<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to_______ .
Commission file number 0-16055
PHOTOMATRIX, INC.
(Exact name of small business issuer as specified in its charter)
California 95-3267788
- -------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1958 Kellogg Avenue, Carlsbad, California 92008
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(760) 431-4999
- -------------------------------------------------------------------------------
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
At December 31, 1998, 10,031,000 shares of the Common Stock of Photomatrix, Inc.
were outstanding.
Transitional Small Business Disclosure Format.
Yes X No
--- ---
<PAGE>
INDEX
PHOTOMATRIX, INC.
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1: FINANCIAL STATEMENTS
Consolidated condensed balance sheets as of December 31, 1998
(unaudited) and March 31, 1998 2
Unaudited consolidated condensed statements of operations for
the three months and nine months ended December 31, 1998
and December 31, 1997 3
Unaudited consolidated condensed statements of cash flows for
the nine months ended December 31, 1998 and December 31,
1997 4
Unaudited notes to consolidated condensed financial statements 5
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11
PART II - OTHER INFORMATION
- ---------------------------
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURES 17
</TABLE>
<PAGE>
Part 1 - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
PHOTOMATRIX, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1998
--------------------- ---------------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 585,000 $ 1,342,000
Accounts and notes receivable, net of allowances of
$281,000 and $142,000, respectively 2,438,000 1,625,000
Inventories 3,272,000 2,171,000
Prepaid expenses and other 267,000 98,000
--------------------- ---------------------
Total current assets 6,562,000 5,236,000
Net property, plant and equipment 5,124,000 547,000
Net intangible assets 2,349,000 1,287,000
Other assets 91,000 125,000
--------------------- ---------------------
$ 14,126,000 $ 7,195,000
--------------------- ---------------------
--------------------- ---------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short term borrowings $ 1,717,000 $ -
Accounts payable 2,118,000 502,000
Accrued liabilities and other 766,000 746,000
Customer deposits 438,000 409,000
Current portion of long-term debt 386,000 162,000
Net current liabilities of discontinued operations 679,000 1,113,000
--------------------- ---------------------
Total current liabilities 6,104,000 2,932,000
Long term debt and other 3,050,000 26,000
Notes payable to related parties, long term 79,000 213,000
Commitments and contingencies
Stockholders' Equity:
Preferred stock, 3,173,000 shares authorized - -
Common stock, no par value, 30,000,000 shares authorized;
10,031,000 shares and 5,083,000 shares issued and outstanding
at December 31, 1998 and March 31, 1998, respectively 21,490,000 19,351,000
Additional paid-in capital 30,000 -
Deficit (16,769,000) (15,480,000)
Accumulated other comprehensive income 142,000 153,000
--------------------- ---------------------
Total stockholders' equity 4,893,000 4,024,000
--------------------- ---------------------
$ 14,126,000 $ 7,195,000
--------------------- ---------------------
--------------------- ---------------------
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
2
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PHOTOMATRIX, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
---------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues $ 2,768,000 $ 1,518,000 $ 7,131,000 $ 6,076,000
Cost of revenues 2,039,000 1,003,000 4,877,000 3,968,000
---------------- ----------------- ---------------- ----------------
Gross profit 729,000 515,000 2,254,000 2,108,000
Operating expenses:
Selling, general and administrative 1,246,000 711,000 2,997,000 2,376,000
Research and development 217,000 226,000 593,000 580,000
Facility consolidation and relocation - - 181,000 -
Write-off of capitalized software - 366,000 - 366,000
---------------- ----------------- ---------------- ----------------
Total operating expenses 1,463,000 1,303,000 3,771,000 3,322,000
---------------- ----------------- ---------------- ----------------
Operating loss (734,000) (788,000) (1,517,000) (1,214,000)
Other income (expense), net (67,000) (10,000) (184,000) 87,000
---------------- ----------------- ---------------- ----------------
Net loss from continuing operations (801,000) (798,000) (1,701,000) (1,127,000)
Income from discontinued operations 161,000 - 412,000 -
---------------- ----------------- ---------------- ----------------
Net loss $ (640,000) $ (798,000) $ (1,289,000) $ (1,127,000)
---------------- ----------------- ---------------- ----------------
---------------- ----------------- ---------------- ----------------
Basic and diluted net loss per common share:
Continuing operations $ (0.08) $ (0.16) $ (0.19) $ (0.22)
Discontinued operations $ 0.02 $ - $ 0.04 $ -
---------------- ----------------- ---------------- ----------------
Net loss $ (0.06) $ (0.16) $ (0.15) $ (0.22)
---------------- ----------------- ---------------- ----------------
---------------- ----------------- ---------------- ----------------
Weighted average number of common
shares outstanding 9,965,000 5,083,000 8,797,000 5,083,000
---------------- ----------------- ---------------- ----------------
---------------- ----------------- ---------------- ----------------
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
3
<PAGE>
PHOTOMATRIX, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
1998 1997
--------------------- ---------------------
<S> <C> <C>
Operating activities:
Net loss from continuing operations $ (1,701,000) $ (1,127,000)
Adjustments:
Depreciation and amortization 637,000 688,000
Write-off of capitalized software - 366,000
Loss on disposal of property and equipment 13,000 -
Other expense not requiring cash 30,000 -
Change in assets and liabilities, net of effect from acquisitions:
Accounts receivable 168,000 516,000
Inventories (120,000) (395,000)
Prepaid expenses and other (82,000) (10,000)
Accounts payable 711,000 (328,000)
Accrued liabilities and other (204,000) 44,000
Customer deposits 29,000 (162,000)
--------------------- ---------------------
Cash used in continuing operations (519,000) (408,000)
Cash (used in) provided by discontinued operations (22,000) 848,000
--------------------- ---------------------
Cash (used in) provided by operations (541,000) 440,000
--------------------- ---------------------
Investing activities:
Capital expenditures (441,000) -
Acquisitions, net of cash received (193,000) -
Proceeds from disposal of capital asset 20,000 38,000
--------------------- ---------------------
Cash (used in) provided by investing activities (614,000) 38,000
--------------------- ---------------------
Financing activities:
Proceeds from short term borrowings, net of repayments 1,034,000 -
Payments of notes payable (32,000) (113,000)
Decrease in long term debt and other (593,000) (7,000)
--------------------- ---------------------
Cash provided by (used in) financing activities 409,000 (120,000)
--------------------- ---------------------
Effect of exchange rates on cash (11,000) (5,000)
--------------------- ---------------------
(Decrease) increase in cash and cash equivalents (757,000) 353,000
Cash and cash equivalents at beginning of period 1,342,000 812,000
--------------------- ---------------------
Cash and cash equivalents at end of period $ 585,000 $ 1,165,000
--------------------- ---------------------
--------------------- ---------------------
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
4
<PAGE>
PHOTOMATRIX, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
The accompanying unaudited consolidated condensed financial statements
reflect the accounts of Photomatrix, Inc. (the "Company"), together with its
subsidiaries. All significant intercompany accounts and transactions and
balances have been eliminated. The interim financial statements have been
prepared by the Company, without audit, according to the rules and
regulations of the Securities and Exchange Commission. 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 such rules and regulations. In the opinion of
management, the accompanying unaudited consolidated condensed financial
statements reflect all adjustments (which include only normal recurring
adjustments) necessary to present fairly the results of operations and
financial position and cash flows as of the dates and for the periods
presented. These unaudited consolidated condensed 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.
Certain prior year amounts have been reclassified to conform to the current-year
presentation.
2. ACQUISITION OF I-PAC MANUFACTURING, INC.
On March 16, 1998, the Company entered into an Agreement and Plan of Merger
and Reorganization ("the Agreement" and "the Merger") with I-PAC
Manufacturing, Inc. ("I-PAC"). 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, 8,500 outstanding shares of I-PAC
Common Stock were exchanged for 4,848,000 shares of Photomatrix Common Stock
and possibly an 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. This transaction resulted in an
increase in the number of outstanding shares of Photomatrix common stock from
5,083,000 to 9,931,000.
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 generally accepted accounting principles, in that any
additional shares will be treated as additional costs of the acquired
enterprise and amortized accordingly over the benefit period. The $1,179,000
excess of the purchase price over the fair value of I-PAC's net assets is
being 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 quarter and nine months ended December 31, 1998 and 1997 would have
been:
5
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended December 31,
December 31, ----------------------------------
1997 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues $2,625,000 $ 7,668,000 $10,548,000
Net Loss $ (698,000) $(1,490,000) $ (525,000)
Basic and Diluted EPS $ (0.07) $ (0.15) $ (0.05)
</TABLE>
These pro forma results may not be indicative of the results of operations
that would have been reported if the transactions had occurred as of these
dates, or which may be reported in the future.
3. ACQUISITION OF NATIONAL METAL TECHNOLOGIES
On December 18, 1998 the Company entered into an Agreement to acquire certain
assets and the business operations of Greene International West, Inc.,
("GIW") a metal stamping company located in Oceanside, California. GIW
recently emerged from a Chapter 11 Federal Bankruptcy proceeding, which was
canceled through the infusion of new capital funds from its major
shareholders. The new operation has been incorporated as a wholly owned
subsidiary of the Company named National Metal Technologies ("NMT").
Under the terms of the agreement, NMT will pay a total of $500,000, comprised
of a down payment of $150,000 satisfied by the issuance of 75,000 shares of
Photomatrix common stock valued at $2.00 per share and a five year note in
the amount of $350,000, for the purchase of GIW's customer list, supplier
registrations, contract backlog, proprietary trade data, rights to hire
employees and general intangibles of GIW. Future note payments may be made in
a combination of Photomatrix stock and cash at the election of the parties.
In addition, NMT agreed to enter into a capital lease of GIW equipment, with
a bargain purchase option to purchase the equipment for $490,000 at the end
of the one year period. The first year rental payments under the equipment
lease will be satisfied with the issuance of 25,000 shares of Photomatrix
common stock valued at $2.00 per share. Photomatrix agreed to price protect
the shares issued to GIW shareholders at a price of $2.00 per share, at a
point two years from the closing date, for these initial shares issued for
the first year's payments on the note and the equipment lease. National Metal
Technologies also entered into a fifteen year lease of the 80,000 square foot
facility housing the metal stamping operation, under terms that provide rent
abatemements for the first three years of the facility lease. NMT also agreed
to purchase GIW's accounts receivable and usable inventory, and pay certain
royalties (1.75% of sales to existing customers) over a three year period.
All royalties are payable in stock or cash, at Photomatrix's election. The
proposed merger resulted in increasing the number of outstanding shares of
Photomatrix common stock from 9,931,000 to 10,031,000, with the possibility
of additional shares being issued in the future in lieu of cash payments.
The transaction was accounted for as a purchase by the Company for accounting
and financial reporting purposes. Under the purchase method of accounting,
upon closing of the acquisition, the results of operations of the new entity
were combined with those of the Company, and its assets and liabilities were
recorded on the Company's books at their respective fair values. The purchase
price was comprised of the value of the stock plus acquisition costs and was
allocated among the assets acquired and the liabilities assumed. The $9,000
excess of the purchase price over the fair value of NMT's net assets is being
amortized over a twenty year period.
4. ACQUISITION OF AMCRAFT
On November 27, 1998 the Company entered into an agreement to acquire certain
assets and the business operations of Amcraft, Inc., a precision metal
machining company located in Carlsbad, California. The new operation has been
incorporated as a wholly owned subsidiary of the Company named I-PAC
Precision Machining, Inc., and doing business as Amcraft.
I-PAC acquired the business assets of Amcraft out of an assignment for the
benefit of creditors proceeding. Under the terms of the purchase, I-PAC paid
a total of $20,000 for the purchase of work-in-process inventory,
miscellaneous equipment, customer list and backlog, rights to hire employees
and the business name of Amcraft. I-PAC also entered into lease commitments
of approximately $450,000 primarily of CNC precision machining equipment
which had previously been used by Amcraft. In addition, I-PAC will lease the
current
6
<PAGE>
10,000 square foot facility occupied by Amcraft through April of 1999, at
which time the precision metal machining operation will be relocated to the
newly acquired NMT facility located in Oceanside, California.
The transaction was accounted for as a purchase by the Company for accounting
and financial reporting purposes. Under the purchase method of accounting,
upon closing of the acquisition, the results of operations of the new entity
were combined with those of the Company, and its assets and liabilities were
recorded on the Company's books at their respective fair values. The purchase
price was comprised of acquisition costs and was allocated among the assets
acquired and the liabilities assumed. The $1,000 excess of the purchase price
over the fair value of Amcraft assets is being amortized over a twenty year
period.
5. ACQUISITION OF MGM TECHREP, INC.
On July 1, 1998, the Company acquired 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, was 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"). 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 new operation has been incorporated as a wholly owned subsidiary of the
Company named PHRX Rep Co. The Photomatrix acquisition included all contracts
with MGM's principals, its customer list, all physical assets, and the MGM trade
name. MGM retained existing liabilities and released its sales personnel to
Photomatrix, and MGM's shareholders executed non-compete agreements with respect
to the sales rep business.
The transaction was accounted for as a purchase by the Company for accounting
and financial reporting purposes. Under the purchase method of accounting, upon
closing of the acquisition, the results of operations of the new entity were
combined with those of the Company, and its assets and liabilities were recorded
on the Company's books at their respective fair values. 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 PHRX Rep Co. on sales involving MGM's existing principals and
customers as of the time of purchase by Photomatrix. During the three months
ended December 31, 1998, the Company recorded approximately $41,000 as purchase
price related to these earn-out accruals. No payments will be due to MGM for
principals or customer accounts added after the closing date. In addition, I-PAC
forgave approximately $18,000 of amounts due from MGM as of the closing date.
The $81,000 excess of the purchase price over the fair value of Amcraft assets
as of December 31, 1998 is being amortized over a twenty year period.
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.
6. DISCONTINUED OPERATIONS
LEXIA SYSTEMS, INC.
In December, 1996 the Board of Directors approved a plan to discontinue the
operations of Lexia Systems, Inc. ("Lexia"). Lexia's operational results have
been reclassified as discontinued operations for the respective periods
presented herein. Lexia's balance sheets have similarly been reclassified as
net current liabilities of discontinued operations as of December 31, 1998 and
March 31, 1998.
Photomatrix shut down the operations of Lexia on September 30, 1998.
Approximately $140,000 of accruals for estimated losses to dispose were not
required, contributing to income from discontinued operations for the quarter
and $391,000 for the nine months ended December 31, 1998. In addition, Lexia
also carries on its books accounts payable and unpaid rent claims by ICL, a
sister company of Fujitsu, in the amount of $457,000. Lexia disputes any
liability with respect to ICL in light of its own offsetting claims and
defenses.
7
<PAGE>
There is no assurance that Lexia will be successful in prevailing in its
position with regard to outstanding claims previously made by ICL.
XSCRIBE LEGAL SYSTEMS, INC.
In July 1996, the Company sold certain assets and liabilities related to its
computer-aided transcription business. The Company retained rights to certain
assets, including receivables from leasing companies due Xscribe Legal Systems,
Inc. ("XLS") under certain agreements. During the quarter the Company reached
settlement on amounts due XLS from these leasing companies resulting in income
of approximately $21,000.
7. CREDIT FACILITIES
As of December 31, 1998, the Company was obligated under a $2,100,000 credit
facility with its bank that included a $1,500,000 line of credit and a $600,000
term loan. The aggregate outstanding balance under these loans as of December
31, 1998 was $1,717,000.
Under the terms of the new agreement, total borrowings under the line of credit
are 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 $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 December 31, 1998 financial data, the Company was not in
compliance with these covenants. The bank has agreed to forebear from taking
adverse action until April 15, 1999, subject to the Company fulfilling certain
reporting and other conditions, including entering into discussions with
alternative lenders to replace the bank's credit facilities. Accordingly the
amount due under the term loan portion of this credit facility has been
reclassified as a current liability as of December 31, 1998.
The Company has issued two notes in the aggregate amount of $1,989,000, 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 $18,000,
including interest ranging from 7.5% to 9.5%.
8. EXPIRATION OF DEBT
During the nine months ended December 31, 1998, the Company recorded the
cancellation of a $227,000 long term liability due a lender/customer. This long
term liability was previously assumed by the Company in connection with the
acquisition of I-PAC. Under terms of the agreement, the liability was only to be
repaid if sales were to be made to the lender prior to September 5, 1998 at a
rate of 40% of the non-material component of any such sales. As of September 5,
1998, the $227,000 liability expired and all underlying security interest was
released under terms of the agreement. The Company has recorded the expiration
of the note as a reduction to goodwill related to the purchase of I-PAC.
9. BASIC AND DILUTED LOSS PER SHARE
The weighted average number of common shares outstanding used in computing basic
earnings per share ("EPS") was 9,965,000 and 5,083,000, for the three months
ended December 31, 1998 and 1997, respectively, and 8,797,000 and 5,083,000, in
the nine months ended December 31, 1998 and 1997, respectively. Diluted EPS
reflects the potential dilution of securities that could share in the earnings
of the Company. Options and warrants representing approximately 1,645,000 and
893,000 shares were excluded from the computations of net loss per common share
for the three months ended December 31, 1998 and 1997, respectively, and for the
nine months ended December 31, 1998 and 1997, respectively, as their effect is
antidilutive.
8
<PAGE>
10. 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 income
(loss) in addition to net income (loss) for the period. During the three months
ended December 31, 1998 and 1997 total comprehensive loss totaled $656,000 and
$785,000, respectively, and during the nine months ended December 31, 1998 and
1997, total comprehensive loss totaled $1,300,000 and $1,133,000, respectively.
11. EMPLOYEE STOCK PURCHASE PLAN
On June 5, 1998 the Board of Directors authorized the Photomatrix Employee Stock
Purchase Plan (the "Purchase Plan") and authorized the purchase of up to
$250,000 of Photomatrix common stock for the Purchase Plan on the open market.
The purpose of the Purchase Plan is to serve as an incentive to and to encourage
stock ownership by eligible employees of the Company so that they may acquire or
increase their proprietary interest in the success of the Company and to
encourage them to remain in the service of the Company.
All full-time employees of the Company who have been in the continuous
employment of the Company for more than nine months are eligible to participate
in the Purchase Plan, provided that no employee may be granted the right to
purchase stock under the Purchase Plan if, immediately after the right to
purchase such stock is granted, such employee owns stock representing 5% or more
of the total combined voting power or value of all classes of the Company's
stock. The option price will be determined by the Company, provided that it will
be at least 85% of the fair value of the Company's common stock on the date the
option is granted. Each participating employee may elect to contribute to the
Purchase Plan up to the lesser of $8,000 or 10% of his or her base compensation
during each calendar year.
A total of 750,000 shares of stock are available for purchase under the Purchase
Plan, subject to adjustment for various changes in the capitalization of the
Company. As of December 31, 1998, the Company had purchased shares of the
Photomatrix common stock on the open market on behalf of the Purchase Plan and
arranged for the stock to be held in trust by an independent trustee. The
Company has recorded approximately $118,000 as a receivable from the Purchase
Plan.
12. RELATED PARTY TRANSACTIONS
During the quarter ended December 31, 1998, the Company recorded a write-off of
approximately $25,000 of inventory specifically manufactured for companies which
are owned at least in part by or otherwise associated with the brother of
William L. Grivas, who was the Chairman of Photomatrix through January 18, 1999
and who is a major shareholder of the Company. In addition, the Company also
recorded approximately $20,000 of additional allowance for doubtful accounts for
uncollectable related party accounts receivable from such companies and from a
company owned by Mr. Grivas, during the quarter ended December 31, 1998. The
inventory and receivables were acquired by the Company as a result of its
acquisition of I-PAC. The Company has therefore recorded the additional bad debt
reserves and inventory write-off as an increase to goodwill related to the
purchase of I-PAC.
During the quarter ended December 31, 1998, the Company paid approximately
$16,000 to Evergreen Investments ("Evergreen"), a company owned by Mr. Grivas
and Patrick W. Moore, the Chief Executive Officer and a major shareholder.
$7,000 of this amount was intended to cover personal tax liabilities of the
former I-PAC shareholders arising from pre-merger S Corp allocations for
calendar year 1997, pursuant to the Plan and Agreement of Merger and
Reorganization between the Company and I-PAC, and approximately $9,000 was for
earn-out payments due MGM under the acquisition agreement entered in July, 1998.
In addition, approximately $31,000 was paid to James P. Hill, a director and
major shareholder, to cover personal tax liabilities of the former I-PAC
shareholders arising from pre-merger S Corp allocations for calendar year 1997,
pursuant to the Plan and Agreement of Merger and Reorganization between the
Company and I-PAC. Approximately $27,000 was paid to MGM for earn-out payments
due MGM under the acquisition agreement
9
<PAGE>
entered in July, 1998. The Company also recorded sales of approximately
$7,000 to MGS Interconnect, a company owned by Mr. Moore and Mr. Grivas
during the current period. In addition, the Company paid approximately
$113,000 to Sullivan, Hill, Lewin, Rez and Engle ("SHLRE"), a law firm in
which Mr. Hill, is a partner. At December 31, 1998, the Company had
approximately $16,000 in earn-out payments due to MGM, approximately $7,000
due from MGS Interconnect and advances totaling approximately $24,000 due
from Mr.Grivas and Mr. Moore. In addition, the Company and SHLRE are
currently in process of resolving a discrepancy between the parties with
regard to amounts owed at December 31, 1998. During the three months ended
December 31, 1998, the Company recorded $68,000 of additional legal expense
based on the claim of SHLRE. As a result of this adjustment, at December 31,
1998, approximately $44,000 was recorded as a payable to SHLRE.
As mentioned in Note 7, certain shareholders of the Company have guaranteed
approximately $1,989,000 of the Company's debt at December 31, 1998. In
addition, the Company has guaranteed approximately $113,000 of debt of the same
shareholders.
All related party transactions are reviewed and approved by the Audit Committee
of the Board of Directors.
13. NASDAQ DELISTING
On February 10, 1999 the Company's common stock had been scheduled for delisting
from the NASDAQ SmallCap Market. However, pursuant to the rules of NASDAQ, the
Company has requested, and NASDAQ has granted, a hearing to reconsider this
delisting. The hearing has not yet been scheduled. NASDAQ has therefore
postponed the delisting pending a final determination at the hearing.
14. BELL & HOWELL RELATIONSHIP
Bell & Howell has notified the Company that it has ceased placing orders for
shipments of Photomatrix document scanners under the Original Equipment
Manufacturing ("OEM") agreement between the companies, pending the resolution of
certain contractual issues between Photomatrix and Bell & Howell. The Company
has been and is continuing to work with Bell & Howell to resolve these
contractual issues. As of December 31, 1998, Bell & Howell reported that it had
approximately $1,200,000 of unsold scanner inventory which had been purchased
under the OEM agreement.
10
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PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 2. 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 condensed
financial statements and unaudited notes to consolidated condensed financial
statements included elsewhere herein.
THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO THE THREE MONTHS ENDED
DECEMBER 31, 1997
On June 5, 1998, the Company acquired I-PAC, on July 1, 1998, the Company
acquired PHRX Rep Co., on November 27, 1998, the Company acquired the assets and
business of I-PAC Precision Machining, Inc. ("Amcraft") and on December 18,
1998, the Company acquired the assets and business of NMT. All acquisitions were
treated as purchases for accounting and financial reporting purposes. These
companies comprise the manufacturing group. Under the purchase method of
accounting, the results of operations of the acquired companies are combined
with those of the Company at the date of acquisition. Accordingly, the current
periods ended December 31, 1998, represent the first operating periods
reflecting the combined operations of the Company, I-PAC, PHRX Rep Co., Amcraft
and NMT.
Consolidated revenues for the quarter ended December 31, 1998 increased
$1,250,000 or 82.3% to $2,768,000 from $1,518,000 for the quarter ended December
31, 1997. The increase is primarily attributable to the inclusion of three
months of manufacturing group revenues totaling approximately $1,600,000.
Imaging group revenues in the quarter ended December 31, 1998 decreased by
approximately $296,000 due to a decrease in Bell & Howell sales, as described in
footnote 14 of the unaudited consolidated condensed financial statements and a
general reduction in orders which had previously been expected for the quarter
primarily as a result of customer delays in placing such orders. The Company
expects manufacturing group revenues to significantly increase in the fourth
quarter, as result of the inclusion of three full months of operations of NMT
and Amcraft, and expects imaging group revenues to increase slightly.
Consolidated gross margin for the quarter ended December 31, 1998 increased
$214,000 or 41.6% to $729,000 from $515,000 for the quarter ended December 31,
1997. This increase is primarily attributable to the inclusion of three months
of gross profit of the manufacturing group approximating $457,000. Gross margin
of the imaging group decreased $226,000, to $289,000 from $515,000 due to lower
revenue. Consolidated gross margin as a percent of revenues decreased 7.6% to
26.3% from 33.9% for the quarter ended December 31, 1997. The gross margin as a
percent of revenues for the manufacturing group was 28.6% for the quarter. Gross
margin as a percent revenues for the imaging group decreased 10.3%, to 23.6%
from 33.9%. The decrease was primarily attributable to the lower sales volume.
As manufacturing group revenues increase as a percentage of total revenues,
management expects that gross margins will continue to approximate consolidated
percentages experienced in the current quarter.
Selling, general and administrative expenses ("SG&A") for the quarter ended
December 31, 1998 included expenses of the manufacturing group and as a result,
increased $535,000 or 75.2% to $1,246,000 from $711,000 for the quarter ended
December 31, 1997, primarily as a result of the inclusion of three months of
manufacturing group SG&A. As a percent of revenues, SG&A for the quarter ended
December 31, 1998 decreased to 45.0% from 46.8% for the quarter ended December
31, 1997. Offsetting the increase in costs resulting from the inclusion of
three months of costs from the manufacturing group were reductions in costs due
to the elimination of duplicated functions.
Research and development expenses for the quarter ended December 31, 1998
decreased $9,000 or 4.0% to $217,000 from $226,000 for the quarter ended
December 31, 1997. All such costs are related to the imaging group. As a
percent of revenues, research and development costs decreased to 7.8% in the
current quarter from 14.9% for the quarter ended December 31, 1997. No software
development costs were capitalized
11
<PAGE>
during either quarter ended December 31, 1998 or 1997 due to continuing
emphasis upon scanner hardware development, including the development of a
new mid-range scanner. The Company has significantly reduced research and
development expenses in the fourth quarter.
Other expenses, primarily interest, was $67,000 for the quarter ended December
31, 1998, compared to $10,000 for the quarter ended December 31, 1997. The
current quarter increase is primarily related to interest on the I-PAC mortgages
for the Carlsbad facility for three months, as well as increased borrowings
related to the line of credit.
There was no provision for income taxes booked in the three months ended
December 31, 1998, the same as in the three months ended December 31, 1997.
During the current quarter, the Company reported approximately $161,000 of
income from discontinued operations. This amount was comprised of approximately
$140,000 related to Lexia and $21,000 related to the settlement of amounts due
XLS from certain leasing companies. Photomatrix shut down the operations of its
subsidiary Lexia on September 30, 1998. Approximately $140,000 of accruals for
estimated losses to dispose were not required, contributing to income from
discontinued operations for the three months ended December 31, 1998. Lexia also
carries on its books accounts payable and unpaid rent claims by ICL, a sister
company of Fujitsu, in the amount of $457,000. Lexia disputes that any liability
exists with respect to ICL in light of its own offsetting claims and defenses.
There is no assurance that Lexia will be successful in prevailing in its
position with regard to outstanding claims previously made by ICL.
The net effect of the increases in gross margin and other income coupled with
the decrease in research and development expenses, together with the increases
in interest expense and selling, general and administrative expenses, resulted
in net loss from continuing operations for the quarter ended December 31, 1998
of $801,000 or $0.08 per share. The addition of income from discontinued
operations of $161,000 or $0.02 per share resulted in net loss of $640,000 or
$0.06 per share. This compares to net loss of $798,000 or $0.16 per share for
the quarter ended December 31, 1997.
NINE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO THE NINE MONTHS ENDED
DECEMBER 31, 1997
During the quarter ended June 30, 1998, the Company completed the move of its
operations into I-PAC's facility located in Carlsbad, California. As expected,
this move was disruptive and resulted in certain operating inefficiencies.
Consolidated revenues in the nine months ended December 31, 1998 increased
$1,055,000 or 17.4% to $7,131,000 from $6,076,000 in the nine months ended
December 31, 1997. This increase was primarily attributable to the inclusion of
newly acquired manufacturing group operations offset by disappointing imaging
group revenues of the first and third quarters. Manufacturing group revenues
totaled $2,961,000 during the nine month's ended December 31, 1998. Imaging
group revenues in the nine months ended December 31, 1998 decreased $1,815,000
or 29.9% to $4,261,000 from $6,076,000 in the nine months ended December 31,
1997. This decrease is attributable due a significant decrease in sales to Bell
& Howell, as well as a general decline in sales of document scanners.
Consolidated gross margin in the nine months ended December 31, 1998 increased
$146,000 or 6.9% to $2,254,000 from $2,108,000 in the nine months ended December
31, 1997. Imaging group gross margin in the nine months ended December 31, 1998
decreased $704,000 or 33.4% to $1,404,000 from $2,108,000 in the nine months
ended December 31, 1997. Gross margin for the manufacturing group included in
the nine months ended December 31, 1998 approximated $878,000. The overall 31.6%
gross margin during the nine months just ended was less than the 34.7% gross
margin percentage for the same period of the prior year. This decline reflects
the effect of lower scanner sales volumes, as well as the lower gross margins of
the manufacturing group. Gross margin for the imaging group during the nine
month period ended December 31, 1998 was 33.0% compared to 34.7% for the same
period of the prior year. Manufacturing group gross margin was 29.7% for the
current nine months.
12
<PAGE>
SG&A in the nine months ended December 31, 1998 increased $621,000 or 26.1%
to $2,997,000 from $2,376,000 in the nine months ended December 31, 1997.
These increases were primarily the result of the inclusion of seven months of
manufacturing group expenses, offset by the reduction of costs resulting from
the elimination of the duplication of functions as a result of the merger
with I-PAC. As a percent of revenue, SG&A in the nine months ended December
31, 1998 increased to 42.0% from 39.1% in the nine months ended December 31,
1997, primarily as a result of the abnormally low revenues during the first
and third quarters.
Research and development expenses in the nine months ended December 31, 1998
increased by $13,000 or 2.2% to $593,000 from $580,000 in the nine months ended
December 31, 1997. As a percentage of revenue, research and development
expenses decreased 1.2% to 8.3% from 9.5% for the nine months ended December 31,
1997. No software development costs were capitalized during the nine months
ended December 31, 1998 as an emphasis was placed upon scanner hardware
development, including the development of a new mid-range scanner. During the
previous nine months ended December 31, 1997 product development spending
totaled $664,000, and $84,000 of software development costs were capitalized.
The Company incurred approximately $181,000 in facility consolidation and
relocation cost as a result of moving its Sorrento Valley Imaging Products
operations into the I-PAC owned facilities in Carlsbad, California.
Other expense was $184,000 in the nine months ended December 31, 1998 compares
to income of $87,000 in the nine months ended December 31, 1997. This change
reflects a $147,000 increase in interest expense, together with a loss on
disposal of fixed assets of $13,000 in the current nine months compared to
income of $100,000 on the sale of a trademark in the nine months that ended
December 31, 1997.
There was no provision for income taxes booked in the nine months ended December
31, 1998, the same as in the nine months ended December 31, 1997.
The net effect of the increases in SG&A and research and development costs and
other income, offset by an increase in gross profit, resulted in an increase in
the loss from continuing operations between years of $574,000, to $1,701,000 in
the nine months ended December 31, 1998, or $0.19 per share, compared to
$1,127,000 or $0.22 per share in the nine months ended December 31, 1997.
There was income from discontinued operations in the current nine months ended
December 31, 1998 of $412,000, or $0.04 per share, compared to no income or loss
from discontinued operations in the nine months ended December 31, 1997. The
results were a net loss of $1,289,000 or $0.15 per share in the current nine
months period compared to a loss of $1,127,000 or $0.22 per share in the prior
nine months period.
LIQUIDITY AND CAPITAL RESOURCES
RECENT AND FUTURE SOURCES OF AND DEMANDS ON LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended December 31, 1998, the Company's primary sources
of liquidity were from a reduction to accounts receivable ($168,000), an
increase in accounts payable ($711,000), proceeds from short term borrowings
($1,034,000), an increase in customer deposits ($29,000) and proceeds from
the disposal of capital assets. During the same period the primary uses of
liquidity were a net loss net of noncash charges ($1,021,000), an increase to
inventory ($120,000) and prepaid expenses ($82,000), a reduction in accrued
and other liabilities ($204,000), capital expenditures ($441,000),
acquisitions ($193,000), a reduction in long term debt ($593,000) and notes
payable ($32,000), cash used in discontinued operations ($22,000) and the
effect of foreign exchange rates ($11,000). As a result of these sources and
uses of liquidity during the nine months ended December 31, 1998 as
described above, the Company's cash and cash equivalents balance decreased
$757,000 or 56.4%, to $585,000 from $1,342,000.
In July, 1998 the Company entered into a $2,100,000 credit facility with its
bank that includes a $1,500,000 line of credit and a $600,000 term loan. The
outstanding balances under these loans as of December 31, 1998
13
<PAGE>
was $1,717,000. The line of credit accrues interest on outstanding borrowings
at the bank's prime rate plus 1 % per annum. Under the terms of the new
agreement, total borrowings under the line of credit is limited to the lesser
of $1,500,000 or 70% of eligible accounts receivable (as defined under the
agreement). The Company is required to (1) maintain a minimum tangible net
worth of $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
December 31, 1998 financial data, the Company was not in compliance with
these covenants. The bank has agreed to forebear from taking adverse action
until April 8, 1999, subject to the Company fulfilling certain reporting and
other conditions, including entering into discussions with alternative
lenders to replace the bank's credit facilities. Accordingly the amount due
under the term loan portion of this credit facility has been reclassified as
a current liability as of December 31, 1998. There is no assurance that the
Company will be successful in finding an alternative lender to replace the
bank.
The Company has issued two notes in the aggregate amount of $1,989,000, which
are collateralized by the 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 $18,000,
including interest ranging from 7.5% to 9.5%. The Company has entered into a
letter of intent for a sale-and-leaseback transaction, whereby it will sell this
real property for $3.5 million and enter into a fifteen year lease with the
buyer.
The Company is obligated under a series of notes payable totaling $294,000 as of
December 31, 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. In October, 1998, the Company stopped making payments on these notes.
The Company also has certain equipment notes in the aggregate amount of $536,000
with interest rates varying between 8% and 26.6% with final payments due between
2000 and 2005. These notes are collateralized by equipment. In addition, the
Company also has entered into certain capital leases in the aggregate amount of
$770,000, calling for minimum monthly payments aggregating approximately $9,000
per month.
During September 1998, The Company's wholly-owned subsidiary, Lexia Systems,
settled its outstanding dispute with Fujitsu. As a result, the Company reduced
its previously recorded liability of $340,000 to Fujitsu to $200,000 and began
making payments against this liability in November, 1998 with the final payment
due to Fujitsu in June, 1999. Lexia also has recorded liabilities reflecting
accounts payable and unpaid rent claims of ICL and related entities in the
amount of $457,000 at December 31, 1998. These liabilities are classified under
net liabilities of discontinued operations. Lexia disputes any liability with
respect to ICL in light of its own offsetting claims and defenses. There is no
assurance that Lexia will be successful in prevailing in its position with
regard to outstanding claims previously made by ICL.
The Company's sources of future short-term liquidity are its cash balance of
$585,000 as of December 31, 1998 and the $190,000 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. As of December 31, 1998, the availability of the line of credit
was limited to $1,326,000, based upon eligible accounts receivable as of that
date. In addition, as mentioned above, the Company is in the process of selling
and leasing back its real property located in Carlsbad, California. The Company
expects that the result of this transaction will provide the Company with more
than $1,000,000 of additional operating capital which will be used to pay down
its line of credit and accounts payable. There is no assurance that the Company
will complete this transaction.
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 $17,000 per month on
various other leases. Aside from these commitments, the Company has not made
any material commitments.
The Company anticipates that its current cash position, revenue from operations
and other (including the sale and leaseback of its facilities) and funds from
its existing line of credit will be sufficient to finance working
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<PAGE>
capital and capital requirements of the combined company for the next twelve
months. However, the Company's capital requirements may vary as a result of
competitive and technological developments and the terms and conditions of
any future strategic transactions. If such requirements change, the Company
may need to raise additional capital. However, there can be no assurance that
the Company can raise additional capital under favorable terms, if at all.
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
in process of reviewing its information technology systems and non-information
technology systems with embedded technology applications, addressing Year 2000
risks, and believes it will resolve any such risks in a timely manner. During
the quarter ended December 31, 1998, the Company began a process of contacting
its critical business partners to reasonably assure that they are adequately
prepared. The results to date are as follows:
<TABLE>
<CAPTION>
Confirmations Returned
-----------------------------------------------------------------
Confirmations Y2K Review in Non-
mailed Compliance process compliance Non-replies
------ ---------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Vendors 380 55 102 5 217
Customers 2 0 2 0 0
</TABLE>
The Company has determined that its products are fully Year 2000 compliant.
In connection with the recent merger, it is currently developing plans to
convert much of its in-house software. Year 2000 issues will be considered in
connection with this software conversion project. In addition, the Company
has evaluated every piece of equipment in its facilities. All equipment was
found to be compliant.
The Company plans on developing contingency plans to address Year 2000 issues
that do arise. As part of its Year 2000 compliance program, the Company plans
to identify alternate vendor sources for vendors who do not respond to our
questionnaires or who appear to not be in compliance. Although no assurance
can be made, given the nature of its major customers, the Company does not
expect that it will encounter significant problems with respect to customer
compliance with Year 2000 issues.
The currently the Company does not have an estimate of costs associated with
these efforts, but does not believe them to be significant. However, the
Company could be adversely impacted if its suppliers or customers do not make
the necessary changes to their own systems and products successfully and in a
timely manner, or if regional infrastructure failures occur as a consequence
of Year 2000 problems.
The SEC's recent guidance for Year 2000 disclosure also calls on companies to
describe their most likely worst case Year 2000 scenario. The Company
believes that the most likely worst case scenario is that the Company will
have to add additional staff and/or reassign existing staff and/or acquire
additional equipment or software during the time period leading up to and
immediately following December 31, 1999, in order to address Year 2000 issues
that unexpectedly arise.
NEW ACCOUNTING PRONOUNCEMENTS
In September 1997, the Financial Accounting Standards Board issued SFAS 131,
DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. This
accounting statement
15
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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 is to be restated. At this time, the Company
does not believe that this accounting statement will have a significant
impact on its financial position or results of operations for the year ending
March 31, 1999.
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.
PART II: OTHER INFORMATION
- --------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
On December 11, 1998, an Annual Meeting of Shareholders of Photomatrix, Inc. was
held and the following matters were approved:
1. The election of seven directors of the Company.
2. The adoption of the Photomatrix Employee Stock Purchase Plan.
3. The ratification of the appointment by the Company's Board of Directors of
KPMG LLP as the independent auditors of the Company for the 1999 fiscal
year.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the quarter ended December 31,
1998.
b. EXHIBITS
10.48 Asset purchase agreement - National Metal Technologies
10.49 Asset purchase agreement - Amcraft
10.50 John Deere equipment lease
10.51 Agreement between Photomatrix and all affiliates and William L.
Grivas, Sr.
27 Financial Data Schedule
16
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHOTOMATRIX INC.
Date: February 12, 1999 by /s/ Patrick W. Moore
--------------------
Patrick W. Moore
Chief Executive Officer
Date: February 12, 1999 by /s/ Roy L. Gayhart
--------------------
Roy L. Gayhart
Chief Financial Officer
17
<PAGE>
EXHIBIT 10.48
EQUIPMENT LEASE
THIS EQUIPMENT LEASE (the "Lease") is entered into by and between Greene
International West, Inc., a Delaware corporation ("Lessor"), and National
Metal Technologies, Inc., a California corporation ("Lessee"), as of December
__, 1998.
RECITALS
WHEREAS Lessor desires to lease to Lessee, and Lessee desires to lease
from Lessor, certain machinery and equipment on the terms and conditions set
forth in this Lease;
NOW THEREFORE in consideration of the foregoing premises and respective
agreements and undertakings herein, and of other good valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Lessor and
Lessee agree as follows:
ARTICLE 1
LEASE AND DESCRIPTION OF LEASED PROPERTY
1.01 LEASE. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Leased Property (as hereinafter defined).
1.02 PROPERTY DESCRIPTION. The property to be leased is described on
the attached Schedule A (the "Leased Property").
ARTICLE 2
TERM OF LEASE
2.01 INITIAL TERM. The term of this Lease shall be from December __,
1998 until November 30, 1999 (the "Term").
ARTICLE 3
RENTAL
3.01 RENTAL PAYMENT. The amount of the rental payment during the Term
shall be $50,000.00 payable in the form of twenty-five thousand (25,000)
shares of common stock of Photomatrix, Inc. as described in the Agreement
entered into by and among Greene International West, Inc., I-PAC
Manufacturing, Inc. and Photomatrix, Inc. dated December 1, 1998, and subject
to the representations and warranties by Photomatrix, Inc. as set forth in
such Agreement.
1
<PAGE>
ARTICLE 4
OWNERSHIP
4.01 NO SALE OR SECURITY INTENDED. This Lease constitutes a lease of
the Leased Property and not a sale or the creation of a security interest.
Lessee shall not have, or at any time acquire, any right, title, or interest
in the Leased Property except the right to possession and use as provided
for in this Lease, unless and until the Option (as hereinafter defined) is
exercised by Lessee.
4.02 SUBORDINATION. The rights of Lessee under this Lease shall be
subject to and subordinate to certain security interests in the Leased
Property held by Silvergate Bank.
ARTICLE 5
OPERATING EXPENSES
5.01 Lessee shall be responsible for all expenses in connection with
the operation of the Leased Property.
ARTICLE 6
MAINTENANCE AND REPAIRS
6.01 LESSEE'S RESPONSIBILITY. Lessee shall assume all obligation and
liability with respect to the possession of the Leased Property, and for its
use, operation, condition, and storage during the Term. Lessee shall, at
Lessee's own expense, maintain the Leased Property in good mechanical
condition and running order, allowing for reasonable wear and tear. Lessor
shall not be under any liability or obligation in any manner to provide
service, maintenance, repairs or parts for the Leased Property.
6.02 ACCESSIONS. All installations, replacements, and substitutions of
parts or accessories with respect to any of the Leased Property shall
constitute accessions and shall become part of the Leased Property and shall
be owned by Lessor.
ARTICLE 6
USE OF PROPERTY
7.01 RIGHTS OF LESSEE. Lessee shall be entitled to the absolute right
to the use, operation, possession and control of the Leased Property during
the term of this Lease, provided Lessee is not in default of any provision of
this Lease or subject to any security interest Lessor may have given or may
give to any third party during the Term. Lessee shall employ and have
absolute control, supervision and responsibility over any operators or users
of the Leased Property.
7.02 DUTIES OF LESSEE. Lessee shall use the Leased Property in a
careful and proper manner and shall not permit any Leased Property to be
operated or used in violation of any applicable federal, state, or local
statute, law, ordinance, rule or regulation relating to the possession, use
or maintenance
2
<PAGE>
of the Leased Property. Lessee agrees to reimburse Lessor in full for all
damage to the Leased Property arising from any misuse or negligent act by
Lessee, its employees and its agents. Lessee will indemnify, defend protect
and hold Lessor its officers, directors, shareholders, agents, employees,
successors and assigns harmless from any and all liabilities, claims, fines,
expenses, forfeitures or penalties for violations of any statue, law,
ordinance, rule, or regulation of any duly constituted public authority.
7.03 COMMERCIAL USE LIMITATION. Lessee represents and warrants that
the Leased Property will be used for commercial or business purposes only.
ARTICLE 8
LESSOR'S RIGHT OF INSPECTION AND REPAIR
8.01 INSPECTION AND REPAIR. Lessor, at its discretion during Lessee's
regular business hours and with twenty-four (24) hours' prior notice to
Lessee, shall have the right to enter the premises where the Leased Property
is located or used for the purpose of inspection. If any Leased Property
covered by this Lease is not being properly maintained in at least as good
condition as the leased property was in at the beginning of the Term, in the
reasonable opinion of Lessor, Lessor shall have the right, but not the
obligation, to have it repaired or maintained at the expense of Lessee.
ARTICLE 9
ASSIGNMENT OF LESSOR'S WARRANTIES
9.01 WARRANTY ASSIGNMENT. Lessor shall assign to Lessee all
manufacturer, dealer or supplier warranties applicable to the Leased Property
to enable Lessee to obtain any warranty service available for the Leased
Property. Lessor appoints Lessee as Lessor's attorney-in-fact for the
purpose of enforcing any warranty. Any enforcement by Lessee shall be at the
expense of Lessee and shall in no way render Lessor responsible to Lessee for
the performance of any of the warranties.
ARTICLE 10
TAXES AND OTHER CHARGES
10.01 TAXES. Lessee shall be liable for and pay on or before their due
dates, all sales taxes, use taxes, personal property taxes, business personal
property taxes and assessments, or other direct taxes or governmental charges
imposed on the Leased Property. The term "direct taxes" as used here shall
include all taxes, except income taxes and franchise taxes of Lessor, and
charges and fees imposed by any federal, state, county, municipal, or other
governmental authority. Lessee shall promptly notify Lessor and send Lessor
copies of any notices, reports, and inquiries from taxing authorities
concerning delinquent taxes, fees, or other charges received, or assessments
received by Lessee.
3
<PAGE>
10.02 OTHER CHARGES. Lessee shall be liable for any fees for licenses,
registrations, permits and other certificates as may be required for the
lawful operation of the Leased Property. All certificates of title shall
initially be applied for in the State of California and shall be issued and
maintained in the name of Lessor, as owner. They shall be delivered to
Lessor and Lessee shall pay all expenses in relation to them.
10.03 TAXES PAID BY LESSOR. If any taxing authority requires that a tax
as set forth in Paragraph 10.01 be paid to the taxing authority directly by
Lessor, Lessee shall, on notice from Lessor, pay to Lessor the amount of the
tax.
