Related Documents shall be deemed
to have been made by Borrower to Lender in this Agreement, and all such
representations and warranties together with all other representations,
warranties and covenants contained in this Agreement will survive the delivery
of this Agreement, and any investigation or knowledge of Lender will not
diminish its right to rely on such representations and warranties.
ARTICLE 5
COVENANTS OF BORROWER
SECTION 5.1 Affirmative Covenants. So long as there is any Letter of
Credit outstanding or any Available Amount under the Commitment, or Lender has
any obligations to Borrower under this Agreement or any of the Related
Documents, or Borrower has any obligation to pay any amount to Lender under this
Agreement or any of the Related Documents, Borrower covenants and agrees that:
(a) Performance of and Compliance with Other Covenants.
Borrower will perform and comply, in all material respects, with each of the
covenants that are set forth in this Agreement and in the Related Documents, as
such covenants may be amended or supplemented in the future and will promptly
pay the Reimbursement Obligations and any other Indebtedness when and as due.
(b) Preservation of Corporate Existence. Borrower will
preserve and maintain its corporate existence, rights, franchises and privileges
in the jurisdiction of its incorporation, and
-12-
<PAGE>
qualify and remain qualified as a foreign corporation in each jurisdiction in
which such qualification is necessary or desirable in view of its business and
operations or the ownership of its properties.
(c) Compliance with Laws. Borrower will comply with the
requirements of all applicable laws, rules, regulations and orders of any
governmental authority including environmental statutes, regulations and orders
governing the use, generation, storage or disposal of hazardous substances.
(d) Maintain Properties. Borrower will maintain and preserve
all properties necessary or useful in the proper conduct of its business in good
working order and condition, ordinary wear and tear excepted and will keep all
of its properties free from all mechanic's, laborer's and materialmen's liens,
except such as are actively being contested in good faith if (i) adequate bond
has been obtained therefore; or (ii) an amount adequate to discharge such lien
has been deposited in an escrow account pursuant to an escrow agreement
satisfactory in form and substance to Lender; provided that in either case, no
portion of the Collateral will be in danger of being sold, forfeited, interfered
with or lost.
(e) Pay Taxes. Borrower will pay and discharge all Taxes
imposed upon it or upon its income, profits or properties, prior to the date
upon which penalties attach.
(f) Insurance. Borrower, at its expense, will maintain
insurance on the Collateral and on all of its other assets and properties, real,
personal and mixed, and will keep the Collateral and such other assets and
property insured against loss or damage by fire, theft, explosion, sprinklers
and all other hazards and risks for their full replacement value. Borrower will
also keep and maintain business interruption insurance and public liability and
property damage insurance relating to Borrower's operation of its business and
the ownership and use of the Collateral and its other assets and properties. All
such policies of insurance will be in such form, with such companies, and in
such amounts as may be satisfactory to Lender. Borrower will deliver to Lender
certified copes of such policies of insurance and evidence of the payments of
all premiums for such insurance. All such policies of insurance (except public
liability) will contain an endorsement in a form satisfactory to Lender showing
Lender as a loss payee, with a waiver of warranties in form satisfactory to
Lender, and all proceeds payable under such policies with respect to the
Collateral will, at the option of Lender, be payable to Lender to be applied to
the Reimbursement Obligations and the other Indebtedness. Borrower's public
liability policies of insurance will name Lender as an additional insured.
Borrower hereby irrevocably appoints Lender (and any of Lender's officer's
employees or agents designated by Lender) as Borrower's attorney for the purpose
of making, settling and adjusting claims with respect to the Collateral under
such policies of insurance, endorsing the name of Borrower on any check, draft,
instrument or other item of payment for the proceeds of such policies of
insurance with respect to the Collateral and for making all determinations and
decisions with respect to such policies of insurance. Borrower will not cancel
any such policies without Lender's prior written consent. Each insurer will
agree by endorsement upon the policy or policies of insurance issued by it to
Borrower, or by independent instruments furnished to Lender, that the insurer
will give Lender at least 30 days' written notice before any such policy or
policies of insurance
-13-
<PAGE>
will be altered or canceled, and that no act or default of Borrower, or any
other Person, will affect the right of Lender to recover under such policy or
policies of insurance.
(g) Notice. Borrower will immediately deliver to Lender copies
of all notices Borrower is required and permitted to give to any party to any of
the Related Documents and Borrower will immediately give notice to Lender of the
occurrence of an Event of Default, any litigation, arbitration or governmental
investigation or proceeding not previously disclosed by Borrower to Lender which
is instituted by or against Borrower or with respect to any of its properties,
which if adversely determined, might materially adversely affect the business or
financial condition of Borrower or impair the ability of Borrower to perform its
obligations under this Agreement or any of the Related Documents, any material
adverse development which will occur in any litigation, arbitration or
governmental investigation or proceeding previously disclosed by Borrower to
Lender, any significant change in the management of Borrower, any termination,
resignation, dismissal or other change of Borrower's independent public
accountants or attorneys, and any other material change in the business or
operations of Borrower.
(h) Inspection. Borrower will at any reasonable time permit
Lender or any agent or representative of Lender to visit its premises and to
examine and make copies of abstracts from the records and books of account of
Borrower, and to discuss the affairs, finances and accounts of Borrower with
Borrower's officers, directors, agents and employees.
(i) Further Assurances. Borrower will promptly and at all
reasonable times, upon request by Lender, do all such further acts and things
and execute such further documents as Lender may require to assure Lender of the
preservation of its rights under this Agreement and the Related Documents.
(j) Records. Borrower will keep adequate records and books of
account, in which complete entries will be made in accordance with generally
accepted accounting principles consistently applied, reflecting all financial
transactions of Borrower.
(k) Use of Letters of Credit. Borrower will use the Letters of
Credit only to purchase equipment and merchantable inventory in the ordinary
course of its business consistent with its past practice and with respect to
inventory, only of the types described in Exhibit 5.1 (k).
SECTION 5.2 Negative Covenants. So long as there is any Letter of
Credit outstanding or any Available Amount under the Commitment or Lender has
any obligations to Borrower under this Agreement or any of the Related
Documents, or Borrower has any obligation to pay any amount to Lender or Bank
under this Agreement or any of the Related Documents, Borrower covenants and
agrees that, without the prior written consent of Lender:
(a) Change of Name; Structure; Dissolution. Borrower will not
change its name or in any way alter its corporate structure, liquidate, windup
or dissolve or otherwise dispose of all or substantially all of its assets or
consolidate or merge into one or more corporations or permit one
-14-
<PAGE>
or more corporations to consolidate with or merge into Borrower, acquire the
capital stock of any Person, or amend its organizational documents without
obtaining Lender's prior written consent, which may be conditioned, among other
requirements, upon receipt by Lender of an opinion from Borrower's counsel that
all actions necessary to protect the Collateral and Lender's interest in the
Collateral have been taken.
(b) Liens. Except for the Permitted Encumbrances and the
liens, encumbrances and security interests in favor of Lender, Borrower will not
incur, assume or suffer to exist any lien upon or with respect to any of its
assets, whether not owned or acquired at any time in the future, or assign any
right to receive income, or to secure any indebtedness to any Person.
(c) Transfer Assets. Borrower will not sell, lease, transfer
or otherwise dispose of any of its assets, except in the ordinary course of its
business.
(d) Additional Indebtedness. Borrower will not incur, create,
assume or permit to exist any indebtedness except (i) the Indebtedness and other
indebtedness to Lender; (ii) indebtedness to financial institutions under credit
accommodations existing as of the date of this Agreement; (iii) trade
indebtedness incurred in the ordinary course of Borrower's business; (iv)
purchase money indebtedness for the purchase of equipment; and (v) indebtedness
that is by its terms expressly subordinated to the repayment in full of the
Indebtedness in a manner acceptable to Lender.
(e) Guaranty Obligations. Borrower will not guaranty or
otherwise become liable with respect to or provide any collateral for, the
obligations of any third person.
(f) Loans. Borrower will not, either directly or indirectly,
make any advance or loan except in the ordinary course of business as presently
conducted, or make any loan or advance to any officer, director or shareholder.
(g) Prepayments. Borrower will not, either directly or
indirectly, prepay any existing or future indebtedness owing to any third party,
including indebtedness owing to employees, officers, directors or shareholders.
(h) Distributions and Dividends. Borrower will not, either
directly or indirectly, make any distribution or declare or pay any cash or
other dividends on, or purchase, acquire, redeem or retire any of its capital
stock.
(i) Increase Salaries. Borrower will not, either directly or
indirectly, increase the salaries of any of its shareholders, directors or
officers by an amount that exceeds 105 percent of such shareholder's, director's
or officer's salary during the immediately preceding fiscal year.
(j) Assignment. Borrower will not assign any of its rights or
obligations under this Agreement or under the Related Documents; provided,
however, nothing in this Agreement will
-15-
<PAGE>
in any way prevent Lender from selling or otherwise assigning all or any part of
its interests under this Agreement or under the Related Documents to any other
Person.
ARTICLE 6
EVENTS OF DEFAULT
SECTION 6.1 Events of Default. At the option of Lender, the occurrence
of any of the following events is an Event of Default under this Agreement:
(a) Failure to Pay Amounts Due. Borrower fails to make a
Deposit by the Deposit Deadline or otherwise fails to pay any amount payable
under this Agreement or under any of the Related Documents on the date when due.
(b) Cross-Default. Any default under (i) any of the Related
Documents, (ii) any other agreement with or undertaking on behalf of Lender;
(iii) any other debt instrument or other agreement to which Borrower is a party,
that occurs and is continuing.
(c) Breach of Warranty. Any representation or warranty made by
Borrower in or in connection with this Agreement or any of the Related Documents
proves to have been incorrect in any material respect when made.
(d) Failure to Perform. Borrower fails to perform or observe
any other term, covenant or agreement contained in this Agreement or any of the
Related Documents to which it is a party.
(e) Invalidity of Agreement. Any material provision of this
Agreement or the Related Documents at any time and for any reason ceases to be
valid and binding on Borrower, or is declared to be null and void, or the
validity or enforceability of such provision is contested by Borrower, or a
proceeding is commenced by any governmental agency or authority having
jurisdiction over Borrower that seeks to establish the invalidity or
unenforceability of such provision, or Borrower denies that it has any or
further liability or obligation under this Agreement.
(f) Invalidity of Security Interests. All or any portion of
the security interests and/or liens created by any of this Agreement ceases, for
any reason, to be valid and perfected first priority security interests in favor
of Lender.
(g) Invalidity of Related Documents. Any Related Document, for
any reason, ceases to be in full force and effect.
(h) Governmental Approvals. Any governmental approval,
registration or filing with any governmental authority, now or in the future
required in connection with the performance by Borrower of its obligations under
this Agreement or under any of the Related Documents, is
-16-
<PAGE>
revoked, withdrawn or withheld, or fails to remain in full force and effect,
except that Borrower will have 45 days after notice of any such event to take
whatever action is necessary to obtain all necessary approvals, registrations
and filings.
(i) Other Governmental Action. Any action is taken by any
governmental authority that (a) in the sole opinion of Lender, deprives Borrower
of any right, privilege or franchise required to operate its business, or
substantially restrict the exercise of such right, privilege or franchise, (b)
in the sole opinion of Lender, materially affects the likelihood of Borrower's
full and timely performance of its obligations under this Agreement, and (c) is
not revoked or rescinded within 45 days after it becomes effective.
(j) Change in Financial Statements. There is a material
adverse change from the financial statements dated as of June 30, 1998.
(k) Act of Bankruptcy. Borrower becomes the subject of any
debtor relief law, including a proceeding under Title 11 of the United States
Code, and if such proceeding is an involuntary proceeding, it has not been
dismissed or withdrawn within 30 days.
SECTION 6.2 Consequences of Default. If any Event of Default occurs,
Lender, in its sole discretion, may do any or all of the following:
(a) Reduce Commitment. Reduce the amount of the Commitment.
(b) Terminate Bank Agreements. Terminate the Bank Agreements
and/or cause the Bank to cease issuing Letters of Credit under the Bank
Agreements.
(c) Acceleration. Declare all amounts payable under this
Agreement and the Related Documents immediately due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
expressly waived by Borrower.
(d) Assembly of Collateral. Require Borrower (and Borrower
hereby agrees to comply with such request) to assemble the Collateral and make
it available to Lender at such location as Lender may designate.
(e) Exercise Other Rights. Exercise any right and remedies
available to Lender under any or all of the Related Documents, by law or at
equity, and under any other agreement.
-17-
<PAGE>
ARTICLE 7
MISCELLANEOUS
SECTION 7.1 Amendments. This Agreement may not be amended orally. It
may only be amended in writing. No waiver of any breach of this Agreement or any
consent by Lender under this Agreement will be effective unless it is in writing
and signed by Lender, and such amendments and any waivers or consents will be
effective only in the specific instance and for the specific purpose for which
they are given.
SECTION 7.2 Notices. All notices and other communications required by
or otherwise furnished in connection with this Agreement will be in writing and
sent by receipted hand delivery (including Federal Express or other receipted
courier service), telecopier or regular mail,
if to Borrower: Imaging Technologies Corporation
11301 Via Frontera
San Diego, CA 92127
Attention: Chris McKee
Telephone: (619) 487-8944 x. 2012
Telecopier: (619) 613-1311
with a copy to: Brobeck Phleger & Harrison LP
550 West C Street, Suite 1300
San Diego, CA 92101-3532
Attention: John Cook
Telephone: (619) 699-0236
Telecopier: (619) 234-3848
or, if to Lender: American Industries, Inc.
1750 NW Front Avenue, Suite 106
Portland, OR 97209
Attention: Howard H. Hedinger
Telephone: (503) 222-0060
Telecopier: (503) 222-0070
with a copy to: Tonkon Torp LP
1600 Pioneer Tower
888 S.W. Fifth Avenue
Portland, OR 97204-2099
Attention: Kenneth D. Stephens
Telephone: (503) 802-2008
Telecopier: (503) 972-3708
-18-
<PAGE>
or, if to Bank: U.S. Bank National Association
111 S.W. Fifth Avenue, T-4
Portland, OR 97204
Attention: Richard Ferguson
Telephone: (503) 275-6354
Telecopier: (503) 275-5795
or, as to each party, at such other address as is may be designated by such
party in a written notice to the other party. All such notices and
communications will, when delivered or faxed, be effective when deposited with
the courier or sent by facsimile, respectively, addressed as set forth above.
SECTION 7.3 Waiver; Remedies. No failure on the part of Lender to
exercise, and no delay in exercising, any right under this Agreement will
operate as a waiver of such right. The single or partial exercise of any right
under this Agreement will not preclude any other or further exercise of such
right or the exercise of any other right. The remedies set forth in this
Agreement are cumulative with, and not exclusive of, any rights and remedies
otherwise available to Lender.
SECTION 7.4 Right of Set-off. [Deleted]
SECTION 7.5 Indemnification. Borrower will indemnify and hold Lender
harmless from and against any and all claims, damages, losses, liabilities,
costs or expenses ("Claims") that Lender may incur or that may be claimed
against Lender by any person or entity by reason of or in connection with the
following:
(a) The execution, delivery or performance of this Agreement,
any Related Document, or any transaction contemplated by this Agreement or any
Related Document.
(b) The execution and delivery or transfer of, or payment or
failure to make payment under, the Letters of Credit, including any Claims
caused by Bank's willful misconduct or gross negligence including (i) Bank's
determinations of whether a sight draft or certificate presented under a Letter
of Credit complies with the terms of that Letter of Credit, or (ii) Bank's
failure to make lawful payment under the Letter of Credit after the presentation
to it of documents strictly complying with the terms and conditions of the
Letter of Credit.
Nothing in this Section is intended to limit Borrower's obligations contained in
Article 2 of this Agreement. Without prejudice to the survival of any other
obligation of Borrower under this Agreement, the indemnities and obligation of
Borrower contained in this Section will survive payment in full, or satisfaction
through foreclosure, of amounts payable pursuant to Article 2 of this Agreement
and termination of the Letters of Credit.
SECTION 7.6 Limitation of Liability of Lender. In addition, Borrower
assumes all risks of the acts or omissions of any beneficiary or transferee of a
Letter of Credit or with respect to such
-19-
<PAGE>
parties' use of a Letter of Credit. Neither Lender nor any of its officers or
directors will be liable or responsible for any one or more of the following:
(a) The use that may be made of the Letters of Credit or any
acts or omissions of any beneficiary or transferee in connection with the
Letters of Credit.
(b) The validity, sufficiency or genuineness of documents
presented in connection with the Letters of Credit, or of any endorsement on
such documents, even if the documents should prove to be in any or all respects
invalid, insufficient, fraudulent or forged.
(c) Payment by Bank against presentation of documents that do
not strictly comply with the terms of the Letters of Credit, including failure
of any documents to bear any reference or adequate reference to the Letters of
Credit.
(d) Any other circumstances whatsoever in making or failing to
make payment under the Letters of Credit, including as a result of (i) Bank's
gross negligence or willful misconduct in determining whether documents
presented under a Letter of Credit comply with the terms of that Letter of
Credit, and (ii) Bank's willful failure to pay under a Letter of Credit after
the presentation to it by a beneficiary in accordance with its terms) of
documents strictly complying with the terms and conditions of the Letters of
Credit. In furtherance and not in limitation of the preceding, Bank may accept
documents that appear on their face to be in order, without responsibility for
further investigation, regardless of any notice or information to the contrary.
Without limiting the preceding, Borrower agrees not to assert against Lender any
Claim in connection with Bank's performance of or its failure to perform, any of
Bank's obligations under the Bank Agreements or any of the Related Documents or
in connection with the termination of the Bank Agreements for any reason,
including a default by Lender.
SECTION 7.7 Costs, Expenses and Taxes. Borrower will immediately pay on
demand all costs and expenses in connection with the preparation, execution,
delivery, filing, recording and enforcement of or monitoring of compliance with
this Agreement and the Related Documents, irrespective of whether any Letters of
Credit are actually issued, including the reasonable fees and out-of-pocket
expenses of Lender and of counsel to Lender with respect to such matters and
with respect to advising Lender as to its rights and responsibilities under this
Agreement and the Related Documents, and all costs and expenses (including
counsel fees and expenses both at trial and on appeal) in connection with (a)
the enforcement of this Agreement, the Related Documents, and such other
documents that may be delivered in connection with this Agreement or the Related
Documents, and (b) any action or proceeding relating to a court order,
injunction or other process or decree restraining or seeking to restrain Lender
from paying any amount under the Letters of Credit. In addition, Borrower will
pay any and all Taxes and fees payable or determined to be payable in connection
with the execution, delivery, filing and recording of this Agreement, the
Related Documents, and such other documents and will hold Lender harmless from
and against any and all liabilities with respect to or resulting from any delay
in paying or omitting to pay such Taxes and fees.
-20-
<PAGE>
SECTION 7.8 Binding Effect. This Agreement will become effective when
it is executed by Borrower and Lender, and will thereafter be binding upon and
inure to the benefit of Borrower and Lender (and their respective successors and
assigns), except that Borrower will not have the right to assign its rights
under this Agreement or any interest in this Agreement without the prior written
consent of Lender.
SECTION 7.9 Consent to Jurisdiction. Borrower, at Lender's option,
irrevocably submits to the non-exclusive jurisdiction of any court of the State
of Oregon or the United States of America sitting in Multnomah County, Oregon,
in any action or proceeding arising out of or relating to this Agreement or the
Related Documents, and Borrower irrevocably agrees that all claims with respect
to such action or proceeding may be heard and determined in any such court.
Borrower also irrevocably waives, to the fullest extent that it may effectively
do so, the defense of an inconvenient forum to the maintenance of such action or
proceeding. Borrower also irrevocably consents to the service of any and all
process in any such action or proceeding by the mailing of copies of such
process to it at its address specified in Section 7.2 of this Agreement.
Borrower agrees that a Final Judgment in any such action or proceeding will be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this Section will affect the
right of Lender to serve legal process in any other manner permitted by law or
affect the right of Lender to bring any action or proceeding against Borrower or
its property in the courts of any other jurisdictions.
SECTION 7.10 Governing Law. This Agreement will be governed by, and
construed in accordance with, the laws of the state of Oregon.
SECTION 7.11 Severability. Any provision of this Agreement that is
prohibited, unenforceable or not authorized in any jurisdiction will, as to such
jurisdiction, be ineffective to the extent of such prohibition, unenforceability
or nonauthorization without invalidating the remaining provisions of this
Agreement or affecting the validity, enforceability or legality of such
provision in any other jurisdiction.
SECTION 7.12 Headings. Section and subsection headings in this
Agreement are included for convenience of reference only and will not constitute
a part of this Agreement for any other purpose.
SECTION 7.13 Complete Understanding. This Agreement contains the full
and complete understanding with respect to the subjects contained in this
Agreement and completely and fully supersedes all prior undertakings or
agreements, both written and oral, between Borrower and Lender relating to
issuance of the Letters of Credit. In connection therewith, Lender incorporates
the following statutory notice:
Under Oregon law, most agreements, promises and commitments made by us
after October 3, 1989, concerning loans and other credit extensions which are
not for personal,
-21-
<PAGE>
family or household purposes or secured solely by the borrower's residence must
be in writing, express consideration and be signed by us to be enforceable.
SECTION 7.14 Counterparts/Facsimile Delivery . This Agreement may be
executed in any number of counterparts and by different parties, each of which
when so executed will be deemed to be an original, and all of which when taken
together will be deemed to be one and the same instrument. Delivery of an
executed counterpart of a signature page to this Agreement by facsimile
transmission will be effective as delivery of an original executed counterpart
of this Agreement.
BORROWER: IMAGING TECHNOLOGIES CORPORATION
By:___________________________________
Its:___________________________________
LENDER: AMERICAN INDUSTRIES, INC.
By:___________________________________
Its:___________________________________
-22-
<PAGE>
EXHIBIT A-1
Form of Commercial Letter of Credit
================================================================================
SECURITIES PURCHASE AGREEMENT
Among
IMAGING TECHNOLOGIES CORPORATION,
BALMORE FUNDS S.A.,
AUSTOST ANSTALT SCHAAN,
NESHER, INC.
and
GUARANTEE & FINANCE CORP.
Dated as of January 13, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I PURCHASE AND SALE OF UNITS...........................................1
1.1 Purchase and Sale.......................................................1
1.2 Purchase Price..........................................................2
1.3 The Closings............................................................2
ARTICLE II REPRESENTATIONS AND WARRANTIES......................................5
2.1 Representations, Warranties and Agreements of the Company...............5
2.2 Representations and Warranties of the Purchasers.......................13
ARTICLE III OTHER AGREEMENTS OF THE PARTIES...............................14
3.1 Transfer Restrictions..................................................14
3.2 Stop Transfer Instruction..............................................15
3.3 Furnishing of Information..............................................15
3.4 Blue Sky Laws..........................................................15
3.5 Integration............................................................16
3.6 Certain Agreements.....................................................16
3.7 Listing and Reservation of Underlying Shares
and Warrant Shares; Compliance with Law................................16
3.8 Notice of Breaches.....................................................17
3.9 Conversion Obligations of the Company..................................18
3.10 Use of Proceeds.......................................................18
3.11 Indemnification.......................................................18
3.12 Sales of Preferred Stock..............................................19
3.13 Subsequent Sales and Registrations....................................19
3.14 Shareholder Approval..................................................20
3.15 Interim Financing.....................................................20
3.16 Incorporation of Certificate of Designation By Reference..............20
3.17 Board of Directors....................................................20
3.18 Conversion of Shares and Exercise of Warrants.........................20
ARTICLE IV CONDITIONS.........................................................21
4.1 Conditions Precedent to Sale of the Initial Units......................21
4.2 Conditions Precedent to the Obligation of the
Purchasers to Purchase the Additional Units............................23
ARTICLE V MISCELLANEOUS.......................................................26
5.1 Fees and Expenses......................................................26
5.2 Entire Agreement; Amendments...........................................26
5.3 Notices................................................................26
5.4 Amendments; Waivers....................................................27
5.5 Headings...............................................................27
<PAGE>
5.6 Successors and Assigns.................................................27
5.7 No Third Party Beneficiaries...........................................28
5.8 Governing Law..........................................................28
5.9 Survival...............................................................28
5.10 Execution.............................................................28
5.11 Publicity.............................................................28
5.12 Consent to Jurisdiction; Attorneys' Fees..............................28
5.13 Waiver of Jury Trial..................................................29
5.14 Severability..........................................................30
5.15 Remedies..............................................................30
5.16 Independent Nature of Purchasers' Obligations and Rights..............30
Schedules and Exhibits
- ----------------------
Schedule 1 - Purchasers of Units
Schedule 2.1(a) - Organization and Qualification; Subsidiaries
Schedule 2.1(c) - Capitalization; Rights to Acquire Capital Stock
Schedule 2.1(f) - Consents and Approvals
Schedule 2.1(g) - Litigation; Proceedings
Schedule 2.1(n) - Certain Fees
Schedule 2.1(r) - Listing and Maintenance Requirements Compliance
Schedule 2.1(u) - Registration Rights, Rights of Participation
Schedule 2.1(v) - Title
Schedule 2.1(aa) - Year 2000 Compliance
Schedule 3.13 - Subsequent Sales and Registrations
Schedule 3.18 - Conversion of Shares and Exercise of Warrants
Exhibit A - Certificate of Designation
Exhibit B - Warrants
Exhibit C - Registration Rights Agreement
Exhibit D - Legal Opinion of Parker Chapin Flattau & Klimpl, LLP
Exhibit E - Transfer Agent Instructions
ii
<PAGE>
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of January
13, 1999, among Imaging Technologies Corporation, a Delaware corporation (the
"Company"), Balmore Funds S.A. ("Balmore"), Austost Anstalt Schaan ("Austost"),
Nesher, Inc. ("Nesher") and Guarantee & Finance Corp. ("G&F"). Balmore, Austost,
Nesher and G&F are each referred to herein as a "Purchaser" and are collectively
referred to herein as the "Purchasers."
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchasers, and the
Purchasers desire to acquire from the Company, shares of the Company's Series D
Convertible Preferred Stock, par value $1,000 per share and stated value of
$2,000 per share (the "Preferred Stock"), and warrants (the "Warrants") to
purchase shares of common stock, par value $.005 per share, of the Company (the
"Common Stock").
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement, the Company and each Purchaser agree as follows:
ARTICLE I
PURCHASE AND SALE OF UNITS
1.1 Purchase and Sale.
(a) Subject to the terms and conditions set forth herein, the
Company shall issue and sell to the Purchasers, and the
Purchasers, severally and not jointly, shall purchase from the
Company up to 1,200 units (the "Units"), each Unit consisting
of (i) a share of Preferred Stock and (ii) Warrants to
purchase two thousand shares of Common Stock. Notwithstanding
anything to the contrary set forth in this Agreement, the
aggregate number of Units to be sold hereunder shall not
exceed 1,200.
(b) The Preferred Stock shall have the respective rights,
preferences and privileges set forth in the Certificate of
Designation of the Company (the "Certificate of Designation")
the form of which is annexed hereto as Exhibit A, which shall
be approved by the Purchasers and the Company's Board of
Directors (the "Board of Directors") and filed and accepted
for filing on or prior to the Initial Closing Date (as defined
below) by the Company with the Secretary of State of the State
of Delaware. The Warrants shall be in the form of Exhibit B
annexed hereto.
For purposes of this Agreement, "Trading Day," "Per Share Market
Value," "Conversion Date," and "Original Issue Date" shall have the meanings set
forth in the Certificate of Designation.
<PAGE>
1.2 Purchase Price. The purchase price per Unit shall be $2000.00.
1.3 The Closings.
(a) The Initial Closing.
(i) The closing of the purchase and sale of the
Initial Units (as defined below) (the "Initial Closing") shall
take place at the offices of Stroock & Stroock & Lavan LLP,
180 Maiden Lane, New York, New York 10038-4982, immediately
following the execution hereof or such later date or different
location as the parties shall agree in writing, but not prior
to the date that the conditions set forth in Section 4.1 have
been satisfied or waived by the appropriate party. The date of
the Initial Closing, is hereinafter referred to as the
"Initial Closing Date." At the Initial Closing, the Company
shall sell and issue to the Purchasers, and the Purchasers
shall, severally and not jointly, purchase from the Company,
300 Units (the "Initial Units") for an aggregate purchase
price of $600,000 (the "Initial Purchase Price").
(ii) At the Initial Closing (a) the Company shall
deliver to each Purchaser (1) stock certificates representing
the shares of Preferred Stock included in the Initial Units
(the "Initial Shares") purchased by such Purchaser as set
forth next to such Purchaser's name on Schedule 1 attached
hereto, each registered in the name of such Purchaser, (2) the
Warrants included in the Initial Units (the "Initial
Warrants") purchased by such Purchaser as set forth next to
such Purchaser's name on Schedule 1 attached hereto,
registered in the name of such Purchaser, (3) and all other
documents, instruments and writings required to have been
delivered at or prior to the Initial Closing by the Company
pursuant to this Agreement and the Registration Rights
Agreement, dated the date hereof, by and among the Company and
the Purchasers, in the form of Exhibit C annexed hereto (the
"Registration Rights Agreement"), and (b) each Purchaser shall
deliver to the Company the portion of the Initial Purchase
Price set forth next to its name on Schedule 1, in United
States dollars in immediately available funds by wire transfer
to an account designated in writing by the Company for such
purpose on or prior to the Initial Closing Date, and all
documents, instruments and writings required to have been
delivered at or prior to the Initial Closing by such Purchaser
pursuant to this Agreement and the Registration Rights
Agreement.
(b) Subsequent Closings.
(i) Second Closing. (A) Subject to the terms and
conditions set forth in Section 4.2 and elsewhere in this
Agreement, beginning on the date on which the initial
Registration Statement (as defined in the Registration Rights
Agreement)
2
<PAGE>
is filed with the Securities and Exchange Commission (the
"Commission") with respect to the Units, the Company shall
have the right to deliver a written notice to the Purchasers
(a "Second Closing Notice") requiring the Purchasers to
purchase, severally and not jointly, up to an additional 300
Units (the "Second Tranche Units") for up to an aggregate
purchase price of $600,000 (the "Second Tranche Purchase
Price"). The Second Closing Notice shall set forth the number
of Second Tranche Units that the Company intends to sell the
Purchasers. At the Second Closing each Purchaser shall be
obligated (subject to the terms and conditions herein) to
purchase such portion of the Second Tranche Units sold by the
Company as equals such Purchaser's pro rata portion of the
purchase price for the Initial Units issued and sold at the
Initial Closing. The closing of the purchase and sale of the
Second Tranche Units (the "Second Closing") shall take place
in the same manner as the Initial Closing on such date
indicated in the Second Closing Notice (which may not be prior
to the 10th day after receipt by the Purchasers of the Second
Closing Notice or as otherwise agreed to by the parties);
provided, however, that in no case shall the Second Closing
take place unless and until the conditions listed in Section
4.2 have been satisfied or waived by the appropriate party.
The date of the Second Closing is hereinafter referred to as
the "Second Closing Date."
(B) At the Second Closing (a) the Company shall
deliver to each Purchaser (1) stock certificates representing
the shares of Preferred Stock included in the Second Tranche
Units (the "Second Tranche Shares") purchased by such
Purchaser as set forth next to such Purchaser's name on
Schedule 1 attached hereto, each registered in the name of
such Purchaser, (2) the Warrants included in the Second
Tranche Units (the "Second Tranche Warrants") purchased by
such Purchaser as set forth next to such Purchaser's name on
Schedule 1 attached hereto, registered in the name of such
Purchaser and (3) and all other documents, instruments and
writings required to have been delivered at or prior to the
Second Closing by the Company pursuant to this Agreement and
the Registration Rights Agreement, and (b) each Purchaser
shall deliver to the Company the portion of the Second Tranche
Purchase Price set forth next to its name on Schedule 1, in
United States dollars in immediately available funds by wire
transfer to an account designated in writing by the Company
for such purpose on or prior to the Second Closing Date, and
all documents, instruments and writings required to have been
delivered at or prior to the Second Closing by such Purchaser
pursuant to this Agreement and the Registration Rights
Agreement.
(ii) Third Closing. (A) Subject to the terms and
conditions set forth in Section 4.2 and elsewhere in this
Agreement, the Company shall have the right to deliver a
written notice to the Purchasers (a "Third Closing Notice")
requiring the Purchasers to purchase up to an additional 600
Units (the "Third Tranche Units" and together with the Second
Tranche Units, the "Additional Units") for an aggregate
purchase price of $1,200,000 (the "Third Tranche Purchase
Price").
3
<PAGE>
The Company may deliver a Third Closing Notice no earlier than
60 days after the date on which the initial Registration
Statement filed with the Commission with respect to the Units
has been declared effective by the Commission and no later
than 90 days after such effective date. Such Third Closing
Notice shall set forth the number of Third Tranche Units that
the Company intends to sell to the Purchasers. At the Third
Closing each Purchaser shall be obligated (subject to the
terms and conditions herein) to purchase such portion of the
Third Tranche Units sold by the Company as equals such
Purchaser's pro rata portion of the purchase price for the
Initial Units issued and sold at the Initial Closing. The
closing of the purchase and sale of the Third Tranche Units
(the "Third Closing") shall take place in the same manner as
the Initial Closing, on such date indicated in the Third
Closing Notice (which may not be prior to the 10th day after
receipt by the Purchasers of the Third Closing Notice or as
otherwise agreed to by the parties); provided, however, that
in no case shall the Third Closing take place unless and until
the conditions listed in Section 4.2 have been satisfied or
waived by the appropriate party. The date of the Third Closing
is hereinafter referred to as the "Third Closing Date.")
(B) At the Third Closing (a) the Company shall
deliver to each Purchaser (1) stock certificates representing
the shares of Preferred Stock included in the Third Tranche
Units (the "Third Tranche Shares" and together with the
Initial Shares and the Second Tranche Shares, the "Shares")
purchased by such Purchaser as set forth next to such
Purchaser's name on Schedule 1 attached hereto, each
registered in the name of such Purchaser, (2) the Warrants
included in the Third Tranche Units (the "Third Tranche
Warrants") purchased by such Purchaser as set forth next to
such Purchaser's name on Schedule 1 attached hereto,
registered in the name of such Purchaser and (3) and all other
documents, instruments and writings required to have been
delivered at or prior to the Third Closing by the Company
pursuant to this Agreement and the Registration Rights
Agreement, and (b) each Purchaser shall deliver to the Company
the portion of the Third Tranche Purchase Price set forth next
to its name on Schedule 1, in United States dollars in
immediately available funds by wire transfer to an account
designated in writing by the Company for such purpose on or
prior to the Third Closing Date, and all documents,
instruments and writings required to have been delivered at or
prior to the Third Closing by such Purchaser pursuant to this
Agreement and the Registration Rights Agreement.
The Second Closing and the Third Closing are
hereinafter collectively referred to as the "Subsequent
Closings," and the Second Closing Date and the Third Closing
Date are hereinafter referred to as the "Subsequent Closing
Dates."
4
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. The
Company hereby makes the following representations and warranties to the
Purchasers:
(a) Organization and Qualification; Subsidiaries. The Company
is a corporation, duly organized, validly existing and in good standing
under the laws of the State of Delaware, with the requisite corporate
power and authority to own and use its properties and assets and to
carry on its business as currently conducted. The Company has no
subsidiaries other than as set forth in Schedule 2.1(a) (collectively,
the "Subsidiaries"). Each of the Subsidiaries is a corporation, duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with
the full corporate power and authority to own and use its properties
and assets and to carry on its business as currently conducted. Each of
the Company and the Subsidiaries is duly qualified to do business and
is in good standing as a foreign corporation in each jurisdiction in
which the nature of the business conducted or property owned by it
makes such qualification necessary, except where the failure to be so
qualified or in good standing, as the case may be, would not,
individually or in the aggregate, (x) adversely affect the legality,
validity or enforceability of the Preferred Stock or any of the
Transaction Documents (as defined below), (y) have or result in a
material adverse effect on the results of operations, assets, prospects
insofar as it may reasonably be foreseen, or financial condition of the
Company and the Subsidiaries, taken as a whole or (z) adversely impair
the Company's ability to perform fully on a timely basis its
obligations under any Transaction Document, including, without
limitation, the Company's covenant under Section 3.7 hereof (any of
(x), (y) or (z), being a "Material Adverse Effect").
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by this Agreement and the other Transaction
Documents, and otherwise to carry out its obligations hereunder and
thereunder. This Agreement, the Registration Rights Agreement, the
Certificate of Designation, the Warrants and the Funds Escrow Agreement
are collectively referred to as the "Transaction Documents." The
execution and delivery of each of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized by all necessary action on
the part of the Company and no further action is required by the
Company. Each of the Transaction Documents has been duly executed by
the Company and when delivered in accordance with the terms hereof will
constitute the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general
application. Neither the Company nor any Subsidiary is in violation of
any of the
5
<PAGE>
provisions of its respective certificate of incorporation, bylaws or
other organizational documents. Prior to the Initial Closing Date the
Certificate of Designation has been filed with the Secretary of State
of the State of Delaware and will be in full force and effect,
enforceable against the Company in accordance with the terms thereof.
(c) Capitalization; Rights to Acquire Capital Stock. The
authorized, issued and outstanding capital stock of the Company as of
January 13, 1999, is set forth in Schedule 2.1(c). All issued and
outstanding shares of capital stock of the Company and each Subsidiary
have been duly authorized and validly issued and are fully paid and
non-assessable. Except as disclosed in Schedule 2.1(c), no shares of
the capital stock of the Company are entitled to preemptive or similar
rights, nor is any holder of the capital stock of the Company entitled
to preemptive or similar rights arising out of any agreement or
understanding with the Company by virtue of any of the Transaction
Documents. Except as disclosed in Schedule 2.1(c), as of January 13,
1999, there are no outstanding options, warrants, script rights to
subscribe to, calls, written commitments or, to the knowledge of the
Company, oral commitments relating to, or, except as a result of the
purchase and sale of the Units, securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire any shares of Common Stock, or contracts,
commitments, understandings, written arrangements or, to the knowledge
of the Company, oral arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common
Stock, or securities or rights convertible or exchangeable into shares
of Common Stock. Except as set forth on Schedule 2.1(c), and, to the
best knowledge of the Company, no Person or group of related Persons
beneficially owns (as determined pursuant to Rule 13d-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) or has the right to acquire by agreement with or by obligation
binding upon the Company beneficial ownership of in excess of 5% of the
Common Stock. A "Person" means an individual or corporation,
partnership, trust, incorporated or unincorporated association, joint
venture, limited liability company, joint stock company, government (or
an agency or subdivision thereof) or other entity of any kind. The
Common Stock is quoted and is listed for trading on The Nasdaq
Small-Cap Market. Except as set forth on Schedule 2.1(c), the Company
has received no notice, either oral or written, with respect to the
continued eligibility of the Common Stock for such listing, and the
Company has maintained all requirements for the continuation of such
listing.
(d) Issuance of Units. The Units are duly authorized, and when
issued and paid for in accordance with the terms hereof, shall be
validly issued, fully paid and nonassessable, free and clear of all
liens, encumbrances, and rights of first refusal of any kind
(collectively, "Liens"). The Units upon issuance will not subject the
holders thereof to personal liability by reason of being such holders.
