UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] TRANSITION REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
Commission file Number 0-16055
PHOTOMATRIX, INC.
(Exact name of small business issuer as specified in its charter)
California 95-3267788
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1958 Kellogg Ave.
Carlsbad, California 92008
(Address of principal executive offices)
(760) 431-4999
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
At June 30, 1998, 9,931,000 shares of Common Stock of Photomatrix,
Inc. were outstanding.
Transitional Small Business Disclosure Format.
YES [ ] NO [X]
<PAGE>
INDEX
PHOTOMATRIX, INC.
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Consolidated balance sheets as of June 30, 1998 (unaudited) and March 31, 1998
Unaudited consolidated statements of operations for the three months ended June
30, 1998 and June 30, 1997
Unaudited consolidated statements of cash flows for the three months ended June
30, 1998 and June 30, 1997
Unaudited notes to consolidated financial statements
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
PART II - OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
<PAGE>
PHOTOMATRIX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1998 AND MARCH 31, 1998
<TABLE>
June 30, 1998
(Unaudited) March 31, 1998
--------------------- --------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $536,000 $1,342,000
Accounts receivable, net of allowance
of $144,000 and $142,000 1,841,000 1,733,000
Inventories 3,169,000 2,171,000
Prepaid expenses and other 272,000 98,000
--------------------- -------------------
Total current assets 5,818,000 5,344,000
Property and equipment, net 3,650,000 547,000
Intangible assets, net 2,572,000 1,287,000
Other assets 105,000 125,000
--------------------- --------------------
$12,145,000 $7,303,000
=================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $987,000 $502,000
Accrued liabilities and other 962,000 854,000
Customer deposits 396,000 409,000
Line of credit 694,000 --
Current maturities of notes payable 300,000 162,000
Net current liabilities of discontinued operation 1,108,000 1,113,000
--------------------- --------------------
Total current liabilities 4,447,000 3,040,000
Notes payable to related parties, long term 168,000 213,000
Other non-current liabilities 2,497,000 26,000
Commitments and contingencies
Shareholders' equity:
Preferred Stock, no par value; 3,173,000 shares
authorized, no shares issued and outstanding
-- --
Common stock, no par value; 30 million shares
authorized, 9,931,000 and 5,083,000 shares
issued and outstanding, respectively 21,290,000 19,351,000
Additional paid-in capital 30,000 --
Accumulated deficit (16,434,000) (15,480,000)
Accumulated other comprehensive income 147,000 153,000
--------------------- --------------------
Total shareholders' equity 5,033,000 4,024,000
--------------------- --------------------
$12,145,000 $7,303,000
===================== ====================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
2
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PHOTOMATRIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<TABLE>
1998 1997
---------------- -------------------------
<S> <C> <C>
REVENUES $1,292,000 $2,271,000
COST OF REVENUES 942,000 1,518,000
---------------- -----------------
GROSS PROFIT 350,000 753,000
---------------- -----------------
OPERATING EXPENSES
Selling, general and administrative 815,000 925,000
Research and development 215,000 181,000
Facility consolidation and relocation 223,000 --
---------------- ------------------
TOTAL OPERATING EXPENSES 1,253,000 1,106,000
---------------- ------------------
OPERATING LOSS (903,000) (353,000)
---------------- ------------------
OTHER INCOME (EXPENSE), NET (51,000) 8,000
---------------- ------------------
NET LOSS $ (954,000) $ (345,000)
================ ==================
Basic and diluted net loss per share $ (0.15) $ (0.07)
================ ==================
Weighted average number of common shares outstanding 6,430,000 5,083,000
---------------- ------------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
3
<PAGE>
PHOTOMATRIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<TABLE>
1998 1997
--------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATIONS
Net loss: $(954,000) $(345,000)
Adjustments:
Depreciation and amortization 168,000 235,000
Loss on disposal of property and equipment 13,000 --
Stock options granted to third party 30,000 --
Changes in assets and liabilities, excluding effects of acquisition:
Accounts receivable 722,000 (146,000)
Inventories (10,000) (59,000)
Prepaid expenses and other (92,000) (43,000)
Accounts payable (420,000) (329,000)
Accrued liabilities and other (18,000) 56,000
Customer deposits (13,000) (124,000)
-------------- -------------
Cash used in continuing operations (574,000) (755,000)
Cash provided by (used in) discontinued operations (5,000) 323,000
--------------- -------------
Cash provided by (used in) operations (579,000) (432,000)
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of acquisition, net of cash received (192,000) --
Capital expenditures (5,000) --
Proceeds from disposal of capital assets 20,000 7,000
Decrease in other assets 6,000 8,000
------------------ --------------
Cash provided by (used in) investing activities (171,000) 15,000
------------------ --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit, net of repayments 11,000 --
Repayments on notes payable (51,000) --
Other (10,000) 22,000
------------------ --------------
Cash provided by (used in) financing activities (50,000) 22,000
------------------ --------------
EFFECTS OF EXCHANGE RATES ON CASH ( 6,000) (5,000)
------------------ --------------
NET DECREASE TO CASH AND CASH EQUIVALENTS (806,000) (400,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,342,000 812,000
------------------ --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 536,000 $ 412,000
================== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
PHOTOMATRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1998 AND MARCH 31, 1998 AND
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
1. GENERAL
Basis of Presentation
The accompanying unaudited consolidated financial statements reflect the
accounts of Photomatrix, Inc. (the "Company"), together with its subsidiaries.
On June 5, 1998 the shareholders of the Company approved the merger ("Merger")
between Photomatrix, Inc. and I-PAC Manufacturing, Inc. ("I-PAC"). The Company
issued 4,848,000 shares of Photomatrix common stock to shareholders of I-PAC in
exchange for the 8,500 outstanding shares of the common stock of the
privately-held company. This transaction resulted in an increase in the number
of outstanding shares of Photomatrix common stock from 5,083,000 to 9,931,000.
All significant intercompany transactions and balances have been eliminated.
Certain information and disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations, although
the Company believes that the disclosures made are adequate to prevent the
information from being misleading. These unaudited consolidated financial
statements reflect, in the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present the Company's results of
operations and financial position as of the dates and for the periods presented.
These unaudited consolidated financial statements should be read in conjunction
with the audited financial statements and related notes included in the
Company's Report on Form 10-KSB filed with the Securities and Exchange
Commission for the year ended March 31, 1998. The results for the interim
periods presented are not necessarily indicative of results to be expected for a
full year.
2. CREDIT FACILITY
As of June 30, 1998, the Company was obligated under a series of notes payable
totaling $3,659,000. This debt included a $750,000 unused line of credit with
the Company's bank. In addition, as of the Merger, I-PAC had a $700,000 line of
credit with another bank.
Subsequent to June 30, 1998 the Company entered into a new $2,100,000 credit
facility with its bank that included a $1,500,000 line of credit and a $600,000
term loan which matures in June, 2002. The Company immediately used this credit
facility to retire approximately $932,000 of debt of its wholly-owned
subsidiary, I-PAC, $694,000 under a line of credit and $162,000 and $76,000
under term loans with two other banks. The aggregate outstanding balance under
these loans as of June 30, 1998 was $918,000. The Company also used some of the
proceeds from the term loan to acquire additional state-of-the-art equipment
which will significantly broaden its surface mount technology ("SMT") printed
circuit board manufacturing capacity.
The new line of credit will accrue interest on outstanding borrowings at the
bank's prime rate plus 1 % per annum. The Company's previous line of credit
accrued interest at prime plus 2%. All other terms of the new line of credit,
except for various covenants, essentially remained the same. Under the terms of
the new agreement, total borrowings under the line of credit will be limited to
the lesser of $1,500,000 or 75% of eligible accounts receivable (as defined
under the agreement). The Company is required to continue to (1) maintain a
minimum tangible net worth of $2,400,000 as of June 30, 1998, increasing to
$2,600,000 as of September 30, 1998, $3,200,000 as of December 31, 1998, and
$3,500,000 thereafter (2) maintain a ratio of total liabilities to tangible net
worth of not greater than 2.75 to 1.0, and (3) maintain a minimum debt service
coverage of no less than 1.25 to 1.0. The new line of credit expires in July,
1999. Based on June 30, 1998 financial data, the Company was not in compliance
with one of these covenants. The Company's bank has waived compliance with this
requirement.
5
<PAGE>
The Company has issued two notes in the aggregate amount of $2,015,000, which
are collateralized by trust deeds of the Company's real property located in
Carlsbad, California. The repayment of these notes is guaranteed by certain
major shareholders of the Company and the Small Business Administration. These
notes are payable in aggregage monthly installments of approximately $19,000
including interest ranging from 7.5 to 9.5%.
3. DISCONTINUATION OF LEXIA SYSTEMS, INC.
In December, 1996 the Board of Directors approved a plan to discontinue the
operations of Lexia Systems, Inc. ("Lexia"). The Company is currently in the
process of winding down and closing this operation. Lexia's operational results
have been reclassified as discontinued operations for the respective years
presented herein. Lexia's balance sheets have similarly been reclassified as net
current liabilities of discontinued operations as of June 30, 1998 and March 31,
1998.
Currently, Lexia carries on its books accounts payable and unpaid rent claims of
International Computers Limited, Inc. ("ICL") and related entities in the amount
of $786,000. Lexia disputes these liabilities. Lexia is attempting to resolve
these disputes through negotiations. There is no assurance that Lexia will be
able to resolve this matter.
4. BASIC AND DILUTED LOSS PER SHARE
In December 1997, the Company adopted the provisions of Statement of Financial
Accounting Standards ('SFAS") No. 128, "Earnings per Share." SFAS No. 128
supersedes APB No. 15 and replaces "primary" and "fully diluted" earnings per
share ("EPS") under Accounting Principles Board ("APB") Opinion No. 15 with
"basic" and "diluted" EPS. Unlike primary EPS, basic EPS excludes the dilutive
effects of options, warrants and other convertible securities. The weighted
average number of common shares outstanding used in computing basic EPS was
6,430,000 and 5,083,000, in the first quarters of fiscal years 1999 and 1998,
respectively. Diluted EPS reflects the potential dilution of securities that
could share in the earnings of the Company, similar to fully diluted EPS.
Options and warrants representing approximately 1,196,000 and 886,000 shares
were excluded from the computations of net loss per common share for the
quarters ended June 30, 1998 and 1997, respectively, as their effect is
antidilutive. The adoption of SFAS No. 128 did not have a material effect on the
Company's net loss per common share.
5. ACQUISITION OF I-PAC MANUFACTURING, INC.
On March 16, 1998, the Company entered into an Agreement and Plan of Merger and
Reorganization with I-PAC Manufacturing, Inc. The Agreement was approved by the
shareholders of the Company on June 5, 1998, and the transaction closed on June
11, 1998. As a result of the Merger, the 8,500 outstanding shares of I-PAC
Common Stock were exchanged for 4,848,000 shares of Photomatrix Common Stock and
possibly additional 4,652,000 shares of Photomatrix Common Stock in the event
that I-PAC achieves certain performance milestones during a twelve month period
commencing on July 1, 1998 or outstanding options to purchase Photomatrix Common
Stock are exercised.
The Merger was accounted for as a purchase of I-PAC by the Company for
accounting and financial reporting purposes. Under the purchase method of
accounting, upon closing of the Merger, I-PAC's results of operations were
combined with those of the Company, and I-PAC's assets and liabilities were
recorded on the Company's books at their respective fair values. The purchase
price, amounting to $2,191,000, was comprised of the value of the stock plus
acquisition costs and was allocated among the assets acquired and the
liabilities assumed. The issuance of additional shares awarded to I-PAC
shareholders under the earn-out formula and/or in connection with the exercise
of Photomatrix outstanding options and warrants will be treated in accordance
with APB 16, in that any additional shares will be treated as additional costs
of the acquired enterprise and amortized accordingly over the benefit period.
The $1,369,000 excess of the purchase price over the fair value of I-PAC's net
assets will be amortized over a twenty year period.
If the I-PAC transaction had been consummated at the beginning of fiscal year
1997, the Company's consolidated revenues, net loss and net loss per share for
the first quarter would have been:
6
<PAGE>
1998 1997
---- ----
Revenues $ 2,174,000 $ 4,191,000
Net Income (Loss) $ (790,000) $ 67,000
Net Loss per share, basic and
diluted $ ( 0.12) $ 0.01
6. COMPREHENSIVE INCOME
As of April 1, 1998, the Company adopted SFAS No. 130 "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components. SFAS No. 130 requires the cumulative
translation adjustment to be included as a component of comprehensive loss in
addition to net loss for the period. During the three months ended June 30, 1998
total comprehensive loss totaled $960,000 and during the three months ended June
30, 1997 total comprehensive loss totaled $350,000.
7. ACQUISITION OF MGM TECHREP, INC.
Subsequent to June 30, 1998, the Company entered into an agreement to acquire
the assets and business of MGM Techrep, Inc. ("MGM"). MGM, a private entity that
is primarily owned by the officers and former owners of I-PAC, is a
manufacturer's sales representative firm headquartered in Santa Ana, California.
Established in 1994, MGM has been the primary sales rep firm in the Southern
California area for I-PAC Manufacturing, Inc. ("I- PAC"), being responsible for
approximately 60% of I-PAC's new sales during the period from 1994 to the
present. MGM also represents approximately 15 other companies engaged in the
manufacture and distribution of a wide range of industrial products used in the
manufacture and sale of electronic and related products.
The Photomatrix acquisition will include all contracts with MGM's principals,
its customer list, all physical assets, and the MGM trade name and associated
goodwill. MGM will retain existing liabilities and release its sales personnel
to Photomatrix, and MGM's shareholders will execute non-compete agreements with
respect to the sales rep business. The purchase price of the transaction will be
determined primarily on an earn-out basis by a declining percentage (75% in the
first year, 50% in the second year and 25% in the final year following the
closing date) of the commissions earned over a three-year period by MGM on sales
involving its existing principals and customers as of the time of purchase by
Photomatrix. No payments would be due to MGM for principals or customer accounts
added after the closing date. In addition, I-PAC forgave approximately $18,000
of amounts owing by MGM as of the closing date.
Consistent with the provisions of the Photomatrix-I-PAC merger agreement, this
related party transaction was reviewed and approved by the outside directors on
the Audit Committee of the Photomatrix Board of Directors.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Management's discussion and analysis of financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and unaudited notes to consolidated financial statements included
elsewhere herein.
Three months ended June 30, 1998 compared to the three months ended June 30,
1997
During the quarter ended June 30, 1998, the Company moved its operations into
I-PAC's facility located in Carlsbad, California and completed the Merger with
I-PAC. The effect of these activities was disruptive and inefficient to the
operations of the Company during the period. Effective June 5, 1998, I-PAC was
acquired by the Company. Results of operations of the Company include the
results of I-PAC for the period from June 6,1998 through June 30, 1998, and also
includes the costs associated with the moving and Merger activities.
