<PAGE>
[THIS DOCUMENT IS A COPY OF THE FORM 8-K FILED ON JUNE 3,
1996, PURSUANT TO A RULE 202 PERMANENT HARDSHIP EXEMPTION]
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_______________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): MAY 31, 1996
NEW IMAGE INDUSTRIES, INC.
--------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 0-17928 95-4088548
-------------------- ----------- -------------
(STATE OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
2283 COSMOS COURT, CARLSBAD, CALIFORNIA 92009
- - ---------------------------------------- --------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (619) 930-9900
NONE
----------------------------------------
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On May 31, 1996, ("Effective Date") the transactions contemplated by an
Agreement and Plan of Reorganization ("Agreement"), by and among New Image
Industries, Inc. (the "Company"), a Delaware corporation, Wisdom Acquisition
Corp. ("Sub"), a California corporation, a subsidiary of the Company, and
Insight Imaging Systems, Inc. ("Insight"), a California corporation, and the
related Agreement of Merger ("Merger Agreement") were consummated by the parties
(which followed a closing of such transactions on May 17, 1996). Under the
Merger Agreement, Sub was merged into Insight and Insight survived as a wholly-
owned subsidiary of the Company. The Company accounted for the transaction as a
pooling of interests.
Insight, for the twelve-month period ended March 31, 1996, had sales in
excess of $13 million. Insight was a privately-owned corporation headquartered
in San Carlos, California, with software operations in Richmond, Virginia, and
an optical assembly operation in Mission Viejo, California. Insight designs,
manufactures, and markets imaging systems for dental offices. It has had
success in generating rapid revenue growth in recent years, however, increases
in marketing and other expenses have exceeded revenue growth. New Image
management believes efficiencies can be realized from the combination of the two
companies.
The current Insight product line includes intraoral and extraoral video
cameras, monitors, printers, mobile carts, and video capture, periodontal and
restorative charting, and cosmetic imaging software. Insight camera systems are
available in a variety of models: cart, portable, or wall-mounted systems. Its
MultiLink network product links individual offices with a dentistry facility.
At the Effective Date, the only class of Insight's capital stock with
shares outstanding was its common stock, without par value ("Insight Common
Stock"). At the Effective Date, there were 6,373,764 shares of Insight Common
Stock issued and outstanding. For each share of Insight Common Stock, the
holder received 0.0554392 shares of the Company's Common Stock, $.001 par value,
353,356 in total. In addition, the Company issued 296,603 shares of the
Company's Common Stock in exchange for each dollar of principal and interest
outstanding on loans to Insight from shareholders which were made prior to
March 1, 1996; and the Company assumed Insight obligations under outstanding
options and warrants to purchase Insight Common Stock and in connection
therewith reserved 158,040 shares of the Company's Common Stock for issuance
upon exercise of such stock options and warrants. Subject to differences caused
by the Company's agreement to round-up all fractional shares, if all options and
warrants are exercised, the Company will have issued 807,999 shares of the
Company's Common Stock to holders of Insight Common Stock, options, warrants,
and shareholder loans made prior to March 1, 1996.
The basis for the exchange was the evaluation by the board of directors and
its advisors of the value of the Insight business on a going-forward basis.
There were no common shareholders, officers, directors or holders of 10% or more
of the Common Stock of the Company and Insight.
2
<PAGE>
The Company required additional funding in connection with the acquisition
from the following sources:
1. The Company's primary line of credit was increased from $2.5 million
to $4 million and is secured by all of the assets of the Company and Insight.
The amount of availability under the line will be a function of the size and age
of the receivables, inventory, and other assets of the combined companies
2. The Company has borrowed $500,000 of secured subordinated debt. Under
the terms of this loan, the principal sum will be subordinated to the bank's
primary lending relationship and will be senior to the Series A Notes described
below. The loan will bear interest at the rate of 10% per annum. In connection
with this debt, the Company granted the lender a five year warrant to purchase
the Company's Common Stock at $3.06 per share. The warrant will expire if not
exercised by the sooner of (i) expiration of the warrant term or (ii) completion
of a 20 day period where the Company's Common Stock closes at $8.00 or more per
share on the exchange where the stock is primarily traded following the second
year after issuance of the warrant.
3. An Insight shareholder had lent $650,000 and New Image had lent
$200,000 to Insight all prior to or as of the Effective Date, which loans are
evidenced by Insight Series A Unsecured Subordinated Notes ("Series A Notes").
The Series A Notes bear interest at the rate of ten percent (10%) per annum and
are subordinated to up to $8 million of Senior Debt designated from time to
time.