The Company has and, at the Initial Closing Date and the each
Subsequent Closing Date (each, a "Closing Date"), as the case may be,
will have and at all times while the Shares and the Warrants are
outstanding will maintain an adequate reserve of duly authorized shares
of Common Stock to enable it to perform its obligations under this
Agreement, the Warrants and the Certificate of
6
<PAGE>
Designation with respect to the number of Shares and Warrants issued
and outstanding at such Closing Date and in no circumstances shall such
reserved and available shares of Common Stock be less than 175% of the
maximum number of shares of Common Stock which would be issuable upon
conversion of the Shares and upon exercise of the Warrants issued
pursuant to the terms hereof with respect to the number of Shares and
Warrants issued and outstanding at such Closing Date were such
conversion or exercise, as the case may be, effected on the Initial
Closing Date. The shares of Common Stock issuable upon conversion of
the Shares are referred to herein as the "Underlying Shares." When
issued in accordance with the Certificate of Designation, the
Underlying Shares will be duly authorized, validly issued, fully paid
and nonassessable, free and clear of all Liens. The shares of Common
Stock issuable upon exercise of the Warrants are referred to herein as
the "Warrant Shares." When issued and paid for in accordance with the
Warrant, the Warrant Shares will be duly authorized, validly issued,
fully paid and nonassessable, free and clear of all Liens. The Shares,
the Warrants, the Underlying Shares and the Warrant Shares are referred
to herein as the "Securities."
(e) No Conflicts. The execution, delivery and performance of
this Agreement and the other Transaction Documents by the Company and
the consummation by the Company of the transactions contemplated hereby
and thereby do not and will not (i) conflict with or violate any
provision of its certificate of incorporation, bylaws or other
organizational documents (each as amended through the date hereof) or
(ii) subject to obtaining the consents referred to in Section 2.1(f),
conflict with, or constitute a default (or an event which with notice
or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument (evidencing a
Company debt or otherwise) to which the Company is a party or by which
any property or asset of the Company is bound or affected, (iii) result
in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental
authority to which the Company is subject (including Federal and state
securities laws and regulations), or by which any material property or
asset of the Company is bound or affected, or (iv) result in the
creation of imposition of a Lien upon any of the Securities or any of
the assets of the Company, or any of its Affiliates (as such term is
defined under Rule 405 promulgated under the Securities Act), except in
the case of each of clauses (ii) and (iii), such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations
as would not, individually or in the aggregate, have or result in a
Material Adverse Effect. The business of the Company is not being
conducted in violation of any law, ordinance or regulation of any
governmental authority except for any such violation as would not,
individually or in the aggregate, have or result in a Material Adverse
Effect.
(f) Consents and Approvals. Except as specifically set forth
in Schedule 2.1(f), neither the Company nor any Subsidiary is required
to obtain any consent, waiver, authorization or order of, give any
notice to, or make any filing or registration with, any court or other
federal, state, local or other governmental authority or other Person
in connection with the execution, delivery and performance by the
Company of
7
<PAGE>
the Transaction Documents, other than (i) the approval of the Board of
Directors and the filing of the Certificate of Designation with respect
to the Preferred Stock with the Secretary of State of the State of
Delaware, which filing and approvals with respect to the Preferred
Stock shall be effected prior to the Initial Closing Date, (ii) the
filing of the Registration Statement with the Commission, which shall
be filed in accordance with and in the time periods set forth in the
Registration Rights Agreement, (iii) the application(s) or any
letter(s) acceptable to The Nasdaq Small-Cap Market for the listing of
the Underlying Shares and the Warrant Shares with The Nasdaq Small-Cap
Market (and with any other national securities exchange or market on
which the Common Stock is then listed), and (iv) any filings, notices
or registrations under applicable federal and state securities laws
(together with the consents, waivers, authorizations, orders, notices
and filings referred to in Schedule 2.1(f), the "Required Approvals").
(g) Litigation; Proceedings. Except as specifically set forth
in Schedule 2.1(g) there is no action, suit, notice of violation,
proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of the
Subsidiaries or any of their respective properties before or by any
court, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) which (i) adversely affects
or challenges the legality, validity or enforceability of any of the
Transaction Documents or the Securities or (ii) would reasonably be
expected to, individually or in the aggregate, have a Material Adverse
Effect.
(h) No Default or Violation. Neither the Company nor any
Subsidiary (i) is in default under or in violation of any indenture,
loan or credit agreement or any other agreement or instrument to which
it is a party or by which it or any of its properties is bound which
would reasonably be expected to, individually or in the aggregate, have
a Material Adverse Effect, (ii) is in violation of any order of any
court, arbitrator or governmental body applicable to it, or (iii) is in
violation of any statute, rule or regulation of any governmental
authority to which it is subject, which violation would reasonably be
expected to, individually or in the aggregate, have a Material Adverse
Effect.
(i) Schedules. The Schedules to this Agreement furnished by or
on behalf of the Company do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements made therein not misleading.
(j) Private Offering. The Company and all Persons acting on
its behalf have not made, and will not make, offers or sales of the
Preferred Stock, and any securities that might be integrated with
offers and sales of the Preferred Stock, except to "accredited
investors" (as defined in Regulation D ("Regulation D") under the
Securities Act of 1933, as amended (the "Securities Act")) without any
general solicitation or advertising and otherwise in compliance with
the conditions of Regulation D. The offer and sale by the Company to
the Purchasers of the Shares and the Warrants and the Underlying Shares
and the Warrant Shares into which the Shares and the Warrants are
convertible or exercisable, as the case may be, is exempt from the
registration requirements of the Securities Act.
8
<PAGE>
(k) SEC Documents; Financial Statements; No Adverse Change.
The Company has filed all reports required to be filed by it under the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for
the three years preceding the date hereof (the foregoing materials
being collectively referred to herein as the "SEC Documents") on a
timely basis or has received a valid extension of such time of filing
and has filed any such SEC Documents prior to the expiration of any
such extension. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange
Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Documents, when filed, contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein not misleading. All material agreements to which the
Company is a party or to which the property or assets of the Company
are subject have been filed as exhibits to the SEC Documents as
required; neither the Company nor any of the Subsidiaries is in breach
of any agreement where such breach would reasonably be expected to,
individually or in the aggregate, have a Material Adverse Effect. The
financial statements of the Company included in the SEC Documents
comply in all material respects with applicable accounting requirements
and the rules and regulations of the Commission with respect thereto as
in effect at the time of filing. Such financial statements have been
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods involved,
except as may be otherwise specified in such financial statements or
the notes thereto, and fairly present in all material respects the
financial position of the Company as of and for the dates thereof and
the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal year-end audit
adjustments. Since the date of the financial statements included in the
Company's last filed Quarterly Report on Form 10-Q for the period ended
September 30, 1998, there has been no event, occurrence or development
that has had, or would reasonably be expected to have, a Material
Adverse Effect which has not been specifically disclosed to the
Purchasers by the Company. The Company last filed audited financial
statements with the Commission on October 13, 1998, and has not
received any comments from the Commission in respect thereof.
(l) Seniority. No class of equity securities of the Company is
senior to the Preferred Stock in right of payment, whether upon
liquidation, dissolution or otherwise.
(m) Investment Company. The Company is not, and is not
controlled by or under common control with an affiliate of, an
"investment company" within the meaning of the Investment Company Act
of 1940, as amended.
(n) Certain Fees. Except as specifically set forth in Schedule
2.1(n), no fees or commissions will be payable by the Company to any
broker, financial advisor, finder, investment banker, or bank with
respect to the transactions contemplated by this Agreement. The
Purchasers shall have no obligation with respect to any fees or with
9
<PAGE>
respect to any claims made by or on behalf of other Persons for fees of
a type contemplated in this Section 2.1(n) that may be due in
connection with the transactions contemplated by this Agreement. The
Company shall indemnify and hold harmless each of the Purchasers, its
employees, officers, directors, agents, and partners, and their
respective Affiliates, from and against all claims, losses, damages,
costs (including the costs of preparation and attorney's fees) and
expenses suffered in respect of any such claimed or existing fees.
(o) Solicitation Materials. The Company has not distributed
any offering materials in connection with the offering and sale of the
Securities. The Company confirms that it has not provided the
Purchasers or their agents or counsel with any information that
constitutes or might constitute material non-public information. The
Company understands and confirms that the Purchasers shall be relying
on the foregoing representations in effecting transactions in
securities of the Company.
(p) Form S-3 Eligibility. The Company is, and at each Closing
Date will be, eligible to register securities (including the Underlying
Shares and the Warrant Shares) for resale with the Commission under
Form S-3 promulgated under the Securities Act.
(q) Exclusivity. The Company shall not issue and sell the
Preferred Stock to any Person other than the Purchasers pursuant to
this Agreement other than with the specific prior written consent of
each of the Purchasers.
(r) Listing and Maintenance Requirements Compliance. Except as
set forth on Schedule 2.1(r), the Company has not in the three years
preceding the date hereof received notice (written or oral) from any
stock exchange, market or trading facility on which the Common Stock is
or has been listed (or on which it has been quoted) to the effect that
the Company is not in compliance with the listing or maintenance
requirements of such exchange or market. Except as specifically set
forth on Schedule 2.1(r), after giving effect to the transactions
contemplated in this Agreement, the Company believes that it is in
compliance with all such maintenance requirements.
(s) Patents and Trademarks. The Company has, or has rights to
use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and
rights (collectively, the "Intellectual Property Rights") which are
necessary for use in connection with its business, as currently
conducted and as described in the SEC Documents, and which the failure
to so have would have a Material Adverse Effect.
(t) Acknowledgment of Dilution. The Company acknowledges that
the issuance of (i) the Underlying Shares upon conversion of the Shares
in accordance with the Certificate of Designation and (ii) the Warrant
Shares upon exercise of the Warrants may result in dilution of the
outstanding shares of Common Stock, which dilution may be substantial
under certain market conditions. The Company further acknowledges that
its
10
<PAGE>
obligation to issue (i) the Underlying Shares upon conversion of the
Shares in accordance with the Certificate of Designation and (ii) the
Warrant Shares upon exercise of the Warrants is unconditional and
absolute regardless of the effect of any such dilution.
(u) Registration Rights; Rights of Participation. Except as
described on Schedule 2.1(u) hereto, (A) the Company has not granted or
agreed to grant to any Person any rights (including "piggy-back"
registration rights) to have any securities of the Company registered
with the Commission or any other governmental authority which has not
been satisfied and (B) except as set forth on Schedule 2.1(c) hereto,
no Person, including, but not limited to, current or former
shareholders of the Company, underwriters, brokers or agents, has any
right of first refusal, preemptive right, right of participation, or
any similar right to participate in the transactions contemplated by
this Agreement or any other Transaction Document.
(v) Title. Except as disclosed in Schedule 2.1(v), the Company
and the Subsidiaries have good and marketable title to, or the right to
use, all personal property owned by them which is material to the
business of the Company and the Subsidiaries, in each case free and
clear of all Liens, except for liens, claims or encumbrances as do not
materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company
and the Subsidiaries. Neither the Company nor any of its Subsidiaries
owns any real property. Any real property and facilities held under
lease by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made
of such property and buildings by the Company and the Subsidiaries.
(w) Regulatory Permits. The Company and the Subsidiaries
possess all franchises, certificates, licenses, authorizations and
permits or similar authority issued by the appropriate federal, state
or foreign regulatory authorities necessary to conduct their respective
businesses as described in the SEC Documents except where the failure
to possess such permits would not, individually or in the aggregate,
have a Material Adverse Effect ("Material Permits"), and neither the
Company nor any such Subsidiary has received any notice of proceedings
relating to the revocation or modification of any Material Permit.
(x) Insurance. The Company and each Subsidiary maintains
property and casualty, general liability, workers' compensation,
environmental hazard, personal injury and other similar types of
insurance with financially sound and reputable insurers that is
adequate, consistent with industry standards. Neither the Company nor
any Subsidiary has received notice from, and has any knowledge of any
threat by, any insurer (that has issued any insurance policy to the
Company or any Subsidiary) that such insurer intends to deny coverage
under or cancel, discontinue or not renew any insurance policy
presently in force.
11
<PAGE>
(y) Taxes. All applicable tax returns required to be filed by
the Company and each of the Subsidiaries have been filed, or if not yet
filed have been granted extensions of the filing dates which extensions
have not expired, and all taxes, assessments, fees and other
governmental charges upon the Company, the Subsidiaries, or upon any of
their respective properties, income or franchises, shown in such
returns and on assessments received by the Company or the Subsidiaries
to be due and payable have been paid, or adequate reserves therefor
have been set up if any of such taxes are being contested in good
faith; or if any of such tax returns have not been filed or if any such
taxes have not been paid or so reserved for, the failure to so file or
to pay would not in the aggregate or individually have a Material
Adverse Effect.
(z) No Integrated Offering. Neither the Company, nor any of
its Affiliates, nor any Person acting on its or their behalf, has
directly or indirectly made any offers or sales in any security or
solicited any offers to buy any securities under circumstances that
would require registration of any such securities under the Securities
Act or cause the offering of the Securities pursuant to this Agreement
to be integrated with prior offerings by the Company for purposes of
the Securities Act or any applicable shareholder approval provisions,
including, without limitation, under the rules and regulations of The
Nasdaq Stock Market, as applicable. The Company has not conducted any
offering that will be integrated with the issuance of the Securities
solely for purpose of Rule 4460(i) of The Nasdaq Stock Market, Inc.'s
Marketplace Rules.
(aa) Year 2000 Compliance. The Company has initiated a review
and assessment of all areas within its and each Subsidiaries' business
and operations that could be adversely affected by the "Year 2000
Problem" (that is, the risk that computer applications used by the
Company or any of the Subsidiaries may be unable to recognize and
perform properly date-sensitive functions involving certain dates prior
to and any date after December 31, 1999). Based on the foregoing,
except as set forth on Schedule 2.1(aa), the Company believes that the
computer applications that are currently material to its or any
Subsidiaries' business and operations are reasonably expected to be
able to perform properly date-sensitive functions for all dates before
and after January 1, 2000, except to the extent that a failure to do so
would not reasonably be expected to have a Material Adverse Effect.
2.2 Representations and Warranties of the Purchasers. Each of the
Purchasers, severally and not jointly, hereby represents and warrants to the
Company as follows:
(a) Investment Intent. Such Purchaser is acquiring the
Securities for its own account for investment purposes only and not
with a view to or for distributing or reselling such Securities or any
part thereof or interest therein, without prejudice, however, to such
Purchaser's right, subject to the provisions of this Agreement and the
Registration Rights Agreement, at all times to sell or otherwise
dispose of all or any part of such Securities pursuant to an effective
registration statement under the Securities Act and in compliance with
applicable State securities laws or under an exemption from such
registration.
12
<PAGE>
(b) Purchaser Status. At the time such Purchaser was offered
the Securities, and at each Closing Date, (i) it was and will be, an
"accredited investor" (as defined in Regulation D), or (ii) such
Purchaser either alone or together with its representatives, had and
will have such knowledge, sophistication and experience in business and
financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and had and will
have so evaluated the merits and risks of such investment. Such
Purchaser has the authority and is duly and legally qualified to
purchase and own the Securities.
(c) Ability of Purchaser to Bear Risk of Investment. Such
Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss
of such investment.
(d) Reliance. Each Purchaser understands and acknowledges that
(i) the Securities are being offered and sold to the Purchaser without
registration under the Securities Act in a private placement that is
exempt from the registration provisions of the Securities Act under
Section 4(2) of the Securities Act or Regulation D promulgated
thereunder and (ii) the availability of such exemption, depends in part
on, and the Company will rely upon the accuracy and truthfulness of,
the foregoing representations and such Purchaser hereby consents to
such reliance.
13
<PAGE>
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions.
(a) If any Purchaser should decide to dispose of any Shares
(and upon conversion thereof any of the Underlying Shares) or Warrants
(and upon exercise thereof any of the Warrant Shares) held by it, each
Purchaser understands and agrees that it may do so only pursuant to an
effective registration statement under the Securities Act, to the
Company or pursuant to an available exemption from the registration
requirements of the Securities Act. In connection with any transfer of
any Securities other than pursuant to an effective registration
statement or to the Company, the Company may require the transferor
thereof to provide to the Company a written opinion of counsel, the
form and substance of which opinion shall be reasonably satisfactory to
the Company, to the effect that such transfer does not require
registration of such transferred securities under the Securities Act.
Notwithstanding the foregoing, the Company hereby consents to and
agrees to register (i) any transfer of Securities by one Purchaser to
another Purchaser, and agrees that no documentation other than executed
transfer documents shall be required for any such transfer, and (ii)
any transfer by any Purchaser to an Affiliate of such Purchaser or to
an Affiliate of another Purchaser, or any transfer among any such
Affiliates, provided that transferee certifies in writing to the
Company that it is an "accredited investor" (as defined in Regulation
D). Any such transferee shall agree in writing to be bound by the terms
of this Agreement and shall have the rights of a Purchaser under this
Agreement and the Registration Rights Agreement.
(b) Each Purchaser agrees to the imprinting, so long as is
required by this Section 3.1(b), of the following legend on the
Securities:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT.
The Underlying Shares issuable upon conversion of the Shares
and the Warrant Shares issuable upon exercise of the Warrants shall not
contain the legend set forth above if such conversion or exercise
occurs at any time while the Registration Statement is effective under
the Securities Act and upon the sale of the Underlying Shares or the
14
<PAGE>
Warrant Shares by the Purchasers or in the event there is not an
effective Registration Statement at such time, if in the written
opinion of counsel to the Company (such opinion to be furnished at the
sole expense of the Company at the request of a Purchaser) such legend
is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the
staff of the Commission). The Company agrees that it will provide each
Purchaser, upon request, with a certificate or certificates
representing Underlying Shares and/or Warrant Shares, free from such
legend at such time as such legend is no longer required hereunder.
3.2 Stop Transfer Orders; Suspension of Qualification. The Company may
not make any notation on its records or give instructions to any transfer agent
of the Company which enlarge the restrictions of transfer set forth in Section
3.1. The Company will advise the Purchasers, promptly after it receives notice
of issuance by the Commission, any state securities commission or any other
regulatory authority of any stop order or of any order preventing or suspending
the use of any offering of any securities of the Company, or of the suspension
of the qualification of the Common Stock for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such purpose.
3.3 Furnishing of Information. As long as any Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to Section
13(a) or 15(d) of the Exchange Act and to promptly furnish the Purchasers with
true and complete copies of all such filings. As long as any Purchaser owns
Securities, if the Company is not required to file reports pursuant to Section
13(a) or 15(d) of the Exchange Act, it will prepare and furnish to the
Purchasers and make publicly available in accordance with Rule 144(c)
promulgated under the Securities Act annual and quarterly financial statements,
together with a discussion and analysis of such financial statements in form and
substance substantially similar to those that would otherwise be required to be
included in reports required by Section 13(a) or 15(d) of the Exchange Act, as
well as any other information required thereby, in the time period that such
filings would have been required to have been made under the Exchange Act. The
Company further covenants that it will take such further action as any holder of
Units may reasonably request, all to the extent required from time to time to
enable such Person to sell Underlying Shares and/or Warrant Shares without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144 promulgated under the Securities Act, including the legal
opinion referenced above in Section 3.1. Upon the request of any such Person,
the Company shall deliver to such Person a written certification of a duly
authorized officer as to whether it has complied with such requirements.
3.4 Blue Sky Laws. In accordance with the Registration Rights
Agreement, the Company shall qualify the Underlying Shares under the securities
or Blue Sky laws of such jurisdictions as the Purchasers may request and shall
continue such qualification at all times through the third anniversary of the
last Closing Date.
15
<PAGE>
3.5 Integration. Except for the sale of Series E Convertible Preferred
Stock, the Company shall not sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in Section 2 of the
Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of any or all of such securities to any Purchaser.
3.6 Certain Agreements. As long as any Purchaser owns Securities, the
Company shall not and shall cause the Subsidiaries not to, without the consent
of the holders of all of the Shares then outstanding, (i) amend its certificate
of incorporation, bylaws or other charter documents so as to adversely affect
any rights of any Purchaser; (ii) declare, authorize, set aside or pay any
dividend or other distribution with respect to the Common Stock except as
permitted under the Certificate of Designation and as would not adversely affect
the rights of any Purchaser hereunder or under the Certificate of Designation;
(iii) repay, repurchase or offer to repay, repurchase or otherwise acquire
shares of its Common Stock in any manner; (iv) issue any series of preferred
stock or other securities with rights senior (in respect of liquidations,
dividends, preferences and similar rights) to those of the Shares; or (v) enter
into any agreement with respect to any of the foregoing.
3.7 Listing and Reservation of Underlying Shares and Warrant Shares;
Compliance with Law..
(a) The Company shall (i) not later than the tenth Business
Day following the applicable Closing Date prepare and file with The
Nasdaq Small-Cap Market (as well as any other national securities
exchange or market on which the Common Stock is then listed) an
additional shares listing application or a letter acceptable to The
Nasdaq Small-Cap Market covering and listing a number of shares of
Common Stock which is at least equal to 175% of the maximum number of
Underlying Shares and Warrant Shares then issuable, (ii) take all steps
necessary to cause the Underlying Shares and the Warrant Shares to be
approved for listing in The Nasdaq Small-Cap Market (as well as on any
other national securities exchange or market on which the Common Stock
is then listed) as soon as possible thereafter, and (iii) provide to
the Purchasers evidence of such listing, and the Company shall maintain
the listing of its Common Stock on such market. As used herein,
"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the
State of New York generally are authorized or required by law or other
government actions to close.
(b) The Company shall at all times have authorized and
reserved for issuance upon conversion of the Shares pursuant to the
terms of the Certificate of Designation and upon exercise of the
Warrants pursuant to the Warrant the number of shares of Common Stock
required to provide for the conversion of the Shares and the exercise
of the Warrants.
(c) Until at least two (2) years after the last of the Shares
has been converted into Underlying Shares or the last of the Warrants
has been exercised for the Warrant
16
<PAGE>
Shares, (i) the Company will cause its Common Stock to continue to be
registered under Sections 12(b) or 12(g) of the Exchange Act, will
comply in all respects with its reporting and filing obligations under
such Exchange Act, will comply with all requirements related to any
registration statement filed pursuant to this Agreement or the
Registration Rights Agreement and will not take any action or file any
document (whether or not permitted by the Securities Act or the
Exchange Act or the rules and regulations thereunder) to terminate or
suspend such registration or to terminate or suspend its reporting and
filing obligations under the Securities Act and Exchange Act, except as
permitted herein and (ii) the Company will take all action within its
power to continue the listing or trading of its Common Stock on The
Nasdaq Small-Cap Market and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or
rules of the NASD and The Nasdaq Stock Market.
3.8 Notice of Breaches.
(a) Each of the Company and each Purchaser shall give prompt
written notice to the other of any breach of any representation,
warranty or other agreement contained in this Agreement, the
Certificate of Designation, the Warrants or the Registration Rights
Agreement, as well as any events or occurrences arising after the date
hereof and prior to any Closing Date, which would reasonably be likely
to cause any representation or warranty or other agreement of such
party, as the case may be, contained herein to be incorrect or breached
as of such Closing Date. However, no disclosure by any party pursuant
to this Section 3.8 shall be deemed to cure any breach of any
representation, warranty or other agreement contained herein or in the
Registration Rights Agreement.
(b) Notwithstanding the generality of Section 3.8(a), the
Company shall promptly notify each Purchaser of any notice or claim
(written or oral) that it receives from any lender of the Company to
the effect that the consummation of the transactions contemplated
hereby, by the Certificate of Designation, by the Warrants and by the
Registration Rights Agreement violates or would violate any written
agreement or understanding between such lender and the Company, and the
Company shall promptly furnish by facsimile to each Purchaser a copy of
any written statement in support of or relating to such claim or
notice.
(c) The default by any Purchaser of any of its obligations,
representations or warranties under any Transaction Document shall not
be imputed to, and shall have no effect upon, any other Purchaser or
affect the Company's obligations under the Transaction Documents to any
non-defaulting Purchaser or to the defaulting Purchaser with respect to
any outstanding Shares, Warrants, Underlying Shares or Warrant Shares.
3.9 Conversion Obligations of the Company. The Company covenants to
convert Shares and to deliver the Underlying Shares in accordance with the terms
and conditions and within the time period set forth in the Certificate of
Designation.
17
<PAGE>
3.10 Use of Proceeds. The Company shall use all of the proceeds from
the sale of the Units for working capital and general corporate purposes and not
for the satisfaction of any portion of Company borrowings outside the normal
course of business, including, without limitation, any obligation or liability
of any kind owed to a shareholder, officer or director of the Company, or to
redeem Company equity or equity-equivalent securities. Pending application of
the proceeds of this placement in the manner permitted hereby, the Company will
invest such proceeds in interest bearing accounts and/or short-term, investment
grade interest bearing securities.
3.11 Indemnification. The Company also will indemnify and hold the
Purchasers harmless against any and all losses, claims, damages or liabilities
to any such Person (including, without limitation, in connection with any
action, proceeding or investigation brought by or against any such Person,
including by shareholders of the Company) in connection with or as a result of
any matter referred to in the Transaction Documents, including, without
limitation, for any misrepresentation by the Company, for breaches of
representations and warranties contained in any of the Transaction Documents,
and for any breach, non-compliance or nonfulfillment by the Company of any
covenant, agreement or undertaking to be complied with or performed by it
contained in or pursuant to the Transaction Documents, except to the extent that
it is finally judicially determined that such losses, claims, damages or
liabilities resulted solely from the gross negligence or bad faith of the
Purchasers. If for any reason the foregoing indemnification is unavailable to
such Purchaser or is insufficient to hold such Person harmless, then the Company
shall contribute to the amount paid or payable by such Purchaser as a result of
such loss, claim, damage or liability in such proportion as is appropriate to
reflect the relative economic interests of the Company and its shareholders on
the one hand and the Purchasers on the other hand in the matters contemplated by
the Transaction Documents as well as the relative fault of the Company and the
Purchasers with respect to such loss, claim, damage or liability and any other
relevant equitable considerations. The reimbursement, indemnity and contribution
obligations of the Company under this paragraph shall be in addition to any
liability which the Company may otherwise have, shall extend upon the same terms
and conditions to any affiliate of the Purchasers and the partners, directors,
agents, employees and controlling persons (if any), as the case may be, of the
Purchasers and any such affiliate, and shall be binding upon and inure to the
benefit of any successors, assigns, heirs and personal representatives of the
Company, the Purchasers, any such affiliate and any such Person. The Company
also agrees that neither the Purchasers nor any of such Affiliates, partners,
directors, agents, employees or controlling persons shall have any liability to
the Company or any Person asserting claims on behalf of or in right of the
Company in connection with or as a result of any matter referred to in this
Agreement except to the extent that it is finally judicially determined that any
losses, claims, damages, liabilities or expenses incurred by the Company result
solely from the gross negligence or bad faith of, or knowing breach of this
Agreement by, the Purchasers. Promptly after receipt by the Purchasers or any
affiliate, partners, directors, agents, employees and controlling persons, as
the case may be, of notice of any claim or other commencement of any action in
respect of which indemnity may be sought, such party will notify the Company in
writing of the receipt or commencement thereof and the Company shall have the
right to assume the defense of such claim or action (including the employment of
counsel reasonably satisfactory to the indemnified parties and the payment of
fees and expenses of such
18
<PAGE>
counsel). The indemnified party shall cooperate with the Company and the
Company's counsel in the defense of such claim or action. The Purchasers
understand that the Company shall not in connection with any one such claim or
action or separate but substantially similar related claims or actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm of
attorneys for all of the indemnified parties unless the defense of one
indemnified party is unique or separate from that of another indemnified party
or one or more legal defenses are available to an indemnified party but not to
other indemnified parties subject to the same claim or action. In the event the
Company does not promptly assume the defense of a claim or action, the
indemnified parties shall have the right to employ counsel reasonably
satisfactory to the Company, at the Company's expense, to defend such claim or
action. The indemnified party shall not admit any liability with respect to the
claim or action or settle, compromise, pay or discharge the same without the
prior written consent of the Company so long as the Company is reasonably
contesting or defending the same in good faith. The Company shall not
compromise, settle or discharge any claim or action without the Purchasers'
consent, as applicable, which consent will not be unreasonably withheld, unless
there is no finding or admission of any violation of any law against the
indemnified party and the sole relief is monetary damages paid in full by the
Company. Any right to trial by jury with respect to any action or proceeding
arising in connection with or as a result of either our engagement or any matter
referred to in this Agreement is hereby waived by the parties hereto. The
provisions of this Section 3.11 shall survive any termination or completion of
the Transaction Documents.
3.12 Sales of Preferred Stock. The Company shall not sell any shares of
Preferred Stock other than (i) the Shares and (ii) up to an aggregate of 1,250
shares of Series E Preferred Stock, par value $1,000 per share and stated value
$5,000 per share, other than as permitted in Section 3.13.
3.13 Subsequent Sales and Registrations. (a) Until the later of (i)
180 days after the Third Closing Date and (ii) 60 days after all Underlying
Shares and Warrant Shares have been registered under the Securities Act
pursuant to an effective registration statement, the Company shall not,
directly or indirectly, without the prior written consent of the Purchasers,
offer, sell, grant any option to purchase, or otherwise dispose of (or announce
any offer, sale, grant of any option to purchase or other disposition) any of
its or its Affiliates' equity or equity-equivalent securities or any instrument
that permits the holder thereof to acquire Common Stock, except (i) the
granting of options or warrants to employees, officers and directors, and the
issuance of shares upon exercise of options granted, under any stock option
plan heretofore or hereinafter duly adopted by the Company, (ii) shares issued
upon exercise of any currently outstanding warrants and upon conversion of any
currently outstanding convertible preferred stock in each case disclosed in
Schedule 2.1(c), (iii) shares of Common Stock issued upon conversion of Shares
or upon exercise of the Warrants, and (iv) shares of Common Stock issued in
connection with the transactions described on Schedule 3.13.
(b) Other than Underlying Shares, Warrant Shares and other
"Registrable Securities" (as defined in the Registration Rights Agreement) to
be registered in accordance with
19
<PAGE>
the Registration Rights Agreement, the Company shall not, for a period of not
less than 90 Trading Days after the dates that any registration statement
relating to the Securities is declared effective by the Commission, without the
prior written consent of the Purchasers, (i) register for resale any securities
of the Company, or (ii) issue or sell any of its or any of its Affiliates'
equity or equity-equivalent securities except for (A) securities issued upon the
exercise or conversion of the securities set forth on Schedule 2.1(c) or (B)
securities sold pursuant to the Company's employee benefit plans. Any days that
any Purchaser is unable to sell Underlying Shares or Warrant Shares under the
Registration Statement shall be added to such 90 Trading Day period for the
purposes of (i) and (ii) above.
3.14 Shareholder Approval. The Company shall, as promptly as possible,
but in no event later than 65 days after the Initial Closing Date, convene a
shareholders' meeting, held in accordance with the Company's Certificate of
Incorporation and bylaws, and use its best efforts to obtain the approval
("Shareholder Approval") by a majority of the total votes cast on the proposal
at such shareholders' meeting, in person or by proxy, of (i) the issuance of the
Underlying Shares as a consequence of the conversion of the Shares and (ii) the
issuance of the Warrant Shares as a consequence of the exercise of the Warrants,
in each case in a number exceeding the maximum number of shares of Common Stock
issuable without shareholder approval at a price less than the greater of the
book or market value on the Original Issue Date as and to the extent required
pursuant to Rule 4460(i) of The Nasdaq Stock Market, Inc.'s Marketplace Rules
(or any successor or replacement provision thereof).
3.15 Interim Financing The Company shall use reasonable efforts to
obtain from its Affiliates an investment of additional working capital in an
aggregate amount not less than $1,000,000 and not more than $2,000,000 on terms
no more favorable to such Affiliates than the terms of the Units (such
investment being the "Interim Financing").
3.16 Incorporation of Certificate of Designation By Reference. The
Certificate of Designation is hereby incorporated herein by reference and made a
part hereof.
3.17 Board of Directors. If more than ten percent (10%) of the Shares
remain outstanding, the Purchasers shall have the right to approve the
appointment of any new or replacement member to the Board of Directors, such
approval not to be unreasonably withheld.
3.18 Conversion of Shares and Exercise of Warrants. Until the Company
has received Shareholder Approval, none of the Purchasers shall be issued shares
of Common Stock upon (i) the conversion of the Shares and/or (ii) the exercise
of the Warrants, at a price per share of Common Stock less than the Per Share
Market Value in excess of the number of shares of Common Stock set forth
opposite each of the Purchasers' name on Schedule 3.18 hereto.
20
<PAGE>
ARTICLE IV
CONDITIONS
4.1 Conditions Precedent to Sale of the Initial Units.
(a) Conditions Precedent to the Obligation of the Company to
Sell the Initial Units. The obligation of the Company to sell the
Initial Units hereunder is subject to the satisfaction or waiver by the
Company, at or before the Initial Closing, of each of the following
conditions:
(i) Accuracy of the Purchasers' Representations and
Warranties. The representations and warranties of each
Purchaser shall be true and correct in all material respects
as of the date when made and as of the Initial Closing Date,
as though made on and as of such date;
(ii) Performance by the Purchasers. Each Purchaser
shall have performed, satisfied and complied in all material
respects with all covenants, agreements and conditions
required by this Agreement to be performed, satisfied or
complied with by such Purchaser at or prior to the Initial
Closing; and
(iii) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions
contemplated by this Agreement or the Registration Rights
Agreement.
(b) Conditions Precedent to the Obligation of the Purchasers
to Purchase the Initial Units. The obligation of each Purchaser
hereunder to acquire and pay for the Initial Units is subject to the
satisfaction or waiver by such Purchaser, at or before the Initial
Closing, of each of the following conditions:
(i) Accuracy of the Company's Representations and
Warranties. The representations and warranties of the Company
set forth in this Agreement and in the Registration Rights
Agreement shall be true and correct in all material respects
as of the date when made and as of the Initial Closing Date as
though made on and as of such date;
(ii) Performance by the Company. The Company shall
have performed, satisfied and complied with in all material
respects all covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by
the Company at or prior to the Initial Closing;
21
<PAGE>
(iii) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions
contemplated by this Agreement, the Certificate of
Designation, the Warrants or the Registration Rights
Agreement;
(iv) Adverse Changes. Since the date of the financial
statements included in the Company's Quarterly Report on Form
10-Q or Annual Report on Form 10-K, whichever is more recent,
last filed prior to the date of this Agreement, no event which
had a Material Adverse Effect and no material adverse change
in the financial condition of the Company shall have occurred
(for purposes hereof changes in the market price of the Common
Stock may be considered as a factor in determining whether
there has occurred an event which has had a Material Adverse
Effect or whether a material adverse change has occurred);
(v) No Suspensions of Trading in Common Stock. The
trading in the Common Stock shall not have been suspended by
the Commission or on The Nasdaq Small-Cap Market which
suspension shall remain in effect;
(vi) Legal Opinion. The Company shall have delivered
to the Purchasers the opinion of Parker Chapin Flattau &
Klimpl, LLP, outside counsel to the Company, in substantially
the forms annexed hereto as Exhibit D;
(vii) Required Approvals. All approvals required
pursuant to clauses (i) and (iv) of the definition of
"Required Approvals" shall have been obtained;
(viii) Shares of Common Stock. On or prior to the
Initial Closing Date, the Company shall have duly reserved the
number of Underlying Shares and Warrant Shares required by the
Transaction Documents to be reserved for issuance upon
conversion of the Shares and upon exercise of the Warrants;
(ix) Delivery of Stock Certificates and Warrant
Certificates. The Company shall have delivered to each
Purchaser or such Purchaser's designee, (i) the stock
certificate(s) representing the Initial Shares, registered in
the name of such Purchaser, each in form satisfactory to the
Purchaser and (ii) warrant certificate(s) representing the
Initial Warrants, registered in the name of such Purchaser, in
form satisfactory to the Purchaser;
(x) Registration Rights Agreement. The Company
shall have executed and delivered the Registration Rights
Agreement;
(xi) Certificate of Designation. The Certificate of
Designation shall have been duly approved by the Board of
Directors and filed with and accepted by
22
<PAGE>
the Secretary of State of the State of Delaware, and the
Company shall have delivered a copy thereof to each Purchaser
certified as filed by the office of the Secretary of State of
the State of Delaware;
(xii) Transfer Agent Instructions. The Irrevocable
Transfer Agent Instructions, in the form of Exhibit E annexed
hereto, shall have been delivered to and acknowledged in
writing by the Company's transfer agent; and
(xiii) Officer's Certificate. On the Initial Closing
Date the Company shall deliver to the Purchasers an Officer's
Certificate dated the Initial Closing Date and signed by an
executive officer of the Company confirming the accuracy of
the Company's representations, warranties and covenants as of
such Closing Date and confirming the compliance by the Company
with the conditions precedent set forth in this Section 4.1 as
of the Initial Closing Date.
4.2 Conditions Precedent to the Obligation of the Purchasers to
Purchase the Additional Units. The obligation of each Purchaser hereunder to
acquire and pay for the Additional Units is subject to the satisfaction or
waiver by each Purchaser, at or before the Subsequent Closing, of each of the
following conditions:
(a) Initial Closing; Subsequent Closings. The Initial
Closing shall have occurred, and with respect to the Third Tranche
Units, the Second Closing shall have occurred;
(b) Accuracy of the Company's Representations and Warranties.