As expected, consolidated revenues for the quarter ended June 30, 1998 decreased
$979,000 or 43.1% to $1,292,000 from $2,271,000 for the quarter ended June 30,
1997. The decline is primarily attributable to the rescheduling of approximately
$650,000 in document scanner revenues previously committed for this quarter by a
major customer of the Company, together with a general decline in scanner orders
received by the Company on a world-wide basis. The Company has renegotiated the
purchase commitment terms with its major customer, rescheduling the scanner
shipments evenly over a nine month period beginning July 1, 1998. In addition,
the Company is in process of taking actions to increase sales from end users,
Value-added resellers (VARs) and distributors. Management believes that scanner
revenues will return to normal levels in the second fiscal quarter. In addition,
the second fiscal quarter will include three months of I-PAC revenues, as
compared to less than one month's revenues for the current quarter.
Consolidated gross margin for the quarter ended June 30, 1998 decreased $403,000
or 53.5% to $350,000 from $753,000 for the quarter ended June 30, 1997.
Likewise, gross margin as a percent of revenues decreased 6.1% to 27.1% from
33.2% for the quarter ended June 30, 1997. The deterioration was primarily due
to unabsorbed overhead costs that resulted from lower sales volume. Management
expects that gross margins will improve over the gross margins of the current
quarter and the prior fiscal year as a result of a return to normal sales volume
as well as favorable product mix and improvements in manufacturing efficiencies.
Selling, general and administrative expenses ("SG&A"), while including one month
of expenses from I-PAC, decreased $110,000 for the quarter ended June 30, 1998
or 11.9% to $815,000 from $925,000 for the quarter ended June 30, 1997. As a
percent of revenues, SG&A for the quarter ended June 30, 1998 increased to 63.1%
from 40.7% for the quarter ended June 30, 1997. The reduction in SG&A expense
resulted from early redundant cost savings as a result of the Merger, together
with reduced sales commission expense due to lower sales volumes. The increase
in SG&A expenses expressed as a percentage of sales is strictly a reflection of
lower sales volume.
Research and development expenses for the quarter ended June 30, 1998 increased
$34,000 or 18.8% to $215,000 from $181,000 for the quarter ended June 30, 1997.
As a percent of revenues research and development expenses increased to 16.6%
from 8.0% for the quarter ended June 30, 1997. During the quarter ended June 30,
1998 no expenditures were capitalized due to an emphasis being placed upon
scanner development, including the development of a new mid-range scanner.
During the previous quarter ended June 30, 1997 product development spending was
$219,000, and $38,000 of expenditures were capitalized because they related
to technologically feasible software development projects.
During the quarter ended June 30, 1998, the Company incurred approximately
$223,000 in costs associated with the consolidation and relocation of its
facilities. These moving costs included the cost of idle facilities, duplicate
facilities costs and cost directly related to the move.
8
<PAGE>
Other income and expense for the quarter ended June 30, 1998 was $51,000 of
expense, compared to income of $8,000 for the quarter ended June 30, 1997.
Interest expense increased $26,000, which reflects the interest payment on the
mortgage for the Carlsbad facility.
The net effect of the increases in research and development expenses and other
expenses, together with the decreases in gross margin and selling, general and
administrative expenses resulted in a net loss for the quarter ended June 30,
1998 of $954,000 or $(0.15) per share. This compares to a loss of $345,000 or
$(0.07) per share for the quarter ended June 30, 1997. The Company does not
anticipate a continuation of these significant losses.
Liquidity and Capital Resources
Recent and Future Sources of and Demands on Liquidity and Capital Resources
During the three months ended June 30, 1998, the Company's primary sources of
liquidity were from reductions to accounts receivable ($722,000), proceeds from
the disposal of capital assets ($20,000), proceeds from line of credit net of
repayment ($11,000), decrease in other assets ($6,000) and cash reserves. During
the same period the primary uses of cash were a net loss net of noncash charges
($743,000), increases to inventories ($10,000) and prepaid expenses and other
assets ($92,000), reduction to accounts payable ($420,000), accrued liabilities
($18,000) and customer deposits ($13,000), costs associated with the acquisition
of I-PAC net of cash received ($192,000), repayments on notes payable and other
obligations ($61,000), capital expenditures ($5,000), cash used by discontinued
operations ($5,000) and the effects of exchange rates on cash ($6,000). As a
result of these sources and uses of liquidity during the three months ended June
30, 1998 as described above, the Company's cash and cash equivalents balance
decreased $806,000 or 60.1%, to $536,000 from $1,342,000.
As of June 30, 1998, the Company was obligated under a series of notes payable
totaling $3,659,000. This debt included a $750,000 unused line of credit with
the Company's bank. In addition, as of the Merger, I-PAC had a $700,000 line of
credit with another bank, the outstanding balance of which was paid off
subsequent to June 30, 1998.
In July, 1998 the Company entered into a new $2,100,000 credit facility with its
bank that includes a $1,500,000 line of credit and a $600,000 term loan. The
Company immediately used this credit facility to retire approximately $933,000
of debt of its wholly-owned subsidiary, I-PAC, $694,000 under a line of credit
and $76,000 and $162,000 under term loans with two other banks. The outstanding
balances under these loans as of June 30, 1998 was $918,000. The Company also
used some of the proceeds from the term loan to acquire additional
state-of-the-art equipment which will significantly broaden its surface mount
technology ("SMT") printed circuit board manufacturing capacity.
The new line of credit will accrue interest on outstanding borrowings at the
bank's prime rate plus 1 % per annum. The Company's previous line of credit
accrued interest at prime plus 2%. All other terms of the new line of credit,
except for various covenants, essentially remained the same. Under the terms of
the new agreement, total borrowings under the line of credit will be limited to
the lesser of $1,500,000 or 70% of eligible accounts receivable (as defined
under the agreement). The Company is required to continue to (1) maintain a
minimum tangible net worth of $2,400,000 as of June 30, 1998, increasing to
$2,600,000 as of September 30, 1998, $3,200,000 as of December 31, 1998, and
$3,500,000 thereafter (2) maintain a ratio of total liabilities to tangible net
worth of not greater than 2.75 to 1.0, and (3) maintain a minimum debt service
coverage of no less than 1.25 to 1.0. The new line of credit expires in July,
1999. Based on June 30, 1998 financial data, the Company was not in compliance
with one of these covenants. The Company's bank has waived compliance with this
requirement.
The Company has issued two notes in the aggregate amount of $2,015,000, which
are collateralized by trust deeds of the Company's real property located in
Carlsbad, California. The repayment of these notes is guaranteed by certain
major shareholders of the Company and the Small Business Administration. These
notes are payable in aggregate monthly installments of approximately $19,000,
including interest ranging from 7.5 to 9.5%.
The Company is obligated under a series of notes payable totaling $334,000 as of
June 30, 1998. These notes bear interest at a rate of 8% per annum and mature in
April 2000. Interest and principal payments totaling $16,000 are due monthly.
9
<PAGE>
The Company also has certain other equipment notes in the aggregate amount of
$57,000 with interest rates varying between 11% and 26.6% with final payments
due between 2000 and 2005. These notes are collateralized by equipment.
The Company also has a non-interest bearing liability in the amount of $227,000,
proceeds of which were used primarily for the purchase of manufacturing
equipment. The repayment of this liability can be made by withholding 40% of the
non-material component of any sales made by I-PAC to the note holder through
September, 1998. Any unpaid balance on the due date will be canceled and the
security interest released. As of August 9, 1998 there have been no orders
received by the Company from the note holder.
The Company's wholly-owned subsidiary, Lexia Systems, has recorded liabilities
reflecting accounts payable and unpaid rent claims of ICL and related entities
in the amount of $786,000 at June 30, 1998 and classified under net liabilities
of discontinued operations. Lexia disputes these liabilities. Lexia is
attempting to resolve these disputes through negotiations. There is no assurance
that Lexia will be able to resolve this matter.
The Company's sources of future short-term liquidity are its cash balance of
$536,000 as of June 30, 1998 and the $806,000 unused amount of its new $2.1
million credit facility with its bank. Availability under the line of credit can
be further limited based upon the balance of eligible accounts receivable as
described above.
The Company is currently obligated as a guarantor under an assignment agreement
of a lease in the amount of approximately $20,000 per month through September,
2002. The Company is also obligated to pay approximately $8,000 per month on
various other leases. In June 1998, the Company entered into a commitment to
purchase approximately $400,000 of equipment for its manufacturing operation.
Aside from these commitments, the Company has not made any material capital
commitments.
The Company is concentrating on increasing its sales and improving its gross
margins. Management believes that the Company has sufficient liquidity to fund
the costs associated with the recent Merger and relocation and consolidation of
its operations into the I-PAC facility, as well as the operations of the
combined company for the next twelve months. In addition, management intends to
structure any future acquisitions in a manner that will be neutral or positive
to its liquidity and accretive to its future earnings per share.
Year 2000
The Company recognizes the need to ensure that its operations will not be
adversely impacted by Year 2000 software and hardware failures. The Company is
addressing Year 2000 risks and believes it will resolve any such risks in a
timely manner. The currently estimated costs associated with these changes are
not material in any year and are not material to the Company's financial
position. However, the Company could be adversely impacted if its suppliers and
customers do not make the necessary changes to their own systems and products
successfully and in a timely manner.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS 131,
DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. This
accounting statement established standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that enterprises report selected information about
operating segments in interim financial reports issued to shareholders. This
accounting statement shall be effective for fiscal years beginning after
December 15, 1997. In the initial year of application, comparative information
for earlier years in to be restated. At this time, the Company does not believe
that this accounting statement will have a significant impact on the financial
position or results of operations for the year ending March 31, 1999.
10
<PAGE>
THIS 10-QSB CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THESE STATEMENTS INCLUDE, WITHOUT LIMITATION, STATEMENTS RELATING
TO THE COMPANY'S PLANS AND OBJECTIVES FOR FUTURE OPERATIONS INCLUDING ACQUIRING
OTHER BUSINESSES, INCREASING SALES AND IMPROVING MARGINS, ASSUMPTIONS AND
STATEMENTS RELATING TO THE COMPANY'S FUTURE ECONOMIC PERFORMANCE AND OTHER
NON-HISTORICAL INFORMATION. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, WITHOUT LIMITATION, THOSE RISKS DISCUSSED UNDER THE HEADING
"ADDITIONAL RISK FACTORS" AS WELL AS OTHER FACTORS AS DISCUSSED IN THE COMPANY'S
ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED MARCH 31, 1998.
11
<PAGE>
PART II: OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On June 5, 1998, a Special Meeting of Shareholders of Photomatrix, Inc., was
held and the following matters were approved:
1. The proposed merger with I-PAC Manufacturing, Inc.
2. The election of six directors of the Company.
3. The adoption of the Photomatrix 1998 Stock Option Plan whereby 1,500,000
shares of Photomatrix Common Stock were reserved for issuance to officers,
directors and employees of the Company under incentive stock options or
nonqualified stock options to be granted by the Compensation Committee of
the Board of Directors.
4. The ratification of the appointment by the Company's Board of Directors of
KPMG Peat Marwick LLP as the independent auditors of the Company for the
1998 fiscal year.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated June 24, 1998 to report the
Merger of Photomatrix, Inc. and I-PAC Manufacturing, Inc.
b. Exhibits
10.35.2 Amendment to Business Agreement with Bell & Howell dated
June 30, 1998
10.40 Lease Assignment and Assuption Agreement between Photomatrix
Imaging Corp. and Cryogen, Inc.
10.41 Management Services Agreement with Dr. John Faessel
10.42 Promissory Note with Imperial Bank
10.43 Credit Agreement with Imperial Bank
27 Financial Data Schedule
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Issuer
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
PHOTOMATRIX INC.
Date: August 10, 1998 by /s/ William L. Grivas
---------------------
William L. Grivas
Chairman of the Board
Date: August 10, 1998 by /s/ Patrick W. Moore
--------------------
Patrick W. Moore
Chief Executive Officer
Date: August 10, 1998 by /s/ Suren G.Dutia
-----------------
Suren G. Dutia
President
Date: August 10, 1998 by /s/ Roy L. Gayhart
-------------------
Roy L. Gayhart
Chief Financial Officer
Date: August 10, 1998 by /s/ Charles H. Frady
---------------------
Charles H. Frady
Controller
Principal Accounting Officer
13
B+H/PHOTOMATRIX BUSINESS AGREEMENT
This document amends the current business agreement in place between Bell+Howell
and Photomatrix dated 12-29-1997. Modifications to the agreement are as follows:
1. PRICE PROTECTION
A. All existing Bell+Howell stock of the PS Series (5104, 5124, 5154) will be
price protected by Photomatrix for $1500 per unit (TOTAL PRICE PROTECTION
PAYMENT NOT TO EXCEED $30,000). Paymenet of the price protection to Bell+Howell
will be made as the units are sold from B+H inventory.
2. CONDITIONS
A. Bell+Howell will receive a 3 month moratorium (EFFECTIVE UNTIL 6-30-98) on
the purchase of additional scanners. After this moratorium (7-1-98), the channel
will be open for Bell+Howell and Photomatrix to sell to any account of their
choice.
B. Starting in July 98, Bell+Howell will purchase 3 each 9000 Series scanners
per month for a duration of 9 months (27 TOTAL). Release of orders by B+H to
Photomatrix will be documented by the 21st of each month.
BELL+HOWELL, IMPG Photomatrix Corporation
By:_____________________________ By:_____________________________________
Bob Hunn Dell Glover
Title: Product Marketing Manager Title: Vice President, Marketing & Sales
Date: June 30, 1998 Date: June 30, 1998
AGREEMENT
11065 SORRENTO VALLEY COURT, SAN DIEGO, CALIFORNIA
THIS LEASE ASSIGNMENT AND ASSUMPTION AGREEMENT ("Assignment"), is made
and entered into this 16th day of April, 1998 (the "Effective Date"), between
PHOTOMATRIX IMAGING CORPORATION, a Nevada corporation having a mailing address
of 11065 Sorrento Valley Road, San Diego, California 92121, as successor in
interest to Photomatrix Corporation (the "Assignor") and CRYOGEN, INC., a
California corporation having a mailing address of 6199 Cornerstone Court East,
Suite 106, San Diego, CA 92121 (the "Assignee"). Mi terms used herein having
initial capital letters and not otherwise herein defmed shall have the meanings
ascribed to such terms in the Lease (as defmed below).
WITNESSETH:
A. Assinment. For good and valuable consideration, the receipt and
sufficiency of are hereby acknowledged, Assignor hereby assigns,
transfers and conveys to Assignee all Assignor's right, title and
interest in and to:
(i) that certain Standard Industrial/Commercial Multi-Tenant
Lease -- Gross, dated November 7, 1996 between THE
MANUFACTURERS LIFE INSURANCE COMPANY (the "Landlord"), as
lessor, and Photomatrix Corporation ("Lessee") (Assignor
bemg the successor to Lessee), as lessee, relating to
certain premises located at 11065 Sorrento Valley Road, San
Diego, California 92121, as more particularly therein
described (the "Premises"), a copy of which is attached
hereto and incorporated herein as Exhibit A (the "Lease"),
as guaranteed by XSCRIBE CORPORATION (the "Guarantor") under
that certain Guaranty dated November 15, 1996 (the
"Guaranty"); and all advance rentals and other advance
payments made thereunder;
<PAGE>
(ii) Assignor's leasehold interest in the Premises, including,
without limitation, any improvements and alterations to the
Premises ("Leasehold Improvements") which are not owned by
Assignor; and
(iii) Subject to the provisions of Paragraph Q herein, Assignor's
ownership interest in category 5 network cabling, if any,
vertical blinds and alarm system sensors of the Premises
("Assignor's Personal Property") which are owned by
Assignor.