ARTICLE 11
NO WARRANTIES BY LESSOR; LESSEE'S ACCEPTANCE
11.01 NO WARRANTIES BY LESSOR. Lessor makes no warranty, express or
implied, as to any matter whatsoever, including the condition of the Leased
Property, its merchantability, or its fitness for any particular purpose.
11.02 EXCLUSION OF EXPRESS WARRANTIES. No agent, employee or
representative of Lessor has any authority to bind Lessor to any affirmation,
representation or warranty to bind Lessor to any affirmation, representation,
or warranty concerning the Leased Property; and unless an affirmation,
representation or warranty made by an agent, employee, or representative is
specifically included within this Lease, it shall not be enforceable by
Lessee.
11.03 ACCEPTANCE BY LESSEE. Subject to the representations and
warranties set forth in Section 4.7 of the Agreement, Lessee has inspected
the Leased Property and Lessee is satisfied with and has accepted the Leased
Property in its present condition and repair, AS-IS and WHERE-IS.
ARTICLE 12
INSURANCE
12.01 LESSEE'S DUTY TO INSURE. Lessee agrees at its own cost and
expense to maintain in full force and effect public liability and property
damage insurance issued by companies satisfactory to Lessor, insuring the
interest of Lessor, Lessee, and their authorized agents and employees. The
policy shall be for primary coverage and shall have a combined single limit
of no less than $1,000,000.00 per occurrence.
For all property covered by this Lease, Lessee shall also provide
comprehensive, fire, theft, and additional combined insurance coverage at
Lessee's own cost and expense naming Lessor as additional insured. Coverage
shall be in the amount of at least Four Hundred Fifty Thousand Dollars
($450,000.00).
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12.02 INSURANCE CERTIFICATE. Lessee shall cause the insurer to furnish
to Lessor, no less than thirty (30) days after execution of this Lease and no
less than five (5) days prior to the expiration date of existing insurance, a
certificate evidencing the required coverage. The policy shall provide that
the insurer shall not cancel or materially modify the insurance except on
thirty (30) days' advanced written notice to Lessor. If Lessee fails to
procure, maintain, or renew the insurance, Lessor may, but is not obligated
to, obtain insurance for Lessee and for the account of Lessee without
prejudice to any other rights that Lessor may have.
12.03 EXCESS LIABILITY INDEMNITY. Lessee shall indemnify, defend,
protect and hold Lessor, its officers, directors, shareholders, agents,
employees, successors and assigns harmless from and against all loss,
liability and expense, including reasonable attorneys' fees, in excess of the
provided limits of liability insurance for bodily injury (including death) or
property damage caused by or arising out of the ownership, maintenance, use
or operation of the Leased Property. Lessee shall further indemnify, defend,
protect and hold harmless Lessor, its officers, directors, shareholders,
agent, employees, successors and assigns, from and against all loss,
liability and expense, including reasonable attorneys' fees, because of
Lessee's failure to comply with any terms, provisions, and conditions of any
insurance policy insuring Lessor and Lessee, or because of Lessee's failure
to comply with the terms and provisions of this Article.
ARTICLE 13
INDEMNIFICATION AND LIABILITY
13.01 ALL LIABILITY ASSUMED BY LESSEE. Lessee assumes all risk and
liability for the loss of or damage to the Leased Property, for the death of
or injury to any person or property of another, and for all other risks and
liabilities arising from the use, operation, condition, possession, or
storage of the Leased Property. Nothing in this Lease shall authorize Lessee
or any other person to operate any of the Leased Property so as to impose any
liability or other obligation on Lessor.
13.02 LESSEE'S DUTY TO INDEMNIFY. Lessee shall indemnify, defend,
protect and hold harmless Lessor, its officers, directors, shareholders,
agents, employees, successors and assigns from all liabilities, claims,
damages, loss, expenses, including reasonable attorneys' fees, Lessor may
sustain or suffer for any of the following reasons:
(a) The loss of or damage to any of the Leased Property for any cause;
(b) The injury to or death of any person including but not limited to
agents or employees of Lessee; or
(c) Damage to any property arising from the use, possession,
selection, delivery, return, condition or operation of any Leased Property.
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Lessee shall reimburse Lessor for all expenses, losses, liabilities,
fines, penalties, and claims of every type, including reasonable attorneys'
fees, imposed on or incurred by Lessor because of the failure by Lessee to
perform any of the Lease terms. Lessee shall also pay interest at the rate
of eight percent (8%) per annum per month from the day payment is made by
Lessor through the day Lessor is reimbursed by Lessee.
13.3 OBLIGATIONS SURVIVE LEASE TERM. The indemnities and assumptions
of risk, liabilities and obligations by Lessee arising under the Lease during
the Lease's term shall continue in effect for a period of two (2) years after
the termination of Lease, regardless of the reason for termination.
ARTICLE 14
ACCIDENT, LOSS OF PROPERTY, OR DAMAGE TO PROPERTY
14.01 NOTIFICATION TO LESSOR. If any Leased Property covered by this
Lease is damaged, lost, stolen, or destroyed, or if any property is damaged
as a result of its operation, use, maintenance or possession, Lessee shall
promptly notify Lessor of the occurrence, and shall file all necessary
accident reports, including those required by law and those required by
insurers of the Leased Property.
14.02 COOPERATION IN DEFENSE OF CLAIMS. Lessee, its employees and
agents shall cooperate fully with Lessor and all insurers providing the
insurance under this Lease in the investigation and defense of any and all
claims or suits. Lessee shall promptly deliver to Lessor any and all papers,
notices and documents served on or delivered to Lessee, its employees or its
agents in connection with any claim, suit, action or proceeding at law or in
equity commenced or threatened against Lessee, Lessor, or both concerning the
Leased Property.
14.3 LOSS. If any Leased Property becomes lost, stolen, destroyed, or
damaged beyond repair, Lessee shall pay Lessor in cash its then orderly
liquidation value (the "OLV") less any net proceeds of insurance for the
property received by Lessor. Upon payment, this Lease shall terminate with
respect to that item of Leased Property and Lessee shall become entitled to
the Leased Property on an "as-is-where-is" basis, without warranty, express
or implied, for any matter whatsoever. For purposes of this Agreement, the
term OLV shall mean the orderly liquidation value of such Leased Property at
the time of loss, taking into account its age, usage and normal wear and tear
from the date of execution of this Lease.
ARTICLE 15
ASSIGNMENT
15.01 ASSIGNMENT BY LESSOR. Lessor may assign this Lease or any rights
under it at any time without Lessee's consent. In the event of any assignment,
Lessor's assignee shall have all the rights, powers, privileges and remedies of
Lessor set forth in this Lease and this Lease shall be binding on the assignee,
including without limitation, the provisions regarding Lessee's Option (as
hereinafter defined).
15.02 WAIVER OF DEFENSES. Lessee agrees not to raise any claim or defense
against Lessor
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arising out of this Lease as a defense, counter-claim or offset to any action
by any assignee for the unpaid balance of any charges due under this Lease or
for possession of the Leased Property.
15.03 ASSIGNMENT OR SUBLETTING BY LESSEE. Lessee shall not assign this
Lease or any property, or assign any interest in the Lease or the Leased
Property, or sublet any of the Leased Property without the express prior
written consent of Lessor.
ARTICLE 16
ACTIONS CONSTITUTING DEFAULT
16.01 LESSEE IN DEFAULT. Lessor, at its option, may by written notice
to Lessee, declare Lessee in default on the occurrence of any of the
following:
(a) Failure by Lessee to make payments or perform any of its
obligations under (i) this Lease, and/or (ii) a promissory note of even date
herewith by Lessee in favor of Lessor in the principal sum of Three Hundred
Fifty Thousand Dollars ($350,000.00) (the "Goodwill Note"), and/or (iii) a
premises lease with a commencement date of February 1, 1999 between Lessee
and Lessor (the "Premises Lease");
(b) Institution by or against Lessee of any proceeding in bankruptcy
or insolvency, or the reorganization of Lessee under any law, or the
appointment of a receiver or trustee for the goods and chattels of Lessee, or
any assignment by Lessee for the benefit of creditors;
(c) Expiration or cancellation of any insurance policy to be paid for
by Lessee as provided for under the terms of this Lease; or
(d) Involuntary transfer of Lessee's interest in this Lease by
operation of law.
ARTICLE 17
RIGHTS, REMEDIES, AND OBLIGATIONS ON DEFAULT
17.01 LESSOR'S RIGHTS AND REMEDIES. After the default of Lessee, and on
notice from Lessor that Lessee is in default, Lessor shall have the following
options:
(a) To terminate the Lease and Lessee's rights under this Lease
including Lessee's Option (as hereinafter defined);
(b) To declare the balance of all unpaid charges of any kind required
of Lessee under the Lease to be due and payable immediately, in which event
Lessor shall be entitled to the balance due together with interest at the
rate of eight percent (8%) per annum from the date of notification of default
to the date of payment; and
(c) To repossess the Leased Property without process free of all
rights of Lessee in and
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to the Leased Property. Lessee authorizes Lessor or Lessor's agent to enter
on any premises where the Leased Property is located and repossess and remove
it. Lessee specifically waive any right of action Lessee might otherwise
have arising out of the entry and repossession, and releases Lessor of any
claim for trespass or damage caused by reason of the entry, repossession or
removal.
17.02 LESSEE'S OBLIGATION FOR LESSOR'S COSTS. After default, Lessee
shall reimburse Lessor for all reasonable expenses of repossession and
enforcement of Lessor's rights and remedies, together with interest at the
rate of eight percent (8%) per annum from the date of payment.
Notwithstanding any other provisions of this Lease, if Lessor places all or
any part of Lessor's claim against Lessee in the hands of an attorney for
collection, Lessee shall pay Lessor its reasonable attorneys' fees.
17.03 REMEDIES CUMULATIVE. The remedies of Lessor shall be cumulative
to the extent permitted by law, and may be exercised partially, concurrently,
or separately. The exercise of one remedy shall not be deemed to preclude
the exercise of any other remedy.
17.04 EFFECT OF FORBEARANCE. No failure on the part of Lessor to
exercise any remedy or right and no delay in the exercise of any remedy or
right shall operate as a waiver. No single or partial exercise by Lessor of
any remedy or right shall include any other or further exercise of that
remedy or right or the exercise of any other rights or remedies. No
forbearance by Lessor to exercise any rights or privileges under this Lease
shall be construed as a waiver, but all rights and privileges shall continue
in effect as if no forbearance had occurred. Acceptance by Lessor of
payments made by Lessee after default shall not be deemed a waiver of
Lessor's rights and remedies arising from Lessee's default.
17.05 FORFEITURE OF LESSEE'S INTEREST ON DEFAULT. Upon default, for any
reason, Lessee and Lessee's successor in interest shall have no right, title
or interest in the Leased Property, its possession or its use. Lessor shall
retain all payments of any kind made by Lessee under this Lease.
ARTICLE 18
LIENS
18.01 ENCUMBRANCES OR LIEN; NOTICE. Lessee shall not pledge, encumber,
create a security interest in, or permit any lien to become effective on any
Leased Property. If any of these events takes place, Lessee shall be deemed
to be in default at the option of Lessor. Lessee shall promptly notify
Lessor of any liens, charges or other encumbrances of which Lessee has
knowledge. Lessee shall promptly pay or satisfy any obligation from which
any lien or encumbrance arises, and shall otherwise keep the Leased Property
and all right, title and interest free and clear of all liens, charges and
encumbrances. Lessee shall deliver to Lessor appropriate satisfactions,
waivers or evidence of payment.
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ARTICLE 19
OPTION
19.01 GRANT OF OPTION. Lessor hereby grants to Lessee the option to
purchase the Leased Property (the "Option") as set forth herein, provided
Lessee is not in default under this Lease at the time Lessee exercises the
Option.
19.02 PURCHASE PRICE. The purchase price of the Leased Property shall
be Four Hundred Ninety Thousand Dollars ($490,000.00), to be reflected by a
promissory note on the terms and conditions set forth on Exhibit "B" (the
"Equipment Note"), with interest at eight percent (8%) per annum. The
purchase price of the Leased Property under this Option shall be reduced by
any insurance proceeds and payment received under the numbered paragraph
entitled "Loss".
19.03 METHOD OF EXERCISING THE OPTION. Lessee shall exercise the Option
by giving written notice (the "Option Notice") to Lessor on or before
December 1, 1999. The Option Notice shall be accompanied by the executed
Equipment Note. Upon receipt of the executed Equipment Note, Lessor shall
deliver a Bill of Sale for the Leased Property to Lessee.
19.04 LESSEE'S LIABILITY. Failure to exercise the Option shall not
relieve Lessee of its liability under the Goodwill Note or the Premises Lease.
ARTICLE 20
RETURN OF PROPERTY ON EXPIRATION; HOLDING OVER
20.01 LESSEE'S RETURN OF PROPERTY. If Lessee does not exercise the
Option, upon the expiration date of this Lease with respect to any or all of
the Leased Property, all rights of Lessee hereunder shall terminate and
Lessee shall return the Leased Property to Lessor at the location designated
by Lessor, at Lessee's sole expense, together with all accessories, free from
all damage and in the same condition and appearance as when received by
Lessee, allowing for ordinary wear and tear. If Lessee fails to or refuses
to return the Leased Property to Lessor, Lessor shall have the right to take
possession of the Leased Property and for that purpose to enter any premises
where the Leased Property is located without being liable in any suit,
action, defense or other proceedings to Lessee.
20.02 HOLDING OVER. Should Lessee, without the express consent of
Lessor, continue to hold and retain the Leased Property after the expiration
or earlier termination of the Term, or collection of rent by Lessor shall
operate and be construed as creating a month-to-month rental and not for any
other term whatsoever. During any such holdover period, Lessee shall pay to
Lessor for each month (or portion thereof) Lessee remains in possession of
the Leased Property, the sum of Nine Thousand Three Hundred Seventy-Five
Dollars ($9,375.00) which shall be credited to the purchase price of Leased
Property under the Option hereunder or the Option in favor of Lessee by
Silvergate Bank, as the case may be, if it is exercised by Lessee. Said
month-to-month rental may be terminated by Lessor by giving Lessee thirty
(30) days written notice, and at any time thereafter Lessor may re-enter and
take possession of the Leased Property.
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ARTICLE 21
NOTICES
21.01 Any notice or other communication to be given under this Agreement
by either party to the other will be in writing and delivered personally or
mailed by certified mail, postage prepaid and return receipt requested, or
delivered by an express overnight delivery service, charges prepaid, or
transmitted by facsimile, as follows:
If to Lessor: Greene International West, Inc.
P. O. Box 8149
San Diego, CA 92038-8149
Fax No. (___)_____________
With copy to: J. Michael Wilson, Esq.
Wilson & Corbin, A.P.L.C.
591 Camino de la Reina, Ste. 860
San Diego, CA 92108
Fax No. (619) 297-7900
If to Lessee: National Metal Technologies, Inc.
4040 Calle Platino
Oceanside, CA 92056
Fax No. (760) 941-5416
With copy to: James P. Hill, Esq.
Sullivan, Hill, Lewin, Rez & Engel
550 West C Street, Ste. 1500
San Diego, CA 92101
Fax No. (619) 231-4372
Any address or name specified above may be changed by a notice given by
the addressee to the other party in accordance with this numbered paragraph.
Any notice will be deemed given and effective (i) if given by personal
delivery, as of the date of delivery in person; or (ii) if given by mail,
upon receipt as set forth on the return receipt; or (iii) if given by
overnight courier, one (1) business day after timely deposit with the
courier; or (iv) if given by facsimile, upon receipt of the appropriate
confirmation of transmission by facsimile. The inability to deliver because
of a changed address of which no notice was given or the rejection or other
refusal to accept any notice will be deemed to be the receipt of the notice
as of the date of such inability to deliver or the rejection or refusal to
accept.
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ARTICLE 22
MISCELLANEOUS
This Lease shall be construed in accordance with the laws of the State
of California.
Paragraph titles or captions contained herein are inserted as a matter
of convenience and for reference and in no way define, limit, extend or
describe the scope of this Lease or any provision hereof.
Except as may otherwise be set forth in this Lease, this Lease shall be
binding upon and shall inure to the benefit of the parties, their
beneficiaries, representatives, assigns and all other successors-in-interest.
All exhibits and schedules referred to herein are deemed incorporated in
this Lease by reference.
This Lease and the exhibits and schedules hereto contain all of the
agreements and understandings of the parties with respect to the matters
referred to herein, and no prior agreement or understanding pertaining to any
such matters shall be effective for any purposes.
The singular number and the masculine and neuter gender as used in this
Lease shall also include the plural number and the feminine gender.
The parties shall sign or cause to be signed all documents and shall
perform or cause to be performed all acts necessary to consummate the
transactions contemplated hereunder.
Each of the parties has agreed to the use of the particular language of
the provisions of this Lease, and any question of doubtful interpretation
shall not be resolved by any rule of interpretation providing for
interpretation against the party who causes the uncertainty to exist or
against the draftsman.
In any action, arbitration or other proceeding brought for the
interpretation or enforcement of any of the terms or provisions of this
Lease, or because of any alleged dispute, breach, default or
misrepresentation in connection with the provisions of this Agreement, the
successful or prevailing party shall be entitled to recover reasonable
attorneys' fees and other costs incurred in that action, arbitration, or
proceeding, in addition to any damages or injunctive or other relief to which
said party may be entitled, and whether or not such action, arbitration or
other proceeding proceeds to judgment or award. The venue for any such
action, arbitration or other proceeding shall be San Diego County, California.
This Lease may not be superseded, amended or added to except by an
agreement in writing, signed by the parties.
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If any section, paragraph, subparagraph or provision of this Lease is
held by a court of competent jurisdiction to be illegal or invalid, said
provision shall be deemed to be severed and deleted; and neither such
provision, its severance or deletion shall affect the validity of the
remaining provisions of this Lease.
The parties may execute this Lease in two or more counterparts, which
shall, in the aggregate, be deemed an original instrument as against any
party who has signed it.
Time is of the essence in the performance of this Lease.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the date first above written. This Lease shall become effective only upon
the signature of all parties listed below.
LESSOR: LESSEE:
Greene International West, Inc. National Metal Technologies, Inc.
a Delaware corporation a California corporation
By:________________________________ By:_____________________________
Victor Andonie, Chairman of the Patrick W. Moore, CEO
Board
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SECURED PROMISSORY NOTE
$350,000.00 December __, 1998
San Diego, California
In installments as herein stated, for value received, the undersigned
promises to pay to Greene International West, Inc., a Delaware corporation,
or order, at San Diego, California, or at such other places as the holder may
from time to time designate, the sum of Three Hundred Fifty Thousand Dollars
($350,000.00), with interest from December 1, 1998 until paid at the rate of
eight percent (8%) per annum, principal payable in sixteen (16) consecutive
quarterly installments of or equal to Twenty-One Thousand Eight Hundred
Seventy-Five Dollars ($21,875.00), plus accrued interest, as set forth below,
on the 20th day of the month following the end of each quarter, beginning on
March 20, 2000. Such quarterly installments shall continue until the entire
indebtedness evidenced by this note is fully paid.
The quarterly principal payments as set forth herein shall be made as
follows:
A. $9,375.00 shall be paid in lawful money of the United States or in
common stock of Photomatrix, Inc. ("Stock"), as determined by the holder of
this note, in its sole discretion; and
B. $12,500.00 shall be paid in lawful money of the United States or in
Stock, as determined by the undersigned, in its sole discretion.
Interest shall be payable only in lawful money of the United States.
Notwithstanding anything to the contrary contained in this note, in the
event the Stock is no longer listed on NASDAQ, all principal payments due
hereunder shall be paid in lawful money of the United States.
Notice of the determination of whether the quarterly payment shall be in
lawful money of the United States or in Stock shall be given in writing to
the other party at least ten (10) days before each respective payment is due.
The party making the determination may designate that the entire portion to
which its determination rights extend shall be in lawful money of the United
States or Stock, or that a designated percentage shall be in lawful money of
the United States and a designated percentage shall be in Stock. Failure of
a party to give notice of its determination by the date such determination is
to be made shall be deemed to be a determination that the payment shall be in
lawful money of the United States.
In the event any payment or portion thereof is to be made in Stock, the
number of shares of Stock to be issued shall be based on the market rate of
the Stock. For purposes of this note, the market rate of the Stock shall be
the average of all trading day closing prices for Photomatrix, Inc. common
stock during the calendar month immediately preceding a payment date.
<PAGE>
Should interest not be paid when due, it shall thereafter bear like
interest as the principal, but such unpaid interest so compounded shall not
exceed an amount equal to simple interest on the unpaid principal at the
maximum rate permitted by law.
Should a default occur under this note, the whole sum of principal and
accrued interest shall, without notice, become immediately due and payable in
lawful money of the United States.
The failure of the holder hereof to exercise any of the options herein,
or to promptly enforce any of the provisions of this note shall not
constitute a waiver of the right to exercise or enforce any option or
provision.
Time is of the essence in performance hereof.
In the event an action is instituted under this note by one party
against the other, the party prevailing in such action shall be entitled to
recover reasonable attorneys' fees and costs from the other party whether or
not such action proceeds to judgment.
Presentment, notice of dishonor, and protest are hereby waived by all
makers, sureties, and endorsers hereof.
This note shall be the joint and several obligation of all makers,
sureties, and endorsers, and shall be binding upon them and their successors
and assigns.
This note is secured by a Security Agreement of even date herewith
entered into by and between the undersigned and Greene International West,
Inc.
If substantially all of the assets subject to said Security Agreement
are sold or transferred by the undersigned, or if Photomatrix, Inc. sells
substantially all of its assets or its subsidiary (the undersigned), or if
there is a fifty percent (50%) change in ownership of Photomatrix, Inc. or
the undersigned in a single transaction or a series of related transactions,
Greene International West, Inc. may, at its option exercisable within thirty
(30) days of receiving notice from Photomatrix, Inc. or the undersigned of
such change in ownership, declare all sums due hereunder to be immediately
due and payable in lawful money of the United States or in Stock.
The undersigned and Greene International West, Inc. have entered into a
Lease Agreement for the premises located at 4040 Calle Platino, Oceanside,
California, with a commencement date of February 1, 1999. A default under
the Lease Agreement shall be deemed a default under this note and a default
under this note shall be deemed a default under the Lease Agreement.
The undersigned and Greene International West, Inc. have entered into an
Equipment Lease
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of even date herewith. A default under the Equipment Lease shall be deemed a
default under this note and a default under this note shall be deemed a
default under the Equipment Lease.
In the event the undersigned executes a promissory note in connection
with an option to purchase the equipment under the Equipment Lease the
("Equipment Note"), a default under the Equipment Note shall be deemed a
default under this note and a default under this note shall be deemed a
default under the Equipment Note.
No portion of this note shall be or be deemed to be offset or
compensated by all or any part of any claim, cause of action, counterclaim,
or cross-claim, whether liquidated or unliquidated, which the undersigned may
have or claim to have against the holder of this note.