The representations and warranties of the Company contained herein and
in the Registration Rights Agreement shall be true and correct as of
the date when made and as of any Subsequent Closing Date, as though
made on and as of such date, except where the event causing such
representation or warranty to be untrue or incorrect would not result
in a Material Adverse Effect;
(c) Performance by the Company. The Company shall have
performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement, the
Certificate of Designation, the Warrants and the Registration Rights
Agreement to be performed, satisfied or complied with by the Company at
or prior to any Subsequent Closing Date;
(d) Registration Statements. With respect to the Third
Closing, the Registration Statement with respect to the Underlying
Shares issuable on conversion of all Shares and with respect to the
Warrant Shares issuable upon exercise of all Warrants shall have been
declared effective under the Securities Act by the Commission; and on
the Third Closing Date such Registration Statement shall be effective,
not subject to any stop order and not be subject to any suspension
pursuant to Section 3(n) of the Registration Rights Agreement, and
shall have been effective and shall not have been subject to any stop
order
23
<PAGE>
for the 30 Trading Days prior to the Third Closing Date and no stop
order shall be pending or threatened as of the Third Closing Date;
(e) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court of governmental authority of
competent jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement, the Certificate of
Designation, the Warrants or the Registration Rights Agreement relating
to the issuance, conversion or exercise of any of the Securities;
(f) No Suspensions of Trading in Common Stock. The trading in
the Common Stock shall not have been suspended by the Commission or on
The Nasdaq Small-Cap Market (except for any suspension of trading of
limited duration solely to permit dissemination of material information
regarding the Company);
(g) Listing of Common Stock. The Common Stock shall have been
at all times since the Initial Closing Date listed for trading on The
Nasdaq Small-Cap Market, and the Company shall have no knowledge of any
action or proceeding, pending or threatened, that may result in the
delisting of the Common Stock from the Nasdaq Small-Cap Market;
(h) Change of Control. No Change of Control shall have
occurred since the Initial Closing Date. "Change of Control" means the
occurrence of any of (i) an acquisition after the date hereof by an
individual or legal entity or "group" (as described in Rule 13d5(b)(1)
promulgated under the Exchange Act) of in excess of 50% of the voting
securities of the Company, (ii) a replacement of more than one-half of
the members of the Board of Directors which is not approved by those
individuals who are members of the Board of Directors on the date
hereof in one or a series of related transactions, (iii) the merger of
the Company with or into another entity, consolidation or sale of all
or substantially all of the assets of the Company in one or a series of
related transactions or (iv) the execution by the Company of an
agreement to which the Company is a party or by which it is bound,
providing for any of the events set forth above in (i), (ii) or (iii);
(i) Legal Opinion. The Company shall have delivered to the
Purchasers the opinion of the Company's legal counsel, in substantially
the form annexed hereto as Exhibit D, dated the Subsequent Closing
Date;
(j) Required Approvals. All Required Approvals shall have been
obtained;
(k) Shares of Common Stock. On any Subsequent Closing Date the
Company shall have duly reserved the number of Underlying Shares and
Warrant Shares required by this Agreement to be reserved for issuance
upon conversion of the Shares and the exercise of the Warrants;
24
<PAGE>
(l) Delivery of Stock Certificates. The Company shall have
delivered to each Purchaser or such Purchaser's designee (i) the stock
certificate(s) representing the Second Tranche Shares, in the case of
the Second Closing, and representing the Third Tranche Shares, in the
case of the Third Closing, registered in the name of such Purchaser,
each in form satisfactory to such Purchaser, and (ii) the warrant
certificate(s) representing the Second Tranche Warrants, in the case of
the Second Closing, and the Third Tranche Warrants, in the case of
Third Closing, registered in the name of such Purchaser, each in form
satisfactory to such Purchaser;
(m) Performance of Conversion/Exercise Obligations. The
Company shall have delivered Underlying Shares upon conversion of
Shares and otherwise performed its obligations in accordance with the
terms, conditions and timing requirements of each Certificate of
Designation;
(n) Common Stock Price; Trading Volume. For the ten
consecutive Trading Days immediately preceding any Subsequent Closing
Date (i) the average Per Share Market Value shall not have been less
than $.75 and (ii) the average trading volume of the Common Stock shall
have been at least 100,000 shares per day;
(o) Adverse Changes. During the period which is ten
consecutive Trading Days prior to any Subsequent Closing Date, the Per
Share Market Value of the Common Stock shall not have decreased by more
than 50% from the highest Per Share Market Value during such period;
provided, however, that if the Per Share Market Value shall have so
decreased by more than 50%, but shall have subsequently increased so
that on such Subsequent Closing Date it has been, for the three
consecutive Trading Days immediately prior to such Subsequent Closing
Date, no more than 25% below the highest Per Share Market Value during
such period, then this condition shall be satisfied;
(p) Transfer Agent Instructions. The Irrevocable Transfer
Agent Instructions, in the form of Exhibit E annexed hereto, shall have
been delivered to and acknowledged in writing by the Company's transfer
agent;
(q) Officer's Certificate. On each Subsequent Closing Date the
Company shall deliver to the Purchasers an Officer's Certificate dated
such Subsequent Closing Date and signed by an executive officer of the
Company confirming the accuracy of the Company's representations,
warranties and covenants as of such Subsequent Closing Date and
confirming the compliance by the Company with the conditions precedent
set forth in this Section 4.2 as of such Subsequent Closing Date;
(r) Shareholder Approval. The Company shall have obtained
Shareholder Approval; and
(s) Interim Financing. The Company shall have obtained the
Interim Financing.
25
<PAGE>
ARTICLE V
MISCELLANEOUS
5.1 Fees and Expenses. The Company shall pay the reasonable legal fees
and expenses of Stroock & Stroock & Lavan LLP, counsel for the Purchasers,
incident to the negotiation, preparation, execution, delivery and performance of
this Agreement and the other Transaction Documents, which legal fees shall not
exceed $30,000 in connection with the negotiation, preparation, execution and
delivery of this Agreement and the other Transaction Documents. The Company
shall pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by the Company incident to the
negotiation, preparation, execution, delivery and performance of this Agreement
and the other Transaction Documents. The Company shall pay all stamp and other
taxes and duties levied in connection with the issuance of the Securities
pursuant to the Transaction Documents.
5.2 Entire Agreement; Amendments. This Agreement, together with the
Exhibits and Schedules hereto and the other Transaction Documents, contain the
entire understanding of the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, oral or written, with
respect to such matters.
5.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice prior to 5:00 p.m., New York City time, on
a Business Day, (ii) the Business Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified for notice later than 5:00 p.m., New York City time, on any
date and earlier than 11:59 p.m., New York City time, on such date, (iii) the
Business Day following the date of mailing, if sent by nationally recognized
overnight courier service or (iv) actual receipt by the party to whom such
notice is required to be given. The addresses for such communications shall be
with respect to each Purchaser at its address set forth under its name on
Schedule 1 attached hereto, or with respect to the Company, addressed to:
Imaging Technologies Corporation
11031 Via Frontera
San Diego, California 92127
Attention: Brian Bonar
Facsimile No.: (619) 613-1311
or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices
26
<PAGE>
to any Purchaser shall be sent to Stroock & Stroock & Lavan LLP, 180 Maiden
Lane, New York New York 10038-4982, Attention: James R. Tanenbaum, Esq.,
Facsimile No.: (212) 806-6006. Copies of notices to the Company shall be sent to
Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue of the Americas, New York, New
York 10036, Attention: Christopher S. Auguste, Esq., Facsimile No.: (212)
704-6288.
5.4 Amendments; Waivers. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by both the Company and the Purchasers; or, in the case of a waiver, by the
party against whom enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter. Notwithstanding the
foregoing, no such amendment shall be effective to the extent that it applies to
less than all of the holders of the Units outstanding. The Company shall not
offer or pay any consideration to a Purchaser for consenting to such an
amendment or waiver unless the same consideration is offered to each Purchaser
and the same consideration is paid to each Purchaser which consents to such
amendment or waiver.
5.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
5.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each of the Purchasers. Each Purchaser may
assign this Agreement or any rights or obligations hereunder (i) to its
affiliates or to another Purchaser without the prior written consent of the
Company and (ii) to any other Person with the prior written consent of the
Company, such consent not to be unreasonably withheld, except that any assignee
must make the representations and warranties set forth in Section 2.2 and
otherwise comply with the terms of this Agreement otherwise applicable to its
assignor. This provision shall not limit a Purchaser's right to transfer
securities or transfer or assign rights under the Registration Rights Agreement.
5.7 No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
5.8 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York, without
regard to the principles of conflicts of law thereof.
5.9 Survival. The agreements, covenants, representations, warranties
and provisions contained in this Agreement shall survive the delivery of the
Units pursuant to this Agreement and each Closing hereunder and any conversion
of the Shares or exercise of the Warrants.
27
<PAGE>
5.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that all
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
5.11 Publicity. The Company and each Purchaser shall consult with each
other in issuing any press releases or otherwise making public statements with
respect to the transactions contemplated hereby and neither party shall issue
any such press release or otherwise make any such public statement without the
prior written consent of the other, which consent shall not be unreasonably
withheld or delayed, except that no prior consent shall be required if such
disclosure is required by law, in which such case the disclosing party shall
provide the other Party with prior notice of such public statement. The Company
shall not publicly or otherwise disclose the names of any of the Purchasers
without each such Purchaser's prior written consent unless otherwise required by
law, in which case the Company shall inform such Purchaser of such disclosure in
writing prior to making such disclosure.
5.12 Consent to Jurisdiction; Attorneys' Fees (a) The Company
(including, but not limited to, its affiliates, subsidiaries, officers,
directors and controlling persons) and each Purchaser hereby (i) irrevocably
submits to the exclusive jurisdiction of any New York State court or Federal
court sitting in the Borough of Manhattan, The City of New York in any action
related to, connected with or arising out of, in whole or in part, the
Transaction Documents, including, but not limited to, transactions in the
securities of the Company subsequent to the purchase by such Purchaser or
Persons claimed to be affiliated with such Purchaser, (ii) agrees that all
claims in such action shall be decided in such court, (iii) waives, to the
fullest extent it may effectively do so, the defense of inconvenient forum and
(iv) consents to the service of process by certified mail, return receipt
requested. Nothing herein shall affect the right of any party to serve legal
process in any manner permitted by law or affect its right to bring any action
in any other court.
(b) In connection with any dispute between the Company and any
Purchaser, related to, connected with or arising out of, in whole or in part,
the Transaction Documents including, but not limited to, transactions in the
securities of the Company subsequent to the purchase, by a Purchaser or Persons
claimed to be affiliated to a Purchaser, the prevailing party shall be awarded
all reasonable attorneys' fees and expenses incurred by it. In that connection
fees and expenses actually paid by a party in connection with the litigation of
any dispute shall be deemed presumably reasonable.
(c) In the event that any Purchaser or any Person claimed to be
affiliated or associated with such Purchaser becomes involved in any capacity in
any action, proceeding or investigation brought by or against any Person,
including shareholders of the Company, in connection with or as a result of any
matter referred to in the Transaction Documents, the Company will reimburse
28
<PAGE>
such Purchaser and/or those claimed to be affiliated or associated with such
Purchaser for its legal fees and expenses and other expenses (including the cost
of any investigation and preparation) incurred in connection therewith, as those
fees and expenses are incurred; provided, however, that if at the conclusion of
such action, proceeding or investigation it shall be finally judicially
determined by a court of competent jurisdiction that indemnity for such fees and
expenses is contrary to law, or that such Purchaser is not the prevailing party
then in that event, such Purchaser and/or any other Person having received such
advances of fees and expenses shall reimburse the Company in full for the sums
advanced.
(d) The provisions of this Section 5.12 shall survive any termination
or completion of the Transaction Documents.
5.13 Waiver of Jury Trial (a) The parties hereto each waive their
respective rights to a trial by jury of any claim or cause of action based upon
or arising out of or related to the Transaction Documents, or the transactions
contemplated by the Transaction Documents, in any action, proceeding or other
litigation of any type brought by any of the parties against any other party or
parties, whether with respect to contract claims, tort claims, or otherwise. The
parties hereto each agree that any such claim or cause of action shall be tried
by a court trial without a jury. Without limiting the foregoing, the parties
further agree that their respective right to a trial by jury is waived by
operation of this Section 5.13 as to any action, counterclaim or other
proceeding which seeks, in whole or in part, to challenge the validity or
enforceability of any of the Transaction Documents or any provision hereof or
thereof. The waiver shall apply to any subsequent amendments, renewals,
supplements or modifications to any of the Transaction Documents.
(b) The provisions of this Section 5.13 shall survive any termination
or completion of the Transaction Documents.
5.14 Severability. If any term, provision, covenant or restriction of
this Agreement is held to be invalid, illegal, void or unenforceable in any
respect, the remainder of the terms, provisions, covenants and restrictions set
forth herein shall remain in full force and effect and shall in no way be
affected, impaired or invalidated, and the parties hereto shall use their
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
5.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchasers
will be entitled to specific performance of the obligations of the Company under
the Transaction Documents and injunctive relief. Each of the Company and the
Purchasers (severally and not jointly) agree that monetary damages would not be
adequate compensation for any loss incurred by reason of any breach of its
obligations described in the foregoing sentence and hereby agrees to waive in
any action for
29
<PAGE>
specific performance of any such obligation or injunctive relief the defense
that a remedy at law would be adequate.
5.16 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser hereunder is several and not joint with the
obligations of the other Purchasers hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any Closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.
[Remainder of Page Intentionally Left Blank]
30
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized persons as
of the date first indicated above.
IMAGING TECHNOLOGIES CORPORATION
By:_____________________________________
Brian Bonar
President
BALMORE FUNDS S.A.
By:_____________________________________
Name:
Title:
AUSTOST ANSTALT SCHAAN
By:_____________________________________
Name:
Title:
NESHER, INC.
By:_____________________________________
Name:
Title:
GUARANTEE & FINANCE CORP.
By:_____________________________________
Name:
Title:
31
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (this "Agreement") is made and
entered into as of January 13, 1999, among Imaging Technologies Corporation, a
Delaware corporation (the "Company"), Balmore Funds S.A. ("Balmore"), Austost
Anstalt Schaan ("Austost"), Nesher, Inc. ("Nesher") and Gurantee & Finance Corp.
("G&F"). Balmore, Austost, Nesher and G&F are each referred to herein as a
"Purchaser" and are collectively referred to herein as the "Purchasers."
This Agreement is being entered into pursuant to the Securities
Purchase Agreement, dated as of the date hereof among the Company and the
Purchasers (the "Purchase Agreement").
The Company and the Purchasers hereby agree as follows:
1. Definitions.
Capitalized terms used and not otherwise defined herein shall have the
meanings given such terms in the Purchase Agreement. As used in this Agreement,
the following terms shall have the following meanings:
"Advice" shall have meaning set forth in Section 3(o).
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "control," when used with
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.
"Board" shall have meaning set forth in Section 3(n).
"Business Day" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
state of New York generally are authorized or required by law or other
government actions to close.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's Common Stock, par value $0.005 per
share.
<PAGE>
"Effectiveness Date" means with respect to the Registration Statement
the 90th day following the Initial Closing Date.
"Effectiveness Period" shall have the meaning set forth in Section 2.
"Event" shall have the meaning set forth in Section 7(e)(i).
"Event Date" shall have the meaning set forth in Section 7(e)(i).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Filing Date" means the 30th day following the Initial Closing Date.
"Holder" or "Holders" means the holder or holders, as the case may be,
from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section 5(c).
"Indemnifying Party" shall have the meaning set forth in Section 5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Preferred Stock" means the Series D Convertible Preferred Stock, par
value $1,000 per share and stated value $2,000 per share, of the Company issued
to the Purchasers pursuant to the Purchase Agreement.
"Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference in such Prospectus.
"Registrable Securities" means (i) the shares of Common Stock issuable
upon conversion of the Preferred Stock, (ii) the shares of Common Stock issuable
upon exercise of the
2
<PAGE>
Warrants, (iii) the shares of Common Stock issuable upon conversion of the
Company's Series E Convertible Preferred Stock (the "Series E Stock"), (iv) the
shares of Common Stock issuable upon exercise of warrants issued in connection
with the sale of Series E Stock (the "Series E Warrants") and (v) the shares of
Common Stock issuable upon exercise of warrants issued to the placement advisor
in connection with the sale of Preferred Stock; provided, however, that
Registrable Securities shall include (but not be limited to) a number of shares
of Common Stock equal to no less than 175% of the maximum number of shares of
Common Stock which would be issuable upon conversion of the Shares and the
Series E Stock and upon exercise of the Warrants and the Series E Warrants,
assuming such conversion and exercise occurred on the Initial Closing Date or
the closing of the sale of the Series E Stock or the Filing Date, whichever date
would result in the greater number of Registrable Securities. Notwithstanding
anything herein contained to the contrary, such registered shares of Common
Stock shall be allocated among the Holders pro rata based on the total number of
Registrable Securities issued or issuable as of each date that a Registration
Statement, as amended, relating to the resale of the Registrable Securities is
declared effective by the Commission. Notwithstanding anything herein contained
to the contrary, if the actual number of shares of Common Stock issuable upon
conversion of the Preferred Stock and upon exercise of the Warrants exceeds 175%
of the number of shares of Common Stock issuable upon conversion of the
Preferred Stock and upon exercise of the Warrants based upon a computation as at
the Initial Closing Date or the Filing Date, the term "Registrable Securities"
shall be deemed to include such additional shares of Common Stock.
"Registration Statement" means the registration statements and any
additional registration statements contemplated by Section 2, including (in each
case) the Prospectus, amendments and supplements to such registration statement
or Prospectus, including pre- and post-effective amendments, all exhibits
thereto, and all material incorporated by reference in such registration
statement.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Special Counsel" means any special counsel to the Holders, for which
the Holders will be reimbursed by the Company pursuant to Section 4.
3
<PAGE>
2. Shelf Registration.
On or prior to the Filing Date the Company shall prepare and file with
the Commission a "shelf" Registration Statement covering all Registrable
Securities for an offering to be made on a continuous basis pursuant to Rule
415. The Registration Statement shall be on Form S-3 (except if the Company is
not then eligible to register for resale the Registrable Securities on Form S-3,
in which case such registration shall be on another appropriate form in
accordance herewith). The Company shall (i) not permit any securities other than
the Registrable Securities to be included in the Registration Statement and (ii)
use its best efforts to cause the Registration Statement to be declared
effective under the Securities Act as promptly as possible after the filing
thereof, but in any event prior to the Effectiveness Date, and to keep such
Registration Statement continuously effective under the Securities Act until
such date as is the earlier of (x) the date when all Registrable Securities
covered by such Registration Statement have been sold or (y) the date on which
the Registrable Securities may be sold without any restriction pursuant to Rule
144 as determined by the counsel to the Company pursuant to a written opinion
letter, addressed to the Company's transfer agent to such effect (the
"Effectiveness Period"). If an additional Registration Statement is required to
be filed because the actual number of shares of Common Stock into which the
Preferred Stock is convertible and the Warrants are exercisable exceeds the
number of shares of Common Stock initially registered in respect of the
Underlying Shares and the Warrant Shares based upon the computation on the
Initial Closing Date, the Company shall have twenty (20) Business Days to file
such additional Registration Statement, and the Company shall use its best
efforts to cause such additional Registration Statement to be declared effective
by the Commission as soon as possible, but in no event later than 60 days after
filing.
3. Registration Procedures.
In connection with the Company's registration obligations hereunder,
the Company shall:
(a) Prepare and file with the Commission on or prior to the Filing
Date, a Registration Statement on Form S-3 (or if the Company is not then
eligible to register for resale the Registrable Securities on Form S-3 such
registration shall be on another appropriate form in accordance herewith) in
accordance with the method or methods of distribution thereof as specified by
the Holders (except if otherwise directed by the Holders), and cause the
Registration Statement to become effective and remain effective as provided
herein; provided, however, that not less than five (5) Business Days prior to
the filing of the Registration Statement or any related Prospectus or any
amendment or supplement thereto (including any document that would be
incorporated therein by reference), the Company shall (i) furnish to the Holders
and any Special Counsel, copies of all such documents proposed to be filed,
which documents (other than those incorporated by reference) will be subject to
the review of such Holders and such Special Counsel, and (ii) cause its officers
and directors, counsel and independent certified public accountants to respond
to such inquiries as shall be necessary, in the reasonable opinion of counsel to
such Holders, to conduct a reasonable investigation within the meaning of the
Securities Act. The Company shall not file the Registration Statement or any
such Prospectus or
4
<PAGE>
any amendments or supplements thereto to which the Holders of a majority of the
Registrable Securities or any Special Counsel shall reasonably object in writing
within three (3) Business Days of their receipt thereof.
(b) (i) Prepare and file with the Commission such amendments, including
post-effective amendments, to the Registration Statement as may be necessary to
keep the Registration Statement continuously effective as to the applicable
Registrable Securities for the Effectiveness Period and prepare and file with
the Commission such additional Registration Statements in order to register for
resale under the Securities Act all of the Registrable Securities; (ii) cause
the related Prospectus to be amended or supplemented by any required Prospectus
supplement, and as so supplemented or amended to be filed pursuant to Rule 424
(or any similar provisions then in force) promulgated under the Securities Act;
(iii) respond as promptly as possible to any comments received from the
Commission with respect to the Registration Statement or any amendment thereto
and as promptly as possible provide the Holders true and complete copies of all
correspondence from and to the Commission relating to the Registration
Statement; and (iv) comply in all material respects with the provisions of the
Securities Act and the Exchange Act with respect to the disposition of all
Registrable Securities covered by the Registration Statement during the
applicable period in accordance with the intended methods of disposition by the
Holders thereof set forth in the Registration Statement as so amended or in such
Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold and any
Special Counsel as promptly as possible (and, in the case of (i)(A) below, not
less than five (5) days prior to such filing) and (if requested by any such
Person) confirm such notice in writing no later than one (1) Business Day
following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to the Registration Statement is proposed to be filed;
(B) when the Commission notifies the Company whether there will be a "review" of
such Registration Statement and whenever the Commission comments in writing on
such Registration Statement and (C) with respect to the Registration Statement
or any post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations and warranties of the
Company contained in any agreement contemplated hereby ceases to be true and
correct in all material respects; (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (vi) of the occurrence of any event that makes any statement made
in the Registration Statement or Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make
5
<PAGE>
the statements therein, in the light of the circumstances under which they were
made, not misleading.
(d) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of, (i) any order suspending the effectiveness of the
Registration Statement or (ii) any suspension of the qualification (or exemption
from qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.
(e) If requested by the Holders of a majority in interest of the
Registrable Securities, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information as the
Company reasonably agrees should be included therein and (ii) make all required
filings of such Prospectus supplement or such post-effective amendment as soon
as practicable after the Company has received notification of the matters to be
incorporated in such Prospectus supplement or post-effective amendment.
(f) Furnish to each Holder and any Special Counsel, without charge, at
least one conformed copy of each Registration Statement and each amendment
thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference, and all exhibits
to the extent requested by such Person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents with the
Commission.
(g) Promptly deliver to each Holder and any Special Counsel, without
charge, as many copies of the Prospectus or Prospectuses (including each form of
prospectus) and each amendment or supplement thereto as such Persons may
reasonably request; and the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities, use its
best efforts to register or qualify or cooperate with the selling Holders and
any Special Counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any Holder requests in writing, to
keep each such registration or qualification (or exemption therefrom) effective
during the Effectiveness Period and to do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by a Registration Statement; provided, however,
that the Company shall not be required to qualify generally to do business in
any jurisdiction where it is not then so qualified or to take any action that
would subject it to general service of process in any such jurisdiction where it
is not then so subject or subject the Company to any material tax in any such
jurisdiction where it is not then so subject.
(i) Cooperate with the Holders to facilitate the timely preparation and
delivery of certificates representing Registrable Securities
6
<PAGE>
to be sold pursuant to a Registration Statement, which certificates shall be
free of all restrictive legends, and to enable such Registrable Securities to be
in such denominations and registered in such names as any Holder may request at
least two (2) Business Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section 3(c)(vi),
as promptly as possible, prepare a supplement or amendment, including a
post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
(k) Use its best efforts to cause all Registrable Securities relating
to such Registration Statement to be listed on The Nasdaq Small-Cap Market and
any other securities exchange, quotation system, market or over-the-counter
bulletin board, if any, on which similar securities issued by the Company are
then listed as and when required pursuant to the Purchase Agreement.
(l) Comply in all material respects with all applicable rules and
regulations of the Commission and make generally available to its security
holders earning statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 not later than 45 days after the end of any 12-month
period (or 90 days after the end of any 12-month period if such period is a
fiscal year) commencing on the first day of the first fiscal quarter of the
Company after the effective date of the Registration Statement, which statement
shall conform to the requirements of Rule 158.
(m) The Company may require each selling Holder to furnish to the
Company information regarding such Holder and the distribution of such
Registrable Securities as is required by law to be disclosed in the Registration
Statement, and the Company may exclude from such registration the Registrable
Securities of any such Holder who unreasonably fails to furnish such information
within a reasonable time after receiving such request.
If the Registration Statement refers to any Holder by name or otherwise
as the holder of any securities of the Company, then such Holder shall have the
right to require (if such reference to such Holder by name or otherwise is not
required by the Securities Act or any similar federal statute then in force) the
deletion of the reference to such Holder in any amendment or supplement to the
Registration Statement filed or prepared subsequent to the time that such
reference ceases to be required.
Each Holder covenants and agrees that (i) it will not sell any
Registrable Securities under the Registration Statement until it has received
copies of the Prospectus as then amended or supplemented as contemplated in
Section 3(g) and notice from the Company that such Registration Statement and
any post-effective amendments thereto have become effective as contemplated by
Section 3(c) and (ii) it and its officers, directors or Affiliates, if any, will
comply
7
<PAGE>
with the prospectus delivery requirements of the Securities Act as applicable to
them in connection with sales of Registrable Securities pursuant to the
Registration Statement.
Each Holder agrees by its acquisition of such Registrable Securities
that, upon receipt of a notice from the Company of the occurrence of any event
of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or
3(c)(vi), such Holder will forthwith discontinue disposition of such Registrable
Securities under the Registration Statement until such Holder's receipt of the
copies of the supplemented Prospectus and/or amended Registration Statement
contemplated by Section 3(j), or until it is advised in writing (the "Advice")
by the Company that the use of the applicable Prospectus may be resumed, and, in
either case, has received copies of any additional or supplemental filings that
are incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement.
(n) If (i) there is material non-public information regarding the
Company which the Company's Board of Directors (the "Board") reasonably
determines not to be in the Company's best interest to disclose and which the
Company is not otherwise required to disclose, or (ii) there is a significant
business opportunity (including, but not limited to, the acquisition or
disposition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or other similar transaction) available to
the Company which the Board reasonably determines not to be in the Company's
best interest to disclose, then the Company may postpone or suspend filing or
effectiveness of a registration statement for a period not to exceed 20
consecutive days, provided that the Company may not postpone or suspend its
obligation under this Section 3(n) for more than 45 days in the aggregate during
any 12 month period; provided, however, that no such postponement or suspension
shall be permitted for consecutive 20 day periods, arising out of the same set
of facts, circumstances or transactions.
4. Registration Expenses.
All fees and expenses incident to the performance of or compliance with
this Agreement by the Company shall be borne by the Company whether or not the
Registration Statement is filed or becomes effective and whether or not any
Registrable Securities are sold pursuant to the Registration Statement. The fees
and expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without limitation,
fees and expenses (A) with respect to filings required to be made with The
Nasdaq Small Cap Market and each other securities exchange or market on which
Registrable Securities are required hereunder to be listed, (B) with respect to
filings required to be made with the National Association of Securities Dealers,
Inc. and the NASD Regulation, Inc. and (C) in compliance with state securities
or Blue Sky laws (including, without limitation, fees and disbursements of
counsel for the Holders in connection with Blue Sky qualifications of the
Registrable Securities and determination of the eligibility of the Registrable
Securities for investment under the laws of such jurisdictions as the Holders of
a majority of Registrable Securities may designate)), (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the printing of
prospectuses is requested by the holders of a majority of the Registrable
Securities included in the Registration Statement), (iii) messenger, telephone
and delivery expenses, (iv) fees and disbursements of counsel for the Company
and
8
<PAGE>
Special Counsel for the Holders, in the case of the Special Counsel, to a
maximum amount of $5,000, (v) Securities Act liability insurance, if the Company
so desires such insurance, and (vi) fees and expenses of all other Persons
retained by the Company in connection with the consummation of the transactions
contemplated by this Agreement, including, without limitation, the Company's
independent public accountants (including the expenses of any comfort letters or
costs associated with the delivery by independent public accountants of a
comfort letter or comfort letters). In addition, the Company shall be
responsible for all of its internal expenses incurred in connection with the
consummation of the transactions contemplated by this Agreement (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, the
fees and expenses incurred in connection with the listing of the Registrable
Securities on any securities exchange as required hereunder.
5. Indemnification.
(a) Indemnification by the Company. The Company shall, notwithstanding
any termination of this Agreement, indemnify and hold harmless each Holder, the
officers, directors, agents, brokers (including brokers who offer and sell
Registrable Securities as principal as a result of a pledge or any failure to
perform under a margin call of Common Stock), investment advisors and employees
of each of them, each Person who controls any such Holder (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) and the
officers, directors, agents and employees of each such controlling Person, to
the fullest extent permitted by applicable law, from and against any and all
losses, claims, damages, liabilities, costs (including, without limitation,
costs of preparation and attorneys' fees) and expenses (collectively, "Losses"),
as incurred, arising out of or relating to any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or relating to any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or form
of prospectus or supplement thereto, in the light of the circumstances under
which they were made) not misleading, except to the extent, but only to the
extent, that such untrue statements or omissions are based solely upon
information regarding such Holder furnished in writing to the Company by such
Holder expressly for use therein, which information was reasonably relied on by
the Company for use therein or to the extent that such information relates to
such Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such form of
Prospectus or in any amendment or supplement thereto. The Company shall notify
the Holders promptly of the institution, threat or assertion of any Proceeding
of which the Company is aware in connection with the transactions contemplated
by this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally
and not jointly, indemnify and hold harmless the Company, the directors,
officers, agents and employees, each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the directors, officers, agents or employees of such controlling Persons, to
the fullest extent permitted by applicable law, from and against all Losses,
9
<PAGE>
as incurred, arising solely out of or based solely upon any untrue statement of
a material fact contained in the Registration Statement, any Prospectus, or any
form of prospectus, or arising solely out of or based solely upon any omission
of a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in the light of the circumstances under which they were
made) not misleading, to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by
such Holder to the Company specifically for inclusion in the Registration
Statement or such Prospectus and that such information was reasonably relied
upon by the Company for use in the Registration Statement, such Prospectus or
such form of prospectus or to the extent that such information relates to such
Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such form of
Prospectus.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party promptly shall notify the Person
from whom indemnity is sought (the "Indemnifying Party) in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel in
any such Proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
10
<PAGE>
All fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within ten (10)
Business Days of written notice thereof to the Indemnifying Party (regardless of
whether it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section 5(a) or
5(b) is unavailable to an Indemnified Party because of a failure or refusal of a
governmental authority to enforce such indemnification in accordance with its
terms (by reason of public policy or otherwise), then each Indemnifying Party,
in lieu of indemnifying such Indemnified Party, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions, statements or
omissions that resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party and Indemnified
Party shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission of a material fact, has been taken
or made by, or relates to information supplied by, such Indemnifying Party or
Indemnified Party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action, statement or
omission. The amount paid or payable by a party as a result of any Losses shall
be deemed to include, subject to the limitations set forth in Section 5(c), any
reasonable attorneys' or other reasonable fees or expenses incurred by such
party in connection with any Proceeding to the extent such party would have been
indemnified for such fees or expenses if the indemnification provided for in
this Section was available to such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section are
in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
6. Rule 144.
11
<PAGE>
As long as any Holder owns Shares, Underlying Shares, Warrants or
Warrant Shares, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to Section
13(a) or 15(d) of the Exchange Act and to promptly furnish the Holders with true
and complete copies of all such filings. As long as any Holder owns Shares,
Underlying Shares, Warrants or Warrant Shares, if the Company is not required to
file reports pursuant to Section 13(a) or 15(d) of the Exchange Act, it will
prepare and furnish to the Holders and make publicly available in accordance
with Rule 144(c) promulgated under the Securities Act annual and quarterly
financial statements, together with a discussion and analysis of such financial
statements in form and substance substantially similar to those that would
otherwise be required to be included in reports required by Section 13(a) or
15(d) of the Exchange Act, as well as any other information required thereby, in
the time period that such filings would have been required to have been made
under the Exchange Act. The Company further covenants that it will take such
further action as any Holder may reasonably request, all to the extent required
from time to time to enable such Person to sell Underlying Shares and Warrant
Shares without registration under the Securities Act within the limitation of
the exemptions provided by Rule 144 promulgated under the Securities Act,
including providing any legal opinions referred to in the Purchase Agreement.
Upon the request of any Holder, the Company shall deliver to such Holder a
written certification of a duly authorized officer as to whether it has complied
with such requirements.
7. Miscellaneous.
(a) Remedies. In the event of a breach by the Company or by a Holder,
of any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law and under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any of its
subsidiaries has, as of the date hereof entered into and currently in effect,
nor shall the Company or any of its subsidiaries, on or after the date of this
Agreement, enter into any agreement with respect to its securities that is
inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. Except as disclosed in Schedule
2.1(u) of the Purchase Agreement, neither the Company nor any of its
subsidiaries has previously entered into any agreement currently in effect
granting any registration rights with respect to any of its securities to any
Person. Without limiting the generality of the foregoing, without the written
consent of the Holders of a majority of the then outstanding Registrable
Securities, the Company shall not grant to any Person the right to request the
Company to register any securities of the Company under the Securities Act
unless the rights so granted are subject in all respects to the prior rights in
full of the Holders set forth herein, and are not otherwise in conflict with the
provisions of this Agreement.
12
<PAGE>
(c) No Piggyback on Registrations. Neither the Company nor any of its
security holders (other than the Holders in such capacity pursuant hereto or as
disclosed in Schedule 2.1(u) of the Purchase Agreement) may include securities
of the Company in the Registration Statement, and the Company shall not after
the date hereof enter into any agreement providing such right to any of its
securityholders, unless the right so granted is subject in all respects to the
prior rights in full of the Holders set forth herein, and is not otherwise in
conflict with the provisions of this Agreement.
(d) Piggy-Back Registrations. If at any time when there is not an
effective Registration Statement covering (i) Underlying Shares or (ii) Warrant
Shares, the Company shall determine to prepare and file with the Commission a
registration statement relating to an offering for its own account or the
account of others under the Securities Act of any of its equity securities,
other than on Form S-4 or Form S-8 (each as promulgated under the Securities
Act) or their then equivalents relating to equity securities to be issued solely
in connection with any acquisition of any entity or business or equity
securities issuable in connection with stock option or other employee benefit
plans, the Company shall send to each holder of Registrable Securities written
notice of such determination and, if within thirty (30) days after receipt of
such notice, any such holder shall so request in writing, (which request shall
specify the Registrable Securities intended to be disposed of by the
Purchasers), the Company will cause the registration under the Securities Act of
all Registrable Securities which the Company has been so requested to register
by the holder, to the extent requisite to permit the disposition of the
Registrable Securities so to be registered, provided that if at any time after
giving written notice of its intention to register any securities and prior to
the effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register or to
delay registration of such securities, the Company may, at its election, give
written notice of such determination to such holder and, thereupon, (i) in the
case of a determination not to register, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration (but
not from its obligation to pay expenses in accordance with Section 4 hereof),
and (ii) in the case of a determination to delay registering, shall be permitted
to delay registering any Registrable Securities being registered pursuant to
this Section 7(d) for the same period as the delay in registering such other
securities. The Company shall include in such registration statement all or any
part of such Registrable Securities such holder requests to be registered;
provided, however, that the Company shall not be required to register any
Registrable Securities pursuant to this Section 7(d) that are eligible for sale
pursuant to Rule 144(k) of the Securities Act. In the case of an underwritten
public offering, if the managing underwriter(s) or underwriter(s) should
reasonably object to the inclusion of the Registrable Securities in such
registration statement, then if the Company after consultation with the managing
underwriter should reasonably determine that the inclusion of such Registrable
Securities, would materially adversely affect the offering contemplated in such
registration statement, and based on such determination recommends inclusion in
such registration statement of fewer or none of the Registrable Securities of
the Holders, then (x) the number of Registrable Securities of the Holders
included in such registration statement shall be reduced pro-rata among such
Holders (based upon the number of Registrable Securities requested to be
included in the registration), if the Company after consultation with the
underwriter(s) recommends the inclusion of fewer Registrable Securities, or (y)
none of the
13
<PAGE>
Registrable Securities of the Holders shall be included in such registration
statement, if the Company after consultation with the underwriter(s) recommends
the inclusion of none of such Registrable Securities; provided, however, that if
Securities are being offered for the account of other persons or entities as
well as the Company, such reduction shall not represent a greater fraction of
the number of Registrable Securities intended to be offered by the Holders than
the fraction of similar reductions imposed on such other persons or entities
(other than the Company).
(e) Failure to File Registration Statement and Other Events. The
Company and the Purchasers agree that the Holders will suffer damages if the
Registration Statement is not filed on or prior to the 15th day after the Filing
Date and not declared effective by the Commission on or prior to the
Effectiveness Date and maintained in the manner contemplated herein during the
Effectiveness Time or if certain other events occur. The Company and the Holders
further agree that it would not be feasible to ascertain the extent of such
damages with precision. Accordingly, if (A) the Registration Statement is not
filed on or prior to 15th day after the Filing Date, or is not declared
effective by the Commission on or prior to the Effectiveness Date (or in the
event an additional Registration Statement is filed because the actual number of
shares of Common Stock into which the Preferred Stock is convertible and the
Warrants are exercisable exceeds the number of shares of Common Stock initially
registered is not filed and declared effective with the time periods set forth
in Section 2), or (B) the Company fails to file with the Commission a request
for acceleration in accordance with Rule 12dl-2 promulgated under the Exchange
Act within five (5) Business Days of the date that the Company is notified
(orally or in writing, whichever is earlier) by the Commission that a
Registration Statement will not be "reviewed," or not subject to further review,
or (C) the Registration Statement is filed with and declared effective by the
Commission but thereafter ceases to be effective as to all Registrable
Securities at any time prior to the expiration of the Effectiveness Period,
without being succeeded immediately by a subsequent Registration Statement filed
with and declared effective by the Commission, or (D) trading in the Common
Stock shall be suspended or if the Common Stock is delisted from The Nasdaq
Small-Cap Market or the OTC Bulletin Board for any reason for more than three
Business Days in the aggregate, or (E) the conversion rights of the Holders are
suspended for any reason except as a result of Section 5(a)(iii) of the
Certificate of Designation, or (F) the Company breaches in a material respect
any covenant or other material term or condition to this Agreement, the
Certificate of Designation, the Purchase Agreement (other than a representation
or warranty contained therein) or any other agreement, document, certificate or
other instrument delivered in connection with the transactions contemplated
hereby and thereby, and such breach continues for a period of thirty days after
written notice thereof to the Company, or (G) the Company fails to convene a
meeting of shareholders within the time period specified in Section 3.14 of the
Purchase Agreement or does so convene a meeting of shareholders within such time
period but fails to obtain Shareholder Approval at such meeting, or (H) the
Company has breached Section 3(n) (any such failure or breach being referred to
as an "Event," and for purposes of clauses (A) and (E) the date on which such
Event occurs, or for purposes of clause (B) the date on which such five day
period is exceeded, or for purposes of clause (C) after more than fifteen
Business Days, or for purposes of clause (D) the date on which such three
Business Day period is exceeded, or for clause (F) the date on which such thirty
day period is exceeded, being referred to as "Event Date"), the Company shall
pay in cash as liquidated damages to each Holder an amount equal to 3% per
calendar month or portion thereof of the stated value of the outstanding Shares
14
<PAGE>
held by such Holder plus the stated value of any Shares that have been converted
to the extent any of the Underlying Shares issued upon such conversion have not
been sold from the Event Date until the applicable Event is cured. Payments to
be made pursuant to this Section 7(e)(i) shall be due and payable immediately
upon demand in immediately available funds.
(f) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the same shall be in writing and signed by the Company and each of
the Holders. Notwithstanding the foregoing, a waiver or consent to depart from
the provisions hereof with respect to a matter that relates exclusively to the
rights of Holders and that does not directly or indirectly affect the rights of
other Holders may be given by Holders of at least a majority of the Registrable
Securities to which such waiver or consent relates; provided, however, that the
provisions of this sentence may not be amended, modified, or supplemented except
in accordance with the provisions of the immediately preceding sentence.