Assignor hereby releases all claims to any prepayment or deposit held
by any person or entity relating to the Premises, the Leasehold Improvements
(except relating to the existing alarm/telephone system of the Premises) or
Assignor's Personal Property (including, without limitation, any utility
deposits, performance and/or completion bonds, and the like). Ml such
<PAGE>
sums shall be held by such person or entity for the benefit of Assignee, subject
to the provisions of the applicable agreement requiring such prepayment or
deposit.
B. Consideration for Release of Assignor's Interest in Security
Deposit. Upon the execution of this Assignment, Assignee shall pay to Assignor
the amount of Nineteen Thousand Three Hundred Sixty Dollars ($19,360.QO), as
consideration for Assignor's release of its interest in the Security Deposit set
forth in the Lease to Assignee (the "Release Consideration").
C. Date of Assignment. Assignee hereby accepts the foregoing assignment
and hereby assumes primary liability for and agrees (i) with each of Assignor
and Landlord to perform all of Assignor's obligations under the Lease accruing
from and aiter June 8, 1998 (the "Assignment Date") and (ii) with Assignor to
perform all of Assignee's obligations under this Assignment accruing from and
alter the Effective Date. Notwithstanding the Assignment Date, Assignor shall be
solely responsible for the payment of Rent until June 15, 1998, and the June
payment of Rent under the Lease shall be paid as follows: Assignor shall pay the
entire June payment of rent due under the Lease to Landlord on or before June 1,
1998, and shall concurrently deliver to Assignee a written request for the
amount of such payment attributable on a pro rata basis to the period June 16 -
June 30, 1998 ("Assignee Initial Rent Payment"); within five (5) days after
receiving such written request, Assignee shall pay Assignor the Assignee Initial
Rent Payment. Commencing on July 1, 1998, and for the duration of the Lease
term, Assignee shall make all payments of rent accrumg under the Lease directly
to Landlord.
D. Delay in Possession. Notwithstanding the Assignment Date set forth
above, if for any reason Assignor cannot deliver possession of the Premises to
the Assignee on said -date for any reason other than a delay caused by Assignee
or a delay in the receipt of the Landlord's consent hereto, such "Assignor
Delay" shall not affect the validity of this Assignment, but in such case, the
Assignment Date shall be delayed, Assignee's obligations hereunder shall not
accrue, and Assignor's obligations under the Lease shall continue to accrue
until the earlier of the following events: (a) one (1) business day after
Assignor delivers written notice to Assignee that the Premises can be delivered
to Assignee in the physical condition required under this Assignment, clean and
free of any assignees or occupants (other than Assignee) and any personal
property of Assignor and any prior assignee or occupant of the Premises (except
for Assignor's Personal Property); or (b) that date upon which Assignee occupies
the Premises for any Permitted Use other than construction of Assignee's imtial
tenant improvements approved by Assignor and Landlord or pre-construction
activities associated therewith. Notwithstanding the foregoing, Assignor hereby
agrees to use its best efforts to vacate the majority of the Premises (with the
exception of those certain offices currently occupied by Assignor's accounting
and administrative staff) no later than May 8, 1998. The Assignor shall deliver
the entire Premises to Assignee within two (2) days following completion of the
FY 1997-98 audit of Assignor, but no later than June 8,1998. If the Assignor is
unable to deliver the entire Premises to Assignee on or before June 8, 1998 in
the condition set forth herein solely because of any Assignor Delay, Assignor
will pay to Assignee, as liquidated damages (which Assignee and Assignor agree
fairly reflect Assignee's damages for delays in delivery of the Premises beyond
the anticipated Assignment Date), Two Thousand Dollars ($2,000.00) for each
calendar day that Assignor so delays in delivering the Premises to Assignee. If
possession of the Premises is not delivered to Assignee by June 15, 1998,
Assignee may, at its option, by notice in writing to Assignor (which shall be
<PAGE>
delivered no later than June 25, 1998), cancel this Assignment, m which event
the parties sh be discharged from all obligations hereunder; and any funds paid
by either party shall be returned to such party, including commissions.
E. Condition of Premises.
1. Physical Condition. Assignor hereby represents and warrants
that, to the best of Assignor's knowledge, the roof, mechanical systems, windows
and seals, structural components of the Premises, all electrical and plumbing
Systems of the Premises, each portion of the Premises that Assignor is obligated
to repair and maintain under the Lease, and the Assignor's Personal Property are
all in good operating condition and repair and, are or will be in good working
condition on the Assignment Date; provided, ~owever, that the existence of
certain minor leaks in the Premises roof previously disclosed to Assignee shall
not constitute a breach of the foregoing warranty so long as Assignor continues
to diligently enforce its rights under the Lease to cause the Landlord to repair
such leaks. Additionally, Assignor shall deliver the Premises to Assignee in
good and broom-clean condition, with all lighting, mechanical and plumbing
systems, and building fmishes in good working order and condition. The Premises
shall be delivered to Assignee in the foregoing condition on the date of
Assignor's delivery of each portion of the Premises between the Effective Date
and the Assignment Date. Notwithstanding the foregoing, Assignee's physical
inspection of the Premises to Assignee's satisfaction shall be a condition
subsequent to the effectiveness of this Assignment. Such inspection shall be
performed, if at all, prior to April 30, 1998. In the event that Assignee
determines from such physical inspection that the Premises are not satisfactory
for Assignee's use or occupancy based upon the physical condition of the
Premises only, Assignee shall notify Assignor of such determination in writing
no later than May 5, 1998, and this Assignment shall be deemed cancelled as of
the date of such notice, in which event the parties shall be discharged from all
obligations hereunder and Assignor shall return the Security Deposit, if
previously delivered to Assignor, to Assignee. Failure by Assignee to deliver
such notice by said date shall be deemed Assignee's acceptance of the Premises
in its existing physical condition on the Assignment Date (with the exception of
any damages caused by Assignor's agents, employees or contractors occupying the
Premises between the Effective Date and the Assignment Date, which damages shall
be Assignor's obligation to repair in a prompt and diligent manner).
2. Assignor's Representations and Warranties. As of the
Effective Date, Assignor represents and warrants that (a) Assignor is lawfully
possessed of the lessee's interest in and to the Lease, the Leasehold
Improvements and the Assignor's Personal Property; ) Assignor has the right and
authority to assign its interest in the Lease and the Leasehold Improvements and
to convey the Assignor's Personal Property to Assignee; (c) the Lease attached
hereto as Exhibit A is complete, unmodified and in fill force and effect; (d)
the Premises have not been previously assigned or subleased by Assignor; (e)
Assignor is not in default under the Lease and, to the best of Assignor's
knowledge, Landlord is not in default thereunder, and Assignor is not aware of
any event or existing condition which, with the giving of notice and/or the
passage of time, would constitute such a default; (f) Assignor's interest in the
Lease, the Leasehold Improvements (with the exception of the alarm/telephone
system of the Premises, which is controlled by Paragraph Q below) and the
Assignor's Personal Property shall be delivered to Assignee free and clear of
all liens, encumbrances and creditor's rights held by any party claiming by,
through or under Assignor; and (g) to the best of Assignor's knowledge, the
<PAGE>
Premises is free of any Hazardous Substances (other than de minimis amounts in
compliance with Applicable Laws and the Lease, and associated with the operation
and use of Premises, including, without limitation, cleaning and maintenance
activities).
F. Assignee's Indemnity. As between Assignor and Assignee, Assignee
shall be responsible for the performance bf all obligations of the lessee under
the Lease accruing from and alter the Assignment Date (exce~t as specifically
set forth herein), for all liabilities arising from Assignee's use or occupancy
of the Premises to the extent arising from and after the Effective Date and for
all claims, costs, expenses and liabilities relating to Assignee's material
breach of any term, condition, covenant or agreement of the Lease to be
performed by Assignee from and after the Assignment Date, and Assignee agrees to
protect, defend, indemiiify and hold harmless Assignor and Guarantor from any
claims, losses, costs or expenses (including reasonable counsel fees) suffered
or incurred by Assignor or Guarantor arising out of or resulting from any
failure by Assignee to perform any such obligations, including without
limitations the Hazardous Substances obligations of the Lease arising from
Assignee's use of any such Hazardous Substances in the Premises. The foregoing
indemnification shall include indemnity against all costs, expenses and
liabilities reasonably incurred in connection with any such claim or proceeding
brought thereon, and the defense thereof, and shall survive the cancellation or
termination of this Assignment.
G. Assinor's Indemnity. As between Assignor and Assignee, Assignor
shall be responsible for the performance of all obligations of the lessee under
the Lease that accrue prior to the Effective Date, for all liabilities arising
from Assignor's or Lessee's use or occupancy of the Premises to the extent
arising prior to the Assignment Date and for al~ claims, costs, expenses and
liabilities relating to Assignor's material breach of any term, condition,
covenant or agreement of the Lease to be performed by Assignor or Guarantor
prior to the Assignment Date, and Assignor agrees to protect, defend, indemnify
and hold harmless Assignee from any claims, losses, costs or expenses (including
reasonable counsel fees) suffered or incurred by Assignee arising out of or
resulting from any failure by Assignor or Guarantor to perform any such
obligations, including without limitations the Hazardous Substances obligations
of the Lease arising from Assignor's use of any such Hazardous Substances in the
Premises. The foregoing indemnification shall include indemnity against all
costs, expenses and liabilities reasonably incurred in connection with any such
claim or proceeding brought thereon, and the defense thereof, and shall survive
the cancellation or termination of this Assignment.
H. Confirmation of Landlord's Liability Requirements. As set forth in
Section 12.2 of the Lease, Assignor and Assignee hereby acknowledge and agree
that, notwithstanding the assignment and assumption hereby accomplished,
Assignor shall remain fully and primarily liable, which liability shall be joint
and several with that of Assignee, for the performance of all obligations of the
lessee under the Lease accruing from and alter the Effective Date and for the
remainder of the Original Term.
I. Landlord's Consent. This Assignment is conditioned upon Landlord's
written approval of this Assignment prior to the Assignment Date. If Landlord
does not consent to this Assignment prior to the Assignment Date, delivery of
possession of the Premises to Assignee shall be delayed in accordance with the
provisions of Paragraph D of this Assignment; provided,
<PAGE>
however, that such delay shall not be considered an Assignor Delay so long as
Assignor is diligently attempting to enforce Assignor's rights under Section 12
of the Lease. If Landlord refuses to consent to this Assignment, then this
Assignment shall be deemed cancelled as of the date of Landlord's notice of such
refusal, in which event the parties shall be discharged from all obligations
hereunder and Assignor shall return the Security Deposit, if previously
delivered to Assignor, to Assignee; provided, however, that if Landlord acts
unreasonably in withholding, delaying or conditioning such consent, Assignor
shall promptly exercise commercially reasonable efforts to enforce Assignor's
rights under Section 12 of the Lease.
J. Signage. At Assignor's cost, Assignor shall remove its signs from
the Premises and perform all repairs required to restore the Premises to the
condition required by the Lease as a result of such removal.
K. Notices. Assignor's and Assignee's address for all notices and other
communications under the Lease before the Assignment Date shall be their
respective addresses set forth in the first paragraph of this Assignment, and
after the Assignment Date shall be:
Assignor: 1958 Kellogg
Carlsbad, California 92008
Attn: Mr. Suren Dutia
with a copy to: Sullivan, Hill, Lewin, Rez, Engel & LaBazo
550 West C Street, Suite 1500
San Diego, California 92101
Attn: John R. Engel, Esq.
Assignee: 11065 Sorrento Valley Road
San Diego, CA 92121
Attn: Mr. Michael Warford
with a copy to: Brobeck, Phieger & Harrison, LLP
550 West C Street, Suite 1300
San Diego, CA 92101
Attn: W. Scott Biel, Esq.
L. Brokers. Assignor shall pay a commission to The Irving Hughes Group
(the "Broker") in the amount of Twenty Three Thousand Four Hundred Dollars
($23,400.00), fifty percent (50%) of which shall be due and payable to Broker
upon Landlord's consent to this Assignment following full execution hereof by
the parties, and fifty percent (50%) of which shall be due and payable to Broker
upon commencement of rent payments by Assignee directly to Landlord.
M. Attorneys' Fees. Should any party commence any legal action or
proceeding against another based on this Assignment, the prevailing party shall
be entitled to an award of reasonable attorneys' fees, in addition to any other
relief to which such party would be entitled.
<PAGE>
N. Counterparts. This instrument may be executed in one or mor
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the smae agreement after eachparty has executed such
counterpart.
0. Governing Law. This instrument shall be construed and mterpreted in
accordance with the laws of the State of Califorma.
P. Binding Effect. The provisions hereof are binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns.
Q. PERSONAL PROPERTY CONVEYANCE
1. Use of Leasehold Improvements. Assignor and Assignee agree
that the following Assignor's Personal Property shall remain in the Premises
alter the Assignment Date and shall be conveyed to the Assignee as its sole and
separate property in accordance with the terms and conditions of this Paragraph
Q to the Assignment: the Premises category 5 network cabling; all vertical
blinds of the Premises; and the Premises alarm system sensors.
2. Purchase of Personal Property. Effective upon the
Assignment Date and following the receipt of Landlord's consent hereto, Assignee
agrees to purchase and Assignor agrees to sell the Assignor's Personal Property.
Assignee agrees to pay Assignor the sum of Nine Thousand Seven Hundred
Seventy-One and 14/100 Dollars ($9,771.14) ("Personal Property Purchase Price")
for the Assignor's Personal Property, which shall be payable upon the delivery
of a Bill of Sale executed by Assignor, in the form of Exhibit B attached hereto
and incorporated herein ("Bill of Sale"), conveying title to Assignee; provided,
however, that if the network cabling is not category 5, then the Personal
Property Purchase Price shall be reduced to Two Thousand Two Hundred Ninety-Six
and 63/100 Dollars. No commission shall be paid to any Broker or third party on
account of the Personal Property Purchase Price.