National Metal Technologies, Inc.,
a California corporation
By: ______________________________
Patrick W. Moore, CEO
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AGREEMENT
AGREEMENT (this "Agreement") dated as of December 1, 1998, by and
among PHOTOMATRIX, INC., a California corporation, I-PAC MANUFACTURING, INC.,
a California corporation (the "Buyer"), AND GREENE INTERNATIONAL WEST, INC.,
a Delaware corporation (the "Company").
RECITALS
A. The Company is engaged in the metal stamping business (the
"Business").
B. The Buyer desires to purchase from the Company and the Company
desires to sell to the Buyer, the Business of the Company and certain
property and assets of the Company.
NOW THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth, and intending to be legally bound hereby, the parties hereto agree
as follows.
1. PURCHASE AND SALE
1.1 ASSETS TO BE TRANSFERRED. Subject to the terms and conditions of
this Agreement, effective as of December 1, 1998 (the "Effective Date"), the
Company shall sell, transfer, convey, assign, and deliver to the Buyer, and
the Buyer shall purchase and accept, all of the business, rights, claims and
assets (of every kind, nature, character and description, whether real,
personal or mixed, whether tangible or intangible, whether accrued,
contingent or otherwise, and wherever situated) of the Company, other than
the Excluded Assets (as hereinafter defined) (collectively the "Purchased
Assets"). The Purchased Assets shall include only the following:
(a) ACCOUNTS RECEIVABLE. All accounts receivable of the
Company on the Effective Date which remain uncollected as of the execution of
this Agreement (the "Accounts Receivable"). A Schedule of Accounts
Receivable at the date hereof has been furnished to the Buyer and is attached
as Schedule 1.1a. The Buyer assumes all risk of collectibility of the
Accounts Receivable.
(b) WIP INVENTORY. All inventories of work-in-process of the
Company on November 18, 1998 to be used for fulfilling the Assumed Contracts,
as hereinafter defined, existing on the Effective Date, together with related
packaging materials and supplies (collectively the "WIP Inventory"). A
Schedule of WIP Inventory at the date hereof has been furnished to the Buyer.
(c) CONTRACTS. All contracts, contractual rights, purchase
orders and sales orders (hereinafter in this Section 1.1(c) "Contracts") of
the Company that are either (i) described and set forth on Schedule 1.1(c) of
the Disclosure Schedule attached hereto, or (ii) that Buyer elects to assume
at any time after the Effective Date, by giving written notice to the Company
as set forth in Section 12.7 hereof; provided that such election by the Buyer
shall not constitute a waiver of any rights of indemnification or other
rights under this Agreement which the Buyer may have by virtue of the
existence or breach of any such Contract, or any of its provisions or by
virtue of any failure to disclose any amendment or modification to any term
of any such contract.
The Contracts described in subsections (i) and (ii) above are
hereinafter collectively described as the "Assumed Contracts." To the extent
that any Assumed Contract for which assignment to the
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Buyer is provided herein is not assignable without the consent of another
party, this Agreement shall not constitute an assignment or an attempted
assignment thereof if such assignment or attempted assignment would
constitute a breach thereof. The Company and the Buyer agree to use their
reasonable best efforts (without any requirement on the part of the Buyer or
the Company to pay any money or agree to any change in the terms of any such
Contract) to obtain the consent of such other party to the assignment of any
such Assumed Contract to the Buyer in all cases in which such consent is or
may be required for such assignment. If any such consent shall not be
obtained by the Effective Date, the Company agrees to cooperate with the
Buyer in any reasonable arrangement designed to provide for the Buyer the
benefits intended to be assigned to the Buyer under the relevant Assumed
Contract, including enforcement at the cost and for the account of the Buyer
of any and all rights of the Company against the other party thereto arising
out of the breach or cancellation thereof by such other party or otherwise.
(d) LITERATURE. All sales literature, promotional literature,
instructional materials, manufacturing instructions, engineering aids, quoting
records, catalogs and similar materials of the Company in the Company's control.
(e) TRADE RIGHTS. All the Company's interest, if any, in any
Trade Rights. As used herein, the term "Trade Rights" shall mean and
include: (i) all United States and foreign copyrights, copyright
registrations and copyright applications, including all claims for
infringement, and all other rights associated with the foregoing and the
underlying works of authorship; (ii) all United States and foreign patents
and patent applications, including all claims for infringement and all
international proprietary rights associated therewith; (iii) all contracts or
agreements granting any right, title, license or privilege under the
intellectual property rights of any third party; and (iv) all inventions,
manufacturing techniques, vendor qualifications, mask works and mask work
registrations, know-how, discoveries, improvements, designs, trade secrets,
shop and royalty rights, customer tooling specifications, employee covenants
and agreements respecting intellectual property and non-competition and all
other types of intellectual property.
1.2 EXCLUDED ASSETS. The provisions of Section 1.1 notwithstanding,
the Company shall not sell, transfer, assign, convey or deliver to the Buyer,
and the Buyer will not purchase or accept the following assets of the Company
(collectively the "Excluded Assets"):
(a) LEASED EQUIPMENT. The equipment subject to the Equipment
Lease (as hereinafter defined).
(b) CONSIDERATION. The consideration delivered by the Buyer to
the Company pursuant to this Agreement.
(c) TAX CREDITS. Federal, state and local income and franchise
tax credits and tax refund claims.
(d) CERTAIN BALANCE SHEET ITEMS. The assets reflected on the
balance sheet of the Company dated as of the Effective Date (the "Final
Closing Balance Sheet") under the following line items: "other receivables,"
"due from affiliated companies," "employee advances" and "prepaid income
taxes".
(e) CORPORATE FRANCHISE. The Company's franchise to be a
corporation, its certificate of incorporation, corporate seal, stock books,
minute books and other corporate records having exclusively to do with the
corporate organization and capitalization of the Company. The
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Buyer and its designated agents shall have reasonable access to such books
and records and may make excerpts therefrom and copies thereof.
(f) TAX RECORDS. The Company's income and franchise tax
returns and tax records.
(g) CORPORATE NAME. The name "Greene International West, Inc."
and all rights to use or allow others to use such name.
(h) CASH AND CASH EQUIVALENTS. All cash and cash equivalents
of the Company on the Effective Date.
(i) PREPAID EXPENSES. All prepaid expenses and deposits
reflected on the Final Closing Balance Sheet
(j) OTHER INVENTORY. All inventories of raw materials and
finished goods (including all such in transit) of the Company on the
Effective Date. However, the Buyer shall purchase and the Company shall sell
such usable raw materials from the Company on and after the Effective Date at
an agreed-upon market value on the date of inventory purchase, as shall be
needed for the purpose of fulfilling the Assumed Contracts. Notwithstanding
the foregoing, the Company shall have the right to sell to third parties all
inventories of raw material and finished goods not needed to fulfill the
Assumed Contracts.
(k) TURKISH GOODWILL. The goodwill associated with the
potential agreement being discussed as of the date hereof between the Company
and the Turkish government for the Company to build a links manufacturing
plant in Turkey.
(l) REAL PROPERTY. The real property currently occupied by the
Company at 4040 Calle Platino, Oceanside, California.
(m) EQUIPMENT OWNED BY THIRD PARTIES. The tools, dies and
presses owned by the United States government (the "Government Equipment")
and by the Company's customers as set forth on Schedule 1.2m (the "Customer
Equipment").
2. ASSUMPTION OF LIABILITIES
2.1 LIABILITIES TO BE ASSUMED. Subject to the terms and conditions of
this Agreement, on the Effective Date, the Buyer shall assume and agree to
perform and discharge to the extent indicated below, the following, and only
the following specific debts, liabilities and obligations of the Company
(collectively the "Assumed Liabilities") (and also as set forth on Schedules
1.1c and 2.1b):
(a) CERTAIN CONTRACTUAL LIABILITIES. The Buyer hereby assumes
and agrees to perform the obligations of the Company that are required to be
performed after the Effective Date under the Assumed Contracts (including the
liabilities of the Company in respect of a breach of or default under any
Assumed Contracts arising or based on matters occurring prior to the
Effective Date, provided such breach or default has been disclosed to the
Buyer in writing).
(b) COMPANY EQUIPMENT LEASES. The Buyer hereby assumes and
agrees to perform the obligations of the Company under those equipment leases
set forth on Schedule 2.1(b).
2.2 LIABILITIES NOT TO BE ASSUMED. Except as and to the extent
specifically set forth in Section 2.1, the Buyer is not assuming any debts,
liabilities, obligations or contracts of the Company
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and all such debts, liabilities, obligations and contracts shall be and
remain the responsibility of the Company. Buyer is expressly not assuming
any claims or liabilities relating to products sold by the Company prior to
the Effective Date.
3. PURCHASE PRICE - PAYMENT
3.1 PURCHASE PRICE. The purchase price (the "Purchase Price") for the
Purchased Assets shall be: (a) the assumption of the Assumed Liabilities by
the Buyer on the Effective Date; (b) the issuance to the Company upon
execution of this Agreement, Seventy-Five Thousand (75,000) unregistered
shares (the "Shares"), of the Common Stock of Photomatrix (which, upon
issuance against delivery of the Purchased Assets, shall be fully paid and
nonassessable) which Shares will be subject to a legend as to their
unregistered nature and will be credited to the principal amount of the Note
(described below) as set forth therein; (c) the issuance to the Company
concurrently herewith of the Promissory Note of the Buyer in the form
attached hereto as EXHIBIT A (the "Note"), which Note will be in the
aggregate principal amount of Three Hundred Fifty Thousand Dollars
($350,000.00) and will be secured by a security agreement encumbering all the
assets (except accounts receivable) of the Buyer or Buyer's assignee as
hereinafter set forth, in the form attached hereto as EXHIBIT B (the
"Security Agreement"); (d) the payment to the Company on or before January
15, 1999 for the Accounts Receivable; and (e) the payment to the Company on
or before March 31, 1999 for the WIP Inventory.
3.2 PAYMENT OF PURCHASE PRICE. The Purchase Price shall be paid by
the Buyer as follows:
(a) ASSUMPTION OF LIABILITIES. The assumption by the Buyer of
the Assumed Liabilities.
(b) SHARES. As soon as practicable after the execution of this
Agreement, the Buyer will deliver to the Company a certificate representing
the Shares bearing a legend regarding the unregistered nature of the Shares.
(c) NOTE. Concurrently herewith, the Buyer shall deliver to
the Company the Note and the Security Agreement.
(d) ACCOUNTS RECEIVABLE. The purchase price of the Accounts
Receivable is Thirty-Six Thousand Dollars ($36,000.00), payable on or before
January 15, 1999.
(e) WIP INVENTORY. The Buyer and the Company have conducted a
physical inventory of the WIP Inventory as of the Effective Date and have
listed all of the WIP Inventory on a written list, a copy of which is
attached as EXHIBIT C (the "WIP Inventory"). The purchase price for the WIP
Inventory is Thirty-Two Thousand One Hundred Seventy Dollars and Eighteen
Cents ($32,170.18), payable on or before March 31, 1999.
3.3 ALLOCATION OF PURCHASE PRICE. The consideration paid by the Buyer
to the Company for the transfer of the Purchased Assets pursuant to this
Agreement shall be allocated as follows:
<TABLE>
<S> <C>
Accounts Receivable $ 36,000.00
WIP Inventory $ 32,170.18
Goodwill $500,000.00
</TABLE>
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Both parties shall be obligated to report the transaction on all applicable
tax filings consistent with the allocation pursuant to this Section 3.3.
3.4 ROYALTY. As additional consideration for the Purchased Assets,
the Buyer shall pay to the Company an amount equal to one and three quarters
percent (1.75%) of gross product sales made by the Buyer to the existing and
former customers of the Company as of the date hereof, including without
limitation, the customers as listed on the customer list attached hereto as
EXHIBIT D (the "Customer List"), during the three (3) year period from and
after the Effective Date. The consideration payable pursuant to this section
is hereinafter called the "Percentage Consideration" and the period of time
during which it is payable is hereinafter called the "Payout Period."
Within thirty (30) days after the close of each six (6) calendar months
during the Payout Period, the Buyer shall furnish to the Company a written
statement showing the total amount of gross product sales during the
preceding six (6) months, and shall accompany each such statement with a
payment to the Company equal to the above stated percentage of gross product
sales for such six-month period. The Percentage Consideration shall be
payable in unregistered shares of the Common Stock of Photomatrix at their
then current market price or in cash, at the election of the Buyer. Market
price shall mean the average closing price for all trading days during the
calender month immediately preceding the end of the six-month reporting
period described above.
The term "gross product sales" as used in this Agreement shall include
the gross sales prices of all goods sold to customers listed on the Customer
List, excepting any refunds, returns, normal industry discounts or
allowances, insurance and freight charges and the amount of all sales taxes
for which the Buyer must account to any governmental agency.
The Buyer shall keep complete and proper books, records and accounts of
its gross product sales as aforesaid for a period of at least five (5) years.
The Company and its agents shall have the right during regular business hours
and upon at least three business days' notice to the Buyer, to examine,
inspect and copy all such books, records and accounts, including any sales or
use tax reports or returns pertaining to such sales, for the purpose of
investigating and verifying the accuracy of any statement of gross product
sales. The Company may once in any calendar year cause an audit, at its
expense, of the Buyer's gross product sales to be made by an accountant of
the Company's selection, and if any six (6) month statement of gross product
sales previously made to the Company shall be found to be inaccurate, then
there shall be an adjustment and one party shall pay to the other on demand
such sums as may be necessary to settle in full the accurate amount of
Percentage Consideration that should have been paid for the period or periods
covered by such inaccurate statement or statements. In the event any
inaccuracy in any six (6) month statement of gross product sales exceeds five
(5%), the costs of such audit shall be borne by the Buyer.
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3.5 EQUIPMENT LEASE. On the execution of this Agreement, the Company
as lessor and the Buyer as lessee shall enter into an equipment lease for all
machinery, furniture, fixtures, tools, tooling, vehicles and all other
personal property not included in inventory (other than personal property
leased pursuant to the Contracts) owned, utilized or held for use by the
Company on the Effective Date as set forth on a schedule furnished to the
Buyer (the "Equipment"), which equipment lease (the "Equipment Lease") shall
be for a term of twelve (12) months, with an option to purchase the
Equipment, and shall be in substantially the form attached hereto as EXHIBIT
E. The Equipment shall be accepted in its AS-IS condition, subject to the
representations set forth in Section 4.7.
4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY
The Company represents and warrants to and agrees with the Buyer as set
forth below. The following representations, warranties and covenants are
true and correct on the Effective Date shall be unaffected by any
investigation heretofore or hereafter made by the Buyer, or any knowledge of
the Buyer other than as specifically disclosed in the Disclosure Schedule
delivered to the Buyer at the time of the execution of this Agreement, and
shall survive the closing of the transactions provided for herein.
4.1 CORPORATE ORGANIZATION. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware. The Company has all requisite corporate power and authority to
own, operate and lease its properties, to carry on its business as and where
such is now being conducted, to enter into this Agreement and the other
documents and instruments to be executed and delivered by the Company
pursuant hereto and to carry out the transactions contemplated hereby and
thereby. Except as set forth in Schedule 4.1 of the Disclosure Schedule, the
Company is duly licensed or qualified to do business as a foreign
corporation, and is in good standing, in the State of California and in each
other jurisdiction wherein the character of the properties owned or leased by
it, or the nature of its business, makes such licensing or qualification
necessary. The states in which the Company is licensed or qualified to do
business are listed in Schedule 4.1 of the Disclosure Schedule. The Company
does not own any interest in any corporation, partnership or other entity.
4.2 NO DISSOLUTION, LIQUIDATION, ETC. Neither the Board of Directors
nor the holders of any class of outstanding capital stock of the Company has
adopted any resolution or taken any other action with respect to dissolution,
liquidation, winding up, reorganization or bankruptcy (voluntary or
involuntary) of the Company, no such resolution or other action is proposed,
under consideration or contemplated, and there is no proceeding or other
action pending, threatened, proposed or contemplated by any stockholder or
creditor of the Company or any court, administrative or governmental agency,
instrumentality, commission, authority, board or body with respect to any
dissolution, liquidation, winding up, reorganization or bankruptcy (voluntary
or involuntary) of the Company, nor is there any basis for any such
proceeding or other action.
4.3 AUTHORITY. The execution and delivery of this Agreement and the
other documents and instruments to be executed and delivered by the Company
pursuant hereto and the consummation of the transactions contemplated hereby
and thereby have been duly authorized by the Board of Directors and
shareholders of the Company. No other or further corporate act or proceeding
on the part of the Company, its Board of Directors or any of its shareholders
is necessary to authorize this Agreement or the other documents and
instruments to be executed and delivered by the Company pursuant hereto or
the consummation of the transactions contemplated hereby and thereby. This
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<PAGE>
Agreement constitutes, and when executed and delivered, the other documents
and instruments to be executed and delivered by the Company pursuant hereto
will constitute, valid binding agreements of the Company, enforceable in
accordance with their respective terms, except as such may be limited by
bankruptcy, insolvency, reorganization or other laws affecting creditors'
rights generally, and by general equitable principles.
4.4 NO VIOLATION. The execution and delivery of this Agreement and
the other documents and instruments to be executed and delivered by the
Company pursuant hereto, and the consummation by the Company of the
transactions contemplated hereby and thereby (a) will not violate any statute
or law or any rule, regulation, order, writ, injunction or decree of any
court or governmental authority, (b) will not require any authorization,
consent, approval, exemption or other action by or notice to any court,
administrative or governmental agency, instrumentality, commission,
authority, board or body, and (c) subject to obtaining the consents referred
to in Schedule 4.4 of the Disclosure Schedule, will not violate or conflict
with, or constitute a default (or an event which, with notice or lapse of
time, or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in the
creation of any Lien (as defined in Section 4.6) upon any of the assets of
the Company under, any term or provision of the Certificate of Incorporation,
By-laws or other constituent documents of the Company or of any contract,
commitment, understanding, arrangement, agreement or restriction of any kind
or character to which the Company is a party or by which the Company, any
shareholder of the Company or any of the Company's assets or properties may
be bound or affected. In addition to and without in any way limiting the
foregoing, the Company affirmatively represents, warrants and covenants that
no action or relief is being sought or will be sought by the Company in any
court, including in the United States Bankruptcy Court for the Southern
District of California in Case No. 98-04646-H11 which in any way limits or
would limit the ability or authority of the Company to enter into and timely
close the transactions pursuant to this Agreement.
4.5 ABSENCE OF CERTAIN CHANGES. Except as and to the extent set forth
in Schedule 4.5 of the Disclosure Schedule, since September 30, 1998 there
has not been:
(a) Any adverse change in the financial condition, assets,
liabilities, business, prospects or operations of the Company; or
(b) Any loss, damage or destruction, whether covered by
insurance or not, affecting the Company's business or properties.
4.6 OWNERSHIP OF PURCHASED ASSETS. The Company has good and
marketable title to all the Purchased Assets, and except for the lien by
Silvergate Bank as set forth on Schedule 4.6 (the "Silvergate Lien") free and
clear of all mortgages, liens (statutory or otherwise), security interests,
claims, pledges, licenses, equities, options, conditional sales contracts,
lease purchase agreements, financing leases, assessments, levies, easements,
covenants, reservations, restrictions, rights-of-way, exceptions,
limitations, charges or encumbrances of any nature whatsoever (collectively,
"Liens"), Except for the Silvergate Lien, none of the Purchased Assets are
subject to any restrictions with respect to the transferability thereof.
Except for the Silvergate Lien, the Company has complete and unrestricted
power and right to sell, assign, convey and deliver the Purchased Assets to
the Buyer as contemplated hereby. The Buyer will receive good and marketable
title to all the Purchased Assets, free and clear of all Liens other than the
Silvergate Lien and the lien on the assets granted by the Buyer to the
Company in the Security Agreement.
4.7 CONDITION OF THE EQUIPMENT. To the best knowledge of Richard
Timmons, all of
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<PAGE>
the Equipment is in working order.
4.8 LICENSES AND PERMITS. To the best knowledge of Richard Timmons,
the Company has all licenses, permits, approvals, authorizations and consents
of all governmental and regulatory authorities and all certification
organizations required for the conduct of the business (as presently
conducted) at its current location. The Company has no notice of any
noncompliance with any such permits and license, approvals, authorizations
and consents except where failure to comply would not have a material adverse
effect on the business, assets, liabilities, financial condition, operations
or prospects.
4.9 NO DEFAULT. Except as set forth on Schedule 4.9 of the Disclosure
Schedule, each Assumed Contract is valid and in full force and effect, and
there exists no material default or event of default by the Company or event,
occurrence, condition or act relating to the Company (including this
transaction ) which, with the giving of notice, the lapse of time or the
happening of any other event or condition, would become a material default or
event of default thereunder. To the best knowledge of the Company, there
exists no default or event of default by any other party to any Assumed
Contract or any event, occurrence, condition or act (including this
transaction ) which, with the giving of notice, the lapse of time or the
happening of any other event or condition, would become a default or event of
default by any other party thereunder. The Company has fully performed all
of the terms and conditions of each Assumed Contract in all material
respects, and, to the best of Company's knowledge, all of the covenants to be
performed by any other party thereto have been fully performed in all
material respects. A true, correct, accurate and complete copy of each
written Assumed Contract previously has been delivered to the Buyer.
4.10 NO BROKERS OR FINDERS. Neither the Company nor any of its
directors, officers, employees, stockholders or agents have retained,
employed or used any broker or finder in connection with the transaction
provided for herein or in connection with the negotiation thereof.
4.11 INVESTMENT REPRESENTATIONS. The Company understands that the
Shares have not been registered under the Securities Act of 1933 (the
"Securities Act"). With respect to all of the Shares being issued and to be
issued to the Company pursuant to this Agreement and/or the Note, the Company
hereby represents, warrants and agrees as follows:
(a) PURCHASE ENTIRELY FOR OWN ACCOUNT. The Shares will be
acquired for investment for the Company's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and the Company has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, the Company further represents that it does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or
grant participation to such person or to any third person with respect to any
of the Shares.
(b) RESTRICTED SECURITIES. The Company understands that the
Shares being issued and to be issued to the Company are and will be
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from Photomatrix in a transaction not
involving a public offering and that under such laws and applicable
regulations such Shares may be resold without registration under the
Securities Act of 1933, as amended (the "Act"), only in certain limited
circumstances. In this connection, the Company represents that it is
familiar with Securities and Exchange Commission Rule 144 ("Rule 144"), as
presently in effect, and understands the resale limitations imposed thereby
and by the Act.
(c) INVESTMENT EXPERIENCE. The Company is aware of the risks
associated with
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<PAGE>
investing in "restricted securities" and acknowledges that it is able to fend
for itself, can bear the economic risk of its investment and has such
knowledge and experience in financial or business matters that it is capable
of evaluating the merits and risks of its investment in the Shares. The
Company also represents that it has not been organized for the purpose of
acquiring the Shares.