(g) Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice prior to 5:00 p.m., New York City time, on
a Business Day, (ii) the Business Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified for notice later than 5:00 p.m., New York City time, on any
date and earlier than 11:59 p.m., New York City time, on such date, (iii) the
Business Day following the date of mailing, if sent by nationally recognized
overnight courier service or (iv) actual receipt by the party to whom such
notice is required to be given. The addresses for such communications shall be
with respect to each Holder at its address set forth under its name on Schedule
1 attached hereto, or with respect to the Company, addressed to:
Imaging Technologies Corporation
11031 Via Frontera
San Diego, California 92127
Attention: Brian Bonar
Facsimile No.: (619) 613-1311
or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices to any Holder shall be sent to Stroock &
Stroock & Lavan LLP, 180 Maiden Lane, New York New York 10038-4982, Attention:
James R. Tanenbaum, Esq., Facsimile No.: (212) 806-6006. Copies of notices to
the Company shall be sent to Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue of
the Americas, New York, New York 10036, Attention: Christopher S. Auguste, Esq.,
Facsimile No.: (212) 704-6288.
(h) Successors and Assigns. This Agreement shall be binding
upon and inure to the
15
<PAGE>
benefit of the parties and their successors and permitted assigns and shall
inure to the benefit of each Holder and its successors and assigns. The Company
may not assign this Agreement or any of its rights or obligations hereunder
without the prior written consent of each Holder. Each Purchaser may assign its
rights hereunder in the manner and to the Persons as permitted under the
Purchase Agreement.
(i) Assignment of Registration Rights. The rights of each Holder
hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall be
automatically assignable by each Holder to any Affiliate of such Holder or any
other Holder or Affiliate of any other Holder of all or a portion of the shares
of Preferred Stock or the Registrable Securities if: (i) the Holder 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) following such
transfer or assignment the further disposition of such securities by the
transferee or assignees is restricted under the Securities Act and applicable
state securities laws, (iv) at or before the time the Company receives the
written notice contemplated by clause (ii) of this Section, the transferee or
assignee agrees in writing with the Company to be bound by all of the provisions
of this Agreement, and (v) such transfer shall have been made in accordance with
the applicable requirements of the Purchase Agreement. In addition, each Holder
shall have the right to assign its rights hereunder to any other Person with the
prior written consent of the Company, which consent shall not be unreasonably
withheld. The rights to assignment shall apply to the Holders (and to
subsequent) successors and assigns.
(j) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
(k) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of law thereof.
(l) Cumulative Remedies. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.
(m) Severability. If any term, provision, covenant or restriction of
this Agreement is held to be invalid, illegal, void or unenforceable in any
respect, the remainder of the terms, provisions, covenants and restrictions set
forth herein shall remain in full force and effect and shall in no way be
affected, impaired or invalidated, and the parties hereto shall use their
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the
16
<PAGE>
the remaining terms, provisions, covenants and restrictions without including
any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
(n) Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
(o) Shares Held by the Company and its Affiliates. Whenever the consent
or approval of Holders of a specified percentage of Registrable Securities is
required hereunder, Registrable Securities held by the Company or its Affiliates
(other than any Holder or transferees or successors or assigns thereof if such
Holder is deemed to be an Affiliate solely by reason of its holdings of such
Registrable Securities) shall not be counted in determining whether such consent
or approval was given by the Holders of such required percentage.
[Remainder of Page Intentionally Left Blank]
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed by their respective authorized persons as
of the date first indicated above.
IMAGING TECHNOLOGIES CORPORATION
By:_____________________________________
Name: Brian Bonar
Title: President
BALMORE FUNDS S.A.
By:_____________________________________
Name:
Title:
AUSTOST ANSTALT SCHAAN
By:_____________________________________
Name:
Title:
NESHER, INC.
By:_____________________________________
Name:
Title:
GUARANTEE & FINANCE CORP.
By:_____________________________________
Name:
Title:
18
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE
NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
FORM OF
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
IMAGING TECHNOLOGIES CORPORATION
Expires January 13, 2004
No. W- New York, New York
January 13, 1999
FOR VALUE RECEIVED, subject to the provisions hereinafter set forth, the
undersigned, IMAGING TECHNOLOGIES CORPORATION, a Delaware corporation (together
with its successors and assigns, the "Issuer"), hereby certifies that
or its registered assigns is entitled to subscribe for and purchase, during the
period specified in this Warrant, up to ________ shares (subject to adjustment
as hereinafter provided) of the duly authorized, validly issued, fully paid and
non-assessable Common Stock of the Issuer, at an exercise price per share equal
to the Warrant Price then in effect, subject, however, to the provisions and
upon the terms and conditions hereinafter set forth. Capitalized terms used in
this Warrant and not otherwise defined herein shall have the respective meanings
specified in Section 7 hereof.
1. Term. The right to subscribe for and purchase shares of Warrant
Stock represented hereby shall commence on the date of issuance of this Warrant
and shall expire at 5:00 p.m., New York City time, on January 13, 2004 (such
period being the "Term").
2. Method of Exercise Payment: Issuance of New Warrant: Transfer and
Exchange.
<PAGE>
(a) Time of Exercise. The purchase rights represented by this Warrant
may be exercised in whole or in part at any time and from time to time during
the Term.
(b) Method of Exercise. The Holder hereof may exercise this Warrant, in
whole or in part, by the surrender of this Warrant (with the exercise form
attached hereto duly executed) at the principal office of the Issuer, and by the
payment to the Issuer of an amount of consideration therefor equal to the
Warrant Price in effect on the date of such exercise multiplied by the number of
shares of Warrant Stock with respect to which this Warrant is then being
exercised, payable at such Holder's election (i) by certified or official bank
check or (ii) by surrender to the Issuer for cancellation of a portion of this
Warrant representing that number of unissued shares of Warrant Stock which is
equal to the quotient obtained by dividing (A) the product obtained by
multiplying the Warrant Price by the number of shares of Warrant Stock being
purchased upon such exercise by (B) the difference obtained by subtracting the
Warrant Price from the Per Share Market Value as of the date of such exercise,
or (iii) by a combination of the foregoing methods of payment selected by the
Holder of this Warrant. In any case where the consideration payable upon such
exercise is being paid in whole or in part pursuant to the provisions of clause
(ii) of this subsection (b), such exercise shall be accompanied by written
notice from the Holder of this Warrant specifying the manner of payment thereof
and containing a calculation showing the number of shares of Warrant Stock with
respect to which rights are being surrendered thereunder and the net number of
shares to be issued after giving effect to such surrender.
(c) Issuance of Stock Certificates. In the event of any exercise of the
rights represented by this Warrant in accordance with and subject to the terms
and conditions hereof, (i) certificates for the shares of Warrant Stock so
purchased shall be dated the date of such exercise and delivered to the Holder
hereof within a reasonable time, not exceeding three Trading Days after such
exercise, and the Holder hereof shall be deemed for all purposes to be the
Holder of the shares of Warrant Stock so purchased as of the date of such
exercise, and (ii) unless this Warrant has expired, a new Warrant representing
the number of shares of Warrant Stock, if any, with respect to which this
Warrant shall not then have been exercised (less any amount thereof which shall
have been canceled in payment or partial payment of the Warrant Price as
hereinabove provided) shall also be issued to the Holder hereof at the Issuer's
expense within such time.
(d) Transferability of Warrant. This Warrant may not be transferred by
a Purchaser without the prior written consent of the Company, such consent not
to be unreasonably withheld. If transferred pursuant to this paragraph and
subject to the provisions of subsection (e) of this Section 2, this Warrant may
be transferred on the books of the Issuer by the Holder hereof in person or by
duly authorized attorney, upon surrender of this Warrant at the principal office
of the Issuer, properly endorsed (by the Holder executing an assignment in the
form attached hereto) and upon payment of any necessary transfer tax or other
governmental charge imposed upon such transfer. This Warrant is exchangeable at
the principal office of the Issuer for Warrants for the purchase of the same
aggregate number of shares of Warrant Stock, each new Warrant to represent the
right to purchase such number of shares of Warrant Stock as the Holder hereof
shall designate at the time of such exchange. All Warrants issued on transfers
or exchanges shall be dated the Original Issue Date and shall be identical with
this Warrant except as to the number of shares of Warrant Stock issuable
pursuant hereto.
(e) Compliance with Securities Laws.
(i) The Holder of this Warrant, by acceptance hereof,
acknowledges that this Warrant and the shares of Warrant Stock to be
issued upon exercise hereof are being acquired solely for the Holder's
own account and not as a nominee for any other party, and for
investment, and that the
2
<PAGE>
Holder will not offer, sell or otherwise dispose of this Warrant or any
shares of Warrant Stock to be issued upon exercise hereof except
pursuant to an effective registration statement, or an exemption from
registration, under the Securities Act and any applicable state
securities laws.
(ii) Except as provided in paragraph (iii) below, this Warrant
and all certificates representing shares of Warrant Stock issued upon
exercise hereof shall be stamped or imprinted with a legend in
substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT.
(iii) The restrictions imposed by this subsection (e) upon the
transfer of this Warrant and the shares of Warrant Stock to be
purchased upon exercise hereof shall terminate (A) when such securities
shall have been effectively registered under the Securities Act, (B)
upon the Issuer's receipt of an opinion of counsel, in form and
substance reasonably satisfactory to the Issuer, addressed to the
Issuer to the effect that such restrictions are no longer required to
ensure compliance with the Securities Act or (C) upon the Issuer's
receipt of other evidence reasonably satisfactory to the Issuer that
such registration is not required. Whenever such restrictions shall
cease and terminate as to any such securities, the Holder thereof shall
be entitled to receive from the Issuer (or its transfer agent and
registrar), without expense (other than applicable transfer taxes, if
any), new Warrants (or, in the case of shares of Warrant Stock, new
stock certificates) of like tenor not bearing the applicable legends
required by paragraph (ii) above relating to the Securities Act and
state securities laws.
(f) Continuing Rights of Holder. The Issuer will, at the time of or at
any time after each exercise of this Warrant, upon the request of the Holder
hereof or of any shares of Warrant Stock issued upon such exercise, acknowledge
in writing the extent, if any, of its continuing obligation to afford to such
Holder all rights to which such Holder shall continue to be entitled after such
exercise in accordance with the terms of this Warrant, provided that if any such
Holder shall fail to make any such request, the failure shall not affect the
continuing obligation of the Issuer to afford such rights to such Holder.
3. Stock Fully Paid: Reservation and Listing of Shares: Covenants.
(a) Stock Fully Paid. The Issuer represents, warrants, covenants and
agrees that all shares of Warrant Stock which may be issued upon the exercise of
this Warrant or otherwise hereunder will, upon issuance, be duly authorized,
validly issued, fully paid and non-assessable and free from all taxes, liens and
charges created by or through Issuer. The Issuer further covenants and agrees
that during the period within which this Warrant may be exercised, the Issuer
will at all times have authorized and reserved for the purpose of the issue upon
exercise of this Warrant a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.
3
<PAGE>
(b) Reservation. If any shares of Common Stock required to be reserved
for issuance upon exercise of this Warrant or as otherwise provided hereunder
require registration or qualification with any governmental authority under any
federal or state law before such shares may be so issued, the Issuer will in
good faith use its best efforts as expeditiously as possible at its expense to
cause such shares to be duly registered or qualified. If the Issuer shall list
any shares of Common Stock on any securities exchange or market it will, at its
expense, list thereon, maintain and increase when necessary such listing, of,
all shares of Warrant Stock from time to time issued upon exercise of this
Warrant or as otherwise provided hereunder, and, to the extent permissible under
the applicable securities exchange rules, all unissued shares of Warrant Stock
which are at any time issuable hereunder, so long as any shares of Common Stock
shall be so listed. The Issuer will also so list on each securities exchange or
market, and will maintain such listing of, any other securities which the Holder
of this Warrant shall be entitled to receive upon the exercise of this Warrant
if at the time any securities of the same class shall be listed on such
securities exchange or market by the Issuer.
(c) Covenants. The Issuer shall not by any action including, without
limitation, amending the Certificate of Incorporation or the by-laws of the
Issuer, or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such actions as may be necessary or appropriate to
protect the rights of the Holder hereof against dilution (to the extent
specifically provided herein) or impairment. Without limiting the generality of
the foregoing, the Issuer will (i) not permit the par value, if any, of its
Common Stock to exceed the then effective Warrant Price, (ii) not amend or
modify any provision of the Certificate of Incorporation or by-laws of the
Issuer in any manner that would adversely affect in any way the powers,
preferences or relative participating, optional or other special rights of the
Common Stock or which would adversely affect the rights of the Holders of the
Warrants, (iii) take all such action as may be reasonably necessary in order
that the Issuer may validly and legally issue fully paid and nonassessable
shares of Common Stock, free and clear of any liens, claims, encumbrances and
restrictions (other than as provided herein) upon the exercise of this Warrant,
and (iv) use its best efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
reasonably necessary to enable the Issuer to perform its obligations under this
Warrant.
(d) Loss, Theft, Destruction of Warrants. Upon receipt of evidence
satisfactory to the Issuer of the ownership of and the loss, theft, destruction
or mutilation of any Warrant and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security satisfactory to the Issuer
or, in the case of any such mutilation, upon surrender and cancellation of such
Warrant, the Issuer will make and deliver, in lieu of such lost, stolen,
destroyed or mutilated Warrant, a new Warrant of like tenor and representing the
right to purchase the same number of shares of Common Stock.
(e) Rights and Obligations under the Registration Rights Agreement. The
Warrant Stock are entitled to the benefits and subject to the terms of the
Registration Rights Agreement dated as of even date herewith between the Issuer
and the Holders listed on the signature pages thereof (as amended from time to
time, the "Registration Rights Agreement"). The Issuer shall keep or cause to be
kept a copy of the Registration Rights Agreement, and any amendments thereto, at
its chief executive office and shall furnish, without charge, copies thereof to
the Holder upon request.
4. Adjustment of Warrant Price and Warrant Share Number. The number and
kind of Securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the happening of
certain events as follows:
4
<PAGE>
(a) Recapitalization, Reorganization, Reclassification, Consolidation,
Merger or Sale. (i) In case the Issuer after the Original Issue Date shall do
any of the following (each, a "Triggering Event") (a) consolidate with or merge
into any other Person and the Issuer shall not be the continuing or surviving
corporation of such consolidation or merger, or (b) permit any other Person to
consolidate with or merge into the Issuer and the Issuer shall be the continuing
or surviving Person but, in connection with such consolidation or merger, any
Capital Stock of the Issuer shall be changed into or exchanged for Securities of
any other Person or cash or any other property, or (c) transfer all or
substantially all of its properties or assets to any other Person, or (d) effect
a capital reorganization or reclassification of its Capital Stock, then, and in
the case of each such Triggering Event, proper provision shall be made so that,
upon the basis and the terms and in the manner provided in this Warrant, the
Holder of this Warrant shall be entitled (x) upon the exercise hereof at any
time after the consummation of such Triggering Event, to the extent this Warrant
is not exercised prior to such Triggering Event, or is redeemed in connection
with such Triggering Event, to receive at the Warrant Price in effect at the
time immediately prior to the consummation of such Triggering Event in lieu of
the Common Stock issuable upon such exercise of this Warrant prior to such
Triggering Event, the Securities, cash and property to which such Holder would
have been entitled upon the consummation of such Triggering Event if such Holder
had exercised the rights represented by this Warrant immediately prior thereto,
subject to adjustments and increases (subsequent to such corporate action) as
nearly equivalent as possible to the adjustments provided for in Section 4
hereof or (y) to sell this Warrant (or, at such Holder's election, a portion
hereof) to the Person continuing after or surviving such Triggering Event, or to
the Issuer (if Issuer is the continuing or surviving Person) at a sales price
equal to the amount of cash, property and/or Securities to which a holder of the
number of shares of Common Stock which would otherwise have been delivered upon
the exercise of this Warrant would have been entitled upon the effective date or
closing of any such Triggering Event (the "Event Consideration"), less the
amount or portion of such Event Consideration having a fair value equal to the
aggregate Warrant Price applicable to this Warrant or the portion hereof so
sold.
(ii) Notwithstanding anything contained in this Warrant to the
contrary, the Issuer will not effect any Triggering Event unless, prior to the
consummation thereof, each Person (other than the Issuer) which may be required
to deliver any Securities, cash or property upon the exercise of this Warrant as
provided herein shall assume, by written instrument delivered to, and reasonably
satisfactory to, the Holder of this Warrant, (A) the obligations of the Issuer
under this Warrant (and if the Issuer shall survive the consummation of such
Triggering Event, such assumption shall be in addition to, and shall not release
the Issuer from, any continuing obligations of the Issuer under this Warrant)
and (B) the obligation to deliver to such Holder such shares of Securities, cash
or property as, in accordance with the foregoing provisions of this subsection
(a), such Holder shall be entitled to receive, and such Person shall have
similarly delivered to such Holder an opinion of counsel for such Person, which
counsel shall be reasonably satisfactory to such Holder, stating that this
Warrant shall thereafter continue in full force and effect and the terms hereof
(including, without limitation, all of the provisions of this subsection (a))
shall be applicable to the Securities, cash or property which such Person may be
required to deliver upon any exercise of this Warrant or the exercise of any
rights pursuant hereto.
(iii) If with respect to any Triggering Event, the Holder of this
Warrant has exercised its right as provided in clause (y) of subparagraph (i) of
this subsection (a) to sell this Warrant or a portion thereof, the Issuer agrees
that as a condition to the consummation of any such Triggering Event the Issuer
shall secure such right of Holder to sell this Warrant to the Person continuing
after or surviving such Triggering Event and the Issuer shall not effect any
such Triggering Event unless upon or prior to the consummation thereof the
amounts of cash, property and/or Securities required under such clause (y) are
delivered to the Holder of this Warrant. The obligation of the Issuer to secure
such right of the Holder to sell this Warrant shall be subject to such Holder's
cooperation with the Issuer, including, without limitation, the giving of
5
<PAGE>
customary representations and warranties to the purchaser in connection with any
such sale. Prior notice of any Triggering Event shall be given to the Holder of
this Warrant in accordance with Section 11 hereof.
(b) Subdivision or Combination of Shares. If the Issuer, at any time
while this Warrant is outstanding, shall subdivide or combine any shares of
Common Stock, (i) in case of subdivision of shares, the Warrant Price shall be
proportionately reduced (as at the effective date of such subdivision or, if the
Issuer shall take a record of Holders of its Common Stock for the purpose of so
subdividing, as at the applicable record date, whichever is earlier) to reflect
the increase in the total number of shares of Common Stock outstanding as a
result of such subdivision, or (ii) in the case of a combination of shares, the
Warrant Price shall be proportionately increased (as at the effective date of
such combination or, if the Issuer shall take a record of Holders of its Common
Stock for the purpose of so combining, as at the applicable record date,
whichever is earlier) to reflect the reduction in the total number of shares of
Common Stock outstanding as a result of such combination.
(c) Certain Dividends and Distributions. If the Issuer, at any time
while this Warrant is outstanding, shall:
(i) Stock Dividends. Pay a dividend in, or make any other
distribution to its stockholders (without consideration therefor) of,
shares of Common Stock, the Warrant Price shall be adjusted, as at the
date the Issuer shall take a record of the Holders of the Issuer's
Capital Stock for the purpose of receiving such dividend or other
distribution (or if no such record is taken, as at the date of such
payment or other distribution), to that price determined by multiplying
the Warrant Price in effect immediately prior to such record date (or
if no such record is taken, then immediately prior to such payment or
other distribution), by a fraction (1) the numerator of which shall be
the total number of shares of Common Stock outstanding immediately
prior to such dividend or distribution, and (2) the denominator of
which shall be the total number of shares of Common Stock outstanding
immediately after such dividend or distribution (plus in the event that
the Issuer paid cash for fractional shares, the number of additional
shares which would have been outstanding had the Issuer issued
fractional shares in connection with said dividends); or
(ii) Other Dividends. Pay a dividend on, or make any
distribution of its assets upon or with respect to (including, but not
limited to, a distribution of its property as a dividend in liquidation
or partial liquidation or by way of return of capital), the Common
Stock (other than as described in clause (i) of this subsection (c)),
or in the event that the Company shall offer options or rights to
subscribe for shares of Common Stock, or issue any Common Stock
Equivalents, to all of its holders of Common Stock, then on the record
date for such payment, distribution or offer or, in the absence of a
record date, on the date of such payment, distribution or offer, the
Holder shall receive what the Holder would have received had it
exercised this Warrant in full immediately prior to the record date of
such payment, distribution or offer or, in the absence of a record
date, immediately prior to the date of such payment, distribution or
offer.
(d) Issuance of Additional Shares of Common Stock. If the Issuer, at
any time while this Warrant is outstanding, shall issue any Additional Shares of
Common Stock (otherwise than as provided in the foregoing subsections (a)
through (c) of this Section 4), at a price per share less than the Warrant Price
then in effect or less than the Per Share Market Value then in effect or without
consideration, then the Warrant Price upon each such issuance shall be adjusted
to that price (rounded to the nearest cent) determined by multiplying the
Warrant Price then in effect by a fraction:
6
<PAGE>
(i) the numerator of which shall be equal to the sum of (A)
the number of shares of Common Stock outstanding immediately prior to
the issuance of such Additional Shares of Common Stock plus (B) the
number of shares of Common Stock (rounded to the nearest whole share)
which the aggregate consideration for the total number of such
Additional Shares of Common Stock so issued would purchase at a price
per share equal to the greater of the Per Share Market Value then in
effect and the Warrant Price then in effect, and
(ii) the denominator of which shall be equal to the number of
shares of Common Stock outstanding immediately after the issuance of
such Additional Shares of Common Stock.
The provisions of this subsection (d) shall not apply under any of the
circumstances for which an adjustment is provided in subsections (a), (b) or (c)
of this Section 4. No adjustment of the Warrant Price shall be made under this
subsection (d) upon the issuance of any Additional Shares of Common Stock which
are issued pursuant to any Common Stock Equivalent if upon the issuance of such
Common Stock Equivalent (x) any adjustment shall have been made pursuant to
subsection (e) of this Section 4 or (Y) no adjustment was required pursuant to
subsection (e) of this Section 4. No adjustment of the Warrant Price shall be
made under this subsection (d) in an amount less than $.01 per share, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment, if any, which together with
any adjustments so carried forward shall amount to $.01 per share or more,
provided that upon any adjustment of the Warrant Price as a result of any
dividend or distribution payable in Common Stock or Convertible Securities or
the reclassification, subdivision or combination of Common Stock into a greater
or smaller number of shares, the foregoing figure of $.01 per share (or such
figure as last adjusted) shall be adjusted (to the nearest one-half cent) in
proportion to the adjustment in the Warrant Price.
(e) Issuance of Common Stock Equivalents. If the Issuer, at any time
while this Warrant is outstanding, shall issue any Common Stock Equivalent and
the price per share for which Additional Shares of Common Stock may be issuable
thereafter pursuant to such Common Stock Equivalent shall be less than the
Warrant Price then in effect or less than the Per Share Market Value then in
effect, or if, after any such issuance of Common Stock Equivalents, the price
per share for which Additional Shares of Common Stock may be issuable thereafter
is amended or adjusted, and such price as so amended shall be less than the
Warrant Price or less than the Per Share Market Value in effect at the time of
such amendment, then the Warrant Price upon each such issuance or amendment
shall be adjusted as provided in the first sentence of subsection (d) of this
Section 4 on the basis that (1) the maximum number of Additional Shares of
Common Stock issuable pursuant to all such Common Stock Equivalents shall be
deemed to have been issued (whether or not such Common Stock Equivalents are
actually then exercisable, convertible or exchangeable in whole or in part) as
of the earlier of (A) the date on which the Issuer shall enter into a firm
contract for the issuance of such Common Stock Equivalent, or (B) the date of
actual issuance of such Common Stock Equivalent, and (2) the aggregate
consideration for such maximum number of Additional Shares of Common Stock shall
be deemed to be the minimum consideration received or receivable by the Issuer
for the issuance of such Additional Shares of Common Stock pursuant to such
Common Stock Equivalent. No adjustment of the Warrant Price shall be made under
this subsection (e) upon the issuance of any Convertible Security which is
issued pursuant to the exercise of any warrants or other subscription or
purchase rights therefor, if any adjustment shall previously have been made in
the Warrant Price then in effect upon the issuance of such warrants or other
rights pursuant to this subsection (e). If no adjustment is required under this
subsection (e) upon issuance of any Common Stock Equivalent or once an
adjustment is made under this subsection (e) based upon the Per Share Market
Value in effect on the date of such adjustment, no further adjustment shall be
made under this subsection (e) based solely upon a change in the Per Share
Market Value after such date.
7
<PAGE>
(f) Purchase of Common Stock by the Issuer. If the Issuer at any time
while this Warrant is outstanding shall, directly or indirectly through a
Subsidiary or otherwise, purchase, redeem or otherwise acquire any shares of
Common Stock at a price per share greater than the Per Share Market Value then
in effect, then the Warrant Price upon each such purchase, redemption or
acquisition shall be adjusted to that price determined by multiplying such
Warrant Price by a fraction (i) the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such purchase,
redemption or acquisition minus the number of shares of Common Stock which the
aggregate consideration for the total number of such shares of Common Stock so
purchased, redeemed or acquired would purchase at the Per Share Market Value;
and (ii) the denominator of which shall be the number of shares of Common Stock
outstanding immediately after such purchase, redemption or acquisition. For the
purposes of this subsection (f), the date as of which the Per Share Market Value
shall be computed shall be the earlier of (x) the date on which the Issuer shall
enter into a firm contract for the purchase, redemption or acquisition of such
Common Stock, or (y) the date of actual purchase, redemption or acquisition of
such Common Stock. For the purposes of this subsection (f), a purchase,
redemption or acquisition of a Common Stock Equivalent shall be deemed to be a
purchase of the underlying Common Stock, and the computation herein required
shall be made on the basis of the full exercise, conversion or exchange of such
Common Stock Equivalent on the date as of which such computation is required
hereby to be made, whether or not such Common Stock Equivalent is actually
exercisable, convertible or exchangeable on such date.
(g) Other Provisions Applicable to Adjustments Under this Section 4.
The following provisions shall be applicable to the making of adjustments in the
Warrant Price hereinbefore provided in Section 4:
(i) Computation of Consideration. The consideration received
by the Issuer shall be deemed to be the following: to the extent that
any Additional Shares of Common Stock or any Common Stock Equivalents
shall be issued for a cash consideration, the consideration received by
the Issuer therefor, or if such Additional Shares of Common Stock or
Common Stock Equivalents are offered by the Issuer for subscription,
the subscription price, or, if such Additional Shares of Common Stock
or Common Stock Equivalents are sold to underwriters or dealers for
public offering without a subscription offering, the public offering
price, in any such case excluding any amounts paid or receivable for
accrued interest or accrued dividends and without deduction of any
compensation, discounts, commissions, or expenses paid or incurred by
the Issuer for or in connection with the underwriting thereof or
otherwise in connection with the issue thereof; to the extent that such
issuance shall be for a consideration other than cash, then, except as
herein otherwise expressly provided, the fair market value of such
consideration at the, time of such issuance as determined in good faith
by the Board. The consideration for any Additional Shares of Common
Stock issuable pursuant to any Common Stock Equivalents shall be the
consideration received by the Issuer for issuing such Common Stock
Equivalents, plus the additional consideration payable to the Issuer
upon the exercise, conversion or exchange of such Common Stock
Equivalents. In case of the issuance at any time of any Additional
Shares of Common Stock or Common Stock Equivalents in payment or
satisfaction of any dividend upon any class of Capital Stock of the
Issuer other than Common Stock, the Issuer shall be deemed to have
received for such Additional Shares of Common Stock or Common Stock
Equivalents a consideration equal to the amount of such dividend so
paid or satisfied. In any case in which the consideration to be
received or paid shall be other than cash, the Board shall notify the
Holder of this Warrant of its determination of the fair market value
8
<PAGE>
of such consideration prior to payment or accepting receipt thereof.
If, within thirty days after receipt of said notice, the Majority
Holders shall notify the Board in writing of their objection to such
determination, a determination of the fair market value of such
consideration shall be made by an Independent Appraiser selected by the
Majority Holders with the approval of the Board (which approval shall
not be unreasonably withheld), whose fees and expenses shall be paid by
the Issuer.
(ii) Readjustment of Warrant Price. Upon the expiration or
termination of the right to convert, exchange or exercise any Common
Stock Equivalent the issuance of which effected an adjustment in the
Warrant Price, if such Common Stock Equivalent shall not have been
converted, exercised or exchanged in its entirety, the number of shares
of Common Stock deemed to be issued and outstanding by reason of the
fact that they were issuable upon conversion, exchange or exercise of
any such Common Stock Equivalent shall no longer be computed as set
forth above, and the Warrant Price shall forthwith be readjusted and
thereafter be the price which it would have been (but reflecting any
other adjustments in the Warrant Price made pursuant to the provisions
of this Section 4 after the issuance of such Common Stock Equivalent)
had the adjustment of the Warrant Price been made in accordance with
the issuance or sale of the number of Additional Shares of Common Stock
actually issued upon conversion, exchange or issuance of such Common
Stock Equivalent and thereupon only the number of Additional Shares of
Common Stock actually so issued shall be deemed to have been issued and
only the consideration actually received by the Issuer (computed as in
clause (i) of this subsection (g)) shall be deemed to have been
received by the Issuer.
(iii) Outstanding Common Stock. The number of shares of Common
Stock at any time outstanding shall (A) not include any shares thereof
then directly or indirectly owned or held by or for the account of the
Issuer or any of its Subsidiaries, and (B) be deemed to include all
shares of Common Stock then issuable upon conversion, exercise or
exchange of any then outstanding Common Stock Equivalents or any other
evidences of Indebtedness, shares of Capital Stock (including, without
limitation, the Preferred Stock) or other Securities which are or may
be at any time convertible into or exchangeable for shares of Common
Stock or Other Common Stock.
(h) Other Action Affecting Common Stock. In case after the Original
Issue Date the Issuer shall take any action affecting its Common Stock, other
than an action described in any of the foregoing subsections (a) through (g) of
this Section 4, inclusive, and the failure to make any adjustment would not
fairly protect the purchase rights represented by this Warrant in accordance
with the essential intent and principle of this Section 4, then the Warrant
Price shall be adjusted in such manner and at such time as the Board may in good
faith determine to be equitable in the circumstances.
(i) Adjustment of Warrant Share Number. Upon each adjustment in the
Warrant Price pursuant to any of the foregoing provisions of this Section 4, the
Warrant Share Number shall be adjusted, to the nearest one hundredth of a whole
share, to the product obtained by multiplying the Warrant Share Number
immediately prior to such adjustment in the Warrant Price by a fraction, the
numerator of which shall be the Warrant Price immediately before giving effect
to such adjustment and the denominator of which shall be the Warrant Price
immediately after giving effect to such adjustment. If the Issuer shall be in
default under any provision contained in Section 3 of this Warrant so that
shares issued at the Warrant Price adjusted in accordance with this Section 4
would not be validly issued, the adjustment of the Warrant Share Number provided
for in the foregoing sentence shall nonetheless be made and the Holder of this
Warrant shall be entitled to purchase such greater number of shares at the
lowest price at which such shares may then be validly issued under applicable
law. Such exercise shall not constitute a waiver of any claim arising against
the Issuer by reason of its default under Section 3 of this Warrant.
9
<PAGE>
(j) Form of Warrant after Adjustments. The form of this Warrant need
not be changed because of any adjustments in the Warrant Price or the number and
kind of Securities purchasable upon the exercise of this Warrant.
5. Notice of Adjustments. Whenever the Warrant Price or Warrant Share
Number shall be adjusted pursuant to Section 4 hereof (for purposes of this
Section 5, each an "adjustment"), the Issuer shall cause its Chief Financial
Officer to prepare and execute a certificate setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated (including a description of the
basis on which the Board made any determination hereunder), and the Warrant
Price and Warrant Share Number after giving effect to such adjustment, and shall
cause copies of such certificate to be delivered to the Holder of this Warrant
promptly after each adjustment. Any dispute between the Issuer and the Holder of
this Warrant with respect to the matters set forth in such certificate may at
the option of the Holder of this Warrant be submitted to one of the national
accounting firms currently known as the "big five" selected by the Holder,
provided that the Issuer shall have ten days after receipt of notice from such
Holder of its selection of such firm to object thereto, in which case such
Holder shall select another such firm and the Issuer shall have no such right of
objection. The firm selected by the Holder of this Warrant as provided in the
preceding sentence shall be instructed to deliver a written opinion as to such
matters to the Issuer and such Holder within thirty days after submission to it
of such dispute. Such opinion shall be final and binding on the parties hereto.
The fees and expenses of such accounting firm shall be paid by the Issuer.
6. Fractional Shares. No fractional shares of Warrant Stock will be
issued in connection with and exercise hereof, but in lieu of such fractional
shares, the Issuer shall make a cash payment therefor equal in amount to the
product of the applicable fraction multiplied by the Per Share Market Value then
in effect.
7. Definitions. For the purposes of this Warrant, the following terms
have the following meanings:
"Additional Shares of Common Stock" means all shares of Common
Stock issued by the Issuer after the Original Issue Date, and all
shares of Other Common, if any, issued by the Issuer after the Original
Issue Date, except (i) Warrant Stock, (ii) any shares of Common Stock
issuable upon conversion of the Preferred Stock pursuant to the
Preferred Stock Certificate of Designation and (iii) any shares of
Common Stock issuable upon exercise of stock options referred to in
Items 4 and 5 of "Convertible Securities Instruments and Arrangements
for Acquisition of Common Stock" of Schedule 2.1(c) of the Securities
Purchase Agreement, (iv) any shares of Common Stock issuable pursuant
to Item 6 of "Convertible Securities Instruments and Arrangements for
Acquisition of Common Stock" of Schedule 2.1(c) of the Securities
Purchase Agreement and (v) any shares of Common Stock issuable as
referred to in Item 2 of Schedule 3.13 or issuable upon exercise of any
warrants or conversion of preferred as referred to in Items 1 and 3 of
Schedule 3.13 of the Securities Purchase Agreement.
"Board" shall mean the Board of Directors of the Issuer.
"Capital Stock" means and includes (i) any and all shares,
interests, participations or other equivalents of or interests in
(however designated) corporate stock, including, without limitation,
shares of preferred or preference stock, (ii) all partnership interests
(whether general or limited) in any Person which is a partnership,
(iii) all membership interests or limited liability company
10
<PAGE>
interests in any limited liability company, and (iv) all equity
equity or ownership interests in any Person of any other type.
"Certificate of Incorporation" means the Certificate of
Incorporation of the Issuer as in effect on the Original Issue Date and
the Preferred Stock Certificate of Designation, and as hereafter from
time to time amended, modified, supplemented or restated in accordance
with the terms hereof and thereof and pursuant to applicable law.
"Original Issue Date" means January 13, 1999.
"Common Stock" means the Common Stock, $.005 par value, of the
Issuer and any other Capital Stock into which such stock may hereafter
be changed.
"Common Stock Equivalent" means any Convertible Security or
warrant, option or other right to subscribe for or purchase any
Additional Shares of Common Stock or any Convertible Security.
"Convertible Securities" means evidences of Indebtedness,
shares of Capital Stock or other Securities which are or may be at any
time convertible into or exchangeable for Additional Shares of Common
Stock. The term "Convertible Security" means one of the Convertible
Securities.
"Governmental Authority" means any governmental, regulatory or
self-regulatory entity, department, body, official, authority,
commission, board, agency or instrumentality, whether federal, state or
local, and whether domestic or foreign.
"Holders" mean the Persons who shall from time to time own any
Warrant. The term "Holder" means one of the Holders.
"Independent Appraiser" means a nationally recognized or major
regional investment banking firm or firm of independent certified
public accountants of recognized standing (which may be the firm that
regularly examines the financial statements of the Issuer) that is
regularly engaged in the business of appraising the Capital Stock or
assets of corporations or other entities as going concerns, and which
is not affiliated with either the Issuer or the Holder of any Warrant.
"Issuer" means Imaging Technologies Corporation, a Delaware
corporation, and its successors.
"Majority Holders" means at any time the Holders of Warrants
exercisable for a majority of the shares of Warrant Stock issuable
under the Warrants at the time outstanding.
"NASDAQ" means the National Association of Securities Dealers
Automated Quotation System.
"Other Common" means any other Capital Stock of the Issuer of
any class which shall be authorized at any time after the date of this
Warrant (other than Common Stock) and which shall have the right to
participate in the distribution of earnings and assets of the Issuer
without limitation as to amount.
11
<PAGE>
"Person" means an individual, corporation, limited liability
company, partnership, joint stock company, trust, unincorporated
organization, joint venture, Governmental Authority or other entity of
whatever nature.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on The
Nasdaq Small-Cap Market, the Nasdaq National Market or other registered
national stock exchange on which the Common Stock is then listed or if
there is no such price on such date, then the closing bid price on such
exchange or quotation system on the date nearest preceding such date,
or (b) if the Common Stock is not listed then on The Nasdaq Small-Cap
Market, the Nasdaq National Market or any registered national stock
exchange, the closing bid price for a share of Common Stock in the
over-the-counter market, as reported by NASDAQ or in the National
Quotation Bureau Incorporated or similar organization or agency
succeeding to its functions of reporting prices) at the close of
business on such date, or (c) if the Common Stock is not then reported
by the National Quotation Bureau Incorporated (or similar organization
or agency succeeding to its functions of reporting prices), then the
average of the "Pink Sheet" quotes for the relevant conversion period,
as determined in good faith by the holder, or (d) if the Common Stock
is not then publicly traded the fair market value of a share of Common
Stock as determined by an Independent Appraiser selected in good faith
by the Majority Holders; provided, however, that the Issuer, after
receipt of the determination by such Independent Appraiser, shall have
the right to select an additional Independent Appraiser, in which case,
the fair market value shall be equal to the average of the
determinations by each such Independent Appraiser; and provided,
further that all determinations of the Per Share Market Value shall be
appropriately adjusted for any stock dividends, stock splits or other
similar transactions during such period. The determination of fair
market value by an Independent Appraiser shall be based upon the fair
market value of the Issuer determined on a going concern basis as
between a willing buyer and a willing seller and taking into account
all relevant factors determinative of value, and shall be final and
binding on all parties. In determining the fair market value of any
shares of Common Stock, no consideration shall be given to any
restrictions on transfer of the Common Stock imposed by agreement or by
federal or state securities laws, or to the existence or absence of, or
any limitations on, voting rights.
"Preferred Stock" means the Issuer's Series D Preferred Stock,
par value $1,000 per share and stated value $2,000 per share.
"Preferred Stock Certificate of Designation" means the
Certificate of Designation, Powers, Preferences and Rights of the
Preferred Stock adopted by the Board on January 13, 1999.
"Registration Rights Agreement" has the meaning specified in
Section 3(e) hereof.
"Securities" means any debt or equity securities of the
Issuer, whether now or hereafter authorized, any instrument convertible
into or exchangeable for Securities or a Security, and any option,
warrant or other right to purchase or acquire any Security. "Security"
means one of the Securities.
"Securities Act" means the Securities Act of 1933, as amended,
or any similar federal statute then in effect.
12
<PAGE>
"Securities Purchase Agreement" means the Securities Purchase
Agreement dated as of January 13, 1999 among the Issuer, Balmore Funds
S.A., Austost Anstalt Schaan, Nesher, Inc. and Guarantee & Finance
Corp.
"Subsidiary" means any corporation at least 50% of whose
outstanding Voting Stock shall at the time be owned directly or
indirectly by the Issuer or by one or more of its Subsidiaries, or by
the Issuer and one or more of its Subsidiaries.