3. Alarm Svstem Lease or Purchase. As part of the Lease
obligations of Assignee and Assignor pursuant to this Assignment, Assignor
agrees to lease or sell (as determined by Assignee, and as permitted by the
applicable vendor and Landlord) to Assignee, and Assignee agrees to lease or buy
from Assignor, the Assignor's interest in the Premises alarm system not conveyed
to Assignee as part of the Assignor's Personal Property (the "Alarm System"). If
Assignee elects to lease the Alarm System, Assignor shall be responsible for the
repair and maintenance of said Alarm System, and Assignee shall pay Assignor as
rent for such Alarm System monthly rent of Ninety Dollars ($90.00) each month
for the remainder of the Lease Term. If Assignee elects to purchase the Alarm
System (and such purchase is permitted by the applicable vendor(s) and
Landlord), such purchase shall be on an "as-is" basis, and Assignee shall pay
Assignor a lump sum of Four Thousand Dollars ($4,000.00) as the purchase price
for such Alarm System, which purchase price shall be amortized over the
remaiiiing Term of the Lease following the date of purchase to reflect the
depreciation of the Alarm System.
<PAGE>
[SIGNATURE PAGE TO ASSIGNMENT AND ASSUMPTION AGREEMENT]
IN WITNESS WHEREOF, each of the parties hereto has caused this
Assignment to be duly executed as of the Effective Date.
"ASSIGNOR" "ASSIGNEE"
PHOTOMATRIX IMAGING CORPORATION CRYOGEN, INC.
By:_______________________________ By:_______________________________
Name:_____________________________ Name:_____________________________
Title:____________________________ Title:____________________________
THIS MANAGEMENT SERVICES AGREEMENT made as of the first day of April 1998.
BETWEEN: PHOTOMATRIX, INC.
11065 Sorrento Valley Court
San Diego, CA 92121
(the "Company")
AND: DR. JOHN FAESSEL
7685 Caminito Coramandel
La Jolla, California 92037 - USA
(the "Service Provider")
AGREEMENT:
1. Definitions:
1.1 In this Agreement save where the context otherwise requires:
"Services" means the services to be provided by the Service Provider to the
Company as specified in Article 4 of this Agreement.
2. Appointment
2.1 The Company hereby agrees to engage the Service Provider and the Service
Provider agrees to provide the Company the Services commencing on the date first
written above, for a period not to exceed one year. The initial term of the
Agreement shall be for a period of thirty days, and shall renew automatically
thereafter for a further thirty days over the life of the Agreement, unless
otherwise terminated by either party.
2.2 Either party may terminate this Agreement on no less than 7 days' written
notice prior to the expiration of any 30-day period.
3. Attention to the Business of the Company
3.1 During the continuance of this Agreement, the Service Provider shall devote
such time and attention to the business of the Company as is required to fulfill
the terms of the engagement, and as more particularly required by the Company
pursuant to clause 4.4 of this Agreement.
4. Services
4.1 The Service Provider shall report to the President of the Company or to such
other person as the Company may designate in writing from time to time.
4.2 The Service Provider's primary responsibilities shall be, within Europe and
the United States:
a. to implement a public relations program focused on
broadening the Company's institutional shareholder base in
the United States;
b. provide financial public relations information to the
Company's shareholders and the general public;
c. disseminate information on the Company and its business and
plans to the institutional investment community, and more
particularly institutionally-focused brokers,
broker/dealers, and boutique investment firms;
d. advise the Company of relevant investment and commercial
information it becomes aware of, particularly as regards JAG
Notes and research/analyst reports; and,
e. provide such other services as may be consistent with the
engagement that the Parties may agree upon from time to
time.
4.3 In providing the Services, the Service Provider shall follow the reasonable
direction of the Company in regards to:
a. the office out of which the Services are to be provided, and
general administrative arrangements;
b. the time to be spent providing the Services to the Company;
c. the manner in which the Services are to be provided to the
Company; and
d. a work plan around the providing of the Services to the
Company.
4.4 The Company will provide any direction given to the Service Provider
regarding the Services, in writing. More particularly, however, the Service
Provider shall focus its efforts around disseminating information which it has
gathered and which is otherwise available in the public domain.
5. Compensation
5.1 The Company agrees to pay the Service Provider a services fee on the
fifteenth day of each month in the amount of USD 2,000 per month. If this
Agreement is renewed or otherwise extended, then the services fee may be
adjusted by mutual agreement of the parties hereto, any adjustment to be
predicated upon the Service Provider's performance.
5.2 The Company agrees to issue to the Service Provider options to purchase up
to 100,000 shares of the Company contemporaneously with the Agreement continuing
in effect on the following terms:
<PAGE>
50,000 shares during the term of the Agreement at an exercise price of
USD $0.75 per share for a term of three (3) years, with an initial
one-twelfth (1/12) of the options vesting in advance upon execution of
this Agreement, and with a further one-twelfth (1/12) of the total
options vesting on the first day of each of the succeeding months
during the term of this Agreement.
50,000 shares during the term of the Agreement at an exercise price of
USD $0.75 per share for a term of three (3) years with all options
vesting as of May 31, 1998.
5.3` The Company may, in its discretion and in order to further the purposes of
this Agreement, accelerate the vesting or the issuance of the options.
5.4 In the event that there is a consolidation in the share capital of the
Company, additional options will be issued to the Service Provider in accordance
with the original amount of options specified under this Agreement. The Company
undertakes to register all options granted to the Service Provider under this
and any successive Agreements, with the NASDAQ Stock Exchange, the Securities
and Exchange Commission and any other relevant regulatory authorities.
5.5 The Company shall reimburse the Service Provider for any expenses
pre-approved in writing, incurred in rendering the Services. The Service
Provider shall provide full details of all such expenditures by way of itemized
expense reports with original receipts.
5.6 All fees due as described in clauses 5.1 and 5.5 shall be payable upon
invoice for solong as the Agreement remains in effect.
6. Confidential Information and Company Documents
6.1 The Service Provider shall not, during the term of this Agreement, nor at
any time thereafter:
a. divulge or communicate to any person, company, business
entity or other organization;
b. use for its own purposes or for any purposes other than
those of the Company; through any failure to exercise due
care and diligence, cause any unauthorized disclosure of any
trade secrete or Confidential Information relating to the
Company and its clients. These restrictions shall cease to
apply to any Information which is or becomes generally
available to the public other than as a result of any act or
default on the part of the Service Provider.
6.2 "Confidential Information" shall include any information relating to the
Company, its clients, suppliers and their terms of business, details of
customers and their requirements, the price charged to and the terms of business
with customers, marketing plans and sales forecasts, financial information,
results and forecasts (to the extent that these are not included in published
audited accounts), details of employees and officers and of the remuneration and
benefits paid to them, information relating to research activities, inventions,
secret processes, designs, formulae and product lines, any information which the
Service Provider is told is confidential and any information which has been
given to the Company in confidence by customers, suppliers or other persons.
<PAGE>
6.3 Any notes, memoranda, records, lists of customers and suppliers and
employees, correspondence, documents, computers and other disks and tape, data
listing, codes, designs and drawings and other documents and material whatsoever
(whether made or created by the Service Provider or otherwise) relating to the
business of the Company (and any copies of the same) and which have come into
the possession of the Service Provider in relation to this Agreement:
a. shall be and remain the property of the Company; and
b. shall be surrendered by the Service Provider to the Company
on demand.
6.4 Upon termination of this Agreement, the Service Provider shall deliver up to
the Company all Confidential Information and any copies (however stored) and in
relation thereto, and any other property belonging to the Company which is in
the Service Provider's possession.
7. Representations and Warranties
7.1 The Company warrants that:
a. it is incorporated under the laws of California and is in
good standing; and
b. all licenses, patents and intellectual property disclosed in
the Company's business plan, prospectus and regulatory
filings are owned by, or licensed to the Company and there
are no disputes relating thereto.
8. Notices
8.1 Any notice required to be given under this Agreement may be given by sending
same by first-class registered post addressed to the registered office of the
Company, or addressed to the last known address of the Service Provider. Any
notice given pursuant to this clause shall be deemed to have been received 96
hours after the time of posting and service thereof shall be sufficiently proved
by providing that the notice was duly dispatched through the post in a prepaid
envelope addressed as aforesaid.
9. Public Disclosures
9.1 In carrying out the Services, the Service Provider shall at all times ensure
that all representations and information provided to third parties do not
violate the internal disclosure policies of the Company, and comply at all times
with the rules and regulations of applicable regulatory authorities, including
without limitation the NASDAQ Stock Exchange, the U.S. Securities and Exchange
Commission, and the California Department of Corporations.
10. Indemnity
10.1 The Service Provider agrees to indemnify and hold harmless the Company,
against all losses, claims and expenses (including reasonable legal expenses)
incurred by the Company as a result of the negligence or willful misconduct of
the Service Provider.
11. Entire Understanding
11.1 This Agreement contains the entire understanding between the parties in
connection with the matters herein contained and supersedes any previous
agreements or undertakings relating thereto.
12. No Waiver
12.1 No waiver delay time or other indulgence granted by either party hereto to
the other in respect of any breach of this Agreement shall in any way prejudice
or affect the rights or remedies of the granting party in relation to such
breach.
13. Assignment
13.1 This Agreement may not be assigned by the Service Provider without the
prior written consent of the company.
14. Regulatory approvals
14.1 Any compensation paid by the Company to the Service Provider is subject to
all regulatory requirements being met.
15. Applicable Law
15.1 This Agreement shall be governed by and construed in accordance with the
laws of the State of California.
AGREED AND ACCEPTED on behalf of
PHOTOMATRIX, INC.
_____________________________________ Date _________________________
Authorized Signatory
AGREED AND ACCEPTED by
DR. JOHN FAESSEL
____________________________________ Date _________________________
PROMISSORY NOTE
Principal Loan Date Maturity Loan No Call Collateral Account Officer $600,000.00
06-11-1998 06-29-2002 700001491
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Borrower: PHOTOMATRIX, INC. Lender: Imperial Bank
1958 KELLOGG AVENUE San Diego Regional Office
CARLSBAD, CA 92008 701 B Street, Suite 600
San Diego, CA 92112-4168
Principal Amount: $600,000.00 Initial Rate: 9.250%
Date of Note: June 11, 1998
PROMISE TO PAY. PHOTOMATRIX, INC. ("Borrower") promises to pay to Imperial Bank
("Lender"), or order, in lawful money of the United States of America, the
principal amount of Six Hundred Thousand & 00./100 Dollars ($600,000,00),
together with interest on the unpaid principal balance from June 11, 1998, until
paid in full.
PAYMENT. Subject to any payment changes resulting from changes in the Index,
Borrower will pay this loan in 47 principal payments of $12,500.00 each and one
final principal and interest payment of $12,599.57. borrower's first principal
payment is due July 29, 1998, and all subsequent principal payments are due on
the same day of each month after that. In addition, Borrower will pay regular
monthly payments of all accrued unpaid interest due as of each payment date.
Borrower's first interest payment is due July 29, 1998, and all subsequent
interest payments are due on the same day of each month after that. Borrower's
final payment due June 29, 2002, will be for all principal and accrued interest
not yet paid. The annual interest rate for this Note is computed on a 365/360
basis; that is, by applying the ratio of the annual interest rate over a year of
360 days, multiplied by the outstanding principal balance, multiplied by the
actual number of days the principal balance is outstanding. Borrower will pay
Lender at Lender's address shown above or at such other place as Lender may
designate in writing. Unless otherwise agreed or required by applicable law,
payments will be applied first to any unpaid collection costs and any late
charges, then to any unpaid interest, and any remaining amount to principal.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an index which is the Imperial Bank Prime Rate
(the "Index"). The Prime Rate is the rate announced by Lender as its Prime Rate
of interest from time to time. Lender will tell Borrower the current Index rate
upon Borrower's request. Borrower understands that Lender may make loans based
on other rates as well. The interest rate change will not occur more often than
each day. The Index currently is 8.500%. The interest rate to be applied to the
unpaid principal balance of this Note will be at a rate of 0.750 percentage
points over the Index, resulting in an initial rate of 9.250%. NOTICE: Under no
circumstances will the interest rate on this Note be more than the maximum rate
allowed by applicable law.
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PREPAYMENT; MINIMUM INTEREST CHARGE. In any event, even upon full prepayment of
this Note, Borrower understands that Lender is entitled to a minimum interest
charge of $250.000. Other than Borrower's obligation to pay any minimum interest
charge, Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
under the payment schedule. Rather, they will reduce the principal balance due
and may result in Borrower making fewer payments.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charge
5.000% of the unpaid portion of the regularly scheduled payment.
DEFAULT. Borrower will in default if any of the following happens: (a) Borrower
fails to make any payment when due. (b) Borrower breaks any promise Borrower has
made to Lender, or Borrower fails to comply with or to perform when due any
other term, obligation, covenant, or condition contained in this Note or any
agreement related to this Note, or in any other agreement or loan Borrower has
with Lender. (c) Any representation or statement made or furnished to Lender by
Borrower or on Borrower's behalf is false or misleading in any material respect
either now or at the time made or furnished. (d) Borrower becomes insolvent, a
receiver is appointed for any part of Borrower's property, Borrower makes an
assignment for the benefit of creditors, or any proceeding is commenced either
by Borrower or against Borrower under any bankruptcy or insolvency laws. (e) Any
creditor tries to take any of Borrower's property on or in which Lender has a
lien or security interest. This includes a garishness of any of Borrower's
accounts with Lender. (f) Any guarantor dies or any of the other events
described in this default section occurs with respect to any guarantor of this
Note. (g) A material adverse change occurs in Borrower's financial condition, or
Lender believes the prospect of payment or performance of the indebtedness is
impaired. (h) Lender in good faith deems itself insecure.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender demanding
cure of such default: (a) cures the default within ten (10) days; or (b) if the
cure requires more than ten (10) days, immediately initiates steps which Lender
deems in Lender's sole discretion to be sufficient to cure the default and
thereafter continues and completes all reasonable and necessary steps sufficient
to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to pay
all amounts declared due pursuant to this section, including failure to pay upon
final maturity, Lender, at its option, may also, if permitted under applicable
law, do one or both of the following: (a) increase the variable interest rate on
this Note to 5.750 percentage points over the Index, and (b) add any unpaid
accrued interest to principal and such sum will bear interest therefrom until
paid at the rate provided in this Note (including any increased rate). Lender
may hire or pay someone else to help collect this Note if Borrower doe snot pay.
Borrower also will pay Lender that amount. This includes, subject to any limits
under applicable law, Lender's attorneys' fees and Lender's legal expenses
whether or not there is a lawsuit, including attorneys' fees and legal expenses
of bankruptcy proceedings (including efforts to modify or vacate any automatic
say or injunction), appeals, and any anticipated post-judgment collection
services. Borrower also will pay any court costs, in addition to all other sums
provided by law. This Note has been delivered to Lender and accepted by Lender
int eh State of California. If there is a lawsuit, Borrower agrees upon Lender's
request to submit to the jurisdiction of the courts of Los Angeles county, the
State of California. Lender and Borrower hereby waive the rights to any jury
trial in any action, proceeding, or counterclaim brought by either Lender or
Borrower against the other. (Initial Here _________). This Note shall be
governed by and construed in accordance with the laws of the State of
California.
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<PAGE>
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $25.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including without limitation
all accounts held jointly with someone else and all accounts Borrower may open
in the future, excluding however all IRA and Keogh accounts, and all trust
accounts for which the grant of a security interest would be prohibited by law.