In connection with this acquisition, the Company will be consolidating the
operations of the combined companies into the Company's Carlsbad facility. The
Company plans to reduce the number of employees previously involved in the
Insight Operations and to consolidate certain of the Insight equipment and
facilities. This consolidation effort will result in a significant
restructuring charge in the Company's quarter ending June 30, 1996.
Item 7. Financial Statements, PROFORMA Financial Information and Exhibits.
(a) Financial Statements of Business Acquired. It was impractical to
file the required financial statements of Insight by the date this filing was
required. The audited consolidated balance sheets of Insight as of September
30, 1995 and 1994, and audited consolidated statements of income and cash flow
for the years ended September 30, 1995, 1994 and 1993; and an unaudited balance
sheet of Insight as of March 31, 1996 and unaudited consolidated statements of
income and cash flow for the six months ended March 31, 1996 and 1995, and a
Closing Date Financial Statement will be filed on or before the date required by
Item 7(a) of Form 8-K.
(b) PROFORMA Financial Information. It was impractical to file the
required Proforma Financial Information by the date this filing was required but
such information will be filed on a Form 8 to this report on or before the date
required by Item 7(b) of Form 8-K
(c) Exhibits. Exhibits filed herewith are identified in the Schedule of
Exhibits appearing at page 5 hereof.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
Date: May 31, 1996 New Image Industries, Inc.
By: _________________________________
Dewey F. Edmunds, President
4
<PAGE>
SCHEDULE OF EXHIBITS
EXHIBIT NO. DESCRIPTION PAGE
2.1 Agreement and Plan of Reorganization (including all
material exhibits thereto) ___
2.2 Undertaking Concerning Certain Registration Rights ___
4.1 Form of Certificate for the Registrant's Common Stock,
$.001 Par Value ___
10.1 Senior Subordinated Secured Promissory Note and Common
Stock Purchase Warrant between Mercury Partners and New
Image Industries, Inc. ___
10.2 Amended and Restated Loan and Security Agreement between
Coast Business Credit and New Image Industries, Inc. ___
10.3 Series A Subordinated Promissory Note ___
5
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
NEW IMAGE INDUSTRIES, INC.
WISDOM ACQUISITION CORP.
AND
INSIGHT IMAGING SYSTEMS, INC.
---------------------
MAY 9, 1996
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 The Merger. . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Effective Date; Effective Time. . . . . . . . . . . . . . . 5
2.4 Conversion of Insight Capital Stock . . . . . . . . . . . . 5
2.5 Insight Common Purchase Rights. . . . . . . . . . . . . . . 6
2.6 Dissenters' Rights. . . . . . . . . . . . . . . . . . . . . 6
2.7 Exchange of Certificates Representing Insight
Capital Stock . . . . . . . . . . . . . . . . . . . . . . 6
2.8 Issuance of New Image Common for Pre-March Loans. . . . . . 8
2.9 Treatment of Fractional Shares. . . . . . . . . . . . . . . 9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF INSIGHT . . . . . . . . . 9
3.1 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . 9
3.2 Organization, Good Standing and Qualification . . . . . . . 9
3.3 Capitalization; Options and Warrants; Voting Rights;
and Securities Laws . . . . . . . . . . . . . . . . . . . 9
3.4 Authorization . . . . . . . . . . . . . . . . . . . . . . . 10
3.5 Litigation, Claims and Potential Claims . . . . . . . . . . 10
3.6 Compliance with Law . . . . . . . . . . . . . . . . . . . . 11
3.7 Agreements. . . . . . . . . . . . . . . . . . . . . . . . . 11
3.8 Related-Party Transactions. . . . . . . . . . . . . . . . . 12
3.9 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.10 Environmental and Safety Laws . . . . . . . . . . . . . . . 12
3.11 Manufacturing and Marketing Rights. . . . . . . . . . . . . 13
3.12 Title to Property and Assets. . . . . . . . . . . . . . . . 13
3.13 Financial Statements. . . . . . . . . . . . . . . . . . . . 13
3.14 Changes . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.15 Employees and Labor . . . . . . . . . . . . . . . . . . . . 15
3.16 Employee Benefit Plans. . . . . . . . . . . . . . . . . . . 15
3.17 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.18 Purchase and Sale Obligations . . . . . . . . . . . . . . . 17