"Trading Day" means (a) a day on which the Common Stock is
traded on The Nasdaq Small-Cap Market, the Nasdaq National Market or
other registered national stock exchange on which the Common Stock has
been listed, or (b) if the Common Stock is not listed on The Nasdaq
Small-Cap Market, the Nasdaq National Market or any registered national
stock exchange, a day or which the Common Stock is traded in the
over-the-counter market, as reported by the OTC Bulletin Board, or (c)
if the Common Stock is not quoted on the OTC Bulletin Board, a day on
which the Common Stock is quoted in the over-the-counter market as
reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding its functions of reporting prices);
provided, however, that in the event that the Common Stock is not
listed or quoted as set forth in (a), (b) and (c) hereof, then Trading
Day shall mean any day except Saturday, Sunday and any day which shall
be a legal holiday or a day on which banking institutions in the State
of New York are authorized or required by law or other government
action to close.
"Term" has the meaning specified in Section 1 hereof.
"Voting Stock", as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however
designated) having ordinary voting power for the election of a majority
of the members of the Board of Directors (or other governing body) of
such corporation, other than Capital Stock having such power only by
reason of the happening of a contingency.
"Warrants" means the Warrants issued and sold pursuant to the
Securities Purchase Agreement, including, without limitation, this
Warrant, and any other warrants of like tenor issued in substitution or
exchange for any thereof pursuant to the provisions of Section 2(c),
2(d) or 2(e) hereof or of any of such other Warrants.
"Warrant Price" means initially $.875, as such price may be
adjusted from time to time as shall result from the adjustments
specified in Section 4 hereof.
"Warrant Share Number" means at any time the aggregate number
of shares of Warrant Stock which may at such time be purchased upon
exercise of this Warrant, after giving effect to all prior adjustments
and increases to such number made or required to be made under the
terms hereof.
"Warrant Stock" means Common Stock issuable upon exercise of
any Warrant or Warrants or otherwise issuable pursuant to any Warrant
or Warrants.
13
<PAGE>
8. Other Notices. In case at any time:
(A) the Issuer shall make any distributions to
the holders of Common Stock; or
(B) the Issuer shall authorize the granting to
all holders of its Common Stock of rights to
subscribe for or purchase any shares of
Capital Stock of any class or of any Common
Stock Equivalents or Convertible Securities or
other rights; or
(C) there shall be any reclassification of the
Capital Stock of the Issuer; or
(D) there shall be any capital reorganization
by the Issuer; or
(E) there shall be any (i) consolidation or
merger involving the Issuer or (ii) sale,
transfer or other disposition of all or
substantially all of the Issuer's property,
assets or business (except a merger or other
reorganization in which the Issuer shall be
the surviving corporation and its shares of
Capital Stock shall continue to be outstanding
and unchanged and except a consolidation,
merger, sale, transfer or other disposition
involving a wholly-owned Subsidiary); or
(F) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the
Issuer or any partial liquidation of the
Issuer or distribution to holders of Common
Stock;
then, in each of such cases, the Issuer shall give written notice to the Holder
of the date on which (i) the books of the Issuer shall close or a record shall
be taken for such dividend, distribution or subscription rights or (ii) such
reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding-up, as the case may be, shall take place.
Such notice also shall specify the date as of which the holders of Common Stock
of record shall participate in such dividend, distribution or subscription
rights, or shall be entitled to exchange their certificates for Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, disposition, dissolution, liquidation
or winding-up, as the case may be. Such notice shall be given at least twenty
days prior to the action in question and not less than twenty days prior to the
record date or the date on which the Issuer's transfer books are closed in
respect thereto. The Issuer shall give to the Holder notice of all meetings and
actions by written consent of its stockholders, at the same time in the same
manner as notice of any meetings of stockholders is required to be given to
stockholders who do not waive such notice (or, if such requires no notice, then
two Trading Days written notice thereof describing the matters upon which action
is to be taken). The Holder shall have the right to send two representatives
selected by it to each meeting, who shall be permitted to attend, but not vote
at, such meeting and any adjournments thereof. This Warrant entitles the Holder
to receive copies of all financial and other information distributed or required
to be distributed to the holders of the Common Stock.
9. Amendment and Waiver. Any term, covenant, agreement or condition in
this Warrant may be amended, or compliance therewith may be waived (either
generally or in a particular instance and either retroactively or
prospectively), by a written instrument or written instruments executed by the
Issuer and
14
<PAGE>
the Majority Holders; provided, however, that no such amendment or waiver shall
reduce the Warrant Share umber, increase the Warrant Price, shorten the period
during which this Warrant may be exercised or modify any provision of this
Section 9 without the consent of the Holder of this Warrant.
10. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAW.
11. Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice prior to 5:00 p.m., New York City time, on
a Business Day, (ii) the Business Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified for notice later than 5:00 p.m., New York City time, on any
date and earlier than 11:59 p.m., New York City time, on such date, (iii) the
Business Day following the date of mailing, if sent by nationally recognized
overnight courier service or (iv) actual receipt by the party to whom such
notice is required to be given. The addresses for such communications shall be
with respect to the Holder of this Warrant or of Warrant Stock issued pursuant
hereto, addressed to such Holder at its last known address or facsimile number
appearing on the books of the Issuer maintained for such purposes, or with
respect to the Issuer, addressed to:
Imaging Technologies Corporation
11031 Via Frontera
San Diego, California 92127
Attention: Mr. Brian Bonar
Facsimile No.: (619) 613-1311
or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices to the Holder shall be sent to Stroock &
Stroock & Lavan LLP, 180 Maiden Lane, New York New York 10038-4982, Attention:
James R. Tanenbaum, Esq., Facsimile no.: (212) 806-6006. Copies of notices to
the Issuer shall be sent to Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue of
the Americas, New York, New York 10036, Attention: Christopher S. Auguste, Esq.,
Facsimile no.: (212) 704-6288.
12. Warrant Agent. The Issuer may, by written notice to each Holder of
this Warrant, appoint an agent having an office in New York, New York for the
purpose of issuing shares of Warrant Stock on the exercise of this Warrant
pursuant to subsection (b) of Section 2 hereof, exchanging this Warrant pursuant
to subsection (d) of Section 2 hereof or replacing this Warrant pursuant to
subsection (d) of Section 3 hereof, or any of the foregoing, and thereafter any
such issuance, exchange or replacement, as the case may be, shall be made at
such office by such agent.
13. Remedies. The Issuer stipulates that the remedies at law of the
Holder of this Warrant in the event of any default or threatened default by the
Issuer in the performance of or compliance with any of the terms of this Warrant
are not and will not be adequate and that, to the fullest extent permitted by
law, such terms may be specifically enforced by a decree for the specific
performance of any agreement contained herein or by an injunction against a
violation of any of the terms hereof or otherwise.
14. Successors and Assigns. This Warrant and the rights evidenced
hereby shall inure to the benefit of and be binding upon the successors and
assigns of the Issuer, the Holder hereof and (to the extent
15
<PAGE>
provided herein) the Holders of Warrant Stock issued pursuant hereto, and shall
be enforceable by any such Holder or Holder of Warrant Stock
15. Modification and Severability. If, in any action before any court
or agency legally empowered to enforce any provision contained herein, any
provision hereof is found to be unenforceable, then such provision shall be
deemed modified to the extent necessary to make it enforceable by such court or
agency. If any such provision is not enforceable as set forth in the preceding
sentence, the unenforceability of such provision shall not affect the other
provisions of this Warrant, but this Warrant shall be construed as if such
unenforceable provision had never been contained herein.
16. Headings. The headings of the Sections of this Warrant are for
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
16
<PAGE>
IN WITNESS WHEREOF, the Issuer has executed this Warrant as of the day
and year first above written.
IMAGING TECHNOLOGIES CORPORATION
By: /s/ Brian Bonar
-------------------------------
Brian Bonar,
President
17
<PAGE>
EXERCISE FORM
IMAGING TECHNOLOGIES CORPORATION
The undersigned _______________, pursuant to the provisions of the within
Warrant, hereby elects to purchase _____ shares of Common Stock of IMAGING
TECHNOLOGIES CORPORATION covered by the within Warrant.
Dated: _________________ Signature ___________________________
Address _____________________
ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _____________, attorney, to transfer the said
Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the right to purchase _________ shares of Warrant Stock
evidenced by the within Warrant together with all rights therein, and does
irrevocably constitute and appoint ___________________, attorney, to transfer
that part of the said Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________
FOR USE BY THE ISSUER ONLY:
This Warrant No. W-_____ canceled (or transferred or exchanged) this _____ day
of ___________, _____, shares of Common Stock issued therefor in the name of
_______________, Warrant No. W-_____ issued for ____ shares of Common Stock in
the name of _______________.
18
SECURITIES PURCHASE AGREEMENT
Among
IMAGING TECHNOLOGIES CORPORATION,
HARRY J. SAAL TRUST UTA DATED 7/19/72,
SAAL FAMILY CHARITABLE LEAD TRUST UTA DATED 2/25/98,
MANOR INVESTMENT,
GUILHERME DUQUE,
NESHER, INC.,
MANCHESTER ASSET MANAGEMENT,
GILSTON CORPORATION, LTD.,
R.T. MERCER,
THE CUTTYHUNK FUND, LIMITED
AND
CASHCO FLP
Dated as of February 2, 1999
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I PURCHASE AND SALE OF UNITS........................................1
1.1 Purchase and Sale....................................................1
1.2 Purchase Price.......................................................2
1.3 The Closing..........................................................2
ARTICLE II REPRESENTATIONS AND WARRANTIES...................................3
2.1 Representations, Warranties and Agreements of the Company............3
2.2 Representations and Warranties of the Purchasers....................10
ARTICLE III OTHER AGREEMENTS OF THE PARTIES................................11
3.1 Transfer Restrictions...............................................11
3.2 Stop Transfer Instruction...........................................12
3.3 Furnishing of Information...........................................13
3.4 Blue Sky Laws.......................................................13
3.5 Integration.........................................................13
3.6 Certain Agreements..................................................13
3.7 Listing and Reservation of Underlying Shares and Warrant Shares;
Compliance with Law...............................................14
3.8 Notice of Breaches..................................................14
3.9 Conversion Obligations of the Company...............................15
3.10 Use of Proceeds....................................................15
3.11 Indemnification....................................................15
3.12 Sales of Preferred Stock...........................................17
3.13 Subsequent Sales and Registrations.................................17
3.14 Shareholder Approval...............................................17
3.15 Interim Financing..................................................17
3.16 Incorporation of Certificate of Designation By Reference...........18
3.17 Board of Directors.................................................18
3.18 Conversion of Preferred Stock and Exercise of Warrants..........18
ARTICLE IV CONDITIONS......................................................18
4.1 Conditions Precedent to Sale of the Units...........................18
ARTICLE V MISCELLANEOUS....................................................21
5.1 Fees and Expenses...................................................21
5.2 Entire Agreement; Amendments........................................21
5.3 Notices.............................................................21
5.4 Amendments; Waivers.................................................21
5.5 Headings............................................................22
5.6 Successors and Assigns..............................................22
5.7 No Third Party Beneficiaries........................................22
5.8 Governing Law.......................................................22
5.9 Survival............................................................22
ii
<PAGE>
5.10 Execution..........................................................22
5.11 Publicity..........................................................23
5.12 Consent to Jurisdiction; Attorneys' Fees...........................23
5.13 Waiver of Jury Trial...............................................24
5.14 Severability.......................................................24
5.15 Remedies...........................................................24
5.16 Independent Nature of Purchasers' Obligations and Rights...........24
Schedules and Exhibits
Schedule 1 - Purchasers of Units
Schedule 2.1(a) - Organization and Qualification; Subsidiaries
Schedule 2.1(c) - Capitalization; Rights to Acquire Capital Stock
Schedule 2.1(f) - Consents and Approvals
Schedule 2.1(g) - Litigation; Proceedings
Schedule 2.1(n) - Certain Fees
Schedule 2.1(r) - Listing and Maintenance Requirements Compliance
Schedule 2.1(u) - Registration Rights, Rights of Participation
Schedule 2.1(v) - Title
Schedule 2.1(aa) - Year 2000 Compliance
Schedule 3.13 - Other Transactions
Schedule 3.18 - Conversion of Preferred Shares and Exercise of Warrants
Exhibit A - Certificate of Designation
Exhibit B - Warrants
Exhibit C - Registration Rights Agreement
Exhibit D - Legal Opinion of Parker Chapin Flattau & Klimpl, LLP
Exhibit E - Transfer Agent Instructions
iii
<PAGE>
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of February
2, 1999, among Imaging Technologies Corporation, a Delaware corporation (the
"Company"), and each of the Purchasers listed on Schedule 1 attached hereto.
Each of the Purchasers listed on Schedule 1 attached hereto are referred to
herein as a "Purchaser" and are collectively referred to herein as the
"Purchasers."
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchasers, and the
Purchasers desire to acquire from the Company, for cash or in exchange and/or
cancellation for certain indebtedness owed by the Company to certain Purchasers
in the amounts and in the form listed on Schedule 1 attached hereto, shares of
the Company's Series E Convertible Preferred Stock, par value $1,000 per share
and stated value of $5,000 per share (the "Preferred Stock"), and warrants (the
"Warrants") to purchase shares of common stock, par value $.005 per share, of
the Company (the "Common Stock").
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement, the Company and each Purchaser agree as follows:
ARTICLE I
PURCHASE AND SALE OF UNITS
1.1 Purchase and Sale.
(a) Subject to the terms and conditions set forth herein, the
Company shall issue and sell to the Purchasers, and the Purchasers,
severally and not jointly, shall purchase from the Company up to 1,250
units (the "Units"), each Unit consisting of (i) a share of Preferred
Stock and (ii) Warrants to purchase 5,000 shares of Common Stock.
Notwithstanding anything to the contrary set forth in this Agreement,
the aggregate number of Units to be sold hereunder shall not exceed
1,250.
(b) The Preferred Stock shall have the respective rights,
preferences and privileges set forth in the Certificate of Designation
of the Company (the "Certificate of Designation") the form of which is
annexed hereto as Exhibit A, which shall be approved by the Purchasers
and the Company's Board of Directors (the "Board of Directors") and
filed and accepted for filing on or prior to the Closing Date (as
defined below) by the Company with the Secretary of State of the State
of Delaware. The Warrants shall be in the form of Exhibit B annexed
hereto.
For purposes of this Agreement, "Trading Day," "Per Share Market Value"
and "Original Issue Date" shall have the meanings set forth in the Certificate
of Designation.
<PAGE>
1.2 Purchase Price. The purchase price per Unit shall be $5,000.00.
1.3 The Closing.
(a) The closing of the purchase and sale of the Units
(as defined below) (the "Closing") shall take place at the
offices of Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue of
Americas, New York, New York 10036, immediately following the
execution hereof or such later date or different location as
the parties shall agree in writing, but not prior to the date
that the conditions set forth in Section 4.1 have been
satisfied or waived by the appropriate party. The date of the
Closing, is hereinafter referred to as the "Closing Date." At
the Closing, the Company shall sell and issue to the
Purchasers, and the Purchasers shall, severally and not
jointly, purchase from the Company up to 1,250 Units (the
"Units") for an aggregate purchase price of $5,000 per Unit
(the "Purchase Price").
(b) At the Closing (a) the Company shall deliver to
each Purchaser (1) stock certificates representing the shares
of Preferred Stock included in the Units (the "Shares")
purchased by such Purchaser as set forth next to such
Purchaser's name on Schedule 1 attached hereto, each
registered in the name of such Purchaser, (2) the Warrants
included in the Units (the "Warrants") purchased by such
Purchaser as set forth next to such Purchaser's name on
Schedule 1 attached hereto, registered in the name of such
Purchaser, (3) and all other documents, instruments and
writings required to have been delivered at or prior to the
Closing by the Company pursuant to this Agreement and the
Registration Rights Agreement, dated the date hereof, by and
among the Company and the Purchasers, in the form of Exhibit C
annexed hereto (the "Registration Rights Agreement"), and (b)
each Purchaser shall deliver to the Company the Purchase Price
set forth next to its name on Schedule 1, in (i) United States
dollars in immediately available funds by wire transfer to an
account designated in writing by the Company for such purpose
on or prior to the Closing Date, or (ii) such other
consideration, in outstanding debt of the Company, agreed to
by the Company and set forth on Schedule 1, and all documents,
instruments and writings required to have been delivered at or
prior to the Closing by such Purchaser pursuant to this
Agreement and the Registration Rights Agreement.
(c) Notwithstanding anything in the foregoing to the
contrary, Manchester Asset Management and Gilston Corporation,
Ltd. (together, the "Tranche Purchasers") shall purchase the
number of Units listed opposite their names on Schedule 1
hereto in three tranches. On the Closing Date, each of the
Tranche Purchasers shall purchase, severally and not jointly,
up to 15 Units for an aggregate purchase price of $150,000.
Within ten (10) days of the Company's filing of a registration
statement in accordance with the Registration Rights Agreement
with the Securities and Exchange Commission (the
"Commission"), each of the Tranche Purchasers shall purchase,
severally and not jointly, an additional 15 Units for an
aggregate purchase price of $150,000. Within ten (10) days of
the date on which the
2
<PAGE>
Company's registration statement filed with the Commission has
been declared effective by the Commission, each of the Tranche
Purchasers shall purchase, severally and not jointly, an
additional 45 Units for an aggregate purchase price of
$450,000. In no case shall the Tranche Purchasers purchase
additional Units unless and until the conditions listed in
Section 4.1(b) have been satisfied or waived by each Tranche
Purchaser.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. The
Company hereby makes the following representations and warranties to each of the
Purchasers:
(a) Organization and Qualification; Subsidiaries. The Company
is a corporation, duly organized, validly existing and in good standing
under the laws of the State of Delaware, with the requisite corporate
power and authority to own and use its properties and assets and to
carry on its business as currently conducted. The Company has no
subsidiaries other than as set forth in Schedule 2.1(a) (collectively,
the "Subsidiaries"). Each of the Subsidiaries is a corporation, duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with
the full corporate power and authority to own and use its properties
and assets and to carry on its business as currently conducted. Each of
the Company and the Subsidiaries is duly qualified to do business and
is in good standing as a foreign corporation in each jurisdiction in
which the nature of the business conducted or property owned by it
makes such qualification necessary, except where the failure to be so
qualified or in good standing, as the case may be, would not,
individually or in the aggregate, (x) adversely affect the legality,
validity or enforceability of the Preferred Stock or any of the
Transaction Documents (as defined below), (y) have or result in a
material adverse effect on the results of operations, assets, prospects
insofar as it may reasonably be foreseen, or financial condition of the
Company and the Subsidiaries, taken as a whole or (z) adversely impair
the Company's ability to perform fully on a timely basis its
obligations under any Transaction Document, including, without
limitation, the Company's covenant under Section 3.7 hereof (any of
(x), (y) or (z), being a "Material Adverse Effect").
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by this Agreement and the other Transaction
Documents, and otherwise to carry out its obligations hereunder and
thereunder. This Agreement, the Registration Rights Agreement, the
Certificate of Designation, the Transfer Agent Instructions and the
Warrants are collectively referred to as the "Transaction Documents."
The execution and delivery of each of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized by all necessary action on
the part of the Company and no further action is required by the
Company. Each of the
3
<PAGE>
Transaction Documents has been duly executed by the Company and when
delivered in accordance with the terms hereof will constitute the
legal, valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application. Neither the Company
nor any Subsidiary is in violation of any of the provisions of its
respective certificate of incorporation, bylaws or other organizational
documents. Prior to the Closing Date the Certificate of Designation has
been filed with the Secretary of State of the State of Delaware and
will be in full force and effect, enforceable against the Company in
accordance with the terms thereof.
(c) Capitalization; Rights to Acquire Capital Stock. The
authorized, issued and outstanding capital stock of the Company as of
February 2, 1999, is set forth in Schedule 2.1(c). All issued and
outstanding shares of capital stock of the Company and each Subsidiary
have been duly authorized and validly issued and are fully paid and
non-assessable. Except as disclosed in Schedule 2.1(c), no shares of
the capital stock of the Company are entitled to preemptive or similar
rights, nor is any holder of the capital stock of the Company entitled
to preemptive or similar rights arising out of any agreement or
understanding with the Company by virtue of any of the Transaction
Documents. Except as disclosed in Schedule 2.1(c), as of February 2,
1999, there are no outstanding options, warrants, script rights to
subscribe to, calls, written commitments or, to the knowledge of the
Company, oral commitments relating to, or, except as a result of the
purchase and sale of the Units, securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire any shares of Common Stock, or contracts,
commitments, understandings, written arrangements or, to the knowledge
of the Company, oral arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common
Stock, or securities or rights convertible or exchangeable into shares
of Common Stock. Except as set forth on Schedule 2.1(c), and, to the
best knowledge of the Company, no Person or group of related Persons
beneficially owns (as determined pursuant to Rule 13d-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) or has the right to acquire by agreement with or by obligation
binding upon the Company beneficial ownership of in excess of 5% of the
Common Stock. A "Person" means an individual or corporation,
partnership, trust, incorporated or unincorporated association, joint
venture, limited liability company, joint stock company, government (or
an agency or subdivision thereof) or other entity of any kind. The
Common Stock is quoted and is listed for trading on The Nasdaq SmallCap
Market. Except as set forth on Schedule 2.1(c), the Company has
received no notice, either oral or written, with respect to the
continued eligibility of the Common Stock for such listing, and the
Company has maintained all requirements for the continuation of such
listing.
(d) Issuance of Units. The Units are duly authorized, and when
issued and paid for in accordance with the terms hereof, shall be
validly issued, fully paid and nonassessable, free and clear of all
liens, encumbrances, and rights of first refusal of any kind
(collectively,
4
<PAGE>
"Liens"). The Units upon issuance will not subject the holders thereof
to personal liability by reason of being such holders. The Company has
and, at the Closing Date, will have and at all times while the Shares
and the Warrants are outstanding will maintain an adequate reserve of
duly authorized shares of Common Stock to enable it to perform its
obligations under this Agreement, the Warrants and the Certificate of
Designation with respect to the number of Shares and Warrants issued
and outstanding at the Closing Date and in no circumstances shall such
reserved and available shares of Common Stock be less than 175% of the
maximum number of shares of Common Stock which would be issuable upon
conversion of the Shares and upon exercise of the Warrants issued
pursuant to the terms hereof with respect to the number of Shares and
Warrants issued and outstanding at the Closing Date were such
conversion or exercise, as the case may be, effected on the Closing
Date. The shares of Common Stock issuable upon conversion of the Shares
are referred to herein as the "Underlying Shares." When issued in
accordance with the Certificate of Designation, the Underlying Shares
will be duly authorized, validly issued, fully paid and nonassessable,
free and clear of all Liens. The shares of Common Stock issuable upon
exercise of the Warrants are referred to herein as the "Warrant
Shares." When issued and paid for in accordance with the Warrants, the
Warrant Shares will be duly authorized, validly issued, fully paid and
nonassessable, free and clear of all Liens. The Shares, the Warrants,
the Underlying Shares and the Warrant Shares are referred to herein as
the "Securities."
(e) No Conflicts. The execution, delivery and performance of
this Agreement and the other Transaction Documents by the Company and
the consummation by the Company of the transactions contemplated hereby
and thereby do not and will not (i) conflict with or violate any
provision of its certificate of incorporation, bylaws or other
organizational documents (each as amended through the date hereof) or
(ii) subject to obtaining the consents referred to in Section 2.1(f),
conflict with, or constitute a default (or an event which with notice
or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument (evidencing a
Company debt or otherwise) to which the Company is a party or by which
any property or asset of the Company is bound or affected, (iii) result
in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental
authority to which the Company is subject (including Federal and state
securities laws and regulations), or by which any material property or
asset of the Company is bound or affected, or (iv) result in the
creation of imposition of a Lien upon any of the Securities or any of
the assets of the Company, or any of its Affiliates (as such term is
defined under Rule 405 promulgated under the Securities Act), except in
the case of each of clauses (ii) and (iii), such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations
as would not, individually or in the aggregate, have or result in a
Material Adverse Effect. The business of the Company is not being
conducted in violation of any law, ordinance or regulation of any
governmental authority except for any such violation as would not,
individually or in the aggregate, have or result in a Material Adverse
Effect.
(f) Consents and Approvals. Except as specifically set forth
in Schedule 2.1(f), neither the Company nor any Subsidiary is required
to obtain any consent, waiver,
5
<PAGE>
authorization or order of, give any notice to, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction
Documents, other than (i) the approval of the Board of Directors and
the filing of the Certificate of Designation with respect to the
Preferred Stock with the Secretary of State of the State of Delaware,
which filing and approvals with respect to the Preferred Stock shall be
effected prior to the Closing Date, (ii) the filing of the Registration
Statement with the Commission, which shall be filed in accordance with
and in the time periods set forth in the Registration Rights Agreement,
(iii) the application(s) or any letter(s) acceptable to The Nasdaq
SmallCap Market for the listing of the Underlying Shares and the
Warrant Shares with The Nasdaq SmallCap Market (and with any other
national securities exchange or market on which the Common Stock is
then listed), and (iv) any filings, notices or registrations under
applicable federal and state securities laws (together with the
consents, waivers, authorizations, orders, notices and filings referred
to in Schedule 2.1(f), the "Required Approvals").
(g) Litigation; Proceedings. Except as specifically set forth
in Schedule 2.1(g) there is no action, suit, notice of violation,
proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of the
Subsidiaries or any of their respective properties before or by any
court, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) which (i) adversely affects
or challenges the legality, validity or enforceability of any of the
Transaction Documents or the Securities or (ii) would reasonably be
expected to, individually or in the aggregate, have a Material Adverse
Effect.
(h) No Default or Violation. Neither the Company nor any
Subsidiary (i) is in default under or in violation of any indenture,
loan or credit agreement or any other agreement or instrument to which
it is a party or by which it or any of its properties is bound which
would reasonably be expected to, individually or in the aggregate, have
a Material Adverse Effect, (ii) is in violation of any order of any
court, arbitrator or governmental body applicable to it, or (iii) is in
violation of any statute, rule or regulation of any governmental
authority to which it is subject, which violation would reasonably be
expected to, individually or in the aggregate, have a Material Adverse
Effect.
(i) Schedules. The Schedules to this Agreement furnished by or
on behalf of the Company do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements made therein not misleading.
(j) Private Offering. The Company and all Persons acting on
its behalf have not made, and will not make, offers or sales of the
Preferred Stock, and any securities that might be integrated with
offers and sales of the Preferred Stock, except to "accredited
investors" (as defined in Regulation D ("Regulation D") under the
Securities Act of 1933, as amended (the "Securities Act")) without any
general solicitation or advertising and otherwise in compliance with
the conditions of Regulation D. The offer and sale by the Company to
the Purchasers of the Shares and the Warrants and the Underlying Shares
and the Warrant Shares
6
<PAGE>
into which the Shares and the Warrants are convertible or exercisable,
as the case may be, is exempt from the registration requirements of the
Securities Act.
(k) SEC Documents; Financial Statements; No Adverse Change.
The Company has filed all reports required to be filed by it under the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for
the three years preceding the date hereof (the foregoing materials
being collectively referred to herein as the "SEC Documents") on a
timely basis or has received a valid extension of such time of filing
and has filed any such SEC Documents prior to the expiration of any
such extension. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange
Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Documents, when filed, contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein not misleading. All material agreements to which the
Company is a party or to which the property or assets of the Company
are subject have been filed as exhibits to the SEC Documents as
required; neither the Company nor any of the Subsidiaries is in breach
of any agreement where such breach would reasonably be expected to,
individually or in the aggregate, have a Material Adverse Effect. The
financial statements of the Company included in the SEC Documents
comply in all material respects with applicable accounting requirements
and the rules and regulations of the Commission with respect thereto as
in effect at the time of filing. Such financial statements have been
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods involved,
except as may be otherwise specified in such financial statements or
the notes thereto, and fairly present in all material respects the
financial position of the Company as of and for the dates thereof and
the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal year-end audit
adjustments. Since the date of the financial statements included in the
Company's last filed Quarterly Report on Form 10-Q for the period ended
September 30, 1998, there has been no event, occurrence or development
that has had, or would reasonably be expected to have, a Material
Adverse Effect which has not been specifically disclosed to the
Purchasers by the Company. The Company last filed audited financial
statements with the Commission on October 13, 1998, and has not
received any comments from the Commission in respect thereof.
(l) Seniority. Except for the Company's series of (i) 5%
Convertible Preferred Stock and (ii) Series D Convertible Preferred
Stock ("Series D Stock"), no class of equity securities of the Company
is senior to or on parity with the Preferred Stock in right of payment,
whether upon liquidation, dissolution or otherwise.
(m) Investment Company. The Company is not, and is not
controlled by or under common control with an affiliate of, an
"investment company" within the meaning of the Investment Company Act
of 1940, as amended.
7
<PAGE>
(n) Certain Fees. Except as specifically set forth in Schedule
2.1(n), no fees or commissions will be payable by the Company to any
broker, financial advisor, finder, investment banker, or bank with
respect to the transactions contemplated by this Agreement. The
Purchasers shall have no obligation with respect to any fees or with
respect to any claims made by or on behalf of other Persons for fees of
a type contemplated in this Section 2.1(n) that may be due in
connection with the transactions contemplated by this Agreement. The
Company shall indemnify and hold harmless each of the Purchasers, its
employees, officers, directors, agents, and partners, and their
respective Affiliates, from and against all claims, losses, damages,
costs (including the costs of preparation and attorney's fees) and
expenses suffered in respect of any such claimed or existing fees.
(o) Solicitation Materials. The Company has not distributed
any offering materials in connection with the offering and sale of the
Securities. The Company confirms that it has not provided the
Purchasers or their agents or counsel with any information that
constitutes or might constitute material non-public information. The
Company understands and confirms that the Purchasers shall be relying
on the foregoing representations in effecting transactions in
securities of the Company.
(p) Form S-3 Eligibility. The Company is, and at each Closing
Date will be, eligible to register securities (including the Underlying
Shares and the Warrant Shares) for resale with the Commission under
Form S-3 promulgated under the Securities Act.
(q) Exclusivity. The Company shall not issue and sell the
Preferred Stock to any Person other than the Purchasers pursuant to
this Agreement other than with the specific prior written consent of
each of the Purchasers.
(r) Listing and Maintenance Requirements Compliance. Except as
set forth on Schedule 2.1(r), the Company has not in the three years
preceding the date hereof received notice (written or oral) from any
stock exchange, market or trading facility on which the Common Stock is
or has been listed (or on which it has been quoted) to the effect that
the Company is not in compliance with the listing or maintenance
requirements of such exchange or market. Except as specifically set
forth on Schedule 2.1(r), after giving effect to the transactions
contemplated in this Agreement, the Company believes that it is in
compliance with all such maintenance requirements.
(s) Patents and Trademarks. The Company has, or has rights to
use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and
rights (collectively, the "Intellectual Property Rights") which are
necessary for use in connection with its business, as currently
conducted and as described in the SEC Documents, and which the failure
to so have would have a Material Adverse Effect.
(t) Acknowledgment of Dilution. The Company acknowledges that
the issuance of (i) the Underlying Shares upon conversion of the Shares
in accordance with the Certificate of Designation and (ii) the Warrant
Shares upon exercise of the Warrants may result in
8
<PAGE>
dilution of the outstanding shares of Common Stock, which dilution may
be substantial under certain market conditions. The Company further
acknowledges that its obligation to issue (i) the Underlying Shares
upon conversion of the Shares in accordance with the Certificate of
Designation and (ii) the Warrant Shares upon exercise of the Warrants
is unconditional and absolute regardless of the effect of any such
dilution.
(u) Registration Rights; Rights of Participation. Except as
described on Schedule 2.1(u) hereto, (A) the Company has not granted or
agreed to grant to any Person any rights (including "piggy-back"
registration rights) to have any securities of the Company registered
with the Commission or any other governmental authority which has not
been satisfied and (B) except as set forth on Schedule 2.1(c) hereto,
no Person, including, but not limited to, current or former
shareholders of the Company, underwriters, brokers or agents, has any
right of first refusal, preemptive right, right of participation, or
any similar right to participate in the transactions contemplated by
this Agreement or any other Transaction Document.
(v) Title. Except as disclosed in Schedule 2.1(v), the Company
and the Subsidiaries have good and marketable title to, or the right to
use, all personal property owned by them which is material to the
business of the Company and the Subsidiaries, in each case free and
clear of all Liens, except for liens, claims or encumbrances as do not
materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company
and the Subsidiaries. Neither the Company nor any of its Subsidiaries
owns any real property. Any real property and facilities held under
lease by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made
of such property and buildings by the Company and the Subsidiaries.
(w) Regulatory Permits. The Company and the Subsidiaries
possess all franchises, certificates, licenses, authorizations and
permits or similar authority issued by the appropriate federal, state
or foreign regulatory authorities necessary to conduct their respective
businesses as described in the SEC Documents except where the failure
to possess such permits would not, individually or in the aggregate,
have a Material Adverse Effect ("Material Permits"), and neither the
Company nor any such Subsidiary has received any notice of proceedings
relating to the revocation or modification of any Material Permit.
(x) Insurance. The Company and each Subsidiary maintains
property and casualty, general liability, workers' compensation,
environmental hazard, personal injury and other similar types of
insurance with financially sound and reputable insurers that is
adequate, consistent with industry standards. Neither the Company nor
any Subsidiary has received notice from, and has any knowledge of any
threat by, any insurer (that has issued any insurance policy to the
Company or any Subsidiary) that such insurer intends to deny coverage
under or cancel, discontinue or not renew any insurance policy
presently in force.
(y) Taxes. All applicable tax returns required to be filed by
the Company and each of the Subsidiaries have been filed, or if not yet
filed have been granted extensions of the filing
9
<PAGE>
dates which extensions have not expired, and all taxes, assessments,
fees and other governmental charges upon the Company, the Subsidiaries,
or upon any of their respective properties, income or franchises, shown
in such returns and on assessments received by the Company or the
Subsidiaries to be due and payable have been paid, or adequate reserves
therefor have been set up if any of such taxes are being contested in
good faith; or if any of such tax returns have not been filed or if any
such taxes have not been paid or so reserved for, the failure to so
file or to pay would not in the aggregate or individually have a
Material Adverse Effect.
(z) No Integrated Offering. Neither the Company, nor any of
its Affiliates, nor any Person acting on its or their behalf, has
directly or indirectly made any offers or sales in any security or
solicited any offers to buy any securities under circumstances that
would require registration of any such securities under the Securities
Act or cause the offering of the Securities pursuant to this Agreement
to be integrated with prior offerings, except for the offering of
Series D Convertible Preferred Stock, by the Company for purposes of
the Securities Act or any applicable shareholder approval provisions,
including, without limitation, under the rules and regulations of The
Nasdaq Stock Market, as applicable. The Company has not conducted any
offering that will be integrated with the issuance of the Securities
solely for purpose of Rule 4460(i) of The Nasdaq Stock Market, Inc.'s
Marketplace Rules.
(aa) Year 2000 Compliance. The Company has initiated a review
and assessment of all areas within its and each Subsidiaries' business
and operations that could be adversely affected by the "Year 2000
Problem" (that is, the risk that computer applications used by the
Company or any of the Subsidiaries may be unable to recognize and
perform properly date- sensitive functions involving certain dates
prior to and any date after December 31, 1999). Based on the foregoing,
except as set forth on Schedule 2.1(aa), the Company believes that the
computer applications that are currently material to its or any
Subsidiaries' business and operations are reasonably expected to be
able to perform properly date-sensitive functions for all dates before
and after January 1, 2000, except to the extent that a failure to do so
would not reasonably be expected to have a Material Adverse Effect.
(bb) Series D Stock Documentation. The Company has provided
each of the Purchasers with true, complete and correct copies of the
closing documentation relating to the sale by the Company of Series D
Stock to the Series D Investors.
(cc) Rights Agreement. The Company has not adopted a
shareholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of Common Stock or a change in
control of the Company.
2.2 Representations and Warranties of the Purchasers. Each of the
Purchasers, severally and not jointly, hereby represents and warrants to the
Company as follows:
10
<PAGE>
(a) Investment Intent. Such Purchaser is acquiring the
Securities for its own account for investment purposes only and not
with a view to or for distributing or reselling such Securities or any
part thereof or interest therein, without prejudice, however, to such
Purchaser's right, subject to the provisions of this Agreement and the
Registration Rights Agreement, at all times to sell or otherwise
dispose of all or any part of such Securities pursuant to an effective
registration statement under the Securities Act and in compliance with
applicable State securities laws or under an exemption from such
registration.
(b) Purchaser Status. At the time such Purchaser was offered
the Securities, and at each Closing Date, (i) it was and will be, an
"accredited investor" (as defined in Regulation D), or (ii) such
Purchaser either alone or together with its representatives, had and
will have such knowledge, sophistication and experience in business and
financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and had and will
have so evaluated the merits and risks of such investment. Such
Purchaser has the authority and is duly and legally qualified to
purchase and own the Securities.
(c) Ability of Purchaser to Bear Risk of Investment. Such
Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss
of such investment.
(d) Reliance. Each Purchaser understands and acknowledges that
(i) the Securities are being offered and sold to the Purchaser without
registration under the Securities Act in a private placement that is
exempt from the registration provisions of the Securities Act under
Section 4(2) of the Securities Act or Regulation D promulgated
thereunder and (ii) the availability of such exemption, depends in part
on, and the Company will rely upon the accuracy and truthfulness of,
the foregoing representations and such Purchaser hereby consents to
such reliance.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions.
(a) If any Purchaser should decide to dispose of any Shares
(and upon conversion thereof any of the Underlying Shares) or Warrants
(and upon exercise thereof any of the Warrant Shares) held by it, each
Purchaser understands and agrees that it may do so only pursuant to an
effective registration statement under the Securities Act, to the
Company or pursuant to an available exemption from the registration
requirements of the Securities Act. In connection with any transfer of
any Securities other than pursuant to an effective registration
statement or pursuant to Rule 144 under the Securities Act or to the
Company, the Company may require the transferor thereof to provide to
the Company a written opinion of counsel, the form and substance of
which opinion shall be reasonably satisfactory to the Company, to the
effect that such transfer does not require registration of such
transferred
11
<PAGE>
securities under the Securities Act. Notwithstanding the foregoing, the
Company hereby consents to and agrees to register (i) any transfer of
Securities by one Purchaser to another Purchaser, and agrees that no
documentation other than executed transfer documents shall be required
for any such transfer, and (ii) any transfer by any Purchaser to an
Affiliate of such Purchaser or to an Affiliate of another Purchaser, or
any transfer among any such Affiliates, provided that transferee
certifies in writing to the Company that it is an "accredited investor"
(as defined in Regulation D). Any such transferee shall agree in
writing to be bound by the terms of this Agreement and shall have the
rights of a Purchaser under this Agreement and the Registration Rights
Agreement.
(b) Each Purchaser, severally and not jointly, agrees to the
imprinting, so long as is required by this Section 3.1(b), of the
following legend on the Securities:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT.