Borrower authorizes Lender, to the extent permitted by applicable law, to charge
or setoff all sums owing on this Note against any and all such accounts.
REFERENCE PROVISION.
1. Other than (i) non-judicial foreclosure and all matters in connection
therewith regarding security interests in real or personal property; or (ii) the
appointment of a receiver, or the exercise of other provisional remedies (any
and all of which may be initiated pursuant to applicable law), each controversy,
dispute or claim between the parties arising out of or relating to this document
("Agreement"), which controversy, dispute or claim is not settled in writing
within thirty (30) days after the "Claim Date" (defined as the date on which a
party subject to the Agreement gives written notice to all other parties that a
controversy, dispute or claim exists), will be settled by a reference proceeding
in California in accordance with the provisions of Section 638 et seq. of the
California Code of Civil Procedure, or their successor section ("CCP"), which
shall constitute the exclusive remedy for the settlement of any controversy,
dispute or claim concerning this Agreement, including whether such controversy,
dispute or claim is subject to the reference proceeding and except as set forth
above, the parties waive ?their rights to initiate any legal proceedings against
each other in any court or jurisdiction other than the Superior Court in the
County where the Real Property, if any, is located or Los Angels County if none
(the "Court"). The referee shall be a retired Judge of the Court selected by
mutual agreement of the parties, and if they cannot so agree within forty-five
(45) days after the Claim Date, the referee shall be promptly selected by the
Presiding Judge of the Court (or his representative). The referee shall be
appointed to sit as a temporary judge, with all of the powers for a temporary
judge, as authorized by law, and upon selection should take and subscribe to the
oath of office as provided for in Rule 244 of the California Rules of Court (or
any subsequently enacted Rule). Each party shall have one peremptory challenge
pursuant to CCP 170.6. The referee shall (a) be requested to set the matter for
hearing within sixty (60) days after the Claim Date and (b) try any and all
issues of law or fact and report a statement of decision upon them, if possible,
within ninety (90) days of the Claim Date. Any decision rendered by the referee
will be final, binding and conclusive and judgment shall be entered pursuant to
CCP 644 in any court in the State of California having jurisdiction. Any party
may apply for a reference proceeding at any time after thirty (30) days
following notice to any other party of the nature of the controversy, dispute or
claim, by filing a petition for a hearing and/or trial. All discovery permitted
by this Agreement shall be completed no later than fifteen (15) days before the
first hearing date established by the referee. The referee may extend such
period in the event of a party's refusal to provide requested discovery for any
reason whatsoever, including, without limitation, legal objections raised to
such discovery or unavailability of a witness due to absence or illness. No
party shall be entitled to "priority" in conducting discovery. Depositions may
be taken by either party upon seven (7) days written notice, and request for
production or inspection of documents shall be responded to within ten (10) days
after service. All disputes relating to discovery which cannot be resolved by
the parties shall be submitted to the referee whose decision shall be final and
binding upon the parties. Pending appointment of the referee as provided herein,
the Superior Court is empowered to issue temporary and/or provisional remedies,
as appropriate.
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<PAGE>
2. Except as expressly set forth in this Agreement, the referee shall determine
the manner in which the reference proceeding is conducted including the time and
place of all hearings, the order of presentation of evidence and all other
questions that arise with respect to the course of the reference proceeding. all
proceedings and hearings conducted before the referee, except for trial, shall
be conducted without a court reporter, except that when any party so requests, a
court reporter will be used at any hearing conducted before the referee. The
party making such a request shall have the obligation to arrange for an pay for
the court reporter. The costs of the court reporter at the trial shall be borne
equally by the parties.
3. The referee shall be required to determine all issues in accordance with
existing case law and the statutory laws of the State of California. The rules
of evidence applicable to proceedings at law in the State of California will be
applicable to the reference proceeding. The referee shall be empowered to enter
equitable as well as legal relief, to provide all temporary and/or provisional
remedies and to enter equitable orders that will be binding upon the parties.
The referee shall issue a single judgment at the close of the reference
proceedings which shall dispose of all of the claims of the parties that are the
subject of the reference. The parties hereto expressly reserve the right to
contest or appeal from the final judgment or any appealable order or appealable
judgment entered by the referee. The parties hereto expressly reserve the right
to findings of fact, conclusions of law, a written statement of decision, and
the right to move for anew trial or a different judgment, which new trial, if
granted, is also to be a reference proceeding under this provisions.
4. In the event that the enabling legislation which provides for appointment of
a referee is repealed (and no successor statute is enacted), any dispute between
the parties that would otherwise be determined by the reference procedure herein
described will be resolved and determined by arbitration. The arbitration will
be conducted by a retired judge of the Court, in accordance with the California
Arbitration Act, 1280 through 1294.2 of the CCP as amended from time to time.
The limitations with respect to discovery as set forth hereinabove shall apply
to any such arbitration proceeding.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive any
applicable statute of limitations, presentment, demand for payment, protest and
notice of dishonor. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan, or release any party or guarantor or
collateral; or impair, fail to realize upon or perfect Lender's security
interest in the collateral; and take any other action deemed necessary by Lender
without the consent of or notice to anyone. All such parties also agree that
Lender may modify this loan without the consent of or notice to anyone other
than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
PHOTOMATRIX, INC.
By:_______________________________________________
ROY L. GAYHART, CHIEF FINANCIAL OFFICER/SECRETARY
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<PAGE>
CORPORATE RESOLUTION TO BORROW
Principal Loan Date Maturity Loan No Call Collateral Account Officer $600,000.00
06-11-1998 06-29-2002 700001491
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Borrower: PHOTOMATRIX, INC. Lender: Imperial Bank
1958 KELLOGG AVENUE San Diego Regional Office
CARLSBAD, CA 92008 701 B Street, Suite 600
San Diego, CA 92112-4168
I, the undersigned Secretary of PHOTOMATRIX, INC. (the "Corporation"), HEREBY
CERTIFY that the Corporation is organized and existing under and by virtue of
the laws of the State of California as a corporation for profit, with its
principal office at 1958 KELLOGG AVENUE, CARLSBAD, CA 92008, and is duly
authorized to transact business in the State of California.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation, duly
called and held on April 20, 1978, at which a quorum was present and voting, or
by other duly authorized corporate action in lieu of a meeting, the following
resolutions were adopted:
BE IT RESOLVED, that any one (1) of the following named officers, employees, or
agents of this Corporation, whose actual signatures are shown below:
NAMES POSITIONS ACTUAL SIGNATURES
- ----- --------- -----------------
ROY L. GAYHART CHIEF FINANCIAL OFFICER/SECRETARY x_______________________
PATRICK W. MOORE CHIEF EXECUTIVE OFFICER x_______________________
SUREN G. DUTIA PRESIDENT x_______________________
WILLIAM L. GRIVAS CHAIRMAN OF THE BOARD x_______________________
acting for and on behalf of the Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
Borrower Money. To borrow from time to time from Imperial Bank
("Lender"), on such terms as may be agreed upon between the Corporation
and Lender, such sum or sums of money as in their judgment should be
borrowed; however, not exceeding at any one time the amount of Two
Million One Hundred Thousand & 00/100 Dollars ($2,100,000.00), in
addition to such sum or sums of money as may be currently borrowed by the
Corporation from Lender.
Execute Notes. To execute and deliver to Lender the promissory note or
notes, or other evidence of credit accommodations of the Corporation, on
Lender's forms, at such rates of interest and on such terms as may be
agreed upon, evidencing the sums of money so borrowed or any indebtedness
of the Corporation to Lender, and also to execute and deliver to Lender
one or more renewals, extensions, modifications, refinancings,
consolidations, or substitutions for one or more of the notes, any
portion of the notes, or any other evidence of credit accommodations.
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Grant Security. To mortgage, pledge, transfer, endorse, hypothecate, or
otherwise encumber and deliver to Lender, as security for the payment of
any loans or credit accommodations so obtained, any promissory notes so
executed (including any amendments to or modifications, renewals, and
extensions of such promissory notes), or any other or further
indebtedness of the Corporation to Lender at any time owing, however the
same may be evidenced, any property now or hereafter belonging to the
Corporation or in which the Corporation now or hereafter may have an
interest, including without limitation all real property and all personal
property (tangible or intangible) of the Corporation.
Such property may be mortgaged, pledged, transferred, endorsed,
hypothecated, or encumbered at the time such loans are obtained or such
indebtedness is incurred, or at any other time or times, and may be
either in addition to or in lieu of any property therefore mortgaged,
pledged, transferred, endorsed, hypothecated, or encumbered.
Execute Security Documents. To execute and deliver to Lender the forms of
mortgage, deed, or trust, pledge agreement, hypothecation agreement, and
other security agreements and financing statements which may be required
by Lender, and which shall evidence the terms and conditions under and
pursuant to which such liens and encumbrances, or any of them, are given;
and also to execute and deliver to Lender any other written instruments,
any chattel paper, or any other collateral, of any kind or nature, which
Lender, and which shall evidence the terms and conditions under and
pursuant to which such liens and encumbrances, or any of them, are given;
and also to execute and deliver to Lender any other written instruments,
any chattel paper, or any other collateral, of any kind or nature, which
Lender may deem necessary or proper in connection with or pertaining to
the giving of the liens and encumbrances.
Negotiate Items. To draw, endorse, and discount with Lender all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness
payment to or belonging to the Corporation in which the Corporation may
have an interest, and either to receive cash for the same or to cause
such proceeds to be credited to the account of the Corporation with
Lender, or to cause such other disposition of the proceeds derived
therefrom as they may deem advisable.
Further Acts. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder,
and in all cases, to do and perform such other acts and things, to pay
any and all fees and costs, and to execute and deliver such other
documents and agreements, including agreements waiving the right to a
trial by jury, as they may in their discretion deem reasonably necessary
or proper in order to carry into effect the provisions of these
Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
Resolutions and performed prior to the passage of these Resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Lender may rely on these Resolutions until written notice of their
evocation shall have been delivered to and received by Lender. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.
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BE IT FURTHER RESOLVED, that the Corporation will notify Lender in writing at
Lender's address shown above (or such other addresses as Lender may designate
from time to time) prior to any (a) change in the name of the Corporation, (b)
change in the assumed business name(s) of the Corporation, (c) change in the
management of the Corporation, (d) change in the authorized signer(s), (e)
conversion of the Corporation to a new or different type of business entity, or
(f) change in any other aspect of the Corporation that directly or indirectly
relates to any agreements between the Corporation and Lender. No change in the
name of the Corporation will take effect until after Lender has been notified.
SIGNATURE AUTHORIZATION. An exhibit, listed "SIGNATURE AUTHORIZATION" is
attached to this Resolution and by this reference is made a part of this
Resolution just as if all the provisions, terms and conditions of the Exhibit
had been fully set forth in this Resolution.
I FURTHER CERTIFY that the officers, employees, and agents named above are duly
elected, appointed, or employed by or for the Corporation, as the case may be,
and occupy the positions set opposite their respective names; that the foregoing
Resolutions now stand of record on the books of the Corporation; and that the
Resolutions are in full force and effect and have not been modified or revoked
in any manner whatsoever. The Corporation has no corporate seal, and therefore,
no seal is affixed to this certificate.
IN TESTIMONY WHEREOF, I have hereunto set my hand on June 11, 1998 and attest
that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X__________________________________________
X__________________________________________
Note: In case the Secretary or other certifying officer id designated by the
foregoing resolutions as one of the signing officers, it is advisable to have
this certificate signed by a second Officer or Director of the Corporation.
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<PAGE>
COMMERCIAL SECURITY AGREEMENT
Principal Loan Date Maturity Loan No Call Collateral Account Officer $600,000.00
06-11-1998 06-29-2002 700001491
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Borrower: PHOTOMATRIX, INC. Lender: Imperial Bank
1958 KELLOGG AVENUE San Diego Regional Office
CARLSBAD, CA 92008 701 B Street, Suite 600
San Diego, CA 92112-4168
THIS COMMERCIAL SECURITY AGREEMENT is entered into between PHOTOMATRIX, INC.
(referred to below as "Grantor"); and Imperial Bank (referred to below as
"Lender"). For valuable consideration, Grantor grants to Lender a security
interest in the Collateral to secure the indebtedness and agrees that Lender
shall have the rights stated in this Agreement with respect to the Collateral,
in addition to all other rights which Lender may have by law.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
Agreement. The word "Agreement' means that this Commercial Security
Agreement, as this Commercial Security Agreement may be amended or
modified from time to time, together with all exhibits and schedules
attached to this Commercial Security Agreement from time to time.
Collateral. The word "Collateral" means the following described
property of Grantor, whether now owned or hereafter acquired, whether
now existing or hereafter arising, and wherever located:
All personal property, whether presently existing or hereafter
created or acquired, including but not limited to: All accounts,
chattel, paper, documents, instruments, money, deposit accounts and
general intangibles including returns, repossessions, books and
records relating thereto, and equipment containing said books and
record relating thereto, and equipment containing said books and
records. All investment property including securities and securities
entitlements. All goods including equipment and inventory. All
proceeds including, without limitation, insurance proceeds. All
guarantees and other security therefor.
In addition, the word "Collateral" includes all the following, whether
now owned or hereafter acquired, whether now existing or hereafter
arising, and wherever located:
(a) All attachments, accessions accessories, tools, pats, supplies,
increases, and additions to and all replacements of and
substitutions for any property described above.
(b) All products and produce of any of the property described in
this Collateral section.
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(c) All accounts, general intangibles, instruments, rents, monies,
payments, and all other rights, arising out of the sale, lease, or
other disposition of any of the property described in this
Collateral section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property
described in this Collateral section.
(e) All records and data relating to any of the property described
in this Collateral section, whether in the form of a writing,
photograph, microfilm, microfiche, or electronic media, together
with all of Grantor's right, title, and interest in and to all
computer software required to utilize, create, maintain, and process
any such records or data on electronic media.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Event of Default."
Grantor. The word "Grantor" means PHOTOMATRIX, INC., its successors and
assigns.
Guarantor. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
Indebtedness. The word "Indebtedness" means the indebtedness evidenced
by the Note, including all principal and interest, together with all
other indebtedness and costs and expenses for which Grantor is
responsible under this Agreement or under any of the Related Documents.
In addition, the word "Indebtedness" includes all other obligations,
debts and liabilities, plus interest thereon, of Grantor, or anyone or
more of them, to Lender, as well as all claims by Lender against
Grantor, or any one or more of them, whether existing now or later;
whether they are voluntary or involuntary, due or not due, direct or
indirect, absolute or contingent, liquidated or unliquidated; whether
Grantor may be liable individually or jointly with others; whether
Grantor may be liable as guarantor, surely, accommodation party or
otherwise; whether recovery upon such indebtedness may be or hereafter
may become barred by any statute of limitations; and whether such
indebtedness may be or hereafter may become otherwise unenforceable.
(Initial Here _________)
Lender. The word "Lender" means Imperial Bank, its successors and
assigns.
Note. The word "Note" means the note or credit agreement dated June 11,
1998, in the principal amount of $600,000.00 from PHOTOMATRIX, INC. to
Lender, together with all renewals of, extensions of, modifications of,
refinancing of, consolidations of and substitutions for the note or
credit agreement.