(d) FURTHER LIMITATIONS ON DISPOSITION. Without in any way
limiting the representations set forth above, the Company further agrees not
to make any disposition of all or any portion of the Shares unless and until
the transferee has agreed in writing for the benefit of Photomatrix, Inc. to
be bound by this Agreement, provided and to the extent such Agreement is then
applicable and:
(i) there is then in effect a registration statement of
Photomatrix, Inc. under the Act covering such proposed disposition and such
disposition is made in accordance with such registration statement; or
(ii) (a) the Company shall have notified Photomatrix of
the proposed disposition and shall have furnished Photomatrix with a detailed
statement of the circumstances surrounding the proposed disposition, and (b)
if reasonably requested by Photomatrix the Company shall have furnished
Photomatrix with an opinion of counsel, reasonably satisfactory to
Photomatrix that such disposition will not require registration of such
shares under the Act.
(e) LEGENDS. It is understood that the certificate evidencing
the Shares may bear one (1) or more of the following legends:
(i) "These securities have not been registered under the
Securities Act of 1933, as amended. They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration statement in effect
with respect to the securities under such Act or an opinion of counsel
satisfactory to the Company that such registration is not required or unless
sold pursuant to Rule 144 of such Act."
(ii) Any legend required by the laws of the State of
California, including any legend required by the California Department of
Corporations and Sections 417 and 418 of the California Corporations Code.
(f) INFORMATION. The Company has received and reviewed
carefully a copy of Photomatrix's latest reports on Forms 10-K and 10-Q and
has been given access to full and complete information regarding Photomatrix
and has utilized such access to the Company's satisfaction to verify any
information the Company may have obtained relating to Photomatrix which is
relevant to the Company's investment decision. The Company has been given
the opportunity to discuss all material aspects of this transaction with
representatives of Photomatrix and any questions asked of such
representatives have been answered to the Company's full satisfaction.
5. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE BUYER
The Buyer represents and warrants to and agrees with the Company as set
forth below. The following representations, warranties and covenants to the
Company are true and correct on the Effective Date shall be unaffected by
any investigation heretofore or hereafter made by the Company or any notice
to the Company, and shall survive the closing of the transactions provided
for herein.
5.1 CORPORATE ORGANIZATION. The Buyer is, and any assignee of the
Buyer shall be, a
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corporation duly organized, validly existing and in good standing under the
laws of the State of California. The Buyer has, and any assignee of the
Buyer shall have, all requisite corporate power to enter into this Agreement
and the other documents and instruments to be executed and delivered by the
Buyer and to carry out the transactions contemplated hereby and thereby.
5.2 AUTHORITY. The execution and delivery of this Agreement and the
other documents and instruments to be executed and delivered by the Buyer
pursuant hereto and the consummation of the transactions contemplated hereby
and thereby have been duly authorized by the Board of Directors of the Buyer
and shall be duly authorized by the Board of Directors of any assignee of the
Buyer. No other corporate act or proceeding on the part of the Buyer, its
shareholder, or any assignee is or will be necessary to authorize this
Agreement or the other documents and instruments to be executed and delivered
by the Buyer or its assignee, pursuant hereto or the consummation of the
transactions contemplated hereby and thereby. This Agreement constitutes,
and when executed and delivered, the other documents and instruments to be
executed and delivered by the Buyer, or its assignee, pursuant hereto will
constitute, valid and binding agreements of the Buyer, or its assignee, as
the case may be, enforceable in accordance with their respective terms,
except as such may be limited by bankruptcy, insolvency, reorganization or
other laws affecting creditors' rights generally, and by general equitable
principles.
5.3 VALID ISSUANCE OF SHARES. The Shares, when issued, sold and
delivered in accordance with the terms hereof for the consideration set forth
herein, will be duly authorized, validly issued, fully paid and nonassessable
and, based in part upon the representations of the Company in this Agreement,
will be issued in compliance with all applicable federal and state securities
laws.
5.4 NO BROKERS OR FINDERS. Neither the Buyer nor any of its
directors, officers, employees, shareholders or agents have retained,
employed or used any broker or finder in connection with the transaction
provided for herein or in connection with the negotiation thereof.
5.5 LITIGATION. Except as otherwise disclosed in writing, there is
no litigation, suit, investigation or proceeding pending or, to the knowledge
of Buyer, threatened, before any court, agency or other governmental body
against Buyer (or any corporation or entity affiliated with Buyer) which
seeks to enjoin or prohibit or otherwise prevent the transactions
contemplated hereby, or which, if resolved adversely to Buyer, would have a
material adverse effect on Buyer's business, assets, liabilities, financial
condition or operations.
5.6 NO DEFAULTS. The consummation of the transactions contemplated
by this Agreement will not cause Buyer or any of its affiliates to be in
default under (i) its certificate of incorporation or bylaws or under any
material note, indenture, mortgage, lease, purchase or sales order, or any
other material contract, agreement or instrument to which Buyer is a party or
by which it or its properties are bound or affected or (ii) with respect to
any order, writ, injunction, judgment or decree of any court or any federal,
state, municipal or other domestic or foreign governmental department,
commission, board, bureau or agency.
6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF PHOTOMATRIX
Photomatrix represents and warrants to and agrees with the Company as
set forth below. The following representations, warranties and covenants to
the Company are true and correct on the date hereof, shall remain true and
correct to and including the Effective Date, shall be unaffected by any
investigation heretofore or hereafter made by the Company or any notice to
the Company, and shall
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survive the closing of the transaction provided for herein.
6.1 CORPORATE ORGANIZATION. Photomatrix is a corporation duly
organized, validly existing and in good standing under the laws of the State
of California. Photomatrix has all requisite corporate power to enter into
this Agreement and the other documents and instruments to be executed and
delivered by Photomatrix and to carry out the transactions contemplated
hereby and thereby.
6.2 AUTHORITY. The execution and delivery of this Agreement and the
other documents and instruments to be executed and delivered by Photomatrix
pursuant hereto and the consummation of the transactions contemplated hereby
and thereby have been duly authorized by the Board of Directors of
Photomatrix. No other corporate act or proceeding on the part of Photomatrix
or its shareholders is necessary to authorize this Agreement or the other
documents and instruments to be executed and delivered by Photomatrix
pursuant hereto or the consummation of the transactions contemplated hereby
and thereby. To the extent of the representations, warranties and covenants
expressly made by Photomatrix under this Agreement, this Agreement
constitutes, and when executed and delivered, the other documents and
instruments to be executed and delivered by Photomatrix pursuant hereto will
constitute, valid and binding agreements of Photomatrix, enforceable in
accordance with their respective terms, except as such may be limited by
bankruptcy, insolvency, reorganization or other laws affecting creditors'
rights generally, and by general equitable principles.
6.3 VALID ISSUANCE OF SHARES. The Shares, when issued, sold and
delivered in accordance with the terms hereof for the consideration set forth
herein, will be duly authorized, validly issued, fully paid and nonassessable
and, based in part upon the representations of the Company in this Agreement,
will be issued in compliance with all applicable federal and state securities
laws.
6.4 NO BROKERS OR FINDERS. Neither Photomatrix nor any of its
directors, officers employees or agents have retained, employed or used any
broker or finder in connection with the transaction provided for herein or in
connection with the negotiation thereof.
6.5 LITIGATION. Except as otherwise disclosed in writing, there is
no litigation, suit, investigation or proceeding pending or, to the knowledge
of Photomatrix, threatened, before any court, agency or other governmental
body against Photomatrix (or any corporation or entity affiliated with
Photomatrix) which seeks to enjoin or prohibit or otherwise prevent the
transactions contemplated hereby, or which, if resolved adversely to
Photomatrix, would have a material adverse effect on Photomatrixs business,
assets, liabilities, financial condition or operations.
6.6 NO DEFAULTS. The consummation of the transactions contemplated
by this Agreement will not cause Photomatrix or any of its affiliates to be
in default under (i) its certificate of incorporation or bylaws or under any
material note, indenture, mortgage, lease, purchase or sales order, or any
other material contract, agreement or instrument to which Photomatrix is a
party or by which it or its properties or the Shares are bound or affected or
(ii) with respect to any order, writ, injunction, judgment or decree of any
court or any federal, state, municipal or other domestic or foreign
governmental department, commission, board, bureau or agency.
6.7 SECURITIES LAW. Neither this Agreement nor any of the
transactions contemplated hereby require qualifications or filing with,
notice to or any authorization, consent or approval of the Securities
Commissioner of the State of California, the federal Securities and Exchange
Commission, or the comparable regulatory body of any other state or
jurisdiction, except (a) for the filing of a
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Notice of Transaction Pursuant to Section 25102(f) of the California
Corporate Securities Law of 1968, and (b) for the filing of a Form D pursuant
to Securities and Exchange Commission Regulation D, both of which filings
shall be accomplished by Photomatrix at its expense.
6.8 PHOTOMATRIX STOCK. Photomatrix is authorized to issue 30,000,000
shares of common stock to which 9,931,000 shares are currently outstanding.
There are no other shares of stock of Photomatrix issued and outstanding.
Each share of common stock entitles the holder thereof to one vote on all
matters submitted to vote of the shareholders, except that the holders have
cumulative voting rights for the election of directors. The holders of
common stock do not have preemptive rights or rights to convert their common
stock into other securities. Holders of common stock are entitled to receive
ratably such dividends as may be declared by the Board of Directors out of
funds legally available therefor. In the event of a liquidation, dissolution
or winding up of Photomatrix, holders of the common stock have the right to
ratable portion of the assets remaining after payment of liabilities. All
shares of common stock outstanding and to be outstanding upon completion of
this transaction are and will be fully paid and non-assessable. There is no
issued and outstanding preferred stock. None of the outstanding Photomatrix
shares have been issued in violation of any preemptive right or agreement,
commitment or obligation binding on Photomatrix or any of the Photomatrix
shareholders or any applicable securities laws.
6.9 CONVERSION OF THE SHARES. If, prior to the closing of this
transaction, there is any stock split, reverse stock split or recapitization
of Photomatrix, the number of shares to be issued to the Company will be
proportionately adjusted.
6.10 RESTRICTIVE DOCUMENTS. Photomatrix is not subject to, or a party
to, any charter, bylaw, mortgage, lien, lease, permit, agreement, contract,
or instrument, or any law, rule, ordinance, regulation, order, judgement or
decree, or any other restriction or requirement of any kind or character,
which materially adversely affects Photomatrix or which would prevent the
consummation of the transaction contemplated by this Agreement or the
continued operation of Photomatrix after the date hereof or the Effective
Date on substantially the same basis as it has heretofore been operated or
which would restrict its ability to acquire any property or conduct business
in any area.
6.11 10-Q AND NO MATERIAL CHANGES. Photomatrix has heretofore
furnished the Company its Form 10-Q dated September 30, 1998 (the "10-Q").
Except as otherwise disclosed in writing, the 10-Q accurately presents the
financial condition of Photomatrix at the date thereof, and there have been
no material changes in the condition of Photomatrix.
6.12 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in the
10-Q, Photomatrix does not have any outstanding claims against it,
liabilities or indebtedness, contingent or otherwise, other than (i)
liabilities not of a character or amount required to be shown, accrued or
escrowed against a balance sheets under generally accepted accounting
principles and (ii) liabilities incurred subsequent to the date of the 10-Q
in the ordinary course of business, consistent with past practice.
Photomatrix does not know and has no reason to know of any basis for the
assertion against Photomatrix of any material claim, charge, or other
liability of any nature not fully disclosed in the 10-Q or in this Agreement.
The adjusted tax basis and the fair market value of the assets of
Photomatrix exceed the liabilities of Photomatrix as of the date hereof and
will exceed the liabilities of Photomatrix as of the Effective Date.
6.13 GOVERNMENTAL APPROVALS. All governmental and other consents and
approvals, if any, necessary to permit the consummation of the transactions
contemplated by this Agreement shall have been received by Photomatrix and
the Company.
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6.14 MARKET RATE OF SHARES. In the event the market rate of the
Shares issued to the Company pursuant to Section 3.1 this Agreement (75,000
Shares) and the Equipment Lease (25,000 Shares), is less than Two Dollars
($2.00) per Share on December 1, 2000, Photomatrix will pay to the Company on
or before December 15, 2000 the difference between the market rate (as that
term is defined in the Note) and Two Dollars ($2.00) for all such shares
issued (the "Difference"). Photomatrix's failure to pay the Difference by
December 15, 2000 shall constitute a default under the Note. The Company
shall have the right to transfer the Shares, or any of them, with or without
the foregoing price protection by Photomatrix (the "Price Protection"). If
the Shares, or any of them, are transferred with the Price Protection,
Photomatrix shall pay the Difference to the transferee as to those Shares; if
the Shares, or any of them, are transferred without the Price Protection,
Photomatrix shall pay the Difference to the Company.
6.15 NASDAQ. Photomatrix is and shall remain listed on the NASDAQ at
all times until all shares of Photomatrix which are to be issued to the
Company under this Agreement, and pursuant to the Note, have been issued. In
the event Photomatrix is not listed on the NASDAQ, any payments subsequently
due under the Note and the Equipment Lease Note shall, at the discretion of
the Company, be all in lawful money of the United States.
6.16 INFORMATION TO THE COMPANY. All information regarding
Photomatrix reasonably requested by the Company in order to make its decision
whether to accept payments under the Note in cash or in shares of Photomatrix
shall be promptly provided to the Company and shall be true, accurate and
compete in all material respects.
6.17 ALL SHARES. All representations and warranties by Photomatrix
related to the Shares shall apply to the Shares and to any other shares
issued by Photomatrix to the Company as set forth in this Agreement, the Note
and the Equipment Lease.
7. OTHER MATTERS
7.1 COVENANT OF CONFIDENTIALITY.
The Company shall not at any time subsequent to the Effective Date,
except as explicitly requested by the Buyer, (i) use for any purpose, (ii)
disclose to any person, or (iii) keep or make copies of documents, tapes,
discs or programs containing, any confidential information concerning the
Company. For purposes hereof, "confidential information" shall mean and
include, without limitation, all Trade Rights in which the Company has an
interest, all customer lists and customer information, and all other
information concerning the Company's processes, apparatus, equipment,
packaging, products, marketing and distribution methods, not previously
disclosed to the public directly by the Company. Confidential information
shall not include information in the public domain, information acquired from
a third party without the third party violating a confidentiality obligation
to the disclosing party, information known by the receiving party prior to
the disclosure or information that the receiving party can demonstrate that
it independently developed. The Company agrees that the provisions and
restrictions contained in this Section 7.1 are necessary to protect the
legitimate continuing interests of the Buyer in acquiring the business and
goodwill of the Business through the purchase of the Purchased Assets and the
assumption of the Assumed Liabilities, and that any violation or breach of
these provisions will result in irreparable injury to the Buyer for which a
remedy at law would be inadequate and that, in addition to any relief at law
which may be available to the Buyer for such violation or breach and
regardless of any other provision contained in this Agreement, the Buyer
shall be entitled to injunctive and other equitable relief as a court may
grant after considering the intent of this Section 7.1.
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7.2 SALES TAX MATTERS. The Buyer shall pay all sales tax in
connection with this transaction.
7.3 GOVERNMENT EQUIPMENT AND CUSTOMER EQUIPMENT. Although the
Government Equipment and Customer Equipment are not included in the Purchased
Assets, the Buyer shall retain the care and custody thereof, until removed by
the owner(s) thereof. Buyer shall protect the Government Equipment and the
Customer Equipment from loss and damage and shall indemnify, protect, defend
and hold the Company harmless from any claim, losses, liabilities or damages
in connection with the care and custody of the Government Equipment and the
Customer Equipment. The Buyer shall be responsible for the assignment to
Buyer of any contracts in connection with the Government Equipment; the
Company shall cooperate in effecting any such assignment. The Company shall
advise the customers owning the Customer Equipment of this transaction.
7.4 ASSIGNMENT BY THE BUYER. Concurrently with the execution of this
Agreement, the Buyer shall assign all of its rights and obligations under
this Agreement to National Metal Technologies, Inc., a California
corporation, a subsidiary of I-PAC Manufacturing, Inc.
8. FURTHER COVENANT OF THE COMPANY
The Company covenants and agrees as follows:
8.1 EMPLOYEES. The Company understands that employment with the
Buyer is not offered or implied for any employees of the Company. The
Company agrees to provide the Buyer an opportunity to meet and interview all
employees of the Company. In the event that the Buyer would like to retain
any such persons following the execution of this Agreement, the Company
agrees to terminate such designated persons as of such date. The Company
shall be solely responsible for, and shall pay or cause to be paid, all
severance payments, accrued vacation pay or other termination benefits, to
such persons.
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9. CONDITIONS PRECEDENT TO THE BUYER'S OBLIGATIONS
Each and every obligation of the Buyer to be performed on the closing
of this transaction shall be subject to the satisfaction prior to or at the
closing of each of the following conditions:
9.1 CONVEYANCE AND ASSIGNMENT. The Company shall have duly executed
and delivered to Purchaser the Assignment and Assumption Agreement and a Bill
of Sale in the form attached hereto as EXHIBIT F, and any additional
documents as the Buyer may reasonably request (the "Conveyance Documents"),
to the reasonable satisfaction of the Buyer and its counsel to sell, convey,
assign, grant and otherwise transfer to the Buyer all of the Company's right,
title and interest in and to the Purchased Assets.
9.2 LEASE OF PREMISES. Upon execution of this Agreement, the
Company as landlord and the Buyer as tenant shall enter into a lease for the
premises currently occupied by the Company at 4040 Calle Platino, Oceanside,
California ("Premises"), which lease (the "Lease") shall commence as of
February 1, 1999, with a right to early occupancy upon execution thereof, and
shall be for an initial term of fifteen (15) years, with an option to renew
for two successive five-year extension periods, and shall be in substantially
the form attached hereto as EXHIBIT G. The Buyer's obligations under the
Lease shall be guaranteed by Photomatrix (the "Lease Guaranty") substantially
in the form attached hereto as EXHIBIT H.
9.3 REPRESENTATIONS AND WARRANTIES TRUE. Each of the representations
and warranties made by the Company in this Agreement, and the statements
contained in the Disclosure Schedule or in any instrument, list, certificate
or writing delivered by the Company pursuant to this Agreement, shall be true
and correct in all material respects
9.4 COMPLIANCE WITH AGREEMENT. The Company shall have in all material
respects performed and complied with all of its agreements and obligations
under this Agreement which are to be performed or complied with by its prior
to or on the Effective Date.
9.5 ABSENCE OF SUIT. Except as otherwise disclosed in writing, no
action, suit or proceeding before any court or any governmental authority
shall have been commenced or threatened, and no investigation by any
governmental or regulating authority shall have been commenced, against the
Buyer, the Company or any of the affiliates, officers or directors of any of
them, seeking to restrain, prevent or change the transactions contemplated
hereby, or questioning the validity or legality of any such transactions, or
seeking damages in connection with, or imposing any condition on, any such
transactions.
9.6 CONSENTS AND APPROVALS. All approvals, consents and waivers that
are required to effect the transactions contemplated hereby shall have been
received, and executed counterparts thereof shall have been delivered to the
Buyer. Notwithstanding the foregoing, receipt of the consent of any third
party to the assignment of an Assumed Contract which is not (and is not
required to be) disclosed in the Disclosure Schedule shall not be a condition
to the Buyer's obligation to close, provided that the aggregate of all such
Contracts does not represent a material portion of the Company's sales or
expenditures. After the closing, the Company will continue to use their best
efforts to obtain any such consents or approvals, and the Company shall not
hereby be relieved of any liability hereunder for failure to perform any of
its covenants or for the inaccuracy of any representation or warranty.
9.7 NON-COMPETE AGREEMENT. The Company shall deliver a covenant not
to compete
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agreement to the Buyer in the form attached hereto as EXHIBIT I.
9.8 CONSENT OF PHOTOMATRIX'S AND THE COMPANY'S LENDERS. Photomatrix
shall have five (5) business days after the execution of this Agreement to
obtain the consent of its bank for Photomatrix to enter into this Agreement.
If Photomatrix does not notify the Company of its bank's consent by such
date, this Agreement shall be null and void. The Company shall have five (5)
business days after the execution of this Agreement to obtain the consent of
Silvergate Bank to enter into the Equipment Lease, with the Buyer's right to
purchase the Equipment in the event the Company defaults in its obligations
to Silvergate Bank. If the Company does not notify the Buyer of Silvergate
Bank's consent by such date, this Agreement shall be null and void.
10. CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS
Each and every obligation of the Company to be performed on the closing
of this transaction shall be subject to the satisfaction prior to or at the
closing of the following conditions:
10.1 PAYMENT. The Buyer shall have delivered to the Company (i) the
Note and (ii) the Shares.
10.2 ASSIGNMENT AND ASSUMPTION AGREEMENT. The Buyer shall have duly
executed and delivered to the Company the Assignment and Assumption Agreement.
10.3 LEASE OF PREMISES. The Company and the Buyer shall have
executed the Lease. Photomatrix shall have executed the Lease Guaranty.
10.4 SECURITY AGREEMENT. The Company and the Buyer shall have
executed the Security Agreement.
10.5 REPRESENTATIONS AND WARRANTIES TRUE. Each of the representations
and warranties made by the Buyer and Photomatrix in this Agreement shall be
true and correct in all material respects Without affecting the foregoing,
each representation and warranty made by Photomatrix in this Agreement shall
be true and correct in all material respects at such time as any Shares are
to be issued to the Company pursuant to the Note.
10.6 COMPLIANCE WITH AGREEMENT. The Buyer shall have in all material
respects performed and complied with all of the Buyer's agreements and
obligations under this Agreement which are to be performed or complied with
by the Buyer prior to or on the Effective Date
10.7 ABSENCE OF SUIT. No action, suit or proceeding before any court
or any governmental authority shall have been commenced or threatened, and no
investigation by any governmental or regulating authority shall have been
commenced, against the Buyer, the Company or any of the affiliates, officers
or directors of any of them, seeking to restrain, prevent or change the
transactions contemplated hereby, or questioning the validity or legality of
any such transactions, or seeking damages in connection with, or imposing any
condition on, any such transactions.
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11. INDEMNIFICATION
11.1 BY THE COMPANY. Subject to the terms and conditions of this
Article 11, the Company hereby protects, indemnifies, defends and holds
harmless the Buyer, and its directors, officers, shareholders, employees,
agents and representatives, and controlled and controlling persons
(hereinafter "Buyer's Affiliates"), from and against all Claims asserted
against, resulting to, imposed upon, or incurred by the Buyer, the Buyer's
Affiliates or the business and assets transferred to the Buyer pursuant to
this Agreement, directly or indirectly, by reason of, arising out of or
resulting from (a) the material inaccuracy or material breach of any
representation or warranty of the Company contained in or made pursuant to
this Agreement or in any agreement, document or instrument executed and
delivered pursuant hereto or in connection with the transactions contemplated
hereby; (b) the material breach of any covenant of the Company contained in
this Agreement or in any agreement, document or instrument executed and
delivered pursuant hereto or in connection with the transactions contemplated
hereby; (c) any Claim of or against the Company, the Purchased Assets or the
business of the Company not specifically assumed by the Buyer pursuant
hereto, including liability for taxes; or (d) any Claim arising from or in
connection with the manufacture, sale, delivery, operation or breach of
warranty of any products manufactured or sold prior to the execution of this
Agreement. As used in this Article 11, the term "Claim" shall include (i)
all debts, duties, liabilities and obligations of any nature; (ii) all
losses, damages (including, without limitation, consequential damages),
injuries, declines in value, lost opportunities, claims, demands, fines,
taxes, judgments, awards, settlements, costs and expenses (including, without
limitation, interest (including prejudgment interest in any litigated
matter), penalties, court costs and attorneys fees and expenses); and (iii)
all demands, claims, suits, actions, costs of investigation, causes of
action, proceedings and assessments, whether or not ultimately determined to
be valid. Schedule 11.1 contains a true, correct and compete copy of the
Company's standard warranty or warranties for sales of its products. Upon
request for warranty work by a customer, Buyer shall notify the Company in
writing. If the Company does not object within ten (10) days, Buyer shall
have the right to perform the warranty work and deduct the cost of such work
from amounts due the Company under the Note or a note executed under the
Equipment Lease.