The Underlying Shares issuable upon conversion of the Shares
and the Warrant Shares issuable upon exercise of the Warrants shall not
contain the legend set forth above if (a) such conversion or exercise
occurs at any time while the Registration Statement is effective under
the Securities Act and upon the sale of the Underlying Shares or the
Warrant Shares by the Purchasers or (b) in the event there is not an
effective Registration Statement at such time, if in the written
opinion of counsel to the Company (such opinion to be furnished at the
sole expense of the Company at the request of a Purchaser) such legend
is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the
staff of the Commission) or (c) a holder provides the Company with
reasonable assurance that such securities can be sold pursuant to Rule
144 without any restriction as to the number of securities that can be
sold. The Company agrees that it will provide each Purchaser, upon
request, with a certificate or certificates representing Underlying
Shares and/or Warrant Shares, free from such legend at such time as
such legend is no longer required hereunder.
3.2 Stop Transfer Orders; Suspension of Qualification. The Company may
not make any notation on its records or give instructions to any transfer agent
of the Company which enlarge the restrictions of transfer set forth in Section
3.1. The Company will advise the Purchasers, promptly after it receives notice
of issuance by the Commission, any state securities commission or any other
regulatory authority of any stop order or of any order preventing or suspending
the use of any offering of any securities of the Company, or of the suspension
of the qualification of the Common Stock for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such purpose.
12
<PAGE>
3.3 Furnishing of Information. As long as any Purchaser owns any
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to Section
13(a) or 15(d) of the Exchange Act and to promptly furnish the Purchasers with
true and complete copies of all such filings. As long as any Purchaser owns
Securities, if the Company is not required to file reports pursuant to Section
13(a) or 15(d) of the Exchange Act, it will prepare and furnish to the
Purchasers and make publicly available in accordance with Rule 144(c)
promulgated under the Securities Act annual and quarterly financial statements,
together with a discussion and analysis of such financial statements in form and
substance substantially similar to those that would otherwise be required to be
included in reports required by Section 13(a) or 15(d) of the Exchange Act, as
well as any other information required thereby, in the time period that such
filings would have been required to have been made under the Exchange Act. The
Company further covenants that it will take such further action as any holder of
Units may reasonably request, all to the extent required from time to time to
enable such Person to sell Underlying Shares and/or Warrant Shares without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144 promulgated under the Securities Act, including the legal
opinion referenced above in Section 3.1. Upon the request of any such Person,
the Company shall deliver to such Person a written certification of a duly
authorized officer as to whether it has complied with such requirements.
3.4 Blue Sky Laws. In accordance with the Registration Rights
Agreement, the Company shall qualify the Underlying Shares and the Warrant
Shares under the securities or Blue Sky laws of such jurisdictions as the
Purchasers may request and shall continue such qualification at all times
through the third anniversary of the last Closing Date.
3.5 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities (a) in a manner that would require the registration under the
Securities Act of the sale of any or all of such securities to any Purchaser or
(b) for purposes of any applicable shareholder approval provisions, including
without limitation, under the rules and regulations of the Nasdaq SmallCap
Market.
3.6 Certain Agreements. As long as any Purchaser owns Securities, the
Company shall not and shall cause the Subsidiaries not to, without the consent
of the holders of all of the Shares then outstanding, (i) amend its certificate
of incorporation, bylaws or other charter documents so as to adversely affect
any rights of any Purchaser or holder of the Shares; (ii) declare, authorize,
set aside or pay any dividend or other distribution with respect to the Common
Stock except as permitted under the Certificate of Designation and as would not
adversely affect the rights of any Purchaser or holder of the Shares hereunder
or under the Certificate of Designation; (iii) repay, repurchase or offer to
repay, repurchase or otherwise acquire shares of its Common Stock in any manner;
(iv) issue any series of preferred stock or other securities with rights senior
(in respect of liquidations, dividends, preferences and similar rights) to those
of the Shares; or (v) enter into any agreement with respect to any of the
foregoing.
13
<PAGE>
3.7 Listing and Reservation of Underlying Shares and Warrant Shares;
Compliance with Law.
(a) The Company shall (i) within the time periods required by
the Nasdaq SmallCap Market, but not later than the tenth Business Day
following the applicable Closing Date, prepare and file with The Nasdaq
SmallCap Market (as well as any other national securities exchange or
market on which the Common Stock is then listed) an additional shares
listing application or a letter acceptable to The Nasdaq SmallCap
Market covering and listing a number of shares of Common Stock which is
at least equal to 175% of the maximum number of Underlying Shares and
Warrant Shares then issuable, (ii) take all steps necessary to cause
the Underlying Shares and the Warrant Shares to be approved for listing
in The Nasdaq SmallCap Market (as well as on any other national
securities exchange or market on which the Common Stock is then listed)
as soon as possible thereafter, and (iii) provide to the Purchasers
evidence of such listing, and the Company shall maintain the listing of
its Common Stock on such market. As used herein, "Business Day" means
any day except Saturday, Sunday and any day which shall be a legal
holiday or a day on which banking institutions in the State of
California generally are authorized or required by law or other
government actions to close.
(b) The Company shall at all times have authorized and
reserved for issuance upon conversion of the Shares pursuant to the
terms of the Certificate of Designation and upon exercise of the
Warrants pursuant to the Warrant the number of shares of Common Stock
required to provide for the conversion of the Shares and the exercise
of the Warrants without regard to any limitations on conversions or
exercise.
(c) Until at least two (2) years after the last of the Shares
has been converted into Underlying Shares or the last of the Warrants
has been exercised for the Warrant Shares, (i) the Company will cause
its Common Stock to continue to be registered under Sections 12(b) or
12(g) of the Exchange Act, will comply in all respects with its
reporting and filing obligations under such Exchange Act, will comply
with all requirements related to any registration statement filed
pursuant to this Agreement or the Registration Rights Agreement and
will not take any action or file any document (whether or not permitted
by the Securities Act or the Exchange Act or the rules and regulations
thereunder) to terminate or suspend such registration or to terminate
or suspend its reporting and filing obligations under the Securities
Act and Exchange Act, except as permitted herein and (ii) the Company
will take all action within its power to continue the listing or
trading of its Common Stock on The Nasdaq SmallCap Market and will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the NASD and The Nasdaq Stock
Market.
3.8 Notice of Breaches.
(a) Each of the Company and each Purchaser shall give prompt
written notice to the other of any breach by such party of any
representation, warranty or other agreement contained in this
Agreement, the Certificate of Designation, the Warrants or the
Registration
14
<PAGE>
Rights Agreement, as well as any events or occurrences arising after
the date hereof and prior to any Closing Date, which would reasonably
be likely to cause any representation or warranty or other agreement of
such party, as the case may be, contained herein to be incorrect or
breached as of such Closing Date. However, no disclosure by any party
pursuant to this Section 3.8 shall be deemed to cure any breach of any
representation, warranty or other agreement contained herein or in the
Registration Rights Agreement.
(b) Notwithstanding the generality of Section 3.8(a), the
Company shall promptly notify each Purchaser of any notice or claim
(written or oral) that it receives from any lender of the Company to
the effect that the consummation of the transactions contemplated
hereby, by the Certificate of Designation, by the Warrants and by the
Registration Rights Agreement violates or would violate any written
agreement or understanding between such lender and the Company, and the
Company shall promptly furnish by facsimile to each Purchaser a copy of
any written statement in support of or relating to such claim or
notice.
(c) The default by any Purchaser of any of its obligations,
representations or warranties under any Transaction Document shall not
be imputed to, and shall have no effect upon, any other Purchaser or
affect the Company's obligations under the Transaction Documents to any
non-defaulting Purchaser, or to the defaulting Purchaser with respect
to any outstanding Shares, Warrants, Underlying Shares or Warrant
Shares.
3.9 Conversion Obligations of the Company. The Company covenants to
convert Shares and to deliver the Underlying Shares in accordance with the terms
and conditions and within the time period set forth in the Certificate of
Designation.
3.10 Use of Proceeds. The Company shall use all of the proceeds from
the sale of the Units for working capital and general corporate purposes and not
for the satisfaction of any portion of Company borrowings outside the normal
course of business, including, without limitation, any obligation or liability
of any kind owed to a shareholder, officer or director of the Company, or to
redeem Company equity or equity-equivalent securities. Pending application of
the proceeds of this placement in the manner permitted hereby, the Company will
invest such proceeds in interest bearing accounts and/or short-term, investment
grade interest bearing securities.
3.11 Indemnification. The Company also will indemnify and hold the
Purchasers harmless against any and all losses, claims, damages or liabilities
to any such Person (including, without limitation, in connection with any
action, proceeding or investigation brought by or against any such Person,
including by shareholders of the Company) in connection with or as a result of
any matter referred to in the Transaction Documents, including, without
limitation, for any misrepresentation by the Company, for breaches of
representations and warranties contained in any of the Transaction Documents,
and for any breach, non-compliance or nonfulfillment by the Company of any
covenant, agreement or undertaking to be complied with or performed by it
contained in or pursuant to the Transaction Documents, except to the extent that
it is finally judicially determined that such losses, claims, damages or
liabilities resulted solely from the gross negligence or bad faith of the
Purchasers. If for any reason the foregoing indemnification is unavailable to
such Purchaser or is insufficient to
15
<PAGE>
hold such Person harmless, then the Company shall contribute to the amount paid
or payable by such Purchaser as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect the relative economic
interests of the Company and its shareholders on the one hand and the Purchasers
on the other hand in the matters contemplated by the Transaction Documents as
well as the relative fault of the Company and the Purchasers with respect to
such loss, claim, damage or liability and any other relevant equitable
considerations. The reimbursement, indemnity and contribution obligations of the
Company under this paragraph shall be in addition to any liability which the
Company may otherwise have, shall extend upon the same terms and conditions to
any affiliate of the Purchasers and the partners, directors, agents, employees
and controlling persons (if any), as the case may be, of the Purchasers and any
such affiliate, and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of the Company, the
Purchasers, any such affiliate and any such Person. The Company also agrees that
neither the Purchasers nor any of such Affiliates, partners, directors, agents,
employees or controlling persons shall have any liability to the Company or any
Person asserting claims on behalf of or in right of the Company in connection
with or as a result of any matter referred to in this Agreement except to the
extent that it is finally judicially determined that any losses, claims,
damages, liabilities or expenses incurred by the Company result solely from the
gross negligence or bad faith of, or knowing breach of this Agreement by, the
Purchasers. Promptly after receipt by the Purchasers or any affiliate, partners,
directors, agents, employees and controlling persons, as the case may be, of
notice of any claim or other commencement of any action in respect of which
indemnity may be sought, such party will notify the Company in writing of the
receipt or commencement thereof and the Company shall have the right to assume
the defense of such claim or action (including the employment of counsel
reasonably satisfactory to the indemnified parties and the payment of fees and
expenses of such counsel). The indemnified party shall cooperate with the
Company and the Company's counsel in the defense of such claim or action. The
Purchasers understand that the Company shall not in connection with any one such
claim or action or separate but substantially similar related claims or actions
in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys for all of the indemnified parties unless the defense
of one indemnified party is unique or separate from that of another indemnified
party or one or more legal defenses are available to an indemnified party but
not to other indemnified parties subject to the same claim or action. In the
event the Company does not promptly assume the defense of a claim or action, the
indemnified parties shall have the right to employ counsel reasonably
satisfactory to the Company, at the Company's expense, to defend such claim or
action. The indemnified party shall not admit any liability with respect to the
claim or action or settle, compromise, pay or discharge the same without the
prior written consent of the Company so long as the Company is reasonably
contesting or defending the same in good faith. The Company shall not
compromise, settle or discharge any claim or action without the Purchasers'
consent, as applicable, which consent will not be unreasonably withheld, unless
there is no finding or admission of any violation of any law against the
indemnified party and the sole relief is monetary damages paid in full by the
Company. Any right to trial by jury with respect to any action or proceeding
arising in connection with or as a result of any matter referred to in this
Agreement is hereby waived by the parties hereto. The provisions of this Section
3.11 shall survive any termination or completion of the Transaction Documents.
16
<PAGE>
3.12 [intentionally omitted]
3.13 Subsequent Sales and Registrations.
(a) Until the later of (i) 180 days after the Closing Date and
(ii) 60 days after all Underlying Shares and Warrant Shares have been
registered under the Securities Act pursuant to an effective
registration statement, the Company shall not, directly or indirectly,
without the prior written consent of 66 2/3% of the Purchasers, offer,
sell, grant any option to purchase, or otherwise dispose of (or
announce any offer, sale, grant of any option to purchase or other
disposition) any of its or its Affiliates' equity or equity-equivalent
securities or any instrument that permits the holder thereof to acquire
Common Stock, except (i) the granting of options or warrants to
employees, officers and directors, and the issuance of shares upon
exercise of options granted, under any stock option plan heretofore or
hereinafter duly adopted by the Company, (ii) shares issued upon
exercise of any currently outstanding warrants and upon conversion of
any currently outstanding convertible preferred stock in each case
disclosed in Schedule 2.1(c), (iii) shares of Common Stock issued upon
conversion of Shares or upon exercise of the Warrants, and (iv) shares
of Common Stock issued in connection with the transactions described on
Schedule 3.13.
(b) Other than Underlying Shares, Warrant Shares and other
"Registrable Securities" (as defined in the Registration Rights
Agreement) to be registered in accordance with the Registration Rights
Agreement, the Company shall not, for a period of not less than 90
Trading Days after the dates that any registration statement relating
to the Securities is declared effective by the Commission, without the
prior written consent of 66 2/3% of the Purchasers, (i) register for
resale any securities of the Company, or (ii) issue or sell any of its
or any of its Affiliates' equity or equity-equivalent securities except
for (A) securities issued upon the exercise or conversion of the
securities set forth on Schedule 2.1(c) or (B) securities sold pursuant
to the Company's employee benefit plans. Any days that any Purchaser is
unable to sell Underlying Shares or Warrant Shares under the
Registration Statement shall be added to such 90 Trading Day period for
the purposes of (i) and (ii) above.
3.14 Shareholder Approval. The Company shall, as promptly as possible,
but in no event later than 65 days after the Closing Date, convene a
shareholders' meeting, held in accordance with the Company's Certificate of
Incorporation and bylaws, and use its best efforts to obtain the approval
("Shareholder Approval") by a majority of the total votes cast on the proposal
at such shareholders' meeting, in person or by proxy, of (i) the issuance of the
Underlying Shares as a consequence of the conversion of the Shares and (ii) the
issuance of the Warrant Shares as a consequence of the exercise of the Warrants,
in each case in a number exceeding the maximum number of shares of Common Stock
issuable without shareholder approval at a price less than the greater of the
book or market value on the Original Issue Date as and to the extent required
pursuant to Rule 4460(i) of The Nasdaq Stock Market, Inc.'s Marketplace Rules
(or any successor or replacement provision thereof).
3.15 [intentionally omitted]
17
<PAGE>
3.16 Incorporation of Certificate of Designation By Reference. The
Certificate of Designation is hereby incorporated herein by reference and made a
part hereof.
3.17 Board of Directors. If more than ten percent (10%) of the Shares
(other than Shares held by Olympus Securities, Ltd. or NP Partners or any of
their assignees) remain outstanding, the Purchasers (other than Olympus
Securities, Ltd. and NP Partners or any of their assignees) shall have the right
to approve the appointment of any new or replacement member to the Board of
Directors, such approval not to be unreasonably withheld; provided, however,
this provision shall not affect the ability of a Purchaser to vote its Shares in
the manner it deems fit.
3.18 Conversion of Preferred Stock and Exercise of Warrants. Each share
of Series E Preferred Stock held by the Purchasers listed on Schedule A shall be
convertible into shares of Common Stock at the option of such Purchasers in
whole or in part at any time after the Original Issue Date; provided, however,
that the number of shares of Common Stock issued by the Company to such
Purchasers (together with any shares of Common Stock issued upon exercise of the
Warrants) shall not exceed the number of shares set forth opposite each of the
Purchasers' names on Schedule A attached hereto until the date on which the
Company receives Shareholder Approval. Each Purchaser not listed on Schedule A
attached hereto shall not convert shares of Series E Preferred Stock (or
exercise Warrants issued to such Purchaser) until the earlier of (i) the date on
which the Company receives Shareholder Approval and (ii) the date which is 65
days after the Original Issuance Date. If the Company does not obtain
Shareholder Approval and on a Conversion Date (as defined in the Certificate of
Designation) the Company is listed for trading on the Nasdaq National Market,
the New York Stock Exchange, the American Stock Exchange or the Nasdaq SmallCap
Market, each share of Series E Preferred Stock shall be convertible in
accordance with Section 5(a)(ii) of the Certificate of Designation.
ARTICLE IV
CONDITIONS
4.1 Conditions Precedent to Sale of the Units.
(a) Conditions Precedent to the Obligation of the Company to
Sell the Units. The obligation of the Company to sell the Units
hereunder is subject to the satisfaction or waiver by the Company, at
or before the Closing, of each of the following conditions:
(i) Accuracy of the Purchasers' Representations and
Warranties. The representations and warranties of each
Purchaser shall be true and correct in all material respects
as of the date when made and as of the Closing Date, as though
made on and as of such date;
(ii) Performance by the Purchasers. Each Purchaser
shall have performed, satisfied and complied in all material
respects with all covenants,
18
<PAGE>
agreements and conditions required by this Agreement to be
performed, satisfied or complied with by such Purchaser at or
prior to the Closing; and
(iii) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions
contemplated by this Agreement or the Registration Rights
Agreement.
(b) Conditions Precedent to the Obligation of the Purchasers
to Purchase the Units. The obligation of each Purchaser hereunder to
acquire and pay for the Units is subject to the satisfaction or waiver
by such Purchaser, at or before the Closing, of each of the following
conditions:
(i) Accuracy of the Company's Representations and
Warranties. The representations and warranties of the Company
set forth in this Agreement and in the Registration Rights
Agreement shall be true and correct in all material respects
as of the date when made and as of the Closing Date as though
made on and as of such date;
(ii) Performance by the Company. The Company shall
have performed, satisfied and complied with in all material
respects all covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by
the Company at or prior to the Closing;
(iii) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions
contemplated by this Agreement, the Certificate of
Designation, the Warrants or the Registration Rights
Agreement;
(iv) Adverse Changes. Since the date of the financial
statements included in the Company's Quarterly Report on Form
10-Q or Annual Report on Form 10-K, whichever is more recent,
last filed prior to the date of this Agreement, no event which
had a Material Adverse Effect and no material adverse change
in the financial condition of the Company shall have occurred
(for purposes hereof changes in the market price of the Common
Stock may be considered as a factor in determining whether
there has occurred an event which has had a Material Adverse
Effect or whether a material adverse change has occurred);
(v) No Suspensions of Trading in Common Stock. The
trading in the Common Stock shall not have been suspended by
the Commission or on The Nasdaq SmallCap Market which
suspension shall remain in effect;
19
<PAGE>
(vi) Legal Opinion. The Company shall have delivered
to each of the Purchasers the opinion of Parker Chapin Flattau
& Klimpl, LLP, outside counsel to the Company, in
substantially the forms annexed hereto as Exhibit D;
(vii) Required Approvals. All approvals required
pursuant to clauses (i) and (iv) of the definition of
"Required Approvals" shall have been obtained;
(viii) Shares of Common Stock. On or prior to the
Closing Date, the Company shall have duly reserved the number
of Underlying Shares and Warrant Shares required by the
Transaction Documents to be reserved for issuance upon
conversion of the Shares and upon exercise of the Warrants;
(ix) Delivery of Stock Certificates and Warrant
Certificates. The Company shall have delivered to each
Purchaser or such Purchaser's designee, (i) the stock
certificate(s) representing the Shares, registered in the name
of such Purchaser, each in form satisfactory to the Purchaser
and (ii) warrant certificate(s) representing the Warrants,
registered in the name of such Purchaser, in form satisfactory
to the Purchaser;
(x) Registration Rights Agreement. The Company shall
have executed and delivered the Registration Rights Agreement;
(xi) Certificate of Designation. The Certificate of
Designation shall have been duly approved by the Board of
Directors and filed with and accepted by the Secretary of
State of the State of Delaware, and the Company shall have
delivered a copy thereof to each Purchaser certified as filed
by the office of the Secretary of State of the State of
Delaware;
(xii) Transfer Agent Instructions. The Irrevocable
Transfer Agent Instructions, in the form of Exhibit E annexed
hereto, shall have been delivered to and acknowledged in
writing by the Company's transfer agent; and
(xiii) Officer's Certificate. On the Closing Date the
Company shall deliver to the Purchasers an Officer's
Certificate dated the Closing Date and signed by the President
and the Chief Financial Officer of the Company confirming the
accuracy of the Company's representations, warranties and
covenants as of such Closing Date and confirming the
compliance by the Company with the conditions precedent set
forth in this Section 4.1 as of the Closing Date.
(xiv) Secretary's Certificate. On the Closing Date
the Company shall deliver to the Purchaser a Secretary's
Certificate dated the Closing Date and signed by the President
and the Secretary of the Company certifying to (a) board
resolutions approving this Agreement and the transactions
contemplated hereby, (b) the Company's Bylaws and (c) the
Company's Certificate of Incorporation.
20
<PAGE>
ARTICLE V
MISCELLANEOUS
5.1 Fees and Expenses. The Company shall pay the fees and expenses of
its advisers, counsel, accountants and other experts, if any, and all other
expenses incurred by the Company incident to the negotiation, preparation,
execution, delivery and performance of this Agreement and the other Transaction
Documents. The Company shall pay all stamp and other taxes and duties levied in
connection with the issuance of the Securities pursuant to the Transaction
Documents.
5.2 Entire Agreement; Amendments. This Agreement, together with the
Exhibits and Schedules hereto and the other Transaction Documents, contain the
entire understanding of the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, oral or written, with
respect to such matters.
5.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice prior to 5:00 p.m., San Diego time, on a
Business Day, (ii) the Business Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified for notice later than 5:00 p.m., San Diego time, on any date
and earlier than 11:59 p.m., San Diego time, on such date, (iii) the Business
Day following the date of mailing, if sent by nationally recognized overnight
courier service or (iv) actual receipt by the party to whom such notice is
required to be given. The addresses for such communications shall be with
respect to each Purchaser at its address set forth under its name on Schedule 1
attached hereto, or with respect to the Company, addressed to:
Imaging Technologies Corporation
11031 Via Frontera
San Diego, California 92127
Attention: Brian Bonar
Facsimile No.: (619) 613-1311
or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices to any Purchaser shall be sent to such
addresses as set forth on Schedule 1 attached hereto, if applicable. Copies of
notices to the Company shall be sent to Parker Chapin Flattau & Klimpl, LLP,
1211 Avenue of the Americas, New York, New York 10036, Attention: Christopher S.
Auguste, Esq., Facsimile No.: (212) 704-6288.
5.4 Amendments; Waivers. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by both the Company and the
21
<PAGE>
Purchasers; or, in the case of a waiver, by the party against whom enforcement
of any such waiver is sought. No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right accruing
to it thereafter. Notwithstanding the foregoing, no such amendment shall be
effective to the extent that it applies to less than all of the holders of the
Units outstanding. The Company shall not offer or pay any consideration to a
Purchaser for consenting to such an amendment or waiver unless the same
consideration is offered to each Purchaser and the same consideration is paid to
each Purchaser which consents to such amendment or waiver.
5.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
5.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each of the Purchasers. Each Purchaser may
assign this Agreement or any rights or obligations hereunder (i) to its
affiliates or to another Purchaser without the prior written consent of the
Company and (ii) to any other Person with the prior written consent of the
Company, such consent not to be unreasonably withheld, except that any assignee
must make the representations and warranties set forth in Section 2.2 and
otherwise comply with the terms of this Agreement otherwise applicable to its
assignor. This provision shall not limit a Purchaser's right to transfer
securities or transfer or assign rights under the Registration Rights Agreement.
5.7 No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
5.8 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of California, without
regard to the principles of conflicts of law thereof.
5.9 Survival. The agreements, covenants, representations, warranties
and provisions contained in this Agreement shall survive the delivery of the
Units pursuant to this Agreement and each Closing hereunder and any conversion
of the Shares or exercise of the Warrants.
5.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that all
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
22
<PAGE>
5.11 Publicity. The Company and each Purchaser shall consult with each
other in issuing any press releases or otherwise making public statements with
respect to the transactions contemplated hereby and neither party shall issue
any such press release or otherwise make any such public statement without the
prior written consent of the other, which consent shall not be unreasonably
withheld or delayed, except that no prior consent shall be required if such
disclosure is required by law, in which such case the disclosing party shall
provide the other Party with prior notice of such public statement. The Company
shall not publicly or otherwise disclose the names of any of the Purchasers
without each such Purchaser's prior written consent unless otherwise required by
law, in which case the Company shall inform such Purchaser of such disclosure in
writing prior to making such disclosure.
5.12 Consent to Jurisdiction; Attorneys' Fees
(a) The Company (including, but not limited to, its
affiliates, subsidiaries, officers, directors and controlling persons)
and each Purchaser hereby (i) irrevocably submits to the non-exclusive
jurisdiction of any California State court or Federal court sitting in
San Diego in any action related to, connected with or arising out of,
in whole or in part, the Transaction Documents, including, but not
limited to, transactions in the securities of the Company subsequent to
the purchase by such Purchaser or Persons claimed to be affiliated with
such Purchaser, (ii) agrees that all claims in such action shall be
decided in such court, (iii) waives, to the fullest extent it may
effectively do so, the defense of inconvenient forum and (iv) consents
to the service of process by certified mail, return receipt requested.
Nothing herein shall affect the right of any party to serve legal
process in any manner permitted by law or affect its right to bring any
action in any other court.
(b) In connection with any dispute between the Company and any
Purchaser, related to, connected with or arising out of, in whole or in
part, the Transaction Documents including, but not limited to,
transactions in the securities of the Company subsequent to the
purchase, by a Purchaser or Persons claimed to be affiliated to a
Purchaser, the prevailing party shall be awarded all reasonable
attorneys' fees and expenses incurred by it. In that connection fees
and expenses actually paid by a party in connection with the litigation
of any dispute shall be deemed presumably reasonable.
(c) In the event that any Purchaser or any Person claimed to
be affiliated or associated with such Purchaser becomes involved in any
capacity in any action, proceeding or investigation brought by or
against any Person, including shareholders of the Company, in
connection with or as a result of any matter referred to in the
Transaction Documents, the Company will reimburse such Purchaser and/or
those claimed to be affiliated or associated with such Purchaser for
its legal fees and expenses and other expenses (including the cost of
any investigation and preparation) incurred in connection therewith, as
those fees and expenses are incurred; provided, however, that if at the
conclusion of such action, proceeding or investigation it shall be
finally judicially determined by a court of competent jurisdiction that
indemnity for such fees and expenses is contrary to law, or that such
Purchaser is not the
23
<PAGE>
prevailing party then in that event, such Purchaser and/or any other
Person having received such advances of fees and expenses shall
reimburse the Company in full for the sums advanced.
(d) The provisions of this Section 5.12 shall survive any
termination or completion of the Transaction Documents.
5.13 Waiver of Jury Trial
(a) The parties hereto each waive their respective rights to a
trial by jury of any claim or cause of action based upon or arising out
of or related to the Transaction Documents, or the transactions
contemplated by the Transaction Documents, in any action, proceeding or
other litigation of any type brought by any of the parties against any
other party or parties, whether with respect to contract claims, tort
claims, or otherwise. The parties hereto each agree that any such claim
or cause of action shall be tried by a court trial without a jury.
Without limiting the foregoing, the parties further agree that their
respective right to a trial by jury is waived by operation of this
Section 5.13 as to any action, counterclaim or other proceeding which
seeks, in whole or in part, to challenge the validity or enforceability
of any of the Transaction Documents or any provision hereof or thereof.
The waiver shall apply to any subsequent amendments, renewals,
supplements or modifications to any of the Transaction Documents.
(b) The provisions of this Section 5.13 shall survive any
termination or completion of the Transaction Documents.
5.14 Severability. If any term, provision, covenant or restriction of
this Agreement is held to be invalid, illegal, void or unenforceable in any
respect, the remainder of the terms, provisions, covenants and restrictions set
forth herein shall remain in full force and effect and shall in no way be
affected, impaired or invalidated, and the parties hereto shall use their
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
5.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchasers
will be entitled to specific performance of the obligations of the Company under
the Transaction Documents and injunctive relief. Each of the Company and the
Purchasers (severally and not jointly) agree that monetary damages would not be
adequate compensation for any loss incurred by reason of any breach of its
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation or injunctive relief
the defense that a remedy at law would be adequate.
24
<PAGE>
5.16 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser hereunder is several and not joint with the
obligations of the other Purchasers hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any Closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized persons as
of the date first indicated above.
IMAGING TECHNOLOGIES CORPORATION
By:_____________________________________
Name: Brian Bonar
Title: President
HARRY J. SAAL TRUST UTA DATED 7/19/92
By:_____________________________________
Name:
Title:
SAAL FAMILY CHARITABLE LEAD TRUST
UTA DATED 2/25/98
By:_____________________________________
Name:
Title:
---------------------------------------
R.T. MERCER
25
<PAGE>
NESHER, INC.
By:_____________________________________
Name:
Title:
MANOR INVESTMENT
By:_____________________________________
Name:
Title:
---------------------------------------
GUILHERME DUQUE
CASHCO FLP
By:_____________________________________
Name:
Title:
MANCHESTER ASSET MANAGEMENT
By:_____________________________________
Name:
Title:
GILSTON CORPORATION, LTD.
By:_____________________________________
Name:
Title:
<PAGE>
THE CUTTYHUNK FUND, LIMITED
By:_____________________________________
Name:
Title:
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (this "Agreement") is made
and entered into as of February 2, 1999, among Imaging Technologies Corporation,
a Delaware corporation (the "Company") and each of the Purchasers listed on
Schedule 1 attached hereto. Each of the Purchasers listed on Schedule 1 attached
hereto is referred to herein as a "Purchaser" and are collectively referred to
herein as the "Purchasers."
This Agreement is being entered into pursuant to the
Securities Purchase Agreement, dated as of the date hereof among the Company and
the Purchasers (the "Purchase Agreement").
The Company and the Purchasers hereby agree as follows:
1. Definitions.
-----------
Capitalized terms used and not otherwise defined herein shall
have the meanings given such terms in the Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:
"Advice" shall have meaning set forth in Section 3(o).
"Affiliate" means, with respect to any Person, any other
Person that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "control," when
used with respect to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms of "affiliated," "controlling" and "controlled" have
meanings correlative to the foregoing.
"Board" shall have meaning set forth in Section 3(n).
"Business Day" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
state of California generally are authorized or required by law or other
government actions to close.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's Common Stock, par value
$0.005 per share.
"Effectiveness Date" means with respect to the Registration
Statement the 90th day following the Initial Closing Date.
"Effectiveness Period" shall have the meaning set forth in
Section 2(a).
<PAGE>
"Event" shall have the meaning set forth in Section 7(e)(i).
"Event Date" shall have the meaning set forth in Section
7(e)(i).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Filing Date" means the 30th day following the Initial Closing
Date.
"Holder" or "Holders" means the holder or holders, as the case
may be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in
Section 5(c).
"Indemnifying Party" shall have the meaning set forth in
Section 5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Person" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"Preferred Stock" means the Series E Convertible Preferred
Stock, par value $1,000 per share and stated value $5,000 per share, of the
Company issued to the Purchasers pursuant to the Purchase Agreement.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference in such Prospectus.
"Registrable Securities" means (i) the shares of Common Stock
issuable upon conversion of the Preferred Stock and the shares of Common Stock
issuable upon exercise of the Warrants, (ii) the shares of Common Stock issuable
upon conversion of the Company's Series D Convertible Preferred Stock (the
"Series D Stock"), (iii) the shares of Common stock issuable upon exercise of
warrants issued in connection with the sale of Series D Stock (the "Series D
Warrants") and (iv) the shares of Common Stock issuable upon exercise of
warrants issued to the placement advisor in connection with the sale of Series D
Stock and Series D Warrants; provided, however, that Registrable Securities
shall include (but not be limited to) a number of shares of Common Stock equal
to no less than 175% of the maximum number of shares of Common Stock which would
be issuable
2
<PAGE>
upon conversion of the Shares and the Series E Stock and upon exercise of the
Warrants and the Series E Warrants, assuming such conversion and exercise
occurred on the Closing Date or the Filing Date, whichever date would result in
the greater number of Registrable Securities. Notwithstanding anything herein
contained to the contrary, such registered shares of Common Stock shall be
allocated among the Holders pro rata based on the total number of Registrable
Securities issued or issuable as of each date that a Registration Statement, as
amended, relating to the resale of the Registrable Securities is declared
effective by the Commission. Notwithstanding anything herein contained to the
contrary, if the actual number of shares of Common Stock issuable upon
conversion of the Preferred Stock and upon exercise of the Warrants exceeds 175%
of the number of shares of Common Stock issuable upon conversion of the
Preferred Stock and upon exercise of the Warrants based upon a computation as at
the Initial Closing Date or the Filing Date, the term "Registrable Securities"
shall be deemed to include such additional shares of Common Stock.
"Registration Statement" means the registration statements and
any additional registration statements contemplated by Section 2(a), including
(in each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference in such
registration statement.
"Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Special Counsel" means any special counsel to the Holders,
for which the Holders will be reimbursed by the Company pursuant to Section 4.
2. Shelf Registration.
------------------
On or prior to the Filing Date the Company shall prepare and
file with the Commission a "shelf" Registration Statement covering all
Registrable Securities for an offering to be made on a continuous basis pursuant
to Rule 415. The Registration Statement shall be on Form S-3 (except if the
Company is not then eligible to register for resale the Registrable Securities
on Form S-3, in which case such registration shall be on another appropriate
form in accordance herewith). The Company shall (i) not permit any securities
other than the Registrable Securities to be included in the Registration
Statement and (ii) use its best efforts to cause the Registration Statement to
be declared effective under the Securities Act as promptly as possible after the
filing thereof, but in any event
3
<PAGE>
prior to the Effectiveness Date, and to keep such Registration Statement
continuously effective under the Securities Act until such date as is the
earlier of (x) the date when all Registrable Securities covered by such
Registration Statement have been sold or (y) the date on which the Registrable
Securities may be sold without any restriction pursuant to Rule 144(k) as
determined by the counsel to the Company pursuant to a written opinion letter,
addressed to the Company's transfer agent to such effect (the "Effectiveness
Period"). If an additional Registration Statement is required to be filed
because the actual number of shares of Common Stock into which the Preferred
Stock is convertible and the Warrants are exercisable exceeds the number of
shares of Common Stock initially registered in respect of the Underlying Shares
and the Warrant Shares based upon the computation on the Initial Closing Date,
the Company shall have twenty (20) Business Days to file such additional
Registration Statement, and the Company shall use its best efforts to cause such
additional Registration Statement to be declared effective by the Commission as
soon as possible, but in no event later than 60 days after filing.
3. Registration Procedures.
-----------------------
In connection with the Company's registration obligations
hereunder, the Company shall:
(a) Prepare and file with the Commission on or prior to
the Filing Date, a Registration Statement on Form S-3 (or if the Company is not
then eligible to register for resale the Registrable Securities on Form S-3 such
registration shall be on another appropriate form in accordance herewith) in
accordance with the method or methods of distribution thereof as specified by
the Holders (except if otherwise directed by the Holders), and cause the
Registration Statement to become effective and remain effective as provided
herein; provided, however, that not less than five (5) Business Days prior to
the filing of the Registration Statement or any related Prospectus or any
amendment or supplement thereto (including any document that would be
incorporated therein by reference), the Company shall (i) furnish to the Holders
and any Special Counsel, copies of all such documents proposed to be filed,
which documents (other than those incorporated by reference) will be subject to
the review of such Holders and such Special Counsel, and (ii) at the request of
any Holder cause its officers and directors, counsel and independent certified
public accountants to respond to such inquiries as shall be necessary, in the
reasonable opinion of counsel to such Holders, to conduct a reasonable
investigation within the meaning of the Securities Act. The Company shall not
file the Registration Statement or any such Prospectus or any amendments or
supplements thereto to which the Holders of a majority of the Registrable
Securities or any Special Counsel shall reasonably object in writing within
three (3) Business Days of their receipt thereof.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective as to the
applicable Registrable Securities for the Effectiveness Period and prepare and
file with the Commission such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable Securities;
(ii) cause the related Prospectus to be amended or supplemented by any required
Prospectus supplement, and as so supplemented or amended to be filed pursuant to
Rule 424 (or any similar provisions then in force) promulgated under the
Securities Act; (iii) respond as promptly as possible to any comments received
from the Commission with respect to the Registration Statement or any amendment
thereto and as
4
<PAGE>
promptly as possible provide the Holders true and complete copies of all
correspondence from and to the Commission relating to the Registration
Statement; and (iv) comply in all material respects with the provisions of the
Securities Act and the Exchange Act with respect to the disposition of all
Registrable Securities covered by the Registration Statement during the
applicable period in accordance with the intended methods of disposition by the
Holders thereof set forth in the Registration Statement as so amended or in such
Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold
and any Special Counsel as promptly as possible (and, in the case of (i)(A)
below, not less than five (5) Business Days prior to such filing) and (if
requested by any such Person) confirm such notice in writing no later than one
(1) Business Day following the day (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment to the Registration Statement is proposed
to be filed; (B) when the Commission notifies the Company whether there will be
a "review" of such Registration Statement and whenever the Commission comments
in writing on such Registration Statement and (C) with respect to the
Registration Statement or any post-effective amendment, when the same has become
effective; (ii) of any request by the Commission or any other Federal or state
governmental authority for amendments or supplements to the Registration
Statement or Prospectus or for additional information; (iii) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement covering any or all of the Registrable Securities or the
initiation of any Proceedings for that purpose; (iv) if at any time any of the
representations and warranties of the Company contained in any agreement
contemplated hereby ceases to be true and correct in all material respects; (v)
of the receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; and (vi) of the occurrence of any event that makes
any statement made in the Registration Statement or Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to the Registration Statement,
Prospectus or other documents so that, in the case of the Registration Statement
or the Prospectus, as the case may be, it will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(d) Use its best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of, (i) any order suspending the effectiveness of
the Registration Statement or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.
(e) If requested by the Holders of a majority in interest of
the Registrable Securities, (i) promptly incorporate in a Prospectus supplement
or post-effective amendment to the Registration Statement such information as
the Company reasonably agrees should be included therein and (ii) make all
required filings of such Prospectus supplement or such post-effective amendment
as soon as practicable after the Company has received notification of the
matters to be incorporated in such Prospectus supplement or post-effective
amendment.
(f) Furnish to each Holder and any Special Counsel, without
charge, at least one conformed copy of each Registration Statement and each
amendment thereto, including financial
5
<PAGE>
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent requested by
such Person (including those previously furnished or incorporated by reference)
promptly after the filing of such documents with the Commission.
(g) Promptly deliver to each Holder and any Special Counsel,
without charge, as many copies of the Prospectus or Prospectuses (including each
form of prospectus) and each amendment or supplement thereto as such Persons may
reasonably request; and the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities,
use its best efforts to register or qualify or cooperate with the selling
Holders and any Special Counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions within the United States as any Holder requests in
writing, to keep each such registration or qualification (or exemption
therefrom) effective during the Effectiveness Period and to do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by a Registration Statement;
provided, however, that the Company shall not be required to qualify generally
to do business in any jurisdiction where it is not then so qualified or to take
any action that would subject it to general service of process in any such
jurisdiction where it is not then so subject or subject the Company to any
material tax in any such jurisdiction where it is not then so subject.