Related Documents. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether nor or hereafter existing, executed in connection
with the Indebtedness.
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RIGHT OF SETOFF. Grantor hereby grants Lender a contractual security interest
in, and hereby assigns, conveys, delivers, pledges, and transfers all of
Grantor's right, title and interest in and to, Grantor's accounts with Lender
(whether checking, savings, or some other account), including all accounts held
jointly with someone else and all accounts Grantor may open in the future,
excluding however all IRA and Keogh accounts, and all trust accounts for which
the grant of a security interest would be prohibited by law. Grantor authorizes
Lender, to the extent permitted by applicable law, to charge or setoff all
Indebtedness against any and all such accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
Organization. Grantor is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of
California.
Authorization. The execution, delivery, and performance of this
Agreement by Grantor have been duly authorized by all necessary action
by Grantor and do not conflict with, result in a violation of, or
constitute a default under (a) any provision of its articles of
incorporation or organization, or bylaws, or any agreement or other
instrument binding upon Grantor or (b) any law, governmental
regulation, court decree, or order applicable to Grantor.
Perfection of Security Interest. Grantor agrees to execute such
financing statements and to take whatever other actions are requested
by Lender to perfect and continue Lender's security interest in the
Collateral. Upon request of Lender, Grantor will deliver to Lender any
and all of the documents evidencing or constituting the Collateral, and
Grantor will note Lender's Interest upon any and all chattel paper if
no delivered to Lender for possession by Lender. Grantor hereby
appoints Lender as its Irrevocable attorney-in-fact for the purpose of
executing any documents necessary to perfect or to continue the
security interest granted in this Agreement. Lender may at any time,
and without further authorization from Grantor, file a carbon,
photographic or other reproduction of any financing statement or of
this Agreement for use as a financing statement. Grantor will reimburse
Lender for all expenses for the perfection and the continuation of the
perfection of Lender's security interest int he Collateral. Grantor
promptly will notify Lender before any change in Grantor's name
including any change to the assumed business names of Grantor. This is
a continuing Security Agreement and will continue in effect even though
all or any part of the Indebtedness is paid in full or even though for
a period of time Grantor may not be indebted to Lender.
No Violation. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is a
party, and its certificate of articles of incorporation any bylaws do
not prohibit any term or condition of this Agreement.
Enforceability of Collateral. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral
have authority and capacity to contract and are in fact obligated as
they appear to be on the Collateral.
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<PAGE>
Location of the Collateral. Grantor, upon request of Lender, will
deliver to Lender in form satisfactory to Lender a schedule of real
properties and Collateral locations relating to Grantor's operations,
including without limitation the following: (a) all real property owned
or being purchased by Grantor; (b) all real property being rented or
leased by Grantor; (c) all storage facilities owned, rented, leased, or
being used by Grantor; and (d) all other properties where Collateral is
or may be located. Except in the ordinary course of its business,
Grantor shall not remove the Collateral from its existing locations
without the prior written consent of Lender.
Removal of Collateral. Grantor shall keep the Collateral (or to the
extent the Collateral consists of intangible property such as accounts,
the records concerning the Collateral) at Grantor's address shown
above, or at such other locations as are acceptable to Lender. Except
in the ordinary course of its business, including the sales of
inventory, Grantor shall not remove the Collateral from its existing
locations without the prior written consent of Lender. To the extent
that the Collateral consists of vehicles, or other titled property,
Grantor shall not take or permit any action which would require
application for certificates of title for the vehicles outside the
State of California , without the prior written consent of Lender.
Transactions Involving Collateral. Except for inventory sold or
accounts collected in the ordinary course of Grantor's business,
Grantor shall not sell, offer to sell, or otherwise transfer or dispose
of the Collateral. While Grantor is not in default under this
Agreement, Grantor may sell inventory, but only in the ordinary course
of its business and only to buyers who qualify as a Buyer in the
ordinary course of business. A sale in the ordinary course of Grantor's
business does not include a transfer in partial or total satisfaction
of a debt or any bulk sale. Grantor shall not pledge, mortgage,
encumber or otherwise permit the Collateral to be subject to any lien,
security interest, encumbrance, or charge, other than the security
interest provided for in this Agreement, without the prior written
consent of Lender. This includes security interests even if junior in
right to the security interests granted under this Agreement. Unless
waived by Lender, all proceeds from any disposition of the Collateral
(for whatever reason) shall be held in trust fro Lender and shall not
be commingled with any other funds; provided, however, this requirement
shall not constitute consent by Lender to any sale or other
disposition. Upon receipt, Grantor shall immediately deliver any such
proceeds to Lender.
Title. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing
statement covering any of the Collateral is on file in any public
office other than those which reflect the security interest created by
this Agreement or to which Lender has specifically consented. Grantor
shall defend Lender's rights in the Collateral against the claims and
demands of all other persons.
Collateral Schedules and Locations. Insofar as the Collateral consists
of inventory, Grantor shall deliver to Lender, as often as Lender shall
require, such lists, descriptions, and designations of such Collateral
as Lender may require to identify the nature, extent, and location of
such Collateral. Such information shall be submitted for Grantor and
each of its subsidiaries or related companies. Maintenance and
Inspection of Collateral. Grantor shall maintain all tangible
Collateral in good condition and repair. Grantor will commit or permit
damage to or destruction of the Collateral or any part of the
Collateral. Lender and its designated representatives and agents shall
have the right at all reasonable times to examine, inspect, and audit
the Collateral wherever located. Grantor shall immediately notify
Lender of all cases involving the return, rejection, repossession, loss
or damage of or to any Collateral; of any request for credit or
adjustment or of any other dispute arising with respect to the
Collateral; and generally of all happenings and events affecting the
Collateral or the value or the amount of the Collateral.
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Taxes, Assessments and Liens. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon
this Agreement, upon any promissory note or notes evidencing the
indebtedness, or upon any of the other Related Documents. Grantor may
withhold any such payment or may elect to contest any lien if Grantor
is in good faith conducting an appropriate proceeding to contest the
obligation to pay and so long as Lender's interest in the Collateral is
not jeopardized in Lender's sole opinion. If the Collateral is
subjected to a lien which is not discharged within fifteen (15) days,
Grantor shall deposit with Lender cash, a sufficient corporate surety
bond or other security satisfactory to Lender in an amount adequate to
provide for the discharge of the lien plus any interest, costs,
attorneys' fees or other charges that could accrue as a result of
foreclosure or sale of the Collateral. In any contest Grantor shall
defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. In any contest, Grantor
shall defend itself and Lender and shall satisfy any final adverse
judgment before enforcement against the Collateral. Grantor shall name
Lender as an additional obligee under any surety bond furnished in the
contest proceedings.
Compliance With Governmental Requirements. Grantor shall comply
promptly with all laws, ordinances, rules and regulations of all
governmental authorities, now or hereafter in effect, applicable to the
ownership, production, disposition, or use of the Collateral. Grantor
may contest in good faith any such law, ordinance or regulation and
withhold compliance during any proceeding, including appropriate
appeals, so long as Lender's interest in the Collateral, in Lender's
opinion, is not jeopardized.
Hazardous Substances. Grantor represents and warrants that the
Collateral never has been, and never will be so long as this agreement
remains a lien on the Collateral, used for the generation, manufacture,
storage, transportation, treatment, disposal, release or threatened
release of any hazardous waste or substance, as those terms are defined
in the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq.
("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986,
Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation
Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and
Recovery ct, 42 U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7
of Division 20 of the California Health and Safety Code, Section 25100,
et seq., or other applicable state or Federal laws, rules, or
regulations adopted pursuant to any of the foregoing. The terms
"hazardous waste" and "hazardous substance" shall also include, without
limitation, petroleum and petroleum by-products or any fraction thereof
and asbestos. The representations and warranties contained herein are
based on Grantor's due diligence in investigating the Collateral for
hazardous waste and substances. Grantor hereby (a) releases and waives
any future claims against Lender for indemnity or contribution in the
event Grantor becomes liable for cleanup or other costs under any such
laws, and (b) agrees to indemnify and hold harmless Lender against any
and all claims and losses resulting from a breach of this provision of
this
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Agreement. This obligation to indemnify shall survive the payment of
the indebtedness and the satisfaction of this Agreement.
Maintenance of Casualty Insurance. Grantor shall procure and maintain
all risks insurance, including without limitation fire, theft and
liability coverage together with such other insurance as Lender may
require with respect to the Collateral, in form, amounts, coverages and
basis reasonably acceptable to Lender and issued by a company or
companies reasonably acceptable to Lender. Grantor, upon request of
Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without
at least thirty (30) days' prior written notice to Lender and not
including any disclaimer of the insurer's liability for failure to give
such a notice. Each insurance policy also shall include an endorsement
providing that coverage in favor of Lender will not be impaired in any
way by any act, omission or default of Grantor or any other person. In
connection with all policies covering assets in which Lender holds or
is offered a security interest, Grantor will provide Lender with such
loss payable or other endorsements as Lender may require. In no event
shall the insurance be in an amount less than the amount agreed upon in
the Agreement to Provide Insurance. If Grantor at any time fails to
obtain or maintain any insurance as required under this AGREEMENT,
Lender may (but shall not be obligated to) obtain such insurance as
Lender deems appropriate, including if it so chooses "single interest
insurance," which will cover only Lender's interest in the Collateral.
Application of Insurance Proceeds. Grantor shall promptly notify Lender
of any loss or damage to the Collateral. Lender may make proof of loss
if Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed
Collateral, Lender shall, upon satisfactory proof of expenditure, pay
or reimburse Grantor from the proceeds for the reasonable cost of
repair or restoration. if Lender does not consent to repair or
replacement of the Collateral, lender shall retain a sufficient amount
of the proceeds to pay all of the indebtedness, and shall pay the
balance to Grantor. Any proceeds which have not be disbursed within six
(6) months after their receipt and which Grantor has not committed to
the repair or restoration of the Collateral shall be used to prepay the
indebtedness.
Insurance Reserves. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be
created by monthly payments from Grantor of a sum estimated by lender
to be sufficient to produce, at least fifteen (15) days before the
premiums due date, amounts at least equal to the insurance premiums to
be paid. If fifteen (15) days before payment is due, the reserve funds
are insufficient, Grantor shall upon demand pay any deficiency to
Lender. The reserve funds shall be held by lender as a general deposit
and shall constitute a non-interest-bearing account which lender may
satisfy by payment of the insurance premiums required to be paid by
Grantor as they become due. Lender does not hold the reserve funds in
trust for Grantor, and Lender is not the agent of Grantor for payment
of the insurance premiums required to be paid by Grantor. The
responsibility for the payment of premiums shall remain Grantor's sole
responsibility.
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Insurance Reports. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such
information as Lender may reasonably request including the following:
(a) the name of the insurer; (b) the risks insured; (c) the amount of
the policy; (d) the property insured; (e) the then current value on the
basis of which insurance has been obtained and the manner of
determining that value; and (f) the expiration date of the policy. In
addition, Grantor shall upon request by Lender (however not more often
than annually) have an independent appraiser satisfactory to Lender
determine, as applicable, the cash value or replacement cost of the
Collateral.
EXPENDITURES BY LENDER. if not discharged or paid when due, lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such right shall be in addition to all other rights and
remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Grantor to make any payment when
due on the Indebtedness.
Other Defaults. Failure of Grantor to comply with or to perform any
other term, obligation, covenant or condition contained in this
Agreement or in any of the Related Documents or in any other agreement
between Lender and Grantor.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement,
the Note or the Related Documents is false or misleading in any
material respect, either now or at the time made or furnished.
Defective Collateralization. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of
any collateral documents to create a valid and perfected security
interest or lien) at any time and for any reason.
Insolvency. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a
receiver for any part of Grantor's property, any assignment for the
benefit of creditors, any type of creditor workout, or the commencement
of any proceeding under any bankruptcy or insolvency laws by or against
Grantor.
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Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral
securing the indebtedness. This includes a garnishment of any of
Grantor's deposit accounts with Lender. However, this Event of Default
shall not apply if there is a good faith dispute by Grantor as to the
validity or reasonableness of the claim which is the basis of the
creditor or forfeiture proceeding and if Grantor gives Lender written
notice of the creditor or forfeiture proceeding and deposits with
Lender monies or a surety bond for the creditor or forfeiture
proceeding, in an amount determined by Lender, in its sole discretion,
as being an adequate reserve or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with
respect to any Guarantor of any of the indebtedness or such Guarantor
dies or becomes incompetent. Lender, at is option, may, but shall not
be required to, permit the Guarantor's estate to assume unconditionally
the obligations arising under the guaranty in a manner satisfactory to
Lender, and, in doing so, cure the Event of Default.
Adverse Change. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of
the indebtedness is impaired.
Insecurity. Lender, in good faith, deems itself insecure.
Right to Cure. If any default, other than a Default on Indebtedness, is
curable and if Grantor has not been given a prior notice of a breach of
the same provision of this Agreement, it may be cured (and no Event of
Default will have occurred) if Grantor, after Lender sends written
notice demanding cure of such default, (a) cures the default within ten
(10) days; or (b) if the cure requires more than ten (10) days,
immediately initiates steps which Lender deems in Lender's sole
discretion to be sufficient to cure the default and thereafter
continues and completes all reasonable and necessary steps sufficient
to produce compliance as soon as reasonably practical.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the California Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
Accelerate Indebtedness. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to
pay, immediately due and payable, without notice.
Assemble Collateral. Lender may require Grantor to deliver to Lender
all or any portion of the Collateral and any and all certificates of
title and other documents relating to the Collateral. Lender may
require Grantor to assemble the Collateral and make it available to
Lender at a place to be designated by Lender. Lender also shall have
full power to enter upon the property of Grantor to take possession of
and remove the Collateral. If the Collateral contains other good not
covered by this Agreement at the time of repossession, Grantor agrees
Lender may take such other goods, provided that Lender makes reasonable
efforts to return them to Grantor after repossession.
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Sell the Collateral. Lender shall have full power to sell, lease,
transfer, or otherwise deal with the Collateral or proceeds thereof in
its own name or that of Grantor. Lender may sell the Collateral at
public auction or private sale. Unless the Collateral threatens to
decline speedily in value or is of a type customarily sold on a
recognized market, Lender will give Grantor reasonable notice of the
time after which any private sale or any other intended disposition of
the Collateral is to be made. The requirements of reasonable notice
shall be met if such notice is given at least ten (10) days, or such
lesser time as required by the state law, before the time of the sale
or disposition. All expenses relating to the disposition of the
Collateral, including without limitation the expenses of retaking,
holding, insuring, preparing for sale and selling the Collateral, shall
become a part of the Indebtedness secured by this Agreement and shall
be payable on demand, with interest at the Note rate from date of
expenditure until repaid.