11.2 BY THE BUYER. Subject to the terms and conditions of this Article
11, the Buyer hereby agrees to protect, indemnify, defend and hold harmless
the Company, and its directors, officers, shareholders, employees, agents and
representatives, and controlled and controlling persons (hereinafter
"Company's Affiliates"), from and against all Claims asserted against,
resulting to, imposed upon or incurred by the Company or the Company's
Affiliates, directly or indirectly, by reason of, arising out of or resulting
from (a) the material inaccuracy or material breach of any representation or
warranty of the Buyer contained in or made pursuant to this Agreement or in
any agreement, document or instrument executed and delivered pursuant hereto
or in connection with the transactions contemplated hereby (regardless of
whether such breach is deemed "material"); (b) the material breach of any
covenant of the Buyer contained in this Agreement or in any agreement,
document or instrument executed and delivered pursuant hereto or in
connection with the transactions contemplated hereby (regardless of whether
such breach is deemed "material"); (c) all Claims of or against the Company
specifically assumed by the Buyer pursuant hereto; or (d) any Claim arising
from or in connection with the manufacture, sale, delivery, operation or
breach of warranty of any products manufactured or sold by the Buyer
subsequent to December 1, 1998.
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11.3 INDEMNIFICATION OF THIRD-PARTY CLAIMS. The obligations and
liabilities of any party to indemnify any other under this Article 11 with
respect to Claims relating to third parties shall be subject to the following
terms and conditions:
(a) NOTICE AND DEFENSE. The party or parties to be indemnified
(whether one or more, the "Indemnified Party") will give the party from whom
indemnification is sought (the "Indemnifying Party") written notice of any
such Claim, and the Indemnifying Party will undertake the defense thereof by
counsel reasonably satisfactory to the Indemnified Party; PROVIDED, HOWEVER,
that the Indemnified Party shall at all times also have the right to
participate fully in the defense at its own expense. Failure to give such
notice shall not affect the Indemnifying Party's duty or obligations under
this Article 11, except to the extent the Indemnifying Party is prejudiced
thereby. So long as the Indemnifying Party is defending any such Claim
actively and in good faith, the Indemnified Party shall not settle such
Claim. The Indemnified Party shall make available to the Indemnifying Party
or its representatives all records and other materials required by them and
in the possession or under the control of the Indemnified Party, for the use
of the Indemnifying Party and its representatives in defending any such
Claim, and shall in other respects give reasonable cooperation in such
defense.
(b) FAILURE TO DEFEND. If the Indemnifying Party, within a
reasonable time after notice of any such Claim, fails to defend such Claim
actively and in good faith, the Indemnified Party will (upon further notice)
have the right to undertake the defense, compromise or settlement of such
Claim or consent to the entry of a judgment with respect to such Claim, on
behalf of and for the account and risk of the Indemnifying Party, and the
Indemnifying Party shall thereafter have no right to challenge the
Indemnified Party's defense, compromise, settlement or consent to judgment.
(c) INDEMNIFIED PARTY'S RIGHTS. Anything in this Section 11.3
to the contrary notwithstanding, (i) if there is a reasonable probability
that a Claim may materially and adversely affect the Indemnified Party other
than as a result of money damages or other money payments for such Claim, or
if the amount of the Claim being asserted exceeds (in the Indemnified Party's
judgment) by more than $10,000 of the insurance coverage which has been
admitted by the applicable insurance carriers, the Indemnified Party shall
have the right to defend, compromise or settle such Claim with legal counsel
that is reasonably acceptable to the Indemnifying Party, and shall be
entitled to recover from the Indemnifying Party for such amounts, (ii) the
Indemnifying Party shall not, without the written consent of the Indemnified
Party, settle or compromise any Claim or consent to the entry of any judgment
which does not include as an unconditional term thereof the giving by the
claimant or the plaintiff to the Indemnified Party of a release from all
liability in respect of such Claim, and (iii) the Indemnified Party shall
have the right to defend and settle breach of warranty claims for products
other than portions of such Claims which seek recovery for personal injury.
The parties shall cooperate with each other with respect to any claim for
which indemnification is sought hereunder and to cooperate in the defense of
any claim.
11.4 PAYMENT. The Indemnifying Party shall promptly pay the
Indemnified Party any amount due under this Article 11.
Upon judgment, determination, settlement or compromise of any
third party Claim, the Indemnifying Party shall pay promptly on behalf of the
Indemnified Party, and/or to the Indemnified Party in reimbursement of any
amount theretofore required to be paid by it, the amount so determined by
judgment, determination, settlement or compromise and all other Claims of the
Indemnified Party with respect thereto, unless in the case of a judgment an
appeal is made from the judgment. If the Indemnifying Party desires to
appeal from an adverse judgment, then the Indemnifying Party shall post and
pay the cost of the security or bond to stay execution of the
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judgment pending appeal. Upon the payment in full by the Indemnifying Party
of such amounts, the Indemnifying Party shall succeed to the rights of such
Indemnified Party, to the extent not waived in settlement, against the third
party who made such third party Claim.
11.5 NO WAIVER. The closing of the transactions contemplated by this
Agreement shall not constitute a waiver by any party of its rights to
indemnification hereunder, regardless of whether the party seeking
indemnification has knowledge of the breach, violation or failure of
condition constituting the basis of the Claim at or before the closing, and
regardless of whether such breach, violation or failure is deemed to be
"material".
11.6 SURVIVAL. All of the representations and warranties of this
Agreement shall survive the Effective Date for a period of twenty-four (24)
months, except that the representations and warranties with respect to the
Shares shall survive for a period of twenty-four (24) months after each
issuance thereof.
12. MISCELLANEOUS
12.1 FURTHER ASSURANCE. From time to time, the parties hereto will
execute and deliver to the other party such documents and take such other
action as may be reasonably required in order to consummate more effectively
the transactions contemplated hereby and to vest in the Buyer good, valid and
marketable title to the business and assets being transferred hereunder.
12.2 ASSIGNMENT. Except as expressly provided herein, the rights and
obligations of a party hereunder may not be assigned, transferred or
encumbered without the prior written consent of the other parties.
12.3 PARTIES IN INTEREST. This Agreement shall be binding upon, inure
to the benefit of, and be enforceable by the respective successors and
permitted assigns of the parties hereto. Nothing contained herein shall be
deemed to confer upon any other person any right or remedy under or by reason
of this Agreement.
12.4 ARBITRATION.
(a) The parties recognize that disputes as to certain matters
may from time to time arise which relate to either party's rights and/or
obligations hereunder. It is the objective of the parties to establish
procedures to facilitate the resolution of such disputes in an expedient
manner by mutual cooperation and without resort to litigation. To accomplish
this objective, the parties agree to follow the procedures set forth in this
Section 12.4 if and when such a dispute arises between the parties.
(b) If a dispute arises between the parties relating to the
interpretation or performance of this Agreement (other than any action to
enforce the confidentiality covenants in Section 7.1 which may be brought in
any court of competent jurisdiction), and the parties cannot resolve the
dispute within thirty (30) days of a written request by either party to the
other, the parties agree to hold a meeting, attended by individuals with
decision-making authority regarding the dispute, to attempt in good faith to
negotiate a resolution of the dispute prior to pursuing other available
remedies. If, within thirty (30) days after such meeting, the parties have
not succeeded in negotiating a resolution of the dispute, such dispute shall
be submitted to final and binding arbitration under the then current
commercial rules and regulations of the American Arbitration Association
("AAA") relating to voluntary arbitrations in San Diego, California. The
arbitration shall be conducted by one
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arbitrator who is knowledgeable in the subject matter at issue (with at least
10 years experience) in the dispute and who will be selected by mutual
agreement of the parties or, failing such agreement, shall be selected in
accordance with the AAA rules. If the arbitration shall involve claims in
excess of Three Hundred Thousand Dollars ($300,000), then, at the option of
any of the parties, a total of three (3) such arbitrators shall be selected
in the above-specified manner. Such arbitration shall include a reasonable
right to discovery by and among each of the parties as approved by the
arbitrator(s) in accordance with AAA rules. Each party shall initially bear
its own costs and legal fees associated with such arbitration. The
prevailing party in any such arbitration shall be entitled to recover from
the other party the reasonable attorneys' fees, costs and expenses incurred
by such prevailing party in connection with such arbitration. The decision
of the arbitrator shall be final and may be sued on or enforced by the party
in whose favor it runs in any court of competent jurisdiction at the option
of the successful party. The rights and obligations of the parties to
arbitrate any dispute relating to the interpretation or performance of this
Agreement, or the grounds for the termination thereof, shall survive the
expiration or termination of this Agreement for any reason.
12.5 GOVERNING LAW. This Agreement may not be modified or terminated
orally, and shall be construed and interpreted according to the internal laws
of the State of California, excluding any choice of law rules that may direct
the application of the laws of another jurisdiction.
12.6 AMENDMENT AND MODIFICATION. The Buyer and the Company may amend,
modify and supplement this Agreement in such manner as may be agreed upon by
them in writing.
12.7 NOTICE. All notices, requests, demands and other communications
hereunder shall be given in writing and shall be: (a) personally delivered;
(b) sent by telecopier, facsimile transmission or other electronic means of
transmitting written documents; or (c) sent to the parties at their
respective addresses indicated herein by registered or certified U.S. mail,
return receipt requested and postage prepaid, or by private overnight mail
courier service. The respective addresses to be used for all such notices,
demands or requests are as follows:
(a) If to the Buyer, to:
Patrick W. Moore
I-PAC Manufacturing, Inc..
1958 Kellogg Avenue
Carlsbad, CA 92008
Fax No. (760) 930-0115
(b) If to Photomatrix, to:
Patrick W. Moore
Photomatrix, Inc.
1958 Kellogg Avenue
Carlsbad, CA 92008
Fax No. (760) 930-0115
cc: James P. Hill, Esq.
Sullivan, Hill, Lewin, Rez & Engel
550 W C Street, Ste. 1500
San Diego, CA 92101
Fax No. (619) 231-4372
or to such other person or address as the Buyer or Photomatrix shall furnish
to the Company in writing.
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(c) If to the Company, to:
Greene International West, Inc.
P. O. Box 8149
San Diego, CA 92038-8149
Fax No. (____)______________
cc: J. Michael Wilson, Esq.
519 Camino de la Reina
Suite 860
San Diego, CA 92108
Fax No. (619) 297-7800
or to such other person or address as the Company shall furnish to the Buyer
in writing.
If personally delivered, such communication shall be deemed delivered
upon actual receipt; if electronically transmitted pursuant to this
paragraph, such communication shall be deemed delivered the next business day
after transmission (and sender shall bear the burden of proof of delivery);
if sent by overnight courier pursuant to this paragraph, such communication
shall be deemed delivered upon receipt; and if sent by U.S. mail pursuant to
this paragraph, such communication shall be deemed delivered as of the date
of delivery indicated on the receipt issued by the relevant postal service,
or, if the addressee fails or refuses to accept delivery, as of the date of
such failure or refusal. Any party to this Agreement may change its address
for the purposes of this Agreement by giving notice thereof in accordance
with this Section.
12.8 BROKER FEES. The Company, Photomatrix and the Buyer each
represent and warrant to each other that there is no broker involved or in
any way connected with the transfer provided for herein. The Buyer and
Photomatrix, jointly and severally, agree to hold the Company harmless from
and against all claims for brokerage commissions or finder's fees incurred
through any act of the Buyer or Photomatrix in connection with the execution
of this Agreement or the transactions provided for herein. The Company
agrees to hold the Buyer and Photomatrix harmless from and against all claims
for brokerage commissions or finder's fees incurred through any act of the
Company in connection with the execution of this Agreement or the
transactions provided for herein.
12.9 EXPENSES. Except as otherwise provided herein, each of the
parties shall bear its own expenses and the expenses of its counsel and other
agents in connection with the transactions contemplated hereby. The Company
shall pay and shall indemnify, defend and hold the Buyer harmless from and
against all fees and expenses of the Company's legal, accounting, investment
banking and other professional counsel in connection with the transactions
contemplated hereby. The Buyer shall pay, and shall indemnify, defend and
hold the Company harmless from and against, each of the following:
(a) TRANSFER TAXES. Any sales, use, excise, transfer or other
similar tax imposed with respect to the transactions provided for in this
Agreement, and any interest or penalties related thereto.
(b) PROFESSIONAL FEES. All fees and expenses of the Buyer's
legal, accounting, investment banking and other professional counsel in
connection with the transactions contemplated hereby.
12.10 COSTS OF LITIGATION OR ARBITRATION. The parties agree that
(subject to the discretion,
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in an arbitration proceeding, of the arbitrator as set forth in Section 12.4)
the prevailing party in any action brought with respect to or to enforce any
right or remedy under this Agreement shall be entitled to recover from the
other party or parties all reasonable costs and expenses of any nature
whatsoever incurred by the prevailing party in connection with such action,
including without limitation attorneys' fees and prejudgment interest.
12.11 ENTIRE AGREEMENT. All exhibits and schedules referenced in this
Agreement are deemed incorporated herein. This instrument embodies the
entire agreement between the parties hereto with respect to the transactions
contemplated herein, and there have been and are no representations or
warranties between the parties other than those set forth or provided for
herein.
12.12 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.13 HEADINGS. The headings in this Agreement are inserted for
convenience only and shall not constitute a part hereof.
12.14 FURTHER DOCUMENTS. The Buyer and the Company each agree to
execute all other documents and to take such other action or corporate
proceedings as may be necessary or desirable to carry out the terms hereof.
12.15 SURVIVAL. All provisions of this Agreement shall survive the
closing.
22
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
COMPANY: BUYER:
GREENE INTERNATIONAL WEST, INC., I-PAC MANUFACTURING, INC.,
a Delaware corporation a California corporation
By:_____________________________________ By:_______________________________
Victor Andonie, Chairman of the Board Patrick W. Moore, CEO
PHOTOMATRIX, INC.,
a California corporation
By:_______________________________
Patrick W. Moore, CEO
23
<PAGE>
EXHIBIT 10.49
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement") is made and effective as of
December 8, 1998 by and among San Diego Wholesale Credit Association, a
California corporation ("SDWCA" or "Seller"), as assignee for the benefit of
creditors of Amcraft Corporation, and I-PAC Manufacturing, Inc. ("Buyer"),
with respect to the following facts:
A. On December 8, 1998, Amcraft Corporation ("Amcraft") transferred
its assets to SDWCA as assignee for the benefit of creditors (the
"Assignment").
B. Buyer desires to acquire certain assets of Amcraft which have been
assigned to SDWCA, on the terms and conditions set forth herein.
IN CONSIDERATION OF the premises and mutual covenants contained in this
Agreement, and for good and valuable consideration, the parties agree as
follows:
1. PURCHASE AND SALE OF ASSETS. On the Closing Date (as hereinafter
defined), SDWCA will transfer to Buyer, and Buyer will purchase from SDWCA,
the assets of Amcraft (to the extent assigned to SDWCA pursuant to the
Assignment), that are set forth on Exhibit "A" attached hereto (collectively
referred to herein as the "Assets"). Notwithstanding the foregoing, the
Assets shall not include any asset (i) which is leased to Amcraft (except as
expressly provided in SECTION 6 this Agreement), or (ii) to which Amcraft did
not immediately prior to the Assignment otherwise have full title or which
SDWCA as assignee does not have full legal title (but not including an asset
subject to a security interest prior to the Assignment contemplated herein,
which asset shall convey pursuant hereto), or (iii) which was not transferred
to SDWCA by Amcraft, or (iv) which is otherwise not assignable, or (v) any
causes of action or claim that SDWCA may have relating to preferential or
fraudulent transfer claims or other causes of action or claims SDWCA would be
entitled to bring as an assignee for the benefit of creditors or use as an
offset or defense to any claim asserted against or obligation of Amcraft.
Buyer hereby grants to Amcraft and SDWCA a perpetual, non-exclusive license
to use the name "Amcraft Corporation," "Amcraft" or other trade names of
Amcraft in connection with winding up the affairs of Amcraft and the
Assignment. To the extent Assets include books and records, Amcraft and
SDWCA may retain copies of all such books and records or the originals
thereof as may be reasonably necessary for such winding up activities; and
Buyer agrees to provide reasonable access to Amcraft and SDWCA to such books
and records as may be necessary to wind-up the affairs of Amcraft or relating
thereto.
2. PURCHASE PRICE. The purchase price of the Assets shall be payable
by Buyer as follows:
2.1 CASH AT CLOSING. Buyer shall pay SDWCA the sum of Eighteen
Thousand Dollars ($18,000.00) cash at the Closing, subject to SECTION 2.1.1.
2.1.1 CREDIT. Prior to the Assignment, Buyer advanced to
Amcraft the
<PAGE>
sum of Five Thousand One Hundred Twenty-Two Dollars and Thirty Cents
($5,122.30) representing the rent due under its lease for its business
premises (the "Premises") for the month of November, 1998. At the Closing,
Buyer shall receive a credit towards the cash to be paid at Closing as set
forth in SECTION 2.1, in an amount equal to Five Thousand One Hundred
Twenty-Two Dollars and Thirty Cents ($5,122.30). Except for the credit
provided in this SECTION 2.1.1 and offset permitted under SECTION 2.2.1
below, Buyer shall have no claim against Amcraft or SDWCA arising out of any
other advances to or amounts paid to or for the benefit of Amcraft, which
claims are hereby waived.
2.2 PAYMENTS FROM ACCOUNT DEBTORS. Pursuant to this Agreement,
at the Closing, SDWCA shall transfer to Buyer all of the accounts receivable
of Amcraft (each an "Account Receivable" and collectively the "Accounts
Receivable"). Attached hereto as Exhibit "B" is a schedule (the "Schedule")
of the Accounts Receivable as of December 7, 1998. Buyer acknowledges that
the Schedule was prepared by Amcraft and SDWCA makes no representation or
warranty of any kind whatsoever with respect to the Accounts Receivable,
express or implied, including but not limited to, the existence or amount
thereof or the existence or lack thereof of any defenses to payment thereon.
On the tenth (10th) day of each month, commencing in January, 1999, Buyer
shall pay to SDWCA the following amounts with respect to all Accounts
Receivable collected by Buyer during the previous calendar month:
- 90% of all Accounts Receivable collected at 0-30 days from Closing.
- 80% of all Accounts Receivable collected at 31-60 days from Closing.
- 70% of all Accounts Receivable collected at 61-120 days from Closing.
For purposes of this SECTION 2.2, "collection" shall occur at such time as
Buyer receives any payment from the account debtor on account of such Account
Receivable; provided, however, Buyer shall have a right to be reimbursed by
SDWCA for any amount paid by Buyer to SDWCA (but not including any amount
offset as provided below) under this SECTION 2.2 which relates to a payment
on an Account Receivable which is later dishonored or charged back to Buyer
by Buyer's depositary bank as a result of dishonor by the account debtor's
payor bank.
SDWCA shall have the option, at its sole and absolute election, to receive a
reassignment from Buyer of any Account Receivable which is not collected by
Buyer within 120 days of Closing. Upon SDWCA's request with respect thereto,
Buyer shall execute such documents as SDWCA shall reasonably request to
effectuate such transfer and reassignment, which transfer and reassignment
shall be free and clear of any liens, claims and encumbrances not existing
against the Account Receivable immediately prior to the Closing. From and
after its election to receive a reassignment of any Account Receivable and
thereafter, Buyer shall have no right, title or interest in or to such
Account Receivable or proceeds thereof, and SDWCA shall be entitled to
receive and retain any and all collections upon such Account Receivable. Any
amount received by Buyer with respect to any Account Receivable that has been
reassigned to SDWCA, or as to which SDWCA has elected to receive a
reassignment, shall be turned over by Buyer to SDWCA promptly after receipt.
On the tenth (10th) day of each month commencing in December, 1998,
2
<PAGE>
and continuing thereafter until Buyer's obligations under this SECTION 2.2
shall be satisfied in full, Buyer shall provide to SDWCA an accounting, all
in form reasonably acceptable to SDWCA, with respect to the status and
collection of Accounts Receivable, including any offset made pursuant to
SECTION 2.2.1 below.
2.2.1 In addition to the advance made by Borrower to
Amcraft referenced in SECTION 2.1.1 above, Buyer has advanced the additional
sum of Six Thousand Eight Hundred Fifty-Three Dollars and Seventy-Seven Cents
($6,853.77) ("Additional Advance") to cover payroll, rent and other expenses
of Amcraft. The Buyer shall be entitled to offset the amounts otherwise due
by Buyer to SDWCA under the above provisions of SECTION 2.2 against such
Additional Advance. Neither Amcraft nor SDWCA shall have any obligation to
pay or repay Buyer for the Additional Advance and Buyer's sole right with
respect thereto shall be limited to its offset right provided in this SECTION
2.2.1, even if insufficient Accounts Receivable shall exist or be collected
to offset the Additional Advance in full.
2.3 ASSUMPTION OF LIABILITIES. At the Closing, Buyer shall assume
and agree (and shall be deemed to have assumed and agreed) to (i) perform
those obligations of Amcraft or SDWCA under the contracts and/or job orders
expressly assumed by Buyer as set forth on Exhibit "C" attached hereto and
incorporated herein by this reference (the "Contracts"); and (ii) honor and
satisfy all warranty claims on work, goods or services previously sold or
performed by Amcraft and/or relating to the Contracts.
2.4 SALES TAX. The parties hereto do not believe that there is
any sales tax due with respect to the sale of Assets hereunder.
Notwithstanding, Buyer hereby agrees to pay all sales tax due, if any, with
respect to the transactions contemplated hereby which may be hereafter
asserted or assessed.