3.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.20 No Change of Control Provision. . . . . . . . . . . . . . . 17
3.21 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.22 Accounts Receivable . . . . . . . . . . . . . . . . . . . . 18
3.23 Warranty Obligations and Returns. . . . . . . . . . . . . . 18
3.24 Patents, Trademarks, etc. . . . . . . . . . . . . . . . . . 18
<PAGE>
TABLE OF CONTENTS
(Continued)
Page
3.25 Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.26 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . 19
3.27 HTMI License. . . . . . . . . . . . . . . . . . . . . . . . 19
3.28 Compliance with Covenants . . . . . . . . . . . . . . . . . 19
3.29 Payables Aging. . . . . . . . . . . . . . . . . . . . . . . 20
3.30 Pooling of Interests. . . . . . . . . . . . . . . . . . . . 20
ARTICLE IV REPRESENTATIONS AND WARRANTIES
OF NEW IMAGE AND SUB. . . . . . . . . . . . . . . . . . . 20
4.1 Organization, Good Standing and Qualification . . . . . . . 20
4.2 Capitalization and Voting Rights. . . . . . . . . . . . . . 20
4.3 Valid Issuance of New Image Exchange Shares . . . . . . . . 21
4.4 Authorization . . . . . . . . . . . . . . . . . . . . . . . 21
4.5 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . 22
4.6 Compliance With Law . . . . . . . . . . . . . . . . . . . . 22
4.7 Securities Exchange Commission Documents;
New Image Financial Statements. . . . . . . . . . . . . . 22
4.8 Changes . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.9 No Defaults . . . . . . . . . . . . . . . . . . . . . . . . 24
4.10 Patents, Trademarks, etc. . . . . . . . . . . . . . . . . . 24
4.11 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE V CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE
TIME; ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . 25
5.1 Conduct of Insight Business . . . . . . . . . . . . . . . . 25
5.2 Access to Information . . . . . . . . . . . . . . . . . . . 26
5.3 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.4 Transaction Costs . . . . . . . . . . . . . . . . . . . . . 27
5.5 Public Announcements. . . . . . . . . . . . . . . . . . . . 27
5.6 Tax and Pooling Status of Reorganization. . . . . . . . . . 27
5.7 Election or Appointment of New Image Director . . . . . . . 27
5.8 Insight Interim Financial Statements. . . . . . . . . . . . 28
5.9 No Negative Cash. . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE VI CONDITIONS TO EACH PARTY'S OBLIGATIONS TO
EFFECT THE MERGER . . . . . . . . . . . . . . . . . . . . . 28
6.1 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . 28
6.2 Shareholder Approval. . . . . . . . . . . . . . . . . . . . 28
ii
<PAGE>
TABLE OF CONTENTS
(Continued)
Page
6.3 No Actions or Proceedings . . . . . . . . . . . . . . . . . 28
6.4 Government Approvals. . . . . . . . . . . . . . . . . . . . 28
6.5 Insight Affiliate Agreements. . . . . . . . . . . . . . . . 28
6.6 Statutes. . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE VII FURTHER CONDITIONS TO OBLIGATIONS OF
NEW IMAGE AND SUB . . . . . . . . . . . . . . . . . . . . 29
7.1 Representations and Warranties. . . . . . . . . . . . . . . 29
7.2 Performance of Obligations of Insight . . . . . . . . . . . 29
7.3 Opinion of Insight's Counsel. . . . . . . . . . . . . . . . 29
7.4 Pre-March Loans . . . . . . . . . . . . . . . . . . . . . . 30
7.5 Guaranties of Insight Shareholders. . . . . . . . . . . . . 30
7.6 Estimated Closing Date Balance Sheet. . . . . . . . . . . . 30
7.7 New Image Financing . . . . . . . . . . . . . . . . . . . . 30
7.8 Estoppel Statements . . . . . . . . . . . . . . . . . . . . 30
7.9 Affiliated Capital Corp.. . . . . . . . . . . . . . . . . . 30
7.10 Mortensen Agreement . . . . . . . . . . . . . . . . . . . . 30
7.11 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.12 CorDev Corporation Agreements . . . . . . . . . . . . . . . 30
7.13 Approval of New Image Board of Directors. . . . . . . . . . 30
7.14 Approval of Insight Disclosure Schedule and Exhibits. . . . 30
7.15 Environmental Risks . . . . . . . . . . . . . . . . . . . . 31
7.16 Failure to Agree on Exhibits. . . . . . . . . . . . . . . . 31
7.17 Pooling Letter. . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE VIII FURTHER CONDITIONS TO OBLIGATIONS OF INSIGHT. . . . . . . . 31
8.1 Representations and Warranties. . . . . . . . . . . . . . . 31
8.2 Performance of Obligations of New Image and Sub . . . . . . 31
8.3 Opinion of New Image's Counsel. . . . . . . . . . . . . . . 31