Appoint Receiver. To the extent permitted by applicable law, Lender
shall have the following rights and remedies regarding the appointment
of a receiver: (a) Lender may have a receiver appointed as a matter of
right, (b) the receiver may be an employee of Lender and may serve
without bond, and (c) all fees of the receiver and his or her attorney
shall become part of the Indebtedness secured by this Agreement and
shall be payable on demand, with interest at the Note rate from date of
expenditure until repaid.
Collect Revenues, Apply Accounts. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from
the Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the Indebtedness or apply it to payment of the
Indebtedness in such order of preference as Lender may determine.
Insofar as the Collateral consists of accounts, general intangibles,
insurance policies, instruments, chattel paper, chooses in action, or
similar property, Lender may demand, collect, receipt for, settle,
compromise, adjust, sue for, foreclose, or realize on the Collateral as
Lender may determine, whether or not Indebtedness or Collateral is then
due. For these purposes, Lender may, on behalf of and in the name of
Grantor, receive, open and dispose of mail addressed to Grantor; change
any address to which mail and payments are to be sent; and endorse
notes, checks, drafts, money orders, documents of title, instruments
and items pertaining to payment, shipment, or storage of any
Collateral. To facilitate collection, Lender may notify account debtors
and obligors on any Collateral to make payments directly to Lender.
Obtain Deficiency. If Lender chooses to sell any or all of the
Collateral, Lender may obtain a judgment against Grantor for any
deficiency remaining on the Indebtedness due to Lender after
application of all amounts received from the exercise of the rights
provided in this Agreement. Grantor shall be liable for a deficiency
even if the transaction described in this subsection is a sale of
accounts or chattel paper.
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Other Rights and Remedies. Lender shall have all the rights and
remedies of a secured creditor under the provisions of the Uniform
Commercial Code, as may be amended from time to time. In addition,
Lender shall have and may exercise any or all other rights and remedies
it may have available at law, in equity, or otherwise.
Cumulative Remedies. All of Lender's rights and remedies, whether
evidenced by this Agreement or the Related Documents or by any other
writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Grantor under this Agreement,
after Grantor's failure to perform, shall not affect Lender's right to
declare a default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement. No alteration of or amendment
to this Agreement shall be effective unless given in writing and signed
by the party or parties sought to be charged or bound by the alteration
or amendment.
Applicable Law. This Agreement has been delivered to Lender and
accepted by Lender in the State of California. If there is a lawsuit,
Grantor agrees upon Lender's request to submit to the jurisdiction of
the courts of Los Angeles County, the State of California. Lender and
Grantor hereby waive the right to any jury trial in any action,
proceeding, or counterclaim brought by either Lender or Grantor against
the other. (Initial Here ______________). This Agreement shall be
governed by and construed in accordance with the laws of the State of
California.
Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's
legal expenses, incurred in connection with the enforcement of this
Agreement. Lender may pay someone else to help enforce this Agreement,
and Grantor shall pay the costs and expenses of such enforcement. Costs
and expenses including Lender's attorneys' fees and legal expenses
whether or not there is a lawsuit, including attorneys' fees and legal
expenses for bankruptcy proceedings (and including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Grantor also shall pay all court
costs and such additional fees as may be directed by the court.
Caption Headings. Caption hearings in this Agreement are for
convenience purposes only and are not to be used to interpret or define
the provisions of this Agreement.
Multiple Parties; Corporate Authority. All obligations of Grantor under
this Agreement shall be joint and several, and all references to
Grantor shall mean each other and every Grantor. This means that each
of the persons signing below is responsible for all obligations in this
Agreement.
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Notices. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise
required by law), and shall be effective when actually delivered or
when deposited with a nationally recognized overnight courier or
deposited in the United States mail, first class, postage prepaid,
addressed to the party to whom the notice is to be given at the address
shown above. Any party may change its address for notices under this
Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's
address. To the extent permitted by applicable law, if there is more
than one Grantor, notice to any Grantor will constitute notice to all
Grantors. For notice purposes, Grantor will keep Lender informed at all
times of Grantor's current address(es).
Power of Attorney. Grantor hereby appoints Lender as its true and
lawful attorney-in-fact, irrevocably, with full power of substitution
to do the following: (a) to demand, collect, receive, receipt for, sue
and recover all sums of money or other property which may now or
hereafter become due, owing or payable from the Collateral; (b) to
execute, sign and endorse any and all claims, instruments, receipts,
checks, drafts or warrants issued in payment for the Collateral; (c) to
settle or compromise any and all claims arising under the Collateral,
and, in the place and stead of Grantor, to execute and deliver its
release and settlement for the claim; and (d) to file any claim or
claims or to take any action or institute or take part in any
proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary
or advisable. This power is given as security for the indebtedness, and
the authority hereby conferred is and shall be irrevocable and shall
remain in full force and effect until renounced by Lender.
Preference Payments. Any monies Lender pays because of an asserted
preference claim in Borrower's bankruptcy will become a part of the
indebtedness and, at Lender's option, shall be payable by Borrower as
provided above in the "EXPENDITURES BY LENDER" paragraph.
Severability. If a court of competent jurisdiction finds any provision
of this Agreement to be invalid or unenforceable at to any person or
circumstance, such finding shall not render that a provision invalid or
unenforceable as to any other persons or circumstances. If feasible,
any such offending provisions shall be deemed to be modified to be
within the limits of enforceability or validity; however, if the
offending provision cannot be so modified, it shall be stricken and all
other provisions of this Agreement in all other respects shall remain
valid and enforceable.
Successor Interests. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and
inure to the benefit of the parties, their successors and assigns.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender.
No delay or omission on the part of Lender in exercising any right
shall operate as a waiver of such right or any other right. A waiver by
Lender of a provision of this Agreement shall not prejudice or
constitute a waiver of Lender's right otherwise to demand strict
compliance with that provision or any other provision of this
Agreement. No prior waiver by lender, nor any course of dealing between
Lender and Grantor, shall constitute a wavier of any of Lender's rights
or of any of Grantor's obligations as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by lender in any instance shall not constitute
continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in
the sole discretion of Lender.
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Waiver of Co-obligor's Rights. If more than one person is obligated for
the indebtedness, Borrower irrevocably waives, disclaims and
relinquishes all claims against such other person which Borrower has or
would otherwise have by virtue of payment of the indebtedness or any
part thereof, specifically including but not limited to all rights of
indemnity, contribution or exoneration.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JUNE 11,
1998.
GRANTOR:
PHOTOMATRIX, INC.
By:_________________________________________
ROY L. GAYHART,
CHIEF FINANCIAL OFFICER/SECRETARY
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EXHIBIT "A"
ADDENDUM TO SECURITY AND LOAN AGREEMENT
("Security and Loan Agreement")
BETWEEN PHOTOMATRIX, INC., AND IMPERIAL BANK.
(Dated: June 17, 1996)
This Addendum is made and entered into as of July 13, 1998, between
Photomatrix, Inc. ("Borrower") and Imperial Bank ("Bank"). This Addendum amends
and supplements the Security and Loan Agreement. In the event of any
inconsistency between the terms herein and the terms of the Security and Loan
Agreement, the terms herein shall in all cases govern and control. All
capitalized terms herein, unless otherwise defined herein, shall have the
meaning set forth in the Security and Loan Agreement.
1. Any commitment of Bank, pursuant to the terms of the Security and Loan
Agreement, to make advances against Eligible Accounts shall expire on July 13,
1999, subject to Bank's right to renew said commitment at its sole discretion.
Any renewal of the commitment shall not be binding upon the Bank unless it is in
writing and signed by an officer of the Bank.
2. Borrower represents and warrants that:
a. Litigation. There is no litigation or other proceeding pending or
threatened against or affecting Borrower or its subsidiaries, and Borrower and
its subsidiaries are not in default with respect to any order, writ, injunction,
decree or demand of any court or other governmental or regulatory authority.
b. Financial Condition. The balance sheet of Borrower as of March 31,
1998, and the related profit and loss statement on that date, a copy of which
has heretofore been delivered to Bank by Borrower, and all other statements and
data submitted in writing by Borrower and its subsidiaries to Bank in connection
with this request for credit are true and correct, and said balance sheet and
profit and loss statement truly present the financial condition of Borrower as
of the date thereof and the results of the operations of Borrower for the period
covered thereby, and have been prepared in accordance with generally accepted
accounting principles on a basis consistently maintained. Since such date, there
have been no materially adverse changes in the financial condition or business
of Borrower. Borrower has no knowledge of any liabilities, contingent or
otherwise, at such date not reflected in said balance sheet, and Borrower has
not entered into any special commitments or substantial contracts which are not
reflected in said balance sheet, other than in the ordinaary and normal course
of its business, which may have a materially adverse effect upon its financial
condition, operaitons or business as now conducted.
13
CREDIT AGREEMENT
This Agreement is made by and between Photomatrix, Inc. ("Borrower")
and Imperial Bank, a California banking corporation ("Bank").
Subject to the terms and conditions of this Agreement, any security
agreement(s) executed by Borrower in favor of Bank, any note(s) executed by
Borrower in favor Bank, or any other agreements executed in conjunction
therewith (collectively, the "Loan Documents"), Bank shall make a term loan to
Borrower in an amount not to exceed $600,000.00, maturing on June 29, 2002. To
induce Bank to make loans to Borrower and in consideration of any loan or loans
Bank may make to Borrower, Borrower warrants and agrees as follows:
1. REPRESENTATIONS OF BORROWER
Borrower represents and warrants that:
1.01 Existence and Rights. Borrower is a corporation duly organized and
existing and in good standing under the laws of California, without limit as to
the duration of its existence and is authorized and in good standing to do
business in the State of California; Borrower has corporate powers and adequate
authority, rights and franchises to own its property and to carry on its
business as now conducted, and is duly qualified and in good standing in each
State in which the character of the properties owned by it therein or the
conduct of its business makes such qualification necessary; and Borrower has the
power and adequate authority to make and carry out this Agreement.
1.02 Agreement Authorized. The execution, delivery and performance of
this Agreement are duly authorized and do not require the consent or approval of
any governmental body or other regulatory authority; are not in contravention of
or in conflict with any law or regulation or any term or provision of Borrower's
articles of incorporation, by-laws, as the case may be, and this Agreement is
the valid, binding and legally enforceable obligation of Borrower in accordance
with its terms; subject only to bankruptcy, insolvency or similar laws affecting
creditors rights generally.
1.03 No Conflict. The execution, delivery and performance of this
Agreement are not in contravention of or in conflict with any agreement,
indenture or undertaking to which Borrower is a party or by which it or any of
its property may be bound or affected, and do not cause any lien, charge or
other encumbrance to be created or imposed upon any such property by reason
thereof.
1.04 Litigation. There is no litigation or other proceeding pending or
threatened against or affecting Borrower which if determined adversely to
Borrower or its interest would have a material adverse effect on the financial
condition of Borrower, and Borrower is not in default with respect to any order,
writ, injunction, decree or demand of any court or other governmental or
regulatory authority.
1.05 Financial Condition. The balance sheet of Borrower as of March 31,
1998, a copy of which has heretofore been delivered to Bank by Borrower, and all
other statements and data submitted in writing by Borrower to Bank in connection
with this request for credit are true and correct, and said balance sheet truly
presents the financial condition of Borrower as of the date thereof, and has
been prepared in accordance with generally accepted accounting principles on a
basis consistently maintained. Since such date, there have been no material
adverse changes in the financial condition or business of Borrower. Borrower has
no knowledge of any liabilities, contingent or otherwise, at such date not
reflected in said balance sheet, and Borrower has not entered into any special
commitments or substantial contracts which are not reflected in said balance
sheet, other than in the ordinary and normal course of its business, which may
have a materially adverse effect upon its financial condition, operations or
business as now conducted.
1
<PAGE>
1.06 Title to Assets. Borrower has good title to its assets, and the
same are not subject to any liens or encumbrances other than those permitted by
Section 3.03 hereof.
1.07 Tax Status. Borrower has no liability for any delinquent state,
local or federal taxes, and, if Borrower has contracted with any government
agency, Borrower has no liability for renegotiation of profits.
1.08 Trademarks, Patents. Borrower, as of the date hereof, possesses
all necessary trademarks, trade names, copyrights, patents, patent rights, and
licenses to conduct its business as now operated, without any known conflict
with the valid trademarks, trade names, copyrights, patents and license rights
of others.
1.09 Regulation U. The proceeds of any loan (the "Loan" or
collectively, if more than one, the "Loans") extended pursuant to the Loan
Documents shall not be used to purchase or carry margin stock (as defined within
Regulation U of the Board of Governors of the Federal Reserve system).
2. AFFIRMATIVE COVENANTS OF BORROWER
Borrower agrees that so long as it is indebted to Bank, under
borrowings, or other indebtedness, or so long as Bank has any obligation to
extend credit to Borrower, it will, unless Bank shall otherwise consent in
writing:
2.01 Rights and Facilities. Maintain and preserve all rights,
franchises and other authority adequate for the conduct of its business;
maintain its properties, equipment and facilities in good order and repair;
conduct its business in an orderly manner without voluntary interruption and, if
a corporation or partnership, maintain and preserve its existence.
2.02 Insurance. Maintain public liability, property damage and workers'
compensation insurance and insurance on all its insurable property against fire
and other hazards with responsible insurance carriers to the extent usually
maintained by similar businesses and/or in the exercise of good business
judgment and as to property insurance have Bank named as loss payee in an
Lenders "Loss Payable" Endorsement Form 438BFU or equivalent.
2.03 Taxes and Other Liabilities. Pay and discharge, before the same
become delinquent and before penalties accrue thereon, all taxes, assessments
and governmental charges upon or against it or any of its properties, and all
its other liabilities at any time existing, except to the extent and so long as:
a. The same are being contested in good faith and by appropriate
proceedings in such manner as not to cause any materially adverse
effect upon its financial condition or the loss of any right to
redemption from any sale thereunder; and
b. It shall have set aside on its books reserves (segregated to the
extent required by generally accepted accounting practice) deemed by it
adequate with respect thereto.
2.04 Financial Covenants.
a. Minimum Tangible Net Worth. Have and maintain Tangible Net Worth of
no less than $2,400,000.00 as of June 30, 1998, increasing to
$2,600,000.00 as of September 30, 1998, $3,200,000.00 as of December
31, 1998, and $3,500,000.00 thereafter. Tangible Net Work shall
increase at each fiscal year-end following fiscal 1999 by the sum of
50% of net income during the year (no reduction for losses) plus 100%
of any additional contributed equity. "Tangible Net Worth" is defined
as the excess of all assets (excluding any value for goodwill,
trademarks, patents, copyrights, organization expense and other similar
intangible items), over all liabilities.
2
<PAGE>
b. Maximum Leverage. Have and maintain Leverage of not more than
2.75:1. "Leverage" is defined as the sum of all liabilities divided by
Tangible Net Worth.
c. Minimum Debt Service Coverage. Debt Service Coverage shall be no
less than 1.25:1. "Debt Service Coverage" is defined as the following
ratio: [EBITDA less cash taxes] divided by the sum of [CPLTD at the end
of the period plus interest expense incurred during the most recent
quarter annualized]. The ratio will be calculated commencing with the
first full fiscal quarter after closing of Borrower's merger with I-PAC
Manufacturing, Inc., with EBITDA annualized during that first quarter,
the six-month period annualized following the second quarter, and the
nine-month period annualized following the third quarter, with a
rolling four-quarter period calculated quarterly thereafter.