3. NO REPRESENTATIONS. BUYER AGREES TO ACQUIRE THE ASSETS FROM SDWCA
"AS IS" AND "WHERE IS", AND ACKNOWLEDGES THAT SDWCA MAKES NO REPRESENTATION
OR WARRANTY OF ANY KIND WHATSOEVER WITH RESPECT TO THE ASSETS OR LIABILITIES,
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY REPRESENTATION OR
WARRANTY REGARDING TITLE TO OR CONDITION OF THE ASSETS, OR THE FITNESS,
DESIRABILITY, OR MERCHANTABILITY THEREOF OR SUITABILITY THEREOF FOR ANY
PARTICULAR PURPOSE, OR THE EXISTENCE OR AMOUNT OF ACCOUNTS RECEIVABLE,
LIABILITIES, LIENS, CLAIMS OR ENCUMBRANCES. BUYER FURTHER ACKNOWLEDGES AND
REPRESENTS THAT IT HAS REVIEWED AND INSPECTED THE ASSETS, HAS HAD THE
OPPORTUNITY TO INSPECT THE BOOKS AND RECORDS OF AMCRAFT, AND ENTERS INTO THIS
AGREEMENT AFTER INDEPENDENT INVESTIGATION OF THE FACTS AND CIRCUMSTANCES
RELATING TO THE TRANSACTION DESCRIBED HEREIN. BUYER FURTHER ACKNOWLEDGES
THAT SDWCA DOES NOT HAVE POSSESSION OF THE ASSETS, AND THAT BUYER WILL HAVE
SOLE RESPONSIBILITY TO OBTAIN POSSESSION OF THE ASSETS, AT
3
<PAGE>
ITS SOLE EXPENSE. BUYER AGREES THAT SDWCA HAS NO OBLIGATION OR LIABILITY
WHATSOEVER WITH RESPECT TO ANY SEPARATE AGREEMENTS, INDEMNITIES,
REPRESENTATIONS OR WARRANTIES ENTERED INTO BY BUYER AND/OR AMCRAFT.
4. CONDITIONS TO CLOSING. SDWCA's obligation to transfer the Assets
to Buyer and Buyer's obligation to purchase the Assets shall be subject to
fulfillment by Buyer and SDWCA, as applicable, of the following conditions on
or before the Closing Date:
4.1 BUYER'S DELIVERIES. Buyer shall make the deliveries required
under SECTIONS 5.1, 5.4, 5.5 AND 5.6 of this Agreement.
4.2 CONSENT OF JOHN DEERE. Buyer and SDWCA shall have obtained
the written consent of John Deere & Co. ("John Deere") to the sale to Buyer
of the John Deere Equipment as set forth in SECTION 6.
4.3 MATTERS SATISFACTORY TO SDWCA AND ITS COUNSEL. All matters
incident to the transactions contemplated hereby shall be in form and
substance satisfactory to SDWCA and its counsel.
5. DELIVERIES AT CLOSING. The parties shall make the following
deliveries at Closing:
5.1 CASHIER'S CHECK - PURCHASE PRICE. Buyer shall deliver to
SDWCA a cashier's check or deliver funds via wire transfer to the account of
SDWCA in the amount of Eighteen Thousand Dollars ($18,000.00), less the
credit provided in SECTION 2.1.1.
5.2 [INTENTIONALLY OMITTED]
5.3 BILL OF SALE. SDWCA shall deliver to Buyer a Bill of Sale in
form and substance satisfactory to Buyer.
5.4 ASSUMPTION AGREEMENT. Buyer shall deliver to SDWCA an
Assumption Agreement in form and substance satisfactory to SDWCA assuming the
obligations as set forth in SECTION 2.3 above.
5.5 CORPORATE DOCUMENTS. Each of Buyer and Amcraft shall deliver
to SDWCA a certified copy of its resolution authorizing the Assignment, the
purchase of assets and an incumbency certificate and such other corporate
related documents as SDWCA or the other parties hereto shall reasonably
request.
5.6 JOHN DEERE CONSENT. Buyer shall deliver to SDWCA a consent,
in form reasonably acceptable to SDWCA, with respect to the transfer of the
John Deere Equipment to Buyer as provided in SECTION 6.
4
<PAGE>
6. TRANSFER OF JOHN DEERE EQUIPMENT. Amcraft, as lessee, and John
Deere, as lessor, are parties to certain lease agreements (collectively the
"John Deere Leases"), pursuant to which John Deere leased to Amcraft the
equipment and other property described therein (collectively, the "John Deere
Equipment"). Subject to obtaining the consent by John Deere thereto, SDWCA
agrees to transfer all of its right, title and interest, if any, in and to
the John Deere Equipment to Buyer, which will be deemed part of the Assets
transferred pursuant to this Agreement. Buyer has advised SDWCA that it has
reached an agreement with John Deere to purchase and/or lease the John Deere
Equipment for the total aggregate sum of at least Two Hundred Seventy-Five
Thousand ($275,000.00), and SDWCA consents to such purchase and/or lease and
such price, provided that such purchase price and/or lease payments shall be
deemed to reduce any claim of John Deere in the assigned estate arising by
virtue of the Assignment, against Amcraft or any other party obligated under
any of the John Deere Leases or any guaranty thereof. It shall be Buyer's
responsibility under this Agreement to obtain the written consent of John
Deere to the transfer by SDWCA of its right, title and interest, if any, to
the John Deere Equipment, which consent shall be a condition to Closing as
set forth in SECTION 4.2 and which consent shall be delivered at or prior to
Closing as set forth in SECTION 5.6.
7. INDEMNITY. Buyer hereby agrees to indemnify, defend and hold SDWCA
and its agents, employees, directors, officers, shareholders, affiliates,
attorneys, consultants, independent contractors, successors and assigns
(collectively "Indemnitees") harmless from and against any and all
liabilities, demands, claims, actions, or causes of action, assessments,
losses, costs, damages or penalties or expenses, including attorneys' fees,
imposed on, accrued against, asserted against, sustained or incurred by
Indemnitees, directly or indirectly, resulting from, arising out of or by
virtue of: (a) any liability of Buyer arising on or after the Closing Date,
whether or not related to the ownership or use of the Assets; (b) breach of
any representation, warranty, covenant or agreement of Buyer contained herein
or in any agreement executed in connection herewith; (c) sales tax due or
asserted to be due with respect to the transactions contemplated by this
Agreement; and (d) the ownership or use of the Assets from and after the
Closing Date.
8. CLOSING. The closing ("Closing") shall occur at 10:00 a.m. on
December 8, 1998 at the offices of Luce, Forward, Hamilton & Scripps LLP, 600
West Broadway, Suite 2600, San Diego, California 92101 or at such later time
as the parties may mutually agree ("Closing Date").
9. MISCELLANEOUS.
9.1 ENTIRE AGREEMENT. This Agreement and the written agreements
referred to herein and executed in connection herewith constitute the entire
understanding among the parties with respect to the subject matter hereof,
and supersede all negotiations, prior discussions or other agreements, oral
or written.
9.2 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of State of California.
5
<PAGE>
9.3 COUNTERPARTS. This Agreement may be executed in counterparts.
9.4 FEES AND COSTS. If any action is instituted to enforce any
provision of this Agreement, including an action instituted after the
bankruptcy of a party, the prevailing in such action shall be entitled to
recover from the losing party reasonable attorneys' fees and costs as awarded
by the court or arbitrator.
9.5 AMENDMENT. This Agreement may only be amended or modified by
the written agreement of the parties.
9.6 SEVERABILITY. If any of the provisions of this Agreement are
held invalid under any law, such invalidity shall not affect the remainder of
the Agreement.
9.7 LITIGATION FORUM. Any action arising out of this Agreement
shall be brought and maintained in the federal district court for the
Southern District of California or the state courts for the County of San
Diego.
9.8 NO ASSIGNMENT. Neither this Agreement nor any rights or
obligations hereunder shall be assigned by any party without the prior
written consent of the other parties hereto.
9.9 FURTHER ASSURANCES. Each party agrees to perform any further
action and to execute and deliver any further documents reasonably necessary
and proper to carry out the intent of this Agreement.
9.10 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the successors and assigns of the parties.
9.11 HEADINGS. The headings of the various sections of this
Agreement are for convenience only and are not intended to explain or modify
any of the provisions of this Agreement.
9.12 REPRESENTATIONS AND WARRANTIES. Each party signing this
Agreement represents and warrants that it has the legal authority to enter
into this Agreement and agreements executed in connection herewith and bind
the entity upon whose behalf it signs. Buyer represents and warrants to
SDWCA that this Agreement and the Assumption Agreement, upon their execution
and delivery to SDWCA by the party signing this Agreement and the Assumption
Agreement on behalf of Buyer, are each a valid and binding obligation of
Buyer, enforceable in accordance with its terms. Buyer further represents
and warrants that it has a valid seller's re-sale license in California,
covering the tangible Assets, License No. SRFHB25-882394.
9.13 SURVIVAL OF OBLIGATIONS. All obligations of Buyer set forth
in this
6
<PAGE>
Agreement shall survive the Closing and Closing Date.
9.14 EFFECT OF COURSE OF DEALING. No course of dealing between the
parties in exercising any of their respective rights under this Agreement
shall operate as a waiver of any such rights, except where expressly waived
in writing.
9.15 LIMITATION ON LIABILITY. Notwithstanding any other provision
herein to the contrary, the liability of SDWCA hereunder shall be nonrecourse.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
fully executed as of the day and year first above written.
"SDWCA"
SAN DIEGO WHOLESALE CREDIT ASSOCIATION,
a California corporation
By:
----------------------------------
Carl Garner, President
"BUYER"
I-PAC MANUFACTURING, INC.,
a California corporation
By:
-----------------------------------
Its:
------------------------------
By:
-----------------------------------
Its:
------------------------------
CONSENT
The undersigned hereby consents to the foregoing Agreement and its terms.
AMCRAFT CORPORATION
By:
-----------------------------------
Its:
------------------------------
7
<PAGE>
EXHIBIT "A"
ASSETS AND TAX ALLOCATION
- Accounts Receivable
- Inventory (including raw materials and work in process)
- Equipment (including office and computer equipment), Machinery,
Furniture, Supplies, Hand Tools, Production Supplies, Tooling
- John Deere Equipment (as defined in Asset Purchase Agreement)
- Contracts and Job Orders on Exhibit "C" to the Asset Purchase
Agreement
- Goodwill
- "Amcraft" name and Trade Names
- Patents
- Copyrights
- Trademarks
- Customer and prospect lists and customer backlog
Notwithstanding the foregoing, Assets shall not include (a) any asset
excluded from transfer under SECTION 1 of the Asset Purchase Agreement to which
this Exhibit "A," is made a part; or (b) assets not set forth above; or (c)
cash; deposit accounts; tax attributes, including net operating loss carryovers;
tax refunds; instruments; promissory notes; leases and any property covered
thereby (except the John Deere Equipment); any property owned by third parties;
insurance policies; workers' compensation refunds; or utility or security
deposits.
EXHIBIT "A"
<PAGE>
EXHIBIT "B"
Accounts Receivable
EXHIBIT "B"
<PAGE>
EXHIBIT "C"
Contracts and Job Orders to be assumed by Buyer:
1. Purchase and job orders attached hereto.
EXHIBIT "C"
<PAGE>
BILL OF SALE
San Diego Wholesale Credit Association, a California corporation
("SDWCA"), as assignee for the benefit of creditors of Amcraft Corporation
("Amcraft"), for good and valuable consideration, receipt of which is hereby
acknowledged, and pursuant to the Asset Purchase Agreement dated as of
December 8, 1998 (the "Agreement") between SDWCA and I-PAC Manufacturing,
Inc. ("Buyer"), does hereby sell, convey, assign, transfer and deliver to
Buyer on the date hereof, all of SDWCA's right, title and interest in and to
the assets ("Assets") described on Exhibit "A" attached hereto.
ALL ASSETS ARE TRANSFERRED "AS IS" AND "WHERE IS," AS MORE FULLY SET
FORTH AND LIMITED BY THE AGREEMENT.
This Bill of Sale is entered into pursuant to the Agreement and is
subject to the terms and provisions thereof. Buyer acknowledges and agrees
that SDWCA shall have no liability nor shall Buyer have any recourse to SDWCA
hereunder.
IN WITNESS WHEREOF, SDWCA has caused the same to be signed on its behalf
as of December 8, 1998.
SAN DIEGO WHOLESALE CREDIT ASSOCIATION,
a California corporation
By:
----------------------------------
Carl Garner, President
ACCEPTED:
I-PAC MANUFACTURING, INC.,
a California corporation
By:
----------------------------------
Its:
----------------------------
<PAGE>
EXHIBIT "A"
ASSETS
- Accounts Receivable
- Inventory (including raw materials and work in process)
- Equipment (including office and computer equipment), Machinery,
Furniture, Supplies, Hand Tools, Production Supplies, Tooling
- John Deere Equipment (as defined in the Agreement)
- Contracts and Job Orders on Exhibit "A-1" hereto
- Goodwill
- "Amcraft" name and Trade Names
- Patents
- Copyrights
- Trademarks
- Customer and prospect lists and customer backlog
Notwithstanding the foregoing, Assets shall not include (a) any asset
excluded from transfer under SECTION 1 of the Agreement; or (b) assets not set
forth above; or (c) cash; deposit accounts; tax attributes, including net
operating loss carryovers; tax refunds; instruments; promissory notes; leases
and any property covered thereby (except the John Deere Equipment); any property
owned by third parties; insurance policies; workers' compensation refunds; or
utility or security deposits.
EXHIBIT "C"
<PAGE>
EXHIBIT "A-1"
CONTRACTS AND JOB ORDERS
EXHIBIT "A-1"
<PAGE>
ASSIGNMENT AND ASSUMPTION AGREEMENT
This ASSIGNMENT AND ASSUMPTION AGREEMENT ("Agreement") dated December 8,
1998, is entered into between San Diego Wholesale Credit Association
("SDWCA") and I-PAC Manufacturing, Inc., a California corporation ("Buyer").
A. SDWCA and Buyer are parties to an Asset Purchase Agreement of even
date herewith (the "Asset Purchase Agreement"), pursuant to which SDWCA, as
assignee for the benefit of creditors of Amcraft Corporation ("Amcraft"), is
transferring and conveying to Buyer substantially all of the assets of
Amcraft assigned to SDWCA, and pursuant to which certain contracts are to be
assigned to Buyer.
B. All terms not defined in this Agreement shall have the meaning
ascribed to them in the Asset Purchase Agreement.
THEREFORE, FOR VALUABLE CONSIDERATION, IT IS AGREED:
1. SDWCA hereby assigns to Buyer all of its right, title and interest,
if any, in and to the Contracts.
2. Buyer hereby accepts and assumes on and after the Closing Date, and
agrees to discharge, pay, perform and satisfy on and after the Closing Date
all of the duties, liabilities and obligations of Amcraft and/or SDWCA
pursuant to or under the Contracts assigned hereby, including without
limitation all amounts past due or coming due thereunder and all performance
obligations thereunder. Buyer further agrees to honor and satisfy all
warranty claims on work, goods or services sold or performed by Amcraft on or
prior to the Closing Date and/or with respect to the Contracts.
3. Buyer is not accepting or assuming or agreeing to discharge, pay,
perform or satisfy any duties, liabilities or obligations other than those
under the Contracts and as provided herein.
4. Buyer agrees to defend, indemnify and hold Amcraft and SDWCA and
each of its respective successors, officers, directors, shareholders,
employees and assigns, harmless against any and all (i) losses or damages
arising out of or in connection with Buyer's performance of or failure to
perform the obligations of Amcraft and/or SDWCA to be performed under any of
the Contracts assigned hereby, and (ii) losses or damages arising out of or
relating to the breach by Buyer of this Agreement on or after the date hereof.
5. This Agreement is entered into pursuant to the Asset Purchase
Agreement. The assignments made hereunder are made without any
representations or warranties of any kind or nature.
<PAGE>
6. Whenever an attorney is used to obtain payment under, or to
otherwise enforce, this Agreement or to enforce, declare, or adjudicate any
rights or obligations under this Agreement, whether by suit or by any other
means whatsoever, the costs and expenses thereof, including reasonable
attorneys' fees and expenses, shall be payable to the other by the
non-prevailing party.
7. This Agreement shall be governed by and construed in accordance
with the laws of the State of California as an agreement made and to be
performed entirely within such state.
8. All notices to be given by any party to this Agreement shall be in
writing, and shall be given by certified or registered mail, return receipt
requested, postage prepaid, to the other, sent by telefax or facsimile
transmission, or personally delivered, at the addresses set forth below (or
at such other address for a party has specified by like notice) and shall be
deemed given when received if sent by facsimile transmission or personally
delivered, or if mailed as provided herein, on the third day after it is so
placed in the mail.
The addresses referred to above are:
Buyer: I-PAC Manufacturing, Inc.
1958 Kellogg Avenue
Carlsbad, CA 92008
Attention: Patrick W. Moore
Phone: 760-431-4969
Fax: 760-438-5517
San Diego Wholesale
Credit Association: San Diego Wholesale Credit Association
2044 First Avenue, Suite 300
San Diego, California 92101
Attention: Carl L. Garner
Phone: (619) 239-8191
Fax: (619) 239-6301
Any party at any time may give notice of another address in accordance
with the provisions of this PARAGRAPH 8.
IN WITNESS WHEREOF, the parties hereto have signed this Assignment and
Assumption Agreement on the day and year first above written.
I-PAC MANUFACTURING, INC., a SAN DIEGO WHOLESALE CREDIT
California corporation ASSOCIATION, a California corporation
2
<PAGE>
By: By:
----------------------------------- --------------------------------
Its: Its:
---------------------------- --------------------------
By:
-----------------------------------
Its:
----------------------------
3
<PAGE>
EXHIBIT 10.50
JOHN DEERE MASTER LEASE AGREEMENT
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------------
LESSEE'S NAME (Last Name First) LEASE NUMBER
& MAILING ADDRESS (Including Zip Code
030-0052202-000
I-PAC MANUFACTURING INC. ---------------------------------------------------
1958 KELLOGG AVE. LESSEE'S SOC. SEC. NO. (First Signer)
CARLSBAD, CA 92008 OR TAX IDENTIFICATION NO. IF CORPORATION
330415028
- --------------------------------------------------------------------------------------------------------
LESSEE'S NAME (Last First Name) COUNTY LOCATION
& MAILING ADDRESS (Including Zip Code)
SAN DIEGO
PHOTOMATRIX, INC. ---------------------------------------------------
1958 KELLOGG AVE. LESSOR'S NAME & ADDRESS (Including Zip Code)
CARLSBAD, CA 92008
DEERE CREDIT, INC.
1415 28th STREET -- P.O. BOX 65090
WEST DES MOINES, IA 50265-0090
- --------------------------------------------------------------------------------------------------------
</TABLE>
1. TERM-LEASE PAYMENTS
Lessor leases to Lessee, and Lessee leases from Lessor, the equipment
described in one of more Schedules, attached to and incorporated into
this Lease, executed by Lessor and Lessee from time to time, for the
period specified in each such Schedule (the "Lease'). (The term
"Equipment" as used herein shall refer collectively to the equipment
described in all Schedules.) A Schedule may provide for one or more
Renewal Terms in addition to the initial Lease Term. If Renewal Terms
are provided for, the Schedule will automatically renew for the Renewal
Term(s) unless Lessee gives Lessor written notice of its intent not to
renew at least 60 days prior to the end of the appropriate term. If
Lessor receives such notice, the Schedule shall be terminated on the
date the present term expires.
Lessee agrees to pay Lessor Lease Payments in accordance with the
payment schedules shown on the various Schedules. If Renewal Terms are
provided for, the Schedules will also provide for Lease Payments during
the Renewal Terms. Any Lease Payment not made when due shall bear
interest from its due date until paid at the highest rate permitted by
law. Any Lease Payment received from Lessee may be applied, at
Lessor's choice, to what Lessee owes under this Lease or under any other
lease agreement between Lessee and Lessor, in spite of any instructions
from Lessee.
2. OPTION TO PURCHASE
Provided Lessee is not in default under any provision of this Lease
Agreement or any Schedule, at the expiration of the Lease Term or any
Renewal Term (if applicable), Lessee shall have the option to purchase
any particular piece of Equipment for the Option Purchase Price set
forth on the applicable Schedule or, if no Option Purchase Price is so
set forth, for its fair market value at the time the option is
exercised. If Lessee fails to exercise the option to purchase on or
before expiration of the Lease, the Option Purchase Price shall be
revoked. Fair market value will be determined by Lessor with reference
to recent sales of used Equipment of similar type and condition.
Lessee must notify Lessor in writing not less than 60 days prior to the
end of the Lease Term or Renewal Term (if applicable) that Lessee intends
to exercise this Option to Purchase. Lessor will send to Lessee
applicable sale documents to be executed in consummation of sale. Any
applicable sales tax shall be added to the Option Purchase Price in
accordance with the laws of the state of Lessee's business operation.
3. ASSIGNMENT
LESSEE SHALL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR, (A)
ASSIGN, TRANSFER OR PLEDGE THIS LEASE, THE EQUIPMENT OR ANY PART
THEREOF, OR ANY INTEREST THEREIN, OR (B) PERMIT THE EQUIPMENT OR ANY
PART THEREOF TO BE USED BY ANYONE OTHER THAN LESSEE OR LESSEE'S
EMPLOYEES. Any assignment without such consent shall be void. Lessee's
obligation to pay rent under this Lease shall not, as to any assignee of
Lessor, be subject to any diminution arising out of any breach of any
obligation of Lessor hereunder or other liability of Lessor to Lessee.
4. RETURN OF EQUIPMENT
With respect to each piece of Equipment, upon early termination of this
Lease or if the above option to purchase is not exercised, at the
expiration of the term of this Lessee, Lessee shall return the
Equipment, at Lessee's expense, to Lessor at a place designated by
Lessor no more than 50 miles from the place of delivery shown on the
applicable Schedule. The Equipment, when returned, shall be in as good
condition as it is when delivered to Lessee, reasonable wear thereof
excepted. Reasonable wear of tires and undercarriage, as applicable,
shall be interpreted as 50% remaining, useful life upon return of
Equipment.
Upon termination of this Lease, if any option to purchase is not
exercised and Lessee fails to return the Equipment as described above,
Lessee shall be obligated to make monthly payments to Lessor which shall
be equal to the greatest payment amount provided for in the terminated
Schedule. This obligation shall continue until Lessor regains possession
of the Equipment.
5. EARLY TERMINATION
Provided Lessee is not in default under any provision of this Lease,
Lessee may request that this Lease be terminated prior to the expiration of
the term of this Lease with respect to the Equipment or any item
thereof. If such request is made Lessor and Lessee will use reasonable
efforts to arrange for a sale to a third party. This Lease shall be
continued until such a sale is consummated (or until the term of this
Lease expires, whichever is earlier) and Lessee shall continue to make
Lease Payments. Lessee shall return the Equipment to Lessor as provided
in Section 4 and pay to Lessor the excess, if any, of the Termination
Value on the date of sale over the net sale price (after deducting all
costs and expenses incurred by Lessor in connection with the sale)
received or to be received by Lessor.
6. DEFAULT
Lessee shall be in default under this Lease if any of the following
events occur:
6.1 Lessee fails to make any Lease Payment or pay other sums due
hereunder within ten (10) days after the same shall become due.
6.2 Lessee fails to maintain any insurance required hereunder in
effect or fails to comply with the requirements of any such
insurance.
6.3 Lessee, without Lessor's prior written consent, attempts to assign
this Lease or voluntarily or involuntarily removes the Equipment
from the United States, or sells, transfers, encumbers, parts with
possession of or sublets any item of Equipment.
6.4 Lessee shall commit an act of bankruptcy or become insolvent or
bankrupt, shall make an assignment for the benefit of creditors,
shall cease doing business as a going concern, if bankruptcy,
reorganization or insolvency proceedings are instituted by or
against Lessee, or if Lessee shall suffer an adverse material
change in its financial condition which causes Lessor to deem
itself or any of the Equipment to be insecure.