(i) Cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold pursuant to a Registration Statement, which certificates shall be free
of all restrictive legends, and to enable such Registrable Securities to be in
such denominations and registered in such names as any Holder may request at
least two (2) Business Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section
3(c)(vi), as promptly as possible, prepare a supplement or amendment, including
a post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
(k) Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on The Nasdaq SmallCap
Market and any other securities exchange, quotation system, market or
over-the-counter bulletin board, if any, on which similar securities issued by
the Company are then listed as and when required pursuant to the Purchase
Agreement.
6
<PAGE>
(l) Comply in all material respects with all applicable rules
and regulations of the Commission and make generally available to its security
holders earning statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 not later than 45 days after the end of any 12-month
period (or 90 days after the end of any 12-month period if such period is a
fiscal year) commencing on the first day of the first fiscal quarter of the
Company after the effective date of the Registration Statement, which statement
shall conform to the requirements of Rule 158.
(m) The Company may require each selling Holder to furnish to
the Company information regarding such Holder and the distribution of such
Registrable Securities as is required by law to be disclosed in the Registration
Statement, and the Company may exclude from such registration the Registrable
Securities of any such Holder who unreasonably fails to furnish such information
within a reasonable time after receiving such request.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (if such reference to such Holder by name or otherwise
is not required by the Securities Act or any similar federal statute then in
force) the deletion of the reference to such Holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
Each Holder covenants and agrees that (i) it will not sell any
Registrable Securities under the Registration Statement until it has received
copies of the Prospectus as then amended or supplemented as contemplated in
Section 3(g) and notice from the Company that such Registration Statement and
any post-effective amendments thereto have become effective as contemplated by
Section 3(c) and (ii) it and its officers, directors or Affiliates, if any, will
comply with the prospectus delivery requirements of the Securities Act as
applicable to them in connection with sales of Registrable Securities pursuant
to the Registration Statement.
Each Holder agrees by its acquisition of such Registrable
Securities that, upon receipt of a notice from the Company of the occurrence of
any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv),
3(c)(v) or 3(c)(vi), such Holder will forthwith discontinue disposition of such
Registrable Securities under the Registration Statement until such Holder's
receipt of the copies of the supplemented Prospectus and/or amended Registration
Statement contemplated by Section 3(j), or until it is advised in writing (the
"Advice") by the Company that the use of the applicable Prospectus may be
resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus or Registration Statement.
(n) If (i) there is material non-public information regarding
the Company which the Company's Board of Directors (the "Board") reasonably
determines not to be in the Company's best interest to disclose and which the
Company is not otherwise required to disclose, or (ii) there is a significant
business opportunity (including, but not limited to, the acquisition or
disposition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or other similar transaction) available to
the Company which the Board reasonably determines not to be in the Company's
best interest to disclose and which the Company would be required to disclose
under the Registration Statement, then the Company may postpone or suspend
filing or effectiveness
7
<PAGE>
of a registration statement for a period not to exceed 20 consecutive days,
provided that the Company may not postpone or suspend its obligation under this
Section 3(n) for more than 45 days in the aggregate during any 12 month period;
provided, however, that no such postponement or suspension shall be permitted
for consecutive 20 day periods, arising out of the same set of facts,
circumstances or transactions.
4. Registration Expenses
---------------------
All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company
whether or not the Registration Statement is filed or becomes effective and
whether or not any Registrable Securities are sold pursuant to the Registration
Statement. The fees and expenses referred to in the foregoing sentence shall
include, without limitation, (i) all registration and filing fees (including,
without limitation, fees and expenses (A) with respect to filings required to be
made with The Nasdaq SmallCap Market and each other securities exchange or
market on which Registrable Securities are required hereunder to be listed, (B)
with respect to filings required to be made with the National Association of
Securities Dealers, Inc. and the NASD Regulation, Inc. and (C) in compliance
with state securities or Blue Sky laws (including, without limitation, fees and
disbursements of counsel for the Holders in connection with Blue Sky
qualifications of the Registrable Securities and determination of the
eligibility of the Registrable Securities for investment under the laws of such
jurisdictions as the Holders of a majority of Registrable Securities may
designate)), (ii) printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities and of printing prospectuses if
the printing of prospectuses is requested by the holders of a majority of the
Registrable Securities included in the Registration Statement), (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel for the
Company and Special Counsel for the Holders, in the case of the Special Counsel,
to a maximum amount of $5,000, (v) Securities Act liability insurance, if the
Company so desires such insurance, and (vi) fees and expenses of all other
Persons retained by the Company in connection with the consummation of the
transactions contemplated by this Agreement, including, without limitation, the
Company's independent public accountants (including the expenses of any comfort
letters or costs associated with the delivery by independent public accountants
of a comfort letter or comfort letters). In addition, the Company shall be
responsible for all of its internal expenses incurred in connection with the
consummation of the transactions contemplated by this Agreement (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, the
fees and expenses incurred in connection with the listing of the Registrable
Securities on any securities exchange as required hereunder.
5. Indemnification
---------------
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents, brokers (including brokers who
offer and sell Registrable Securities as principal as a result of a pledge or
any failure to perform under a margin call of Common Stock), investment advisors
and employees of each of them, each Person who controls any such Holder (within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) and the officers, directors, agents and employees of each such controlling
Person, to the fullest extent permitted by applicable law, from and against any
and all losses, claims, damages, liabilities, costs (including, without
limitation, costs of
8
<PAGE>
preparation and attorneys' fees) and expenses (collectively, "Losses"), as
incurred, arising out of or relating to any untrue or alleged untrue statement
of a material fact contained in the Registration Statement, any Prospectus or
any form of prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or relating to any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in the light of the circumstances under which they were
made) not misleading, except to the extent, but only to the extent, that such
untrue statements or omissions are based solely upon information regarding such
Holder furnished in writing to the Company by such Holder expressly for use
therein, which information was reasonably relied on by the Company for use
therein or to the extent that such information relates to such Holder or such
Holder's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto. The Company shall notify the Holders promptly
of the institution, threat or assertion of any Proceeding of which the Company
is aware in connection with the transactions contemplated by this Agreement.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of an Indemnified Party and shall survive the
transfer of the Registrable Securities by the Holders.
(b) Indemnification by Holders. Each Holder shall, severally
and not jointly, indemnify and hold harmless the Company, the directors,
officers, agents and employees, each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the directors, officers, agents or employees of such controlling Persons, to
the fullest extent permitted by applicable law, from and against all Losses, as
incurred, arising solely out of or based solely upon any untrue statement of a
material fact contained in the Registration Statement, any Prospectus, or any
form of prospectus, or arising solely out of or based solely upon any omission
of a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in the light of the circumstances under which they were
made) not misleading, to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by
such Holder to the Company specifically for inclusion in the Registration
Statement or such Prospectus and that such information was reasonably relied
upon by the Company for use in the Registration Statement, such Prospectus or
such form of prospectus or to the extent that such information relates to such
Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such form of
Prospectus. Notwithstanding anything to the contrary contained herein, the
Holder shall be liable under this Section 5(b) for only that amount as does not
exceed the net proceeds to such Holder as a result of the sale of Registrable
Securities pursuant to such Registration Statement.
(c) Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity hereunder
(an "Indemnified Party"), such Indemnified Party promptly shall notify the
Person from whom indemnity is sought (the "Indemnifying Party) in writing, and
the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense thereof;
provided, that the failure of any
9
<PAGE>
Indemnified Party to give such notice shall not relieve the Indemnifying Party
of its obligations or liabilities pursuant to this Agreement, except (and only)
to the extent that it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal or further review)
that such failure shall have proximately and materially adversely prejudiced the
Indemnifying Party.
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in
writing to pay such fees and expenses; or (2) the Indemnifying Party shall have
failed promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3)
the named parties to any such Proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall have been advised by counsel that a conflict of interest
is likely to exist if the same counsel were to represent such Indemnified Party
and the Indemnifying Party (in which case, if such Indemnified Party notifies
the Indemnifying Party in writing that it elects to employ separate counsel at
the expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within ten (10) Business Days of written notice thereof to the
Indemnifying Party (regardless of whether it is ultimately determined that an
Indemnified Party is not entitled to indemnification hereunder; provided, that
the Indemnifying Party may require such Indemnified Party to undertake to
reimburse all such fees and expenses to the extent it is finally judicially
determined that such Indemnified Party is not entitled to indemnification
hereunder).
(d) Contribution. If a claim for indemnification under Section
5(a) or 5(b) is unavailable to an Indemnified Party because of a failure or
refusal of a governmental authority to enforce such indemnification in
accordance with its terms (by reason of public policy or otherwise), then each
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses, in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material fact,
has been taken or made by, or relates to information supplied by, such
Indemnifying, Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as
10
<PAGE>
a result of any Losses shall be deemed to include, subject to the limitations
set forth in Section 5(c), any reasonable attorneys' or other reasonable fees or
expenses incurred by such party in connection with any Proceeding to the extent
such party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms. Notwithstanding anything to the contrary contained
herein, the Holder shall be liable or required to contribute under this Section
5(c) for only that amount as does not exceed the net proceeds to such Holder as
a result of the sale of Registrable Securities pursuant to such Registration
Statement.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5(d) were determined by pro
rata allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties may have
to the Indemnified Parties
6. Rule 144.
--------
As long as any Holder owns Shares, Underlying Shares, Warrants
or Warrant Shares, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to Section
13(a) or 15(d) of the Exchange Act and to promptly furnish the Holders with true
and complete copies of all such filings. As long as any Holder owns Shares,
Underlying Shares, Warrants or Warrant Shares, if the Company is not required to
file reports pursuant to Section 13(a) or 15(d) of the Exchange Act, it will
prepare and furnish to the Holders and make publicly available in accordance
with Rule 144(c) promulgated under the Securities Act annual and quarterly
financial statements, together with a discussion and analysis of such financial
statements in form and substance substantially similar to those that would
otherwise be required to be included in reports required by Section 13(a) or
15(d) of the Exchange Act, as well as any other information required thereby, in
the time period that such filings would have been required to have been made
under the Exchange Act. The Company further covenants that it will take such
further action as any Holder may reasonably request, all to the extent required
from time to time to enable such Person to sell Underlying Shares and Warrant
shares without registration under the Securities Act within the limitation of
the exemptions provided by Rule 144 promulgated under the Securities Act,
including providing any legal opinions referred to in the Purchase Agreement.
Upon the request of any Holder, the Company shall deliver to such Holder a
written certification of a duly authorized officer as to whether it has complied
with such requirements.
11
<PAGE>
7. Miscellaneous.
-------------
(a) Remedies. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any of
its subsidiaries has, as of the date hereof entered into and currently in
effect, nor shall the Company or any of its subsidiaries, on or after the date
of this Agreement, enter into any agreement with respect to its securities that
is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. Except as disclosed in Schedule
2.1(u) of the Purchase Agreement, neither the Company nor any of its
subsidiaries has previously entered into any agreement currently in effect
granting any registration rights with respect to any of its securities to any
Person. Without limiting the generality of the foregoing, without the written
consent of the Holders of a majority of the then outstanding Registrable
Securities, the Company shall not grant to any Person the right to request the
Company to register any securities of the Company under the Securities Act
unless the rights so granted are subject in all respects to the prior rights in
full of the Holders set forth herein, and are not otherwise in conflict with the
provisions of this Agreement.
(c) No Piggyback on Registrations. Neither the Company nor any
of its security holders (other than the Holders in such capacity pursuant hereto
or as disclosed in Schedule 2.1(u) of the Purchase Agreement) may include
securities of the Company in the Registration Statement, and the Company shall
not after the date hereof enter into any agreement providing such right to any
of its security holders, unless the right so granted is subject in all respects
to the prior rights in full of the Holders set forth herein, and is not
otherwise in conflict with the provisions of this Agreement.
(d) Piggy-Back Registrations. If at any time when there is not
an effective Registration Statement covering (i) Underlying Shares or (ii)
Warrant Shares, the Company shall determine to prepare and file with the
Commission a registration statement relating to an offering for its own account
or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or its then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, the Company shall send to each holder of Registrable Securities
written notice of such determination and, if within thirty (30) days after
receipt of such notice, any such holder shall so request in writing (which
request shall specify the Registrable Securities intended to be disposed of by
the Purchasers), the Company will cause the registration under the Securities
Act of all Registrable Securities which the Company has been so requested to
register by the holder, to the extent requisite to permit the disposition of the
Registrable Securities so to be registered, provided that if at any time after
giving written notice of its intention to register any securities and prior to
the effective date of the registration statement filed in connection with such
registration, the Company shall determine for any
12
<PAGE>
reason not to register or to delay registration of such securities, the Company
may, at its election, give written notice of such determination to such holder
and, thereupon, (i) in the case of a determination not to register, shall be
relieved of its obligation to register any Registrable Securities in connection
with such registration (but not from its obligation to pay expenses in
accordance with Section 4 hereof), and (ii) in the case of a determination to
delay registering, shall be permitted to delay registering any Registrable
Securities being registered pursuant to this Section 7(d) for the same period as
the delay in registering such other securities. The Company shall include in
such registration statement all or any part of such Registrable Securities such
holder requests to be registered; provided, however, that the Company shall not
be required to register any Registrable Securities pursuant to this Section 7(d)
that are eligible for sale pursuant to Rule 144(k) of the Securities Act. In the
case of an underwritten public offering, if the managing underwriter(s) or
underwriter(s) should reasonably object to the inclusion of the Registrable
Securities in such registration statement, then if the Company after
consultation with the managing underwriter should reasonably determine that the
inclusion of such Registrable Securities, would materially adversely affect the
offering contemplated in such registration statement, and based on such
determination recommends inclusion in such registration statement of fewer or
none of the Registrable Securities of the Holders, then (x) the number of
Registrable Securities of the Holders included in such registration statement
shall be reduced pro-rata among such Holders (based upon the number of
Registrable Securities requested to be included in the registration), if the
Company after consultation with the underwriter(s) recommends the inclusion of
fewer Registrable Securities, or (y) none of the Registrable Securities of the
Holders shall be included in such registration statement, if the Company after
consultation with the underwriter(s) recommends the inclusion of none of such
Registrable Securities; provided, however, that if Securities are being offered
for the account of other persons or entities as well as the Company, such
reduction shall not represent a greater fraction of the number of Registrable
Securities intended to be offered by the Holders than the fraction of similar
reductions imposed on such other persons or entities (other than the Company).
(e) Failure to File Registration Statement and Other Events.
The Company and the Purchasers agree that the Holders will suffer damages if the
Registration Statement is not filed on or prior to the 15th day after the Filing
Date and not declared effective by the Commission on or prior to the
Effectiveness Date and maintained in the manner contemplated herein during the
Effectiveness Time or if certain other events occur. The Company and the Holders
further agree that it would not be feasible to ascertain the extent of such
damages with precision. Accordingly, if (A) the Registration Statement is not
filed on or prior to 15th day after the Filing Date, or is not declared
effective by the Commission on or prior to the Effectiveness Date (or in the
event an additional Registration Statement is filed because the actual number of
shares of Common Stock into which the Preferred Stock is convertible and the
Warrants are exercisable exceeds the number of shares of Common Stock initially
registered is not filed and declared effective with the time periods set forth
in Section 2(a)), or (B) the Company fails to file with the Commission a request
for acceleration in accordance with Rule 12dl-2 promulgated under the Exchange
Act within five (5) Business Days of the date that the Company is notified
(orally or in writing, whichever is earlier) by the Commission that a
Registration Statement will not be "reviewed," or not subject to further review,
or (C) the Registration Statement is filed with and declared effective by the
Commission but thereafter ceases to be effective as to all Registrable
Securities at any time prior to the expiration of the Effectiveness Period,
without being succeeded immediately by a subsequent Registration Statement filed
with and declared effective by the Commission, or (D) trading in the Common
Stock shall be suspended or if
13
<PAGE>
the Common Stock is delisted from The Nasdaq SmallCap Market or the OTC Bulletin
Board for any reason for more than three Business Days in the aggregate, or (E)
the conversion rights of the Holders are suspended for any reason, including by
the Company, or (F) the Company breaches in a material respect any covenant or
other material term or condition to this Agreement, the Certificate of
Designation, the Purchase Agreement (other than a representation or warranty
contained therein) or any other agreement, document, certificate or other
instrument delivered in connection with the transactions contemplated hereby and
thereby, and such breach continues for a period of thirty days after written
notice thereof to the Company, or (G) the Company fails to convene a meeting of
shareholders within the time period specified in Section 3.14 of the Purchase
Agreement or does so convene a meeting of shareholders within such time period
but fails to obtain Shareholder Approval at such meeting, or (H) the Company has
breached Section 3(n) (any such failure or breach being referred to as an
"Event," and for purposes of clauses (A) and (E) the date on which such Event
occurs, or for purposes of clause (B) the date on which such five day period is
exceeded, or for purposes of clause (C) after more than fifteen Business Days,
or for purposes of clause (D) the date on which such three Business Day period
is exceeded, or for clause (F) the date on which such thirty day period is
exceeded, being referred to as "Event Date"), the Company shall pay in cash as
liquidated damages to each Holder an amount equal to 3% per calendar month or
portion thereof of the stated value of the outstanding Shares held by such
Holder plus the stated value of any Shares that have been converted to the
extent any of the Underlying Shares issued upon such conversion have not been
sold from the Event Date until the applicable Event is cured. Payments to be
made pursuant to this Section 7(e)(i) shall be due and payable immediately upon
demand in immediately available funds.
(f) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and each of the Holders. Notwithstanding the foregoing, a waiver or consent to
depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of Holders and that does not directly or indirectly
affect the rights of other Holders may be given by Holders of at least a
majority of the Registrable Securities to which such waiver or consent relates;
provided, however, that the provisions of this sentence may not be amended,
modified, or supplemented except in accordance with the provisions of the
immediately preceding sentence.
(g) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earlier of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified for notice prior to 5:00 p.m., San Diego
time, on a Business Day, (ii) the Business Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice later than 5:00 p.m., San Diego time, on
any date and earlier than 11:59 p.m., San Diego time, on such date, (iii) the
Business Day following the date of mailing, if sent by nationally recognized
overnight courier service or (iv) actual receipt by the party to whom such
notice is required to be given. The addresses for such communications shall be
with respect to each Holder at its address set forth under its name on Schedule
1 attached hereto, or with respect to the Company, addressed to:
14
<PAGE>
Imaging Technologies Corporation
11031 Via Frontera
San Diego, California 92127
Attention: Brian Bonar
Facsimile No.: (619) 613-1311
or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices to any Holder shall be sent to the addresses
listed on Schedule 1 attached hereto, if applicable. Copies of notices to the
Company shall be sent to Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue of the
Americas, New York, New York 10036, Attention: Christopher S. Auguste, Esq.,
Facsimile No.:
(212) 704-6288.
(h) Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and permitted
assigns and shall inure to the benefit of each Holder and its successors and
assigns. The Company may not assign this Agreement or any of its rights or
obligations hereunder without the prior written consent of each Holder. Each
Purchaser may assign its rights hereunder in the manner and to the Persons as
permitted under the Purchase Agreement.
(i) Assignment of Registration Rights. The rights of each
Holder hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall be
automatically assignable by each Holder to any Affiliate of such Holder or any
other Holder or Affiliate of any other Holder of all or a portion of the shares
of Preferred Stock or the Registrable Securities if: (i) the Holder 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) following such
transfer or assignment the further disposition of such securities by the
transferee or assignees is restricted under the Securities Act and applicable
state securities laws, (iv) at or before the time the Company receives the
written notice contemplated by clause (ii) of this Section, the transferee or
assignee agrees in writing with the Company to be bound by all of the provisions
of this Agreement, and (v) such transfer shall have been made in accordance with
the applicable requirements of the Purchase Agreement. In addition, each Holder
shall have the right to assign its rights hereunder to any other Person with the
prior written consent of the Company, which consent shall not be unreasonably
withheld. The rights to assignment shall apply to the Holders (and to
subsequent) successors and assigns.
(j) Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.
15
<PAGE>
(k) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, without regard
to principles of conflicts of law thereof.
(l) Cumulative Remedies. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(m) Severability. If any term, provision, covenant or
restriction of this Agreement is held to be invalid, illegal, void or
unenforceable in any respect, the remainder of the terms, provisions, covenants
and restrictions set forth herein shall remain in full force and effect and
shall in no way be affected, impaired or invalidated, and the parties hereto
shall use their reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(n) Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
(o) Shares Held by the Company and its Affiliates. Whenever
the consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than any Holder or transferees or successors or assigns
thereof if such Holder is deemed to be an Affiliate solely by reason of its
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
(p) Within two (2) business days after the Registration
Statement which includes the Registrable Securities is ordered effective by the
SEC, the Company shall deliver, and shall cause legal counsel for the Company to
deliver, to the transfer agent for such Registrable Securities (with copies to
the Holders whose Registrable Securities are included in such Registration
Statement) confirmation that the Registration Statement has been declared
effective by the SEC in the form attached hereto as Exhibit A.
[Remainder of Page Intentionally Left Blank]
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed by their respective authorized persons as
of the date first indicated above.
IMAGING TECHNOLOGIES CORPORATION
By:_____________________________________
Name: Brian Bonar
Title: President
HARRY J. SAAL TRUST UTA DATED 7/19/92
By:_____________________________________
Name:
Title:
SAAL FAMILY CHARITABLE LEAD TRUST
UTA DATED 2/25/98
By:_____________________________________
Name:
Title:
----------------------------------------
R.T. MERCER
CASHCO FLP
By:_____________________________________
Name:
Title:
MANOR INVESTMENT
By:_____________________________________
Name:
Title:
<PAGE>
----------------------------------------
GUILHERME DUQUE
NESHER, INC.
By:_____________________________________
Name:
Title:
MANCHESTER ASSET MANAGEMENT
By:_____________________________________
Name:
Title:
GILSTON CORPORATION, LTD.
By:_____________________________________
Name:
Title:
THE CUTTYHUNK FUND, LIMITED
By:_____________________________________
Name:
Title:
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[TRANSFER AGENT]
Attn:
Re: Imaging Technologies Corporation
Ladies and Gentlemen:
We are counsel to Imaging Technologies Corporation, a Delaware
corporation (the "Company"), and have represented the Company in connection with
that certain Securities Purchase Agreement (the "Purchase Agreement") entered
into by and among the Company and the buyers named therein (collectively, the
"Holders") pursuant to which the Company issued to the Holders shares of its
Series E Convertible Preferred Stock, par value $1,000 per share (the "Preferred
Shares"), convertible into shares of the Company's common stock, par value $
.005 per share (the "Common Stock"), and warrants to purchase an Shares of the
Common Stock (the "Warrants"). Pursuant to the Purchase Agreement, the Company
also has entered into a Registration Rights Agreement with the Holders (the
"Registration Rights Agreement") pursuant to which the Company agreed, among
other things, to register the Registrable Securities (as defined in the
Registration Rights Agreement), including the shares of Common Stock issuable
upon conversion of the Preferred Shares and exercise of the Warrants, under the
Securities Act of 1933, as amended (the "1933 Act"). In connection with the
Company's obligations under the Registration Rights Agreement, on ____________
___, 1999, the Company filed a Registration Statement on Form S-3 (File No. 333-
_____________) (the "Registration Statement") with the Securities and Exchange
Commission (the "SEC") relating to the Registrable Securities which names each
of the Holders as a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge,
after telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.
Very truly yours,
[ISSUER'S COUNSEL]
By:
cc: [LIST NAMES OF HOLDERS]
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE
NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
IMAGING TECHNOLOGIES CORPORATION
Expires February 1, 2004
No. W-__ New York, New York
February 2, 1999
FOR VALUE RECEIVED, subject to the provisions hereinafter set forth,
the undersigned, IMAGING TECHNOLOGIES CORPORATION, a Delaware corporation
(together with its successors and assigns, the "Issuer"), hereby certifies that
-------------------
or its registered assigns is entitled to subscribe for and purchase, during the
period specified in this Warrant, up to ___________ shares (subject to
adjustment as hereinafter provided) of the duly authorized, validly issued,
fully paid and non-assessable Common Stock of the Issuer, at an exercise price
per share equal to the Warrant Price then in effect, subject, however, to the
provisions and upon the terms and conditions hereinafter set forth. Capitalized
terms used in this Warrant and not otherwise defined herein shall have the
respective meanings specified in Section 7 hereof.
1. Term. The right to subscribe for and purchase shares of Warrant
Stock represented hereby shall commence on the date of issuance of this Warrant
and shall expire at 5:00 p.m., San Diego time, on February 1, 2004 (such period
being the "Term").
<PAGE>
2. Method of Exercise Payment: Issuance of New Warrant: Transfer and
Exchange.
(a) Time of Exercise. The purchase rights represented by this Warrant
may be exercised in whole or in part at any time and from time to time during
the Term.
(b) Method of Exercise. The Holder hereof may exercise this Warrant, in
whole or in part, by the surrender of this Warrant (with the exercise form
attached hereto duly executed) at the principal office of the Issuer, and by the
payment to the Issuer of an amount of consideration therefor equal to the
Warrant Price in effect on the date of such exercise multiplied by the number of
shares of Warrant Stock with respect to which this Warrant is then being
exercised, payable at such Holder's election (i) by certified or official bank
check or (ii) by surrender to the Issuer for cancellation of a portion of this
Warrant representing that number of unissued shares of Warrant Stock which is
equal to the quotient obtained by dividing (A) the product obtained by
multiplying the Warrant Price by the number of shares of Warrant Stock being
purchased upon such exercise by (B) the difference obtained by subtracting the
Warrant Price from the Per Share Market Value as of the date of such exercise,
or (iii) by a combination of the foregoing methods of payment selected by the
Holder of this Warrant. In any case where the consideration payable upon such
exercise is being paid in whole or in part pursuant to the provisions of clause
(ii) of this subsection (b), such exercise shall be accompanied by written
notice from the Holder of this Warrant specifying the manner of payment thereof
and containing a calculation showing the number of shares of Warrant Stock with
respect to which rights are being surrendered thereunder and the net number of
shares to be issued after giving effect to such surrender.
(c) Issuance of Stock Certificates. In the event of any exercise of the
rights represented by this Warrant in accordance with and subject to the terms
and conditions hereof, (i) certificates for the shares of Warrant Stock so
purchased shall be dated the date of such exercise and delivered to the Holder
hereof within a reasonable time, not exceeding three Trading Days after such
exercise, and the Holder hereof shall be deemed for all purposes to be the
Holder of the shares of Warrant Stock so purchased as of the date of such
exercise, and (ii) unless this Warrant has expired, a new Warrant representing
the number of shares of Warrant Stock, if any, with respect to which this
Warrant shall not then have been exercised (less any amount thereof which shall
have been cancelled in payment or partial payment of the Warrant Price as
hereinabove provided) shall also be issued to the Holder hereof at the Issuer's
expense within such time.
(d) Transferability of Warrant. This Warrant may not be transferred by
a Purchaser without the prior written consent of the Company, such consent not
to be unreasonably withheld. If transferred pursuant to this paragraph and
subject to the provisions of subsection (e) of this Section 2, this Warrant may
be transferred on the books of the Issuer by the Holder hereof in person or by
duly authorized attorney, upon surrender of this Warrant at the principal office
of the Issuer, properly endorsed (by the Holder executing an assignment in the
form attached hereto) and upon payment of any necessary transfer tax or other
governmental charge imposed upon such transfer. This Warrant is exchangeable at
the principal office of the Issuer for Warrants for the purchase of the same
aggregate number of shares of Warrant Stock, each new Warrant to represent the
right to purchase such number of shares of Warrant Stock as the Holder hereof
shall designate at the time of such exchange. All Warrants issued on transfers
or exchanges shall be dated the Original Issue Date and
-2-
<PAGE>
shall be identical with this Warrant except as to the number of shares of
Warrant Stock issuable pursuant hereto.
(e) Compliance with Securities Laws.
(i) The Holder of this Warrant, by acceptance hereof,
acknowledges that this Warrant and the shares of Warrant Stock to be
issued upon exercise hereof are being acquired solely for the Holder's
own account and not as a nominee for any other party, and for
investment, and that the Holder will not offer, sell or otherwise
dispose of this Warrant or any shares of Warrant Stock to be issued
upon exercise hereof except pursuant to an effective registration
statement, or an exemption from registration, under the Securities Act
and any applicable state securities laws.
(ii) Except as provided in paragraph (iii) below, this Warrant
and all certificates representing shares of Warrant Stock issued upon
exercise hereof shall be stamped or imprinted with a legend in
substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT.
(iii) The restrictions imposed by this subsection (e) upon the
transfer of this Warrant and the shares of Warrant Stock to be
purchased upon exercise hereof shall terminate (A) when such securities
shall have been effectively registered under the Securities Act, (B)
upon the Issuer's receipt of an opinion of counsel, in form and
substance reasonably satisfactory to the Issuer, addressed to the
Issuer to the effect that such restrictions are no longer required to
ensure compliance with the Securities Act or (C) upon the Issuer's
receipt of other evidence reasonably satisfactory to the Issuer that
such registration is not required. Whenever such restrictions shall
cease and terminate as to any such securities, the Holder thereof shall
be entitled to receive from the Issuer (or its transfer agent and
registrar), without expense (other than applicable transfer taxes, if
any), new Warrants (or, in the case of shares of Warrant Stock, new
stock certificates) of like tenor not bearing the applicable legends
required by paragraph (ii) above relating to the Securities Act and
state securities laws.
(f) Continuing Rights of Holder. The Issuer will, at the time of or at
any time after each exercise of this Warrant, upon the request of the Holder
hereof or of any shares of Warrant Stock issued upon such exercise, acknowledge
in writing the extent, if any, of its continuing obligation to afford to such
Holder all rights to which such Holder shall continue to be entitled after such
exercise in accordance with the terms of this Warrant, provided that if any such
Holder shall fail to make any
-3-
<PAGE>
such request, the failure shall not affect the continuing obligation of the
Issuer to afford such rights to such Holder.
(g) Conversion of Warrants. Each Warrant held by the Holders listed on
Schedule A shall be exercisable at the option of such Holders in whole or in
part at any time after the Original Issue Date; provided, however, that the
number of shares of Common Stock issued by the Company to such Holders (together
with any shares of Common Stock converted from the Preferred Stock) shall not
exceed the number of shares of Common Stock set forth opposite each of the
Holders' names on Schedule A attached hereto until the date on which the Company
receives Shareholder Approval. Each Holder not listed on Schedule A attached
hereto shall not exercise the Warrants (or convert Preferred Stock into shares
of Common Stock) until the earlier of (i) the date on which the Company receives
Shareholder Approval and (ii) the date which is 65 days after the Original
Issuance Date.
3. Stock Fully Paid: Reservation and Listing of Shares: Covenants.
(a) Stock Fully Paid. The Issuer represents, warrants, covenants and
agrees that all shares of Warrant Stock which may be issued upon the exercise of
this Warrant or otherwise hereunder will, upon issuance, be duly authorized,
validly issued, fully paid and non-assessable and free from all taxes, liens and
charges created by or through Issuer. The Issuer further covenants and agrees
that during the period within which this Warrant may be exercised, the Issuer
will at all times have authorized and reserved for the purpose of the issue upon
exercise of this Warrant a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.
(b) Reservation. If any shares of Common Stock required to be reserved
for issuance upon exercise of this Warrant or as otherwise provided hereunder
require registration or qualification with any governmental authority under any
federal or state law before such shares may be so issued, the Issuer will in
good faith use its best efforts as expeditiously as possible at its expense to
cause such shares to be duly registered or qualified. If the Issuer shall list
any shares of Common Stock on any securities exchange or market it will, at its
expense, list thereon, maintain and increase when necessary such listing, of,
all shares of Warrant Stock from time to time issued upon exercise of this
Warrant or as otherwise provided hereunder, and, to the extent permissible under
the applicable securities exchange rules, all unissued shares of Warrant Stock
which are at any time issuable hereunder, so long as any shares of Common Stock
shall be so listed. The Issuer will also so list on each securities exchange or
market, and will maintain such listing of, any other securities which the Holder
of this Warrant shall be entitled to receive upon the exercise of this Warrant
if at the time any securities of the same class shall be listed on such
securities exchange or market by the Issuer.
(c) Covenants. The Issuer shall not by any action including, without
limitation, amending the Certificate of Incorporation or the by-laws of the
Issuer, or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such actions as may be necessary or appropriate to
protect the rights of the Holder hereof against dilution (to the extent
specifically provided herein) or impairment. Without limiting the generality of
the foregoing, the Issuer will (i) not permit the par value, if any, of its
Common Stock to exceed the then effective Warrant Price, (ii) not amend or
modify any provision of the Certificate of Incorporation or by-laws
-4-
<PAGE>
of the Issuer in any manner that would adversely affect in any way the powers,
preferences or relative participating, optional or other special rights of the
Common Stock or which would adversely affect the rights of the Holders of the
Warrants, (iii) take all such action as may be reasonably necessary in order
that the Issuer may validly and legally issue fully paid and nonassessable
shares of Common Stock, free and clear of any liens, claims, encumbrances and
restrictions (other than as provided herein) upon the exercise of this Warrant,
and (iv) use its best efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
reasonably necessary to enable the Issuer to perform its obligations under this
Warrant.
(d) Loss, Theft, Destruction of Warrants. Upon receipt of evidence
satisfactory to the Issuer of the ownership of and the loss, theft, destruction
or mutilation of any Warrant and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security satisfactory to the Issuer
or, in the case of any such mutilation, upon surrender and cancellation of such
Warrant, the Issuer will make and deliver, in lieu of such lost, stolen,
destroyed or mutilated Warrant, a new Warrant of like tenor and representing the
right to purchase the same number of shares of Common Stock.
(e) Rights and Obligations under the Registration Rights Agreement. The
Warrant Stock are entitled to the benefits and subject to the terms of the
Registration Rights Agreement dated as of even date herewith between the Issuer
and the Holders listed on the signature pages thereof (as amended from time to
time, the "Registration Rights Agreement"). The Issuer shall keep or cause to be
kept a copy of the Registration Rights Agreement, and any amendments thereto, at
its chief executive office and shall furnish, without charge, copies thereof to
the Holder upon request.
4. Adjustment of Warrant Price and Warrant Share Number. The number and
kind of Securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(a) Recapitalization, Reorganization, Reclassification, Consolidation,
Merger or Sale. (i) In case the Issuer after the Original Issue Date shall do
any of the following (each, a "Triggering Event") (a) consolidate with or merge
into any other Person and the Issuer shall not be the continuing or surviving
corporation of such consolidation or merger, or (b) permit any other Person to
consolidate with or merge into the Issuer and the Issuer shall be the continuing
or surviving Person but, in connection with such consolidation or merger, any
Capital Stock of the Issuer shall be changed into or exchanged for Securities of
any other Person or cash or any other property, or (c) transfer all or
substantially all of its properties or assets to any other Person, or (d) effect
a capital reorganization or reclassification of its Capital Stock, then, and in
the case of each such Triggering Event, proper provision shall be made so that,
upon the basis and the terms and in the manner provided in this Warrant, the
Holder of this Warrant shall be entitled (x) upon the exercise hereof at any
time after the consummation of such Triggering Event, to the extent this Warrant
is not exercised prior to such Triggering Event, or is redeemed in connection
with such Triggering Event, to receive at the Warrant Price in effect at the
time immediately prior to the consummation of such Triggering Event in lieu of
the Common Stock issuable upon such exercise of this Warrant prior to such
Triggering Event, the Securities, cash and property to which such Holder would
have been entitled upon the consummation of such Triggering Event if such Holder
had exercised the rights represented by this Warrant immediately prior thereto,
subject to adjustments and increases (subsequent to such corporate action)
-5-
<PAGE>
as nearly equivalent as possible to the adjustments provided for in Section 4
hereof or (y) to sell this Warrant (or, at such Holder's election, a portion
hereof) to the Person continuing after or surviving such Triggering Event, or to
the Issuer (if Issuer is the continuing or surviving Person) at a sales price
equal to the amount of cash, property and/or Securities to which a holder of the
number of shares of Common Stock which would otherwise have been delivered upon
the exercise of this Warrant would have been entitled upon the effective date or
closing of any such Triggering Event (the "Event Consideration"), less the
amount or portion of such Event Consideration having a fair value equal to the
aggregate Warrant Price applicable to this Warrant or the portion hereof so
sold.
(ii) Notwithstanding anything contained in this Warrant to the
contrary, the Issuer will not effect any Triggering Event unless, prior to the
consummation thereof, each Person (other than the Issuer) which may be required
to deliver any Securities, cash or property upon the exercise of this Warrant as
provided herein shall assume, by written instrument delivered to, and reasonably
satisfactory to, the Holder of this Warrant, (A) the obligations of the Issuer
under this Warrant (and if the Issuer shall survive the consummation of such
Triggering Event, such assumption shall be in addition to, and shall not release
the Issuer from, any continuing obligations of the Issuer under this Warrant)
and (B) the obligation to deliver to such Holder such shares of Securities, cash
or property as, in accordance with the foregoing provisions of this subsection
(a), such Holder shall be entitled to receive, and such Person shall have
similarly delivered to such Holder an opinion of counsel for such Person, which
counsel shall be reasonably satisfactory to such Holder, stating that this
Warrant shall thereafter continue in full force and effect and the terms hereof
(including, without limitation, all of the provisions of this subsection (a))
shall be applicable to the Securities, cash or property which such Person may be
required to deliver upon any exercise of this Warrant or the exercise of any
rights pursuant hereto.
(iii) If with respect to any Triggering Event, the Holder of this
Warrant has exercised its right as provided in clause (y) of subparagraph (i) of
this subsection (a) to sell this Warrant or a portion thereof, the Issuer agrees
that as a condition to the consummation of any such Triggering Event the Issuer
shall secure such right of Holder to sell this Warrant to the Person continuing
after or surviving such Triggering Event and the Issuer shall not effect any
such Triggering Event unless upon or prior to the consummation thereof the
amounts of cash, property and/or Securities required under such clause (y) are
delivered to the Holder of this Warrant. The obligation of the Issuer to secure
such right of the Holder to sell this Warrant shall be subject to such Holder's
cooperation with the Issuer, including, without limitation, the giving of
representations and warranties comparable to the those given in the Securities
Purchase Agreement to the purchaser in connection with any such sale. Prior
notice of any Triggering Event shall be given to the Holder of this Warrant in
accordance with Section 11 hereof.
(b) Subdivision or Combination of Shares. If the Issuer, at any time
while this Warrant is outstanding, shall subdivide or combine any shares of
Common Stock, (i) in case of subdivision of shares, the Warrant Price shall be
proportionately reduced (as at the effective date of such subdivision or, if the
Issuer shall take a record of Holders of its Common Stock for the purpose of so
subdividing, as at the applicable record date, whichever is earlier) to reflect
the increase in the total number of shares of Common Stock outstanding as a
result of such subdivision, or (ii) in the case of a combination of shares, the
Warrant Price shall be proportionately increased (as at the effective date of
such combination or, if the Issuer shall take a record of Holders of its Common
Stock for the
-6-
<PAGE>
purpose of so combining, as at the applicable record date, whichever is earlier)
to reflect the reduction in the total number of shares of Common Stock
outstanding as a result of such combination.