2.05 Records and Reports. Maintain a standard and modern system of
accounting in accordance with generally accepted accounting principles on a
basis consistently maintained; permit Bank's representatives to have access to,
and to examine its properties, books and records at all reasonable times and
upon reasonable notice during normal business hours; and furnish Bank:
a. Monthly Financial Statement. Within thirty (30) days after the close
of each month of each fiscal year of Borrower, commencing with the
month next ending, a balance sheet, profit and loss statement, and
reconciliation of Borrower's capital accounts, as of the close of such
period and covering operations for the portion of Borrower's fiscal
year ending on the last day of such period, all in reasonable detail,
prepared in accordance with generally accepted accounting principles on
a basis consistently maintained by Borrower and certified by an
appropriate officer of Borrower;
b. Annual Financial Statement. As soon as available, and in any event
within one hundred twenty (120) days after the close of each fiscal
year of Borrower, a report of Company as of the close of and for each
fiscal year, all in reasonable detail, prepared on an audited basis by
an independent certified public accountant selected by Borrower and
reasonably acceptable to Bank, in accordance with generally accepted
accounting principles on a basis consistently maintained by Borrower
and certified by an appropriate officer of Borrower;
c. Other Information. Such other information relating to the affairs of
Borrower as the Bank reasonably may request from time to time;
d. Management Letter. In connection with each fiscal year end financial
statement furnished to Bank hereunder, any management letter of
Borrower's independent certified public accountant.
2.06 Notice of Default. Promptly notify Bank in writing of the
occurrence of any Event of Default hereunder or any event which upon notice and
lapse of time would be an Event of Default.
2.07 Operating Accounts. Maintain all primary accounts and banking
relationship with Bank during the term of any loans from Bank to Borrower.
Borrower shall maintain, or cause to be maintained, on deposit with Imperial
Bank, non-interest bearing demand deposit balances sufficient to compensate Bank
for all services provided by Bank. Balances shall be calculated after reduction
for the reserve requirement of the Federal Reserve Board and uncollected funds.
Any deficiencies shall be charged directly to the Borrower on a monthly basis.
3
<PAGE>
2.08 Attorneys' Fees. Pay promptly to Bank without demand after notice,
with interest thereon from the date of expenditure at the rate applicable to any
loans from Bank to Borrower, reasonable attorneys' fees and all costs and
expenses paid or incurred by Bank in collecting or compromising any such loan
after the occurrence of an Event of Default, whether or not suit is filed. If
suit is brought to enforce any provision of this Agreement, the prevailing party
shall be entitled to recover its reasonable attorneys' fees and court costs in
addition to any other remedy or recovery awarded by the court.
2.09 Documentation Fee. Pay to the Bank a $250.00 documentation fee on
the new term loan Bank facility.
3. NEGATIVE COVENANTS OF BORROWER
Borrower agrees that so long as it is indebted to Bank, or so long as
Bank has any obligation to extend credit to Borrower, it will not, without
Bank's written consent:
3.01 Type of Business; Management. Make any substantial change in the
character of its business; or make any change in its executive management
(Chairman of the Board, Chief Executive Officer, President, and Chief Financial
Officer).
3.02 Outside Indebtedness. Other than in the ordinary course of
business and consistent with past practices, create, incur, assume or permit to
exist any indebtedness for borrowed moneys, other than loans from the Bank,
except obligations now existing as shown in the financial statement dated March
31, 1998, excluding those obligations being refinanced by Bank.
3.03 Liens and Encumbrances. Other than in the ordinary course of
business and consistent with past practices, create, incur, or assume any
mortgage, pledge, encumbrance, lien or charge of any kind upon any asset now
owned, other than liens for taxes not delinquent and liens in Bank's favor,
except for those already existing as of March 31, 1998.
3.04 Loans, Investments, Secondary Liabilities. Make any loans or
advances to any person or other entity other than in the ordinary and normal
course of its business and consistent with past practices or make any investment
in the securities of any person or other entity other than the United States
Government; or guarantee or otherwise become liable upon the obligation of any
person or other entity, except by endorsement of negotiable instruments for
deposit or collection in the ordinary and normal course of its business and
consistent with past practices.
3.05 Acquisition or Sale of Business; Merger or Consolidation. Except
in the ordinary course of business, purchaser or otherwise acquire the assets or
business of any person or other entity; or liquidate, dissolve merge or
consolidate, or commence any proceedings therefor; or sell any assets except in
the ordinary course of its business consistent with past practices; or except in
the ordinary course of business, sell, lease assign or transfer any substantial
part of its business or fixed assets, or any property or other assets necessary
for the continuance of its business as now conducted, including without
limitation, the selling of any dividends, property or other asset accompanied by
the leasing back of the same.
3.06 Capital Expenditures. Make or incur obligations for capital
expenditures, which includes purchase money indebtedness or capital lease
obligations, in excess of $100,000 in any one fiscal year.
3.07 Lease Liability. Make or incur additional liability for payments
of rent under leases of real property in excess of $100,000 or personal property
in excess of $50,000 in any one fiscal year.
4
<PAGE>
4. EVENTS OF DEFAULT
The occurrence of any of the following events (each an "Event of
Default") shall, at Bank's option, terminate Bank's commitment to lend and make
all sums of principal and interest then remaining unpaid on all Borrower's
indebtedness to Bank immediately due and payable, all without demand,
presentment or notice, all of which are hereby expressly waived:
4.01 Failure to Pay. Failure to pay any installment of principal or
interest on any indebtedness of Borrower to Bank.
4.02 Breach of Covenant. Failure of Borrower to perform any other term
or condition of this Agreement binding upon Borrower.
4.03 Breach of Warranty. Any of Borrower's representations or
warranties made herein or any statement or certificate at any time given in
writing pursuant hereto or in connection herewith shall be false or misleading
in any respect.
4.04 Insolvency; Receiver or Trustee. Borrower shall become insolvent;
or admit its inability to pay its debts as they mature; or make an assignment
for the benefit of creditors; or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business.
4.05 Judgments, Attachments. Any money judgment, writ or warrant of
attachment, or similar process shall be entered or filed against Borrower or any
of its assets and shall remain unvacated, unbonded or unstayed for a period
later than five days prior to the date of any proposed sale thereunder.
4.06 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against Borrower and, if
instituted against it, shall be consented to.
5. MISCELLANEOUS PROVISIONS
5.01 Failure or Indulgence Not Waiver. No failure or delay on the part
of Bank or any holder of any note issued by Borrower to Bank, in the exercise of
any power, right or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power, right or privilege
preclude other or further exercise thereof or of any other right, power or
privilege. All rights and remedies existing under this Agreement or any note
issued in connection with a loan that Bank may make hereunder, are cumulative
to, and not exclusive of, any rights or remedies otherwise available.
5.02 Additional Remedies. The rights, powers and remedies given to Bank
hereunder shall be cumulative and not alternative and shall be in addition to
all rights, power and remedies given to Bank by law against Borrower or any
other person, including but not limited to Bank's rights of setoff or banker's
lien.
5.03 Inurement. The benefits of this Agreement shall inure to the
successors and assigns of Bank and the permitted successors and assigns of
Borrower.
5.04 Applicable Law. This Agreement and all other agreements and
instruments required by Bank in connection therewith shall be governed by and
construed according to the laws of the State of California, to the jurisdiction
of whose courts the parties hereby agree to submit.
5
<PAGE>
5.05 Offset. In addition to and not in limitation of all rights of
offset that Bank or other holder of any note issued by Borrower in favor of Bank
may have under applicable law, Bank or other holder of such notes shall, upon
the occurrence of any Event or Default or any event which with the passage of
time or notice would constitute such an Event of Default, have the right to
appropriate and apply to the payment of the outstanding under any such note any
and all balances, credits, deposits, accounts or monies of Borrower then and
thereafter with Bank or other holder, within ten (10) days after the Event of
Default, and notice of the occurrence of any Event of Default by Bank to
Borrower.
5.06 Severability. Should any one or more provisions of the Agreement
be determined to be illegal or unenforceable, all other provisions nevertheless
shall be effective.
5.07 Time of the Essence. Time is hereby declared to be of the essence
of this Agreement and of every part hereof.
5.08 Integration Clauses. Except for the Loan Documents, the Agreement
constitutes the entire agreement between Bank and Borrower regarding any loan or
loans from Bank to Borrower, and all prior communications verbal or written
between Borrower and Bank shall be of no further effect or evidentiary value. In
the event of a conflict or inconsistency among any other documents and
instruments and this Agreement, the provisions of this Agreement shall prevail.
5.09 Accounting. All accounting terms shall have the meanings applied
under generally accepted accounting principles unless otherwise specified.
5.10 Modification. This Agreement may be modified only by a writing
signed by both parties hereto.
6. GOVERNING LAW; JUDICIAL REFERENCE.
6.01 Governing Law. This Agreement shall be deemed to have been made in
the State of California and the validity, construction, interpretation, and
enforcement hereof, and the rights of the parties hereto, shall be determined
under, governed by, and construed in accordance with the internal laws of the
State of California, without regard to principles of conflicts of law.
6.02 Judicial Reference.
a. Other than (i) nonjudicial foreclosure and all matters in connection
therewith regarding security interests in real or personal property; or
(ii) the appointment of a receiver, or the exercise of other
provisional remedies (any and all of which may be initiated pursuant to
applicable law), each controversy, dispute or claim between the parties
arising out of or relating to the Loan Documents, which controversy,
dispute or claim is not settled in writing within thirty (30) days
after the "Claim Date" (defined as the date on which a party subject to
the Loan Documents gives written notice to all other parties that a
controversy, dispute or claim exists), will be settled by a reference
proceeding in California in accordance with the provisions of Section
638 et seq. of the California Code of Civil Procedure, or their
successor section ("CCP"), which shall constitute the exclusive remedy
for the settlement of any controversy, dispute or claim concerning the
Loan Documents, including whether such controversy, dispute or claim is
subject to the reference proceeding and except as set forth above, the
parties waive their rights to initiate any legal proceedings against
each other in any court or jurisdiction other than the Superior Court
6
<PAGE>
in the County where the Real Property, if any, is located or Los
Angeles County if none (the "Court"). The referee shall be a retired
Judge of the Court selected by mutual agreement of the parties, and if
they cannot so agree within forty-five (45) days after the Claim Date,
the referee shall be promptly selected by the Presiding Judge of the
Court (or his representative). The referee shall be appointed to sit as
a temporary judge, with all of the powers for a temporary judge, as
authorized by law, and upon selection should take and subscribe to the
oath of office as provided for in Rule 244 of the California Rules of
Court (or any subsequently enacted Rule). Each party sahll have one
peremptory challenge pursuant to CCP ss. 170.6. The referee shall (a)
be requested to set the matter of hearing within sixty (60) days after
the date of selection of the referee and (b) try any and all issues of
law or fact and report a statement of decision upon them, if possible,
within ninety (90) days of the Claim Date. Any decision rendered by the
referee will be final, binding and conclusive and judgment shall be
entered pursuant to CCP ss. 644 in any court in the State of California
having jurisdiction. Any party may apply for a reference proceeding at
any time after thirty (30) days following notice to any other party of
the nature of the controversy, dispute or claim, by filing a petition
for a hearing and/or trial. All discovery permitted by this Agreement
shall be completed not later than fifteen (15) days before the first
hearing date established by the referee. The referee may extend such
period in the event of a party's refusal to provide requested discovery
for any reason whatsoever, including, without limitation, legal
objections raised to such discovery or unavailability of a witness due
to absence or illness. No party shall be entitled to "priority" in
conducting discovery. Depositions may be taken by either party upon
seven (7) days written notice, and request for production or inspection
of documents shall be responded to within ten (10) days after service.
All disputes relating to discovery which cannot be resolved by the
parties shall be submitted to the referee whose decision shall be final
and binding upon the parties. Pending appointment of the referee as
provided herein, the Superior Court is empowered to issue temporary
and/or provisional remedies, as appropriate.
b. Except as expressly set forth in this Agreement, the referee shall
determine the manner in which the reference proceeding is conducted
including the time and place of all hearings, the order of presentation
of evidence, and all other questions that arise with respect to the
course of the reference proceeding. All proceedings and hearings
conducted before the referee, except for trial, shall be conducted
without a court reporter except that when any party so requests, a
court reporter will be used at any hearing conducted before the
referee. The party making such a request shall have the obligation to
arrange for and pay for the court reporter. The costs of the court
reporter at the trial shall be borne equally by the parties.
c. The referee shall be required to determine all issues in accordance
with existing case law and the statutory laws of the State of
California. The rules of evidence applicable to proceedings at law in
the State of California will be applicable to the reference proceeding.
The referee shall be empowered to enter equitable as well as legal
relief, to provide all temporary and/or provisional remedies and to
enter equitable orders that will be binding upon the parties. The
referee shall issue a single judgment at the close oft he reference
proceeding which shall dispose of all of the claims of the parties that
are the subject of the reference. The parties hereto expressly reserve
the right to contest or appeal from the final judgment or any
appealable order or appealable judgment entered by the referee. The
parties hereto expressly reserve the right to findings of fact,
conclusions of laws, a written statement of decision, and the right to
move for a new trial or a different judgment, which new trial, if
granted, is also to be a reference proceeding under this provision.
7
<PAGE>
d. In the event that the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is
enacted), any dispute between the parties that would otherwise be
determined by the reference procedure herein described will be resolved
and determined by arbitration. The arbitration will be conducted by a
retired judge of the Court, in accordance with the California
Arbitration Act, ss. 1280 through ss. 1294.2 of the CCP as amended from
time to time. The limitations with respect to discovery as set forth
hereinabove shall apply to any such arbitration proceeding.
This Agreement is executed on behalf of the parties by duly authorized
representatives as of June 11, 1998.
IMPERIAL BANK ("Bank")
By:________________________________________
Mike Berrier, Vice President
Date:______________________________________
PHOTOMATRIX, INC. ("Borrower")
By:________________________________________
Date:______________________________________
8
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 536,000
<SECURITIES> 0
<RECEIVABLES> 1,841,000
<ALLOWANCES> 144,000
<INVENTORY> 3,169,000
<CURRENT-ASSETS> 5,818,000
<PP&E> 4,701,000
<DEPRECIATION> 1,051,000
<TOTAL-ASSETS> 12,145,000
<CURRENT-LIABILITIES> 4,447,000
<BONDS> 0
0
0
<COMMON> 21,290,000
<OTHER-SE> 177,000
<TOTAL-LIABILITY-AND-EQUITY> 12,145,000
<SALES> 0
<TOTAL-REVENUES> 1,292,000
<CGS> 0
<TOTAL-COSTS> 942,000
<OTHER-EXPENSES> 1,253,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (34,000)
<INCOME-PRETAX> (954,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (954,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (954,000)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