6.5 Lessee fails to perform or observe any other covenant or condition
herein and such failure continues for a period of ten (10) days
after written notice thereof is sent to Lessee by Lessor.
7. REMEDIES OF LESSOR
Upon default of Lessee, under this Lease or under any other lease agreement
between Lessee and Lessor, Lessor may, without notice to or demand upon
Lessee, exercise any one or more of the following remedies:
7.1 Declare all unpaid rent for the full term of this Lease immediately
due and payable, together with all expenses of collection by suit
or otherwise, including reasonable attorney's fees.
7.2 Terminate this Lease immediately with respect to the Equipment or
any portion thereof and/or terminate any other lease agreement
between Lessee and Lessor.
7.3 Take possession of the Equipment (which Lessee shall surrender on
demand).
7.4 Sell the Equipment or any portion thereof at public or private sale
and without demand on Lessee for payment or notice of intention
to sell, retain the proceeds of any such sale, and, unless
previously terminated under Section 7.2, terminate this Lease as
of the date of such sale. If the proceeds, after deducting all
costs and expenses incurred in connection with the recovery,
repair, storage and sale of the Equipment and after deducting any
Lease Payments and other obligations of Lessee due and unpaid
thereunder on the date of the sale, including interest on past due
Lease Payments, are less than the Termination Value on the date of
termination, Lessee shall immediately pay Lessor the difference.
7.5 Exercise any other remedy provided by law, including the recovery
of damages caused by Lessee's failure to perform or observe any
covenant or condition of this Lease.
(CONTINUED ON REVERSE SIDE)
ADDITIONAL PROVISIONS CONCERNING RIGHTS OF THE PARTIES ON REVERSE SIDE ARE A
PART OF THIS AGREEMENT
NOTICE: THE DEALER HAS NO AUTHORITY TO MAKE ANY REPRESENTATION OR PROMISE ON
BEHALF OF LESSOR OR TO MODIFY THE TERMS OF THIS LEASE IN ANY WAY.
LESSEE'S LESSOR'S
NAME I-PAC MANUFACTURING INC. NAME DEERE CREDIT, INC.
------------------------------- ---------------------------
/s/ PAT W. MOORE CEO 1-12-99
- ----------------------- -------------
(Lessee's Signature) (Date Signed)
PHOTOMATRIX, INC.
/s/ PAT W. MOORE CEO 1-12-99 /s/ JULIA STEINHARTE
- ----------------------- ------------- ----------------------------
(Lessee's Signature) (Date Signed) (Authorized Signature)
DATE ACCEPTED: 1-25-99
- ----------------------- -------------
(Lessee's Signature) (Date Signed)
- ----------------------- -------------
(Lessee's Signature) (Date Signed)
<PAGE>
8. NEW EQUIPMENT WARRANTY
Lessee acknowledges and agrees (a) that the Equipment was selected by
Lessee; (b) that Lessee is satisfied that the same is suitable for its
purpose; (c) that Lessor is not a manufacturer thereof nor a dealer in
property of such kind; and (d) THAT LESSOR HAS NOT MADE, AND DOES NOT
HEREBY MAKE ANY REPRESENTATION OR WARRANTY OR COVENANT WITH RESPECT TO
THE MERCHANTABILITY, AND CONDITION, QUALITY, DESCRIPTION, DURABILITY, OR
SUITABILITY OF ANY SUCH UNIT IN ANY RESPECT OR IN CONNECTION WITH OR FOR
THE PURPOSES AND USES OF LESSEE. Lessor hereby assigns to Lessee, to the
extent assignable, any warranties, covenants, and representations of the
vendor with respect to the Equipment, provided that any action taken by
Lessee by reason thereof shall be at the sole expense of the Lessee and
shall be consistent with Lessee's obligations pursuant to the terms of
this agreement.
9. INSURANCE
9.1 Lessee, at its own expense, will carry public liability insurance
having an endorsement for contractual liability on the Equipment
with minimum liability limits in the amounts of $1,000,000 per
occurrence for bodily injury, including death, and in the minimum
amount of $250,000 per occurrence for property damage.
9.2 Lessee, at its own expense, shall keep the Equipment insured
against all risk of physical damage for no less than its actual
cash value. Such insurance shall include a loss payable clause
made out in favor of Lessor.
9.3 Lessee shall deliver to Lessor Certificates or other evidence
satisfactory to Lessor that insurance is maintained as required
under Sections 9.1 and 9.2. If Lessee fails to deliver such
Certificates or other evidence of insurance to Lessor upon
request. Lessor shall have the right, but shall not be obligated, to
purchase such insurance and Lessee will reimburse Lessor for the
cost thereof upon demand.
10. LOSS OR DAMAGE TO EQUIPMENT
All risk of loss or damage to the Equipment is assumed by Lessee until
it is returned to Lessor at the expiration of the term of this Lease or
such earlier termination as may occur under the provisions of Sections 5
and 7 of this Lease. If a damaged item is capable of being repaired for
a cost less than its actual cash value, Lessee shall repair it at his
own cost. The proceeds of any insurance which may become available as a
result of damage to the Equipment may be applied to the repair of the
Equipment or to payment of any obligation of Lessee hereunder, at the
sole discretion of Lessor. Inadequacy of such insurance proceeds to
cover the cost of repairs does not excuse or diminish Lessee's
obligation to repair. If an item is lost, stolen, destroyed or damaged
beyond repair, insurance proceeds shall be paid over to Lessor. Any
salvage shall be disposed of as the Insurance Company and/or Lessor may
elect. If the sum of the insurance proceeds and the salvage proceeds, if
any, is less than the Termination Value of the affected Equipment on the
date of loss, Lessee shall promptly pay the difference to Lessor.
11. LIABILITY
Lessee assumes all risk and liability for and shall hold Lessor and its
assigns harmless from all claims, liabilities or expenses for injuries
or death to persons or loss or damage to property allegedly caused by
the Equipment or arising out of the use, possession or transportation
thereof. Lessee's liability hereunder shall not be limited to the
amounts of insurance required under Section 9.
12. FEES AND PROPERTY TAXES
12.1 For the equipment, Lessor will file the requisite periodic reports
or returns with the appropriate taxing jurisdiction(s), UNLESS
OTHERWISE REQUIRED BY LAW. Lessor shall bill Lessee and Lessee
agrees to pay to Lessor, all taxes, fees and assessments,
including penalties, interest or fines assessed or levied by any
taxing authority during the Lease Term, excluding taxes assessed
on Lessor's income. If any applicable taxes, fees or assessments
during the Lease Term are unknown or uncertain, Lessor will
reasonably estimate such taxes and will bill Lessee therefor, and
Lessee agrees to pay to Lessor such estimates.
12.2 If the location of the Equipment has been changed to another
taxing jurisdiction or the exempt status of the Equipment has been
changed, Lessee shall, in time for Lessor to file such a return or
report, notify Lessor in writing regarding such changes at the
following address:
DEERE CREDIT, INC.
TAX DEPARTMENT
JOHN DEERE ROAD
MOLINE,IL 61265
12.3 If Lessor is required to file any returns or reports or pay any
fees or taxes for which Lessee is obligated hereunder, Lessee
shall promptly reimburse Lessor for its payment of said fees and
taxes and shall pay any additional sales, rental or use tax
imposed on such reimbursements. If Lessee fails to pay any fees or
taxes it is required to pay. Lessor shall have the right, but not
the obligation, to pay such fees or taxes together with penalties
or fines and Lessee will promptly reimburse Lessor for any amounts
paid by Lessor.
12.4 If any amounts which Lessee is required to reimburse Lessor are
not reimbursed within 30 days of demand by Lessor, then such
amounts shall bear interest at the highest contract rate permitted
by law, from the time of payment by Lessor until paid by Lessee.
12.5 In addition, the amount of any tax, fee, penalty or fine which is
Lessee's responsibility but which Lessor pays, if not reimbursed
to Lessor by Lessee within 30 days of demand by Lessor, shall bear
interest at the highest contract rate permitted by law, from the
time of payment by Lessor until paid by Lessee.
13. INTENDED USE OF EQUIPMENT
Lessee agrees that the Equipment will not be used for personal, family
or household use.
14. SERVICE AND USE
Lessee agrees to care for the Equipment in a careful and prudent manner,
to cause the Equipment to be operated and maintained in accordance with
the manufacturer's operator's manuals, maintenance manuals, technical
manuals, and other instructions concerning operation and maintenance,
and to perform all maintenance and make any and all repairs which may be
necessary to keep the Equipment in as good condition as it is when
delivered to Lessee, reasonable wear thereof excepted. All maintenance
and repairs shall be made at Lessee's expense unless covered by warranty
or by insurance as provided in Section 9. Lessee shall comply with and
conform to all laws and regulations relating to ownership, possession,
use and maintenance of the Equipment and with all conditions of policies
of insurance on the Equipment. Lessee will not install any accessory or
device on the Equipment (except such as may be removed without in any
way affecting the originally intended function or use of the Equipment).
Lessor shall be entitled to inspect the Equipment at the location of
Lessee during reasonable business hours. It is contemplated that the
Equipment will not be operated for more than the maximum number of
hours shown on the applicable Schedule, and Lessee agrees to pay the
excess use charge shown on such Schedule for each hour the Equipment is
used in excess of such time. If there is an hour meter furnished. Lessee
agrees to keep it connected to the Equipment and in good working
condition at all times and that it is to be used as the conclusive basis
of the number of hours of operation.
15. CONSTRUCTION
This Lease shall not be construed as conveying to Lessee any right,
title, or interest in or to the Equipment or its proceeds except as
Lessee. Except as provided in Section 2, all right, title and interest
in and to the Equipment shall at all times remain in Lessor.
16. DESIGNATION OF OWNERSHIP
If at any time during the term hereof, Lessor supplies Lessee with
labels, plates or other markings stating that the Equipment is owned by
Lessor, Lessee shall affix and keep the same upon a prominent place on
the Equipment. Lessor may request and Lessee agrees to execute Uniform
Commercial Code Financing Statements, and such statements or their
filing shall not be deemed to negate the construction of this Lease as a
lease. Lessee agrees to execute any and all additional instruments
necessary to perfect Lessor's interest in this Lease, the payments due
hereunder and the Equipment.
17. SECURITY DEPOSIT
If an amount is shown as a "Security Deposit" on any Schedule, Lessor
may, but shall not be obligated to, apply the Security Deposit, or any
portion thereof, to cure any default by Lessee, in which event Lessee
shall promptly restore the Security Deposit to the full amount
specified. Upon fulfillment by Lessee of all of the covenants and
conditions of this lease, including the obligation to reimburse Lessor
for any amounts as set forth in Section 12, Lessor shall return to
Lessee the amount of the Security Deposit, without interest.
18. TERMINATION VALUE
With respect to each piece of Equipment, "Termination Value", as used in
this Leased, shall be a sum equal to: (a) the total of all Lease
Payments for the present term (excluding any sales tax included in such
Leased Payments) which are not yet due on the date of the loss under
Section 10 or the date of sale under Sections 5 and 7; (b) plus the
Residual Value which was used in calculating payments due under the
present term; (c) minus the unearned finance income component included
in the Lease Payments for the present item not yet due on such date,
calculated using the "Actuarial" method and treating any federal income
tax credit retained by Lessor as a payment. Upon request, Lessor will
advise Lessee of the amount of the Termination Value to be used in
computing Lessee's obligations under Sections 5, 7 or 10.
19. CONTROLLING LAW
EXCEPT AS PROHIBITED BY THE LAW OF THE STATE OF LESSEE'S RESIDENCE, THE
CONSTRUCTION AND VALIDITY OF THIS LEASE SHALL BE CONTROLLED BY THE LAW
OF THE STATE OF IOWA, WHERE THIS LEASE IS ACCEPTED AND ENTERED INTO.
<PAGE>
[LOGO]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
GENERAL INFORMATION
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LESSEE NAME AND ADDRESS LEASE NUMBER ACCOUNT #, SS# OR TAX ID #
I-PAC MANUFACTURING INC., 1958 KELLOGG AVE., CARLSBAD, CA 92008 030- 330415028
0052202-000
- -------------------------------------------------------------------------------------------------------------------------------
CO-LESSEE NAME AND ADDRESS ACCOUNT #, SS# OR TAX ID #
PHOTOMATRIX, INC.: 1958 KELLOGG AVE. CARLSBAD, CA 92008 953267788
- -------------------------------------------------------------------------------------------------------------------------------
SUPPLIER'S (DEALER'S) NAME AND ADDRESS (Place of Delivery) DEALER ACCOUNT NO.
DEERE CREDIT, INC.: 1415 28TH STREET, W DES MOINES, IA 50265 79-0000
- -------------------------------------------------------------------------------------------------------------------------------
LESSOR
DEERE CREDIT, INC., 1411 28TH ST., WEST DES MOINES, IA 50265
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
EQUIPMENT DESCRIPTION
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
QTY. MANUFACTURING MODEL EQUIPMENT DESCRIPTION SERIAL NUMBER MAX HRS. EXCESS CHRG HR. METER
001 SEE 1 SEE ATTACHED SEE EXHIBIT A /YR $0.00
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EQUIPMENT LOCATION CITY STATE EQUIPMENT USAGE PHYSICAL DAMAGE INSURANCE
Check here if OUTSIDE CARLSBAD CA / / AGRICULTURAL / / JOIN DEERE INSURANCE PURCHASED
city limits: / / --------------------
COUNTY ZIP CODE /X/ COMMERCIAL / / PROOF OF INSURANCE ATTACHED
SAN DIEGO 92008 / / INDUSTRIAL
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
PAYMENT INFORMATION
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMENCEMENT DATE TERMINATION DATE PURCHASE OPTION PRICE NO OF PAYMENTS LEASE PAYMENT USE TAX TOTAL LEASE PAYMENT
1/20/99 12/20/00 $55,000.00 1 $16,000.00 $1,240.00 $17,240.00
- -------------------------------------------------------------------------------------------------------------------------------
1 $ 8,000.00 $ 620.00 $ 8,620.00
- -------------------------------------------------------------------------------------------------------------------------------
21 $10,875.00 $ 842.82 $11,717.82
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
/X/ MONTHLY PAYMENTS DATE MONTHLY PMTS BEGIN Payments are due on day: 20
1/20/99
- -------------------------------------------------------------------------------------------------------------------------------
/ / PAYMENTS OTHER THAN -----------------------------------------------------------------------------------------
MONTHLY -----------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
/ / PAYMENT SCHEDULE ATTACHED (Optional)
- -------------------------------------------------------------------------------------------------------------------------------
ADVANCE LEASE PAYMENT $17,240.00 Advance Includes the first 1 Payment(s) and Last 0 Payment(s).
- -------------------------------------------------------------------------------------------------------------------------------
SECURITY DEPOSIT $0.00 LESSEE HEREBY DEPOSITS WITH LESSOR THE SUM SHOWN AT THE LEFT AS A SECURITY
DEPOSIT FOR THE FAITHFUL PERFORMANCE BY LESSEE OF THE COVENANTS AND
CONDITIONS OF THE LEASE.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
SIGNATURES
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
By /s/ PAT W. MOORE Date 1/12/99 By /s/ PAT W. MOORE DATE 1/12/99
------------------------- -------------- -------------------- -------------
PAT W. MOORE CEO PHOTOMATRIX, INC.
PAT W. MOORE CEO
By Date By Date
---------------------------- --------------- ------------------ -------------
By Date
---------------------------- ---------------
By Date
---------------------------- ---------------
- -------------------------------------------------------------------------------------------------------------------------------
LESSOR: DEERE CREDIT, INC. By: Julia Steinharte Title: Auditor Date: 1-25-99
- -------------------------------------------------------------------------------------------------------------------------------
DELIVERY ACKNOWLEDGMENTS
- -------------------------------------------------------------------------------------------------------------------------------
The equipment listed above and Operator's Manuals were received on this date, and the safe operation and proper servicing of the
Equipment were explained to me. I have also received the written warranty applicable to the Equipment and understand that my
rights are limited as set forth therein.
- -------------------------------------------------------------------------------------------------------------------------------
OPERATOR'S MANUAL ISSUE # LESSEE'S SIGNATURE DATE
Pat W. Moore 1/12/99
- -------------------------------------------------------------------------------------------------------------------------------
The Equipment listed above was carefully prepared for delivery, inspected and adjusted according to factory recommendations
before delivery to lessee. Operation and service of the Equipment and the importance of following the instructions in the
Operator's Manual were explained to lessee.
- -------------------------------------------------------------------------------------------------------------------------------
DEALER SIGNATURE DATE
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 10.51
[LOGO]
January 14, 1999
William L. Grivas, Sr.
c/o Robert S. Brewer, Jr., Esq.
McKenna & Cuneo, L.L.P.
750 B Street, Suite 3300
San Diego, CA 92101
Re: Agreement Between Photomatrix Corporation and All Affiliates and
William L. Grivas, Sr.
Dear Mr. Grivas:
This is to confirm and memorialize the agreement by and between
Photomatrix Corporation, on behalf of itself and any and all of its
affiliated, related and subsidiary entities (collectively, the "Company"),
and you (hereinafter, the "parties"), relating to your resignation of any and
all chairmanships and directorships you have, and leave of absence with
respect to any and all other capacities, employment, memberships, offices,
positions and seats you have, with the Company. The parties hereby enter into
this agreement intending to be bound by each and all of its terms.
1. Upon your execution of this agreement, you shall be deemed to have
tendered, and the Company shall be deemed to have accepted, your
above-mentioned resignations and leave of absence, with suspension of any and
all benefits and compensation, except for payment of the Base Salary per the
Executive Employment Agreement between you and Photomatrix Corporation (the
"Employment Agreement"), stock options already granted per the Employment
Agreement, and normal and customary health insurance. Nothing herein shall be
construed to alter, expand or
<PAGE>
modify any and all non-competition covenants and agreements and
confidentiality covenants and agreements between you and the Company which
shall continue in full force and effect in accordance with their terms. You
will comply with the Company's written policies of which you have notice and
which are applicable to all executive and managerial employees. The
above-mentioned resignations and leave of absence shall be effective
immediately upon execution of this agreement by the parties, except your
resignation as a director, which shall be effective upon the nomination and
acceptance of the nomination(s) to the Board of Directors of the Company of
either or both Michael J. Genovese and/or David A. Prolman.
2. Until the Company's Board of Directors votes otherwise, you agree
that all communications by you with the Company regarding the Company, its
business, its customers, its employees and your role (past, present or
future) with the Company shall be directed by you solely to members of the
Company's Board of Directors, or such persons as you may be authorized to
communicate with in accordance with written policy adopted by the Company's
Board of Directors. Until the Company's Board of Directors votes otherwise,
you agree to not contact or otherwise communicate with any staff, employee,
manager, customer, representative or agent of the Company regarding the
Company, its business, its customers, its employees, or your rule (past,
present or future) with the Company. You understand and acknowledge that the
staff, employees, managers, customers, representatives and agents of the
Company will be directed not to contact or communicate with you regarding the
Company, its business, its customers, its employees or your role (past,
present or future) with the Company.
2
<PAGE>
3. By entering into this agreement, neither party shall be deemed to
have admitted to having engaged in any wrongdoing or actionable conduct.
Further, the parties mutually understand, acknowledge and agree that by
entering into this agreement, they are not waiving, relinquishing or
otherwise withdrawing, nor shall they be deemed to have waived, relinquished
or otherwise withdrawn, any of their rights, remedies or claims they, or any
of them, may have, if any, against the other, except you waive, relinquish
and otherwise withdraw any claim that the Company breached the Employment
Agreement, provided the Company complies with this agreement. All such
rights, remedies and/or claims, if any, of the parties shall be fully
preserved and continue in full force and effect independent of this agreement.
4. You acknowledge and agree that in addition to any other remedy that
may be available to the Company under this or any other agreements with you
or applicable law, a breach by you of this agreement will excuse the Company,
upon a vote of the Company's Board of Directors, from the performance of the
payment or delivery to you of any and all compensation or other forms of
benefits hereunder.
5. The Company acknowledges and agrees that in addition to any other
remedy that may be available to you under this or any other agreements with
the Company or applicable law, a breach by the Company of this agreement will
excuse you from the performance of your agreements and representations
hereunder, including but not limited to your agreement in Paragraph 3 to
waive, relinquish and otherwise withdraw any claim that the Company breached
the Employment Agreement; provided however that no breach by the Company of
this agreement will affect any non-
3
<PAGE>
competition covenant or agreement or any confidentiality covenant or
agreement between you and the Company, which shall continue in full force and
effect in accordance with their terms.
6. All parties to this agreement acknowledge that they have had the
opportunity to consult with and have consulted with their own independent
legal counsel regarding this agreement and each of its terms and further
acknowledge and agree that this agreement was entered into by them freely and
voluntarily intending to be fully bound by each of its provisions and terms.
7. In the event of a dispute regarding the existence of a breach or the
performance of this agreement by any party, the parties agree that such
dispute shall be resolved solely and exclusively by binding arbitration in
accordance with the rules of the American Arbitration Association. Venue
shall lie exclusively in the County of San Diego, California. The parties
further agree that reasonable attorneys' fees and costs shall be awarded by
the arbitrator to the prevailing party in the event of a dispute is submitted
for resolution to arbitration.
8. The parties agree that the terms and conditions of this agreement
are the result of negotiations between the parties, and that this agreement
shall not be construed in favor of or against any party hereto by reason of
the extent to which any party hereto or his or its counsel participated in
the drafting of this agreement.
9. This agreement may not be changed, altered, or modified except in a
writing signed by the parties. This agreement may not be discharged except by
performance in accordance with its terms or by a writing signed by the
parties.
4
<PAGE>
10. This agreement contains the entire agreement between the parties
relating to the transactions contemplated hereby, and all prior or
contemporaneous agreements, understandings, representations, and statements,
whether oral or written, and whether by a party hereto or such party's legal
counsel are merged herein.
11. Each party represents and warrants that in executing this
agreement, they are not relying on any representations whatsoever, whether
express or implied, including without limitations, representations of fact or
opinion, made by or on behalf of any party or their agents, representatives,
and attorneys, with the exception of the representations set forth in this
agreement.
PHOTOMATRIX CORPORATION
By: /s/ Patrick W. Moore
-----------------------------
Its:
Dated: January 18, 1999
Accepted and Agreed:
Dated: January 18, 1999 /s/ William L. Grivas
---------------------------------
William L. Grivas
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1998
<CASH> 585,000
<SECURITIES> 0
<RECEIVABLES> 2,719,000
<ALLOWANCES> (281,000)
<INVENTORY> 3,272,000
<CURRENT-ASSETS> 6,562,000
<PP&E> 6,067,000
<DEPRECIATION> (943,000)
<TOTAL-ASSETS> 14,126,000
<CURRENT-LIABILITIES> 6,104,000
<BONDS> 0
0
0
<COMMON> 21,490,000
<OTHER-SE> 30,000
<TOTAL-LIABILITY-AND-EQUITY> 14,126,000
<SALES> 0
<TOTAL-REVENUES> 2,768,000
<CGS> 0
<TOTAL-COSTS> 2,039,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 82,000
<INCOME-PRETAX> (801,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (801,000)
<DISCONTINUED> 161,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (640,000)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