(c) Certain Dividends and Distributions. If the Issuer, at any time
while this Warrant is outstanding, shall:
(i) Stock Dividends. Pay a dividend in, or make any other
distribution to its stockholders (without consideration therefor) of,
shares of Common Stock, the Warrant Price shall be adjusted, as at the
date the Issuer shall take a record of the Holders of the Issuer's
Capital Stock for the purpose of receiving such dividend or other
distribution (or if no such record is taken, as at the date of such
payment or other distribution), to that price determined by multiplying
the Warrant Price in effect immediately prior to such record date (or
if no such record is taken, then immediately prior to such payment or
other distribution), by a fraction (1) the numerator of which shall be
the total number of shares of Common Stock outstanding immediately
prior to such dividend or distribution, and (2) the denominator of
which shall be the total number of shares of Common Stock outstanding
immediately after such dividend or distribution (plus in the event that
the Issuer paid cash for fractional shares, the number of additional
shares which would have been outstanding had the Issuer issued
fractional shares in connection with said dividends); or
(ii) Other Dividends. Pay a dividend on, or make any
distribution of its assets upon or with respect to (including, but not
limited to, a distribution of its property as a dividend in liquidation
or partial liquidation or by way of return of capital), the Common
Stock (other than as described in clause (i) of this subsection (c)),
or in the event that the Company shall offer options or rights to
subscribe for shares of Common Stock, or issue any Common Stock
Equivalents, to all of its holders of Common Stock, then on the record
date for such payment, distribution or offer or, in the absence of a
record date, on the date of such payment, distribution or offer, the
Holder shall receive what the Holder would have received had it
exercised this Warrant in full immediately prior to the record date of
such payment, distribution or offer or, in the absence of a record
date, immediately prior to the date of such payment, distribution or
offer.
(d) Issuance of Additional Shares of Common Stock. If the Issuer, at
any time while this Warrant is outstanding, shall issue any Additional Shares of
Common Stock (otherwise than as provided in the foregoing subsections (a)
through (c) of this Section 4), at a price per share less than the Warrant Price
then in effect or less than the Per Share Market Value then in effect or without
consideration, then the Warrant Price upon each such issuance shall be adjusted
to that price (rounded to the nearest cent) determined by multiplying the
Warrant Price then in effect by a fraction:
(i) the numerator of which shall be equal to the sum of (A)
the number of shares of Common Stock outstanding immediately prior to
the issuance of such Additional Shares of Common Stock plus (B) the
number of shares of Common Stock (rounded to the nearest whole share)
which the aggregate consideration for the total number of such
Additional Shares of Common Stock so issued would purchase at a price
per share equal to the greater of the Per Share Market Value then in
effect and the Warrant Price then in effect, and
-7-
<PAGE>
(ii) the denominator of which shall be equal to the number of
shares of Common Stock outstanding immediately after the issuance of
such Additional Shares of Common Stock.
The provisions of this subsection (d) shall not apply under any of the
circumstances for which an adjustment is provided in subsections (a), (b) or (c)
of this Section 4. No adjustment of the Warrant Price shall be made under this
subsection (d) upon the issuance of any Additional Shares of Common Stock which
are issued pursuant to any Common Stock Equivalent if upon the issuance of such
Common Stock Equivalent (x) any adjustment shall have been made pursuant to
subsection (e) of this Section 4 or (Y) no adjustment was required pursuant to
subsection (e) of this Section 4. No adjustment of the Warrant Price shall be
made under this subsection (d) in an amount less than $.01 per share, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment, if any, which together with
any adjustments so carried forward shall amount to $.01 per share or more,
provided that upon any adjustment of the Warrant Price as a result of any
dividend or distribution payable in Common Stock or Convertible Securities or
the reclassification, subdivision or combination of Common Stock into a greater
or smaller number of shares, the foregoing figure of $.01 per share (or such
figure as last adjusted) shall be adjusted (to the nearest one-half cent) in
proportion to the adjustment in the Warrant Price.
(e) Issuance of Common Stock Equivalents. If the Issuer, at any time
while this Warrant is outstanding, shall issue any Common Stock Equivalent and
the price per share for which Additional Shares of Common Stock may be issuable
thereafter pursuant to such Common Stock Equivalent shall be less than the
Warrant Price then in effect or less than the Per Share Market Value then in
effect, or if, after any such issuance of Common Stock Equivalents, the price
per share for which Additional Shares of Common Stock may be issuable thereafter
is amended or adjusted, and such price as so amended shall be less than the
Warrant Price or less than the Per Share Market Value in effect at the time of
such amendment, then the Warrant Price upon each such issuance or amendment
shall be adjusted as provided in the first sentence of subsection (d) of this
Section 4 on the basis that (1) the maximum number of Additional Shares of
Common Stock issuable pursuant to all such Common Stock Equivalents shall be
deemed to have been issued (whether or not such Common Stock Equivalents are
actually then exercisable, convertible or exchangeable in whole or in part) as
of the earlier of (A) the date on which the Issuer shall enter into a firm
contract for the issuance of such Common Stock Equivalent, or (B) the date of
actual issuance of such Common Stock Equivalent, and (2) the aggregate
consideration for such maximum number of Additional Shares of Common Stock shall
be deemed to be the minimum consideration received or receivable by the Issuer
for the issuance of such Additional Shares of Common Stock pursuant to such
Common Stock Equivalent. No adjustment of the Warrant Price shall be made under
this subsection (e) upon the issuance of any Convertible Security which is
issued pursuant to the exercise of any warrants or other subscription or
purchase rights therefor, if any adjustment shall previously have been made in
the Warrant Price then in effect upon the issuance of such warrants or other
rights pursuant to this subsection (e). If no adjustment is required under this
subsection (e) upon issuance of any Common Stock Equivalent or once an
adjustment is made under this subsection (e) based upon the Per Share Market
Value in effect on the date of such adjustment, no further adjustment shall be
made under this subsection (e) based solely upon a change in the Per Share
Market Value after such date.
-8-
<PAGE>
(f) Purchase of Common Stock by the Issuer. If the Issuer at any time
while this Warrant is outstanding shall, directly or indirectly through a
Subsidiary or otherwise, purchase, redeem or otherwise acquire any shares of
Common Stock at a price per share greater than the Per Share Market Value then
in effect, then the Warrant Price upon each such purchase, redemption or
acquisition shall be adjusted to that price determined by multiplying such
Warrant Price by a fraction (i) the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such purchase,
redemption or acquisition minus the number of shares of Common Stock which the
aggregate consideration for the total number of such shares of Common Stock so
purchased, redeemed or acquired would purchase at the Per Share Market Value;
and (ii) the denominator of which shall be the number of shares of Common Stock
outstanding immediately after such purchase, redemption or acquisition. For the
purposes of this subsection (f), the date as of which the Per Share Market Value
shall be computed shall be the earlier of (x) the date on which the Issuer shall
enter into a firm contract for the purchase, redemption or acquisition of such
Common Stock, or (y) the date of actual purchase, redemption or acquisition of
such Common Stock. For the purposes of this subsection (f), a purchase,
redemption or acquisition of a Common Stock Equivalent shall be deemed to be a
purchase of the underlying Common Stock, and the computation herein required
shall be made on the basis of the full exercise, conversion or exchange of such
Common Stock Equivalent on the date as of which such computation is required
hereby to be made, whether or not such Common Stock Equivalent is actually
exercisable, convertible or exchangeable on such date.
(g) Other Provisions Applicable to Adjustments Under this Section 4.
The following provisions shall be applicable to the making of adjustments in the
Warrant Price hereinbefore provided in Section 4:
(i) Computation of Consideration. The consideration received
by the Issuer shall be deemed to be the following: to the extent that
any Additional Shares of Common Stock or any Common Stock Equivalents
shall be issued for a cash consideration, the consideration received by
the Issuer therefor, or if such Additional Shares of Common Stock or
Common Stock Equivalents are offered by the Issuer for subscription,
the subscription price, or, if such Additional Shares of Common Stock
or Common Stock Equivalents are sold to underwriters or dealers for
public offering without a subscription offering, the public offering
price, in any such case excluding any amounts paid or receivable for
accrued interest or accrued dividends and without deduction of any
compensation, discounts, commissions, or expenses paid or incurred by
the Issuer for or in connection with the underwriting thereof or
otherwise in connection with the issue thereof; to the extent that such
issuance shall be for a consideration other than cash, then, except as
herein otherwise expressly provided, the fair market value of such
consideration at the, time of such issuance as determined in good faith
by the Board. The consideration for any Additional Shares of Common
Stock issuable pursuant to any Common Stock Equivalents shall be the
consideration received by the Issuer for issuing such Common Stock
Equivalents, plus the additional consideration payable to the Issuer
upon the exercise, conversion or exchange of such Common Stock
Equivalents. In case of the issuance at any time of any Additional
Shares of Common Stock or Common Stock Equivalents in payment or
satisfaction of any dividend upon any class of Capital Stock of the
Issuer other than Common Stock, the Issuer shall be deemed to have
received for such Additional Shares of Common Stock or Common Stock
Equivalents a consideration equal to the amount of
-9-
<PAGE>
such dividend so paid or satisfied. In any case in which the
consideration to be received or paid shall be other than cash, the
Board shall notify the Holder of this Warrant of its determination of
the fair market value of such consideration prior to payment or
accepting receipt thereof. If, within thirty days after receipt of said
notice, the Majority Holders shall notify the Board in writing of their
objection to such determination, a determination of the fair market
value of such consideration shall be made by an Independent Appraiser
selected by the Majority Holders with the approval of the Board (which
approval shall not be unreasonably withheld), whose fees and expenses
shall be paid by the Issuer.
(ii) Readjustment of Warrant Price. Upon the expiration or
termination of the right to convert, exchange or exercise any Common
Stock Equivalent the issuance of which effected an adjustment in the
Warrant Price, if such Common Stock Equivalent shall not have been
converted, exercised or exchanged in its entirety, the number of shares
of Common Stock deemed to be issued and outstanding by reason of the
fact that they were issuable upon conversion, exchange or exercise of
any such Common Stock Equivalent shall no longer be computed as set
forth above, and the Warrant Price shall forthwith be readjusted and
thereafter be the price which it would have been (but reflecting any
other adjustments in the Warrant Price made pursuant to the provisions
of this Section 4 after the issuance of such Common Stock Equivalent)
had the adjustment of the Warrant Price been made in accordance with
the issuance or sale of the number of Additional Shares of Common Stock
actually issued upon conversion, exchange or issuance of such Common
Stock Equivalent and thereupon only the number of Additional Shares of
Common Stock actually so issued shall be deemed to have been issued and
only the consideration actually received by the Issuer (computed as in
clause (i) of this subsection (g)) shall be deemed to have been
received by the Issuer.
(iii) Outstanding Common Stock. The number of shares of Common
Stock at any time outstanding shall (A) not include any shares thereof
then directly or indirectly owned or held by or for the account of the
Issuer or any of its Subsidiaries, and (B) be deemed to include all
shares of Common Stock then issuable upon conversion, exercise or
exchange of any then outstanding Common Stock Equivalents or any other
evidences of Indebtedness, shares of Capital Stock (including, without
limitation, the Preferred Stock) or other Securities which are or may
be at any time convertible into or exchangeable for shares of Common
Stock or Other Common Stock.
(h) Other Action Affecting Common Stock. In case after the Original
Issue Date the Issuer shall take any action affecting its Common Stock, other
than an action described in any of the foregoing subsections (a) through (g) of
this Section 4, inclusive, and the failure to make any adjustment would not
fairly protect the purchase rights represented by this Warrant in accordance
with the essential intent and principle of this Section 4, then the Warrant
Price shall be adjusted in such manner and at such time as the Board may in good
faith determine to be equitable in the circumstances.
(i) Adjustment of Warrant Share Number. Upon each adjustment in the
Warrant Price pursuant to any of the foregoing provisions of this Section 4, the
Warrant Share Number shall be adjusted, to the nearest one hundredth of a whole
share, to the product obtained by multiplying the
-10-
<PAGE>
Warrant Share Number immediately prior to such adjustment in the Warrant Price
by a fraction, the numerator of which shall be the Warrant Price immediately
before giving effect to such adjustment and the denominator of which shall be
the Warrant Price immediately after giving effect to such adjustment. If the
Issuer shall be in default under any provision contained in Section 3 of this
Warrant so that shares issued at the Warrant Price adjusted in accordance with
this Section 4 would not be validly issued, the adjustment of the Warrant Share
Number provided for in the foregoing sentence shall nonetheless be made and the
Holder of this Warrant shall be entitled to purchase such greater number of
shares at the lowest price at which such shares may then be validly issued under
applicable law. Such exercise shall not constitute a waiver of any claim arising
against the Issuer by reason of its default under Section 3 of this Warrant.
(j) Form of Warrant after Adjustments. The form of this Warrant need
not be changed because of any adjustments in the Warrant Price or the number and
kind of Securities purchasable upon the exercise of this Warrant.
5. Notice of Adjustments. Whenever the Warrant Price or Warrant Share
Number shall be adjusted pursuant to Section 4 hereof (for purposes of this
Section 5, each an "adjustment"), the Issuer shall cause its Chief Financial
Officer to prepare and execute a certificate setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated (including a description of the
basis on which the Board made any determination hereunder, provided that such
notice shall not contain any material or non-public information), and the
Warrant Price and Warrant Share Number after giving effect to such adjustment,
and shall cause copies of such certificate to be delivered to the Holder of this
Warrant promptly after each adjustment. Any dispute between the Issuer and the
Holder of this Warrant with respect to the matters set forth in such certificate
may at the option of the Holder of this Warrant be submitted to one of the
national accounting firms currently known as the "big five" selected by the
Holder, provided that the Issuer shall have ten days after receipt of notice
from such Holder of its selection of such firm to object thereto, in which case
such Holder shall select another such firm and the Issuer shall have no such
right of objection. The firm selected by the Holder of this Warrant as provided
in the preceding sentence shall be instructed to deliver a written opinion as to
such matters to the Issuer and such Holder within thirty days after submission
to it of such dispute. Such opinion shall be final and binding on the parties
hereto. The fees and expenses of such accounting firm shall be paid by the
Issuer.
6. Fractional Shares. No fractional shares of Warrant Stock will be
issued in connection with and exercise hereof, but in lieu of such fractional
shares, the Issuer shall make a cash payment therefor equal in amount to the
product of the applicable fraction multiplied by the Per Share Market Value then
in effect.
7. Definitions. For the purposes of this Warrant, the following terms
have the following meanings:
"Additional Shares of Common Stock" means all shares of Common
Stock issued by the Issuer after the Original Issue Date, and all
shares of Other Common, if any, issued by the Issuer after the Original
Issue Date, except (i) Warrant Stock, (ii) any shares of Common Stock
issuable upon conversion of the Preferred Stock pursuant to the
Preferred Stock
-11-
<PAGE>
Certificate of Designation, (iii) any shares of Common Stock issuable
upon exercise of stock options referred to in Items 4 and 5 of
"Convertible Securities Instruments and Arrangements for Acquisition of
Common Stock" of Schedule 2.1(c) of the Securities Purchase Agreement,
(iv) any shares of Common Stock issuable pursuant to Item 6 of
"Convertible Securities Instruments and Arrangements for Acquisition of
Common Stock" of Schedule 2.1(c) of the Securities Purchase Agreement,
(v) any shares of Common Stock issuable as referred to in Item 2 of
Schedule 3.13 or issuable upon exercise of any warrants or conversion
of preferred stock as referred to in Items 1 and 2 of Schedule 3.13 of
the Securities Purchase Agreement and (vi) any shares of Common Stock
issuable pursuant to the conversion of Series D Convertible Preferred
Stock (the "Series D Stock") and exercise of warrants issued in
connection with the Securities Purchase Agreement, dated January 13,
1999, among the Company and certain investors relating to the Series D
Stock.
"Board" shall mean the Board of Directors of the Issuer.
"Capital Stock" means and includes (i) any and all shares,
interests, participations or other equivalents of or interests in
(however designated) corporate stock, including, without limitation,
shares of preferred or preference stock, (ii) all partnership interests
(whether general or limited) in any Person which is a partnership,
(iii) all membership interests or limited liability company interests
in any limited liability company, and (iv) all equity or ownership
interests in any Person of any other type.
"Certificate of Incorporation" means the Certificate of
Incorporation of the Issuer as in effect on the Original Issue Date and
the Preferred Stock Certificate of Designation, and as hereafter from
time to time amended, modified, supplemented or restated in accordance
with the terms hereof and thereof and pursuant to applicable law.
"Original Issue Date" means February 2, 1999.
"Common Stock" means the Common Stock, $.005 par value, of the
Issuer and any other Capital Stock into which such stock may hereafter
be changed.
"Common Stock Equivalent" means any Convertible Security or
warrant, option or other right to subscribe for or purchase any
Additional Shares of Common Stock or any Convertible Security.
"Convertible Securities" means evidences of Indebtedness,
shares of Capital Stock or other Securities which are or may be at any
time convertible into or exchangeable for Additional Shares of Common
Stock. The term "Convertible Security" means one of the Convertible
Securities.
"Governmental Authority" means any governmental, regulatory or
self-regulatory entity, department, body, official, authority,
commission, board, agency or instrumentality, whether federal, state or
local, and whether domestic or foreign.
-12-
<PAGE>
"Holders" mean the Persons who shall from time to time own any
Warrant. The term "Holder" means one of the Holders.
"Independent Appraiser" means a nationally recognized or major
regional investment banking firm or firm of independent certified
public accountants of recognized standing (which may be the firm that
regularly examines the financial statements of the Issuer) that is
regularly engaged in the business of appraising the Capital Stock or
assets of corporations or other entities as going concerns, and which
is not affiliated with either the Issuer or the Holder of any Warrant.
"Issuer" means Imaging Technologies Corporation, a Delaware
corporation, and its successors.
"Majority Holders" means at any time the Holders of Warrants
exercisable for a majority of the shares of Warrant Stock issuable
under the Warrants at the time outstanding.
"NASDAQ" means the National Association of Securities Dealers
Automated Quotation System.
"Other Common" means any other Capital Stock of the Issuer of
any class which shall be authorized at any time after the date of this
Warrant (other than Common Stock) and which shall have the right to
participate in the distribution of earnings and assets of the Issuer
without limitation as to amount.
"Person" means an individual, corporation, limited liability
company, partnership, joint stock company, trust, unincorporated
organization, joint venture, Governmental Authority or other entity of
whatever nature.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on The
Nasdaq SmallCap Market, the Nasdaq National Market or other registered
national stock exchange on which the Common Stock is then listed or if
there is no such price on such date, then the closing bid price on such
exchange or quotation system on the date nearest preceding such date,
or (b) if the Common Stock is not listed then on The Nasdaq SmallCap
Market, the Nasdaq National Market or any registered national stock
exchange, the closing bid price for a share of Common Stock in the
over-the-counter market, as reported by NASDAQ or in the National
Quotation Bureau Incorporated or similar organization or agency
succeeding to its functions of reporting prices) at the close of
business on such date, or (c) if the Common Stock is not then reported
by the National Quotation Bureau Incorporated (or similar organization
or agency succeeding to its functions of reporting prices), then the
average of the "Pink Sheet" quotes for the relevant conversion period,
as determined in good faith by the holder, or (d) if the Common Stock
is not then publicly traded the fair market value of a share of Common
Stock as determined by an Independent Appraiser selected in good faith
by the Majority Holders; provided, however, that the Issuer, after
receipt of the determination by such Independent Appraiser, shall have
the right to select an additional Independent Appraiser, in which case,
the fair market value shall be equal to the average of the
determinations by each such Independent Appraiser; and
-13-
<PAGE>
provided, further that all determinations of the Per Share Market Value
shall be appropriately adjusted for any stock dividends, stock splits
or other similar transactions during such period. The determination of
fair market value by an Independent Appraiser shall be based upon the
fair market value of the Issuer determined on a going concern basis as
between a willing buyer and a willing seller and taking into account
all relevant factors determinative of value, and shall be final and
binding on all parties. In determining the fair market value of any
shares of Common Stock, no consideration shall be given to any
restrictions on transfer of the Common Stock imposed by agreement or by
federal or state securities laws, or to the existence or absence of, or
any limitations on, voting rights.
"Preferred Stock" means the Issuer's Series E Preferred Stock,
par value $1,000 per share and stated value $5,000 per share.
"Preferred Stock Certificate of Designation" means the
Certificate of Designation, Powers, Preferences and Rights of the
Preferred Stock adopted by the Board prior to January 28, 1999.
"Registration Rights Agreement" has the meaning specified in
Section 3(e) hereof.
"Securities" means any debt or equity securities of the
Issuer, whether now or hereafter authorized, any instrument convertible
into or exchangeable for Securities or a Security, and any option,
warrant or other right to purchase or acquire any Security.
"Security" means one of the Securities.
"Securities Act" means the Securities Act of 1933, as amended,
or any similar federal statute then in effect.
"Securities Purchase Agreement" means the Securities Purchase
Agreement dated as of Februray 2, 1999 among the Issuer, and each of
the Holders of Warrants listed on Schedule A attached hereto.
"Subsidiary" means any corporation at least 50% of whose
outstanding Voting Stock shall at the time be owned directly or
indirectly by the Issuer or by one or more of its Subsidiaries, or by
the Issuer and one or more of its Subsidiaries.
"Trading Day" means (a) a day on which the Common Stock is
listed on The Nasdaq SmallCap Market, the Nasdaq National Market or
other registered national stock exchange on which the Common Stock has
been listed, or (b) if the Common Stock is not listed on The Nasdaq
SmallCap Market, the Nasdaq National Market or any registered national
stock exchange, a day or which the Common Stock is quoted in the
over-the-counter market, as reported by the OTC Bulletin Board, or (c)
if the Common Stock is not quoted on the OTC Bulletin Board, a day on
which the Common Stock is quoted in the over-the-counter market as
reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding its functions of reporting prices);
provided, however, that in the event that the Common Stock is not
listed or quoted as set forth in (a), (b) and (c) hereof, then Trading
Day shall mean any day except Saturday, Sunday and any day which shall
be a legal holiday
-14-
<PAGE>
or a day on which banking institutions in the State of California are
authorized or required by law or other government action to close.
"Term" has the meaning specified in Section 1 hereof.
"Voting Stock", as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however
designated) having ordinary voting power for the election of a majority
of the members of the Board of Directors (or other governing body) of
such corporation, other than Capital Stock having such power only by
reason of the happening of a contingency.
"Warrants" means the Warrants issued and sold pursuant to the
Securities Purchase Agreement, including, without limitation, this
Warrant, and any other warrants of like tenor issued in substitution or
exchange for any thereof pursuant to the provisions of Section 2(c),
2(d) or 2(e) hereof or of any of such other Warrants.
"Warrant Price" means initially $0.875, as such price may be
adjusted from time to time as shall result from the adjustments
specified in Section 4 hereof.
"Warrant Share Number" means at any time the aggregate number
of shares of Warrant Stock which may at such time be purchased upon
exercise of this Warrant, after giving effect to all prior adjustments
and increases to such number made or required to be made under the
terms hereof.
"Warrant Stock" means Common Stock issuable upon exercise of
any Warrant or Warrants or otherwise issuable pursuant to any Warrant
or Warrants.
8. Other Notices. In case at any time:
(A) the Issuer shall make any
distributions to the holders of
Common Stock; or
(B) the Issuer shall authorize the
granting to all holders of its
Common Stock of rights to subscribe
for or purchase any shares of
Capital Stock of any class or of any
Common Stock Equivalents or
Convertible Securities or other
rights; or
(C) there shall be any reclassification
of the Capital Stock of the Issuer;
or
(D) there shall be any capital
reorganization by the Issuer; or
(E) there shall be any (i) consolidation
or merger involving the Issuer or
(ii) sale, transfer or other
disposition of all or substantially
all of the Issuer's property, assets
or business (except a merger or
other reorganization in which the
Issuer
-15-
<PAGE>
shall be the surviving corporation
and its shares of Capital Stock
shall continue to be outstanding and
unchanged and except a
consolidation, merger, sale,
transfer or other disposition
involving a wholly-owned
Subsidiary); or
(F) there shall be a voluntary or
involuntary dissolution, liquidation
or winding-up of the Issuer or any
partial liquidation of the Issuer or
distribution to holders of Common
Stock;
then, in each of such cases, the Issuer shall give written notice to the Holder
of the date on which (i) the books of the Issuer shall close or a record shall
be taken for such dividend, distribution or subscription rights or (ii) such
reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding-up, as the case may be, shall take place.
Such notice also shall specify the date as of which the holders of Common Stock
of record shall participate in such dividend, distribution or subscription
rights, or shall be entitled to exchange their certificates for Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, disposition, dissolution, liquidation
or winding-up, as the case may be. Such notice shall be given at least twenty
days prior to the action in question and not less than twenty days prior to the
record date or the date on which the Issuer's transfer books are closed in
respect thereto, but not prior to the public disclosure thereof. The Issuer
shall give to the Holder notice of all meetings and actions by written consent
of its stockholders, at the same time in the same manner as notice of any
meetings of stockholders is required to be given to stockholders who do not
waive such notice (or, if such requires no notice, then two Trading Days written
notice thereof describing the matters upon which action is to be taken). The
Holder shall have the right to send two representatives selected by it to each
meeting, who shall be permitted to attend, but not vote at, such meeting and any
adjournments thereof. This Warrant entitles the Holder to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Common Stock.
9. Amendment and Waiver. Any term, covenant, agreement or condition in
this Warrant may be amended, or compliance therewith may be waived (either
generally or in a particular instance and either retroactively or
prospectively), by a written instrument or written instruments executed by the
Issuer and the Majority Holders; provided, however, that no such amendment or
waiver shall reduce the Warrant Share number, increase the Warrant Price,
shorten the period during which this Warrant may be exercised or modify any
provision of this Section 9 without the consent of the Holder of this Warrant.
10. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAW.
11. Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice prior to 5:00 p.m., San Diego time, on a
Business
-16-
<PAGE>
Day, (ii) the Business Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified for notice later than 5:00 p.m., San Diego time, on any date and
earlier than 11:59 p.m., San Diego time, on such date, (iii) the Business Day
following the date of mailing, if sent by nationally recognized overnight
courier service or (iv) actual receipt by the party to whom such notice is
required to be given. The addresses for such communications shall be with
respect to the Holder of this Warrant or of Warrant Stock issued pursuant
hereto, addressed to such Holder at its last known address or facsimile number
appearing on the books of the Issuer maintained for such purposes, or with
respect to the Issuer, addressed to:
Imaging Technologies Corporation
11031 Via Frontera
San Diego, California 92127
Attention: Mr. Brian Bonar
Facsimile No.: (619) 613-1311
or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices to the Holder shall be sent to the addresses
listed on Schedule A hereto, if applicable. Copies of notices to the Issuer
shall be sent to Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue of the
Americas, New York, New York 10036, Attention: Christopher S. Auguste, Esq.,
Facsimile no.: (212) 704- 6288.
12. Warrant Agent. The Issuer may, by written notice to each Holder of
this Warrant, appoint an agent having an office in San Diego, California for the
purpose of issuing shares of Warrant Stock on the exercise of this Warrant
pursuant to subsection (b) of Section 2 hereof, exchanging this Warrant pursuant
to subsection (d) of Section 2 hereof or replacing this Warrant pursuant to
subsection (d) of Section 3 hereof, or any of the foregoing, and thereafter any
such issuance, exchange or replacement, as the case may be, shall be made at
such office by such agent.
13. Remedies. The Issuer stipulates that the remedies at law of the
Holder of this Warrant in the event of any default or threatened default by the
Issuer in the performance of or compliance with any of the terms of this Warrant
are not and will not be adequate and that, to the fullest extent permitted by
law, such terms may be specifically enforced by a decree for the specific
performance of any agreement contained herein or by an injunction against a
violation of any of the terms hereof or otherwise.
14. Successors and Assigns. This Warrant and the rights evidenced
hereby shall inure to the benefit of and be binding upon the successors and
assigns of the Issuer, the Holder hereof and (to the extent provided herein) the
Holders of Warrant Stock issued pursuant hereto, and shall be enforceable by any
such Holder or Holder of Warrant Stock
15. Modification and Severability. If, in any action before any court
or agency legally empowered to enforce any provision contained herein, any
provision hereof is found to be unenforceable, then such provision shall be
deemed modified to the extent necessary to make it enforceable by such court or
agency. If any such provision is not enforceable as set forth in the preceding
sentence, the unenforceability of such provision shall not affect the other
provisions of this
-17-
<PAGE>
Warrant, but this Warrant shall be construed as if such unenforceable provision
had never been contained herein.
16. Headings. The headings of the Sections of this Warrant are for
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
[Remainder of Page Intentionally Left Blank]
-18-
<PAGE>
IN WITNESS WHEREOF, the Issuer has executed this Warrant as of the day
and year first above written.
IMAGING TECHNOLOGIES CORPORATION
By: /s/ Brian Bonar
--------------------------------
Brian Bonar,
President
-19-
<PAGE>
EXERCISE FORM
IMAGING TECHNOLOGIES CORPORATION
The undersigned _______________, pursuant to the provisions of the within
Warrant, hereby elects to purchase _____ shares of Common Stock of IMAGING
TECHNOLOGIES CORPORATION covered by the within Warrant.
Dated: _________________ Signature ___________________________
Address _____________________
ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _____________, attorney, to transfer the said
Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the right to purchase _________ shares of Warrant Stock
evidenced by the within Warrant together with all rights therein, and does
irrevocably constitute and appoint ___________________, attorney, to transfer
that part of the said Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________
-20-
<PAGE>
FOR USE BY THE ISSUER ONLY:
This Warrant No. W-_____ cancelled (or transferred or exchanged) this _____ day
of ___________, _____, shares of Common Stock issued therefor in the name of
_______________, Warrant No. W- _____ issued for ____ shares of Common Stock in
the name of _______________.
-21-
Exchange Agreement
------------------
This Exchange Agreement, dated as of February 18, 1999 (this "Exchange
Agreement"), by and among Imaging Technologies Corporation (the "Company"), NP
Partners ("NP") and Olympus Securities, Ltd. ("Olympus" and together with NP,
the "Investors").
Recitals:
---------
(a) the Company filed a Certificate of Designation, Powers, Preferences
and Rights of the Series of Preferred Stock of Imaging Technologies Corporation
to be designated Series E Convertible Preferred Stock (the "Certificate of
Designation") with the Department of State of the State of Delaware on January
28, 1999;
(b) the Company entered into (i) the Securities Purchase Agreement
dated as of February 2, 1999 (the "Series E Purchase Agreement") by and among
the Company and the purchasers listed in the Series E Purchase Agreement (the
"Purchasers"), pursuant to which the Company issued units (the "Units") to the
Purchasers consisting of (A) a share of Series E Convertible Preferred Stock,
par value $1,000 per share and stated value of $5,000 (the "Series E Preferred
Stock"), and (B) warrants (the "Warrants") to purchase 5,000 shares of common
stock, par value $.005 per share (the "Common Stock"), and (ii) a Registration
Rights Agreement dated as of February 2, 1999 (the "Registration Rights
Agreement") by and among the Company and the Purchasers, pursuant to which the
Company agreed to register the shares of Common Stock to be issued upon
conversion of the Series E Preferred Stock and the exercise of the Warrants;
(c) the Company issued a Non-convertible Subordinated Promissory Note
dated September 18, 1998 for the principal amount of $500,000 to the order of NP
(the "NP Note");
(d) the Company issued a Non-convertible Subordinated Promissory Note
dated September 18, 1998 for the principal amount of $500,000 to the order of
Olympus (the "Olympus Note" and together with the NP Note, the "Notes"); and
(e) the Company has offered to exchange the Notes for Units, and each
of NP and Olympus has agreed to exchange their Notes for Units, subject to the
following terms and conditions. Capitalized terms used and not otherwise defined
herein shall have the meanings given such terms in the Series E Purchase
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Exchange Agreement, the Company and each of NP and Olympus agree as
follows:
1. Exchange. Within five (5) business days of the Company obtaining
--------
Shareholder Approval, the Investors shall exchange their Notes (including
accrued and unpaid interest to the date of exchange to the nearest $5,000) for
Units consisting of one share of Series E Preferred Stock and Warrants to
purchase 5,000 shares of Common Stock at the exchange rate of one Unit for each
$5,000 of principal and accrued and unpaid interest of the Notes (the "Investor
Units").
<PAGE>
The shares of Series E Preferred Stock to be issued to the Investors will be
based on a stated value of $5,000 per share of Series E Preferred Stock.
2. Exchange Procedures. Within five (5) business days of the Company
--------------------
obtaining Shareholder Approval in accordance with the terms of Section 3.14 of
the Series E Purchase Agreement, each Investor will (u) deliver its original
Note to the Company's counsel, and (v) execute and deliver to the Company's
counsel a purchase agreement (the "Investor Purchase Agreement") and a
registration rights agreement, each substantially in the form attached hereto
(the "Exchange Agreements"), and the Company will (w) issue and deliver to each
Investor stock certificates representing the shares of Series E Preferred Stock
to be issued in connection with the exchange, (x) issue and deliver to the
Investors the Warrants to be issued as part of the Units, (y) execute and
deliver each of the Exchange Agreements, and (z) the Company shall deliver to
the Investors and each Investor shall deliver to the Company the other
applicable documents set forth in Section 4.1(a) and Section 4.1(b) of the
Investor Purchase Agreement, respectively.
3. Registration. The Company shall register the shares of Common Stock
-------------
to be issued upon conversion of the Series E Preferred Stock and upon exercise
of the Warrants in the Registration Statement which shall register the shares of
Common Stock to be issued in connection with the Series E Purchase Agreement.
4. Shareholder Approval. The proposals for which the Company will use
---------------------
its best efforts to obtain Shareholder Approval shall include the shares of
Common Stock issuable upon conversion and upon exercise of the Investor Units.
5. Termination. If the Company fails to obtain Shareholder Approval on
-----------
or before the date which is 65 days after the Closing Date, this Exchange
Agreement shall terminate within five (5) business days thereafter and shall be
of no further force and effect, unless extended by the parties hereto.
6. Representations and Warranties.
------------------------------
(a) Each Investor represents and warrants to the Company that this
Exchange Agreement has been duly authorized, validly executed and delivered by
such Investor and constitutes a valid and binding agreement and obligation of
such Investor enforceable against such Investor in accordance with its terms,
subject to limitations on enforcement by general principles of equity and
bankruptcy or other laws affecting the enforcement of creditors' rights
generally and such Investor has full power and authority to execute and deliver
this Exchange Agreement and the other agreements and documents contemplated
hereby, including, without limitation, the Exchange Agreements, and to perform
its obligations hereunder and thereunder.
(b) The Company represents and warrants to the Investors that this
Exchange Agreement has been duly authorized, validly executed and delivered on
behalf of the Company and is a valid and binding agreement and obligation of the
Company enforceable against the Company in accordance with its terms, subject to
limitations on enforcement by general principles of equity
-2-
<PAGE>
and by bankruptcy or other laws affecting the enforcement of creditors' rights
generally, and the Company has full power and authority to execute and deliver
this Exchange Agreement and the other agreements and documents contemplated
hereby, including, without limitation, the Exchange Agreements, and to perform
its obligations hereunder and thereunder. The Exchange Agreements are in the
same forms as executed by the Purchasers.
7. Governing Law. This Exchange Agreement shall be governed by and
--------------
interpreted in accordance with the laws of the State of New York without giving
effect to the rules governing the conflicts of laws.
8. Expenses. Each of the parties agrees to pay its own expenses
--------
incident to this Exchange Agreement and the performance of its obligations
hereunder.
9. Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand delivery, express overnight
courier, registered first class mail, overnight courier, or telecopier,
initially to the address set forth below, and thereafter at such other address,
notice of which is given in accordance with the provisions of this Section.
if to the Company:
Imaging Technologies Corporation
11031 Via Frontera
San Diego, California 92127
Attn: Mr. Brian Bonar
President and Chief Executive Officer
Telephone: (619) 613-1300
Telecopier: (619) 613-1311
with a copy to:
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Attn: Christopher S. Auguste, Esq.
Telephone: (212) 704-6000
Telecopier: (212) 704-6288
-3-
<PAGE>
if to the Investors:
NP Partners
c/o Citadel Investment Group, LLC
225 West Washington Street
9th Floor
Chicago, IL 60606
Attn: Michael Hughes
Telephone: (312) 338-7800
Telecopier: (312) 338-0780
Olympus Securities, Ltd.
c/o Citadel Investment Group, LLC
225 West Washington Street
9th Floor
Chicago, IL 60606
Attn: Michael Hughes
Telephone: (312)338-7800
Telecopier: (312)338-0780
With a copy to:
Katten Muchin & Zavis
525 West Monroe Street - Suite 1600
Chicago, IL 60661 - 3693
Attn: Robert J. Brantman
Telephone: (312) 902-5200
Telecopier: (312) 902-1061
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; three (3) business days
after being deposited in the mail, postage prepaid, if mailed; the next business
day after being deposited with an overnight courier, if deposited with a
nationally recognized, overnight courier service; when receipt is acknowledged,
if telecopied.
10. Acknowledgment of Convertibility. The Company acknowledges and
----------------------------------
agrees that the shares of Series E Preferred Stock to be issued to the Investors
as contemplated hereby, shall upon issuance be immediately convertible in
accordance with the terms of the Certificate of Designation without any waiting
period under the Certificate of Designation as if the Original Issue Date (as
defined in the Certificate of Designation) for the shares of Series E Preferred
Stock issued to the Investors were the same as the Original Issue Date for the
shares of Series E Preferred Stock issued to the Purchasers under the Series E
Purchase Agreement.
-4-
<PAGE>
11. Entire Agreement. This Exchange Agreement constitutes the entire
----------------
understanding and agreement of the parties with respect to the subject matter
hereof and supersedes all prior and/or contemporaneous oral or written proposals
or agreements relating thereto all of which are merged herein. This Exchange
Agreement may not be amended or any provision hereof waived in whole or in part,
except by a written amendment signed by both of the parties.
12. Counterparts. This Exchange Agreement may be executed by facsimile
------------
signature and in counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, this Exchange Agreement was duly executed on the
date first written above.
IMAGING TECHNOLOGIES CORPORATION
By:________________________________
Name:
Title:
NP PARTNERS
By:______________________________
Name:
Title:
OLYMPUS SECURITIES, LTD.
By:______________________________
Name:
Title:
-5-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000725394
<NAME> IMAGING TECHNOLOGIES CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 103,000
<SECURITIES> 0
<RECEIVABLES> 4,430,000
<ALLOWANCES> 0
<INVENTORY> 5,131,000
<CURRENT-ASSETS> 11,142,000
<PP&E> 1,283,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,019,000
<CURRENT-LIABILITIES> 18,237,000
<BONDS> 0
0
420,000
<COMMON> 67,000
<OTHER-SE> (1,674,000)
<TOTAL-LIABILITY-AND-EQUITY> 19,019,000
<SALES> 4,195,000
<TOTAL-REVENUES> 4,195,000
<CGS> 3,309,000
<TOTAL-COSTS> 7,215,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 335,000
<INCOME-PRETAX> (3,355,000)
<INCOME-TAX> (10,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,365,000)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