8.4 Board Membership. . . . . . . . . . . . . . . . . . . . . . 32
8.5 Release of Shareholder Guarantee. . . . . . . . . . . . . . 32
8.6 Agreement on Exhibits . . . . . . . . . . . . . . . . . . . 32
ARTICLE IX INDEMNIFICATION BY INSIGHT SHAREHOLDERS . . . . . . . . . . 32
9.1 Survival of Representations, Warranties, Covenants
and Agreements. . . . . . . . . . . . . . . . . . . . . . 32
9.2 Liability Threshold . . . . . . . . . . . . . . . . . . . . 32
9.3 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . 32
iii
<PAGE>
TABLE OF CONTENTS
(Continued)
Page
9.4 Notice of Claims. . . . . . . . . . . . . . . . . . . . . . 33
9.5 Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.6 Objections to Claim . . . . . . . . . . . . . . . . . . . . 33
9.7 Resolution of Conflicts . . . . . . . . . . . . . . . . . . 33
9.8 Third-Party Claims. . . . . . . . . . . . . . . . . . . . . 34
9.9 Disputes. . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.10 No Indemnity to Guarantors from Insight . . . . . . . . . . 34
ARTICLE X INDEMNIFICATION BY NEW IMAGE. . . . . . . . . . . . . . . . 35
ARTICLE XI TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . 35
11.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . 35
11.2 Effect of Termination . . . . . . . . . . . . . . . . . . . 36
11.3 Terminations Hereunder not Exclusive. . . . . . . . . . . . 36
ARTICLE XII GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . 36
12.1 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . 36
12.2 Extension and Waiver. . . . . . . . . . . . . . . . . . . . 36
12.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 37
12.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . 37
12.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 37
12.6 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . 38
12.7 Third Party Rights. . . . . . . . . . . . . . . . . . . . . 38
12.8 Titles and Headings . . . . . . . . . . . . . . . . . . . . 38
12.9 Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . 38
12.10 Further Assurances. . . . . . . . . . . . . . . . . . . . . 38
12.11 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . 38
12.12 Successors and Assigns. . . . . . . . . . . . . . . . . . . 38
12.13 Partial Invalidity. . . . . . . . . . . . . . . . . . . . . 38
12.14 Attorneys Fees. . . . . . . . . . . . . . . . . . . . . . . 38
12.15 New Image and Sub One Party . . . . . . . . . . . . . . . . 39
12.16 Concerning Disclosure Schedules and Exhibits. . . . . . . . 39
iv
<PAGE>
EXHIBITS
1 Audited Closing Date Financial Statements Procedure
2.1 Merger Agreement
2.7.2 Transmittal Letter and Instructions for Holders of Insight
Capital Stock
2.8 Transmittal Letter and Instructions for Payees Under Pre-March
Loans
3.3.1 Schedule of Insight Capital Stock
3.3.3 Schedule of Insight Common Purchase Rights
3.3.6 Schedule of Pre-March Loans
3.8 Schedule of Post-February Loans
3.9 Schedule of Insight Permits
3.12 Schedule of Assets
3.13A Estimated Closing Date Balance Sheet
3.13B Insight Financial Statements
3.15 Schedule of Employees (full-time and part-time)
3.17.1 Schedule of Insight Taxes, Interest, Penalties, and Agreements
with Tax Authorities
3.18 Schedule of Insight Purchase Orders in Excess of $25,000
3.19 Schedule of Insight Self-Insured Risks and Insurance Policies
3.24.1 Schedule of Insight Intellectual Property Rights and Related
Agreements
3.29 Schedule of Insight Payables as of the Date of the Latest Balance
Sheet
4.10 Schedule of New Image Intellectual Property Rights and Related
Agreements
6.5 Insight Affiliate Agreement
7.1 Insight Officers' Certificate
7.3 Opinion of Insight's Counsel
7.5 Insight Shareholder Guarantee
7.8 Estoppel Statements
8.2 New Image Officers' Certificate
8.3 Opinion of New Image Counsel
v
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made
and entered into as of May 9, 1996 by and among New Image Industries, Inc., a
Delaware corporation ("New Image"), Wisdom Acquisition Corp., a California
corporation and a wholly-owned subsidiary of New Image ("Sub"), and Insight
Imaging Systems, Inc., a California corporation ("Insight"):
WITNESSETH:
WHEREAS, the respective Boards of Directors of New Image, Sub, and
Insight deem it advisable and in the best interests of their respective
stockholders that Sub be merged with and into Insight pursuant to the Merger (as
hereinafter defined);
WHEREAS, the Merger is intended to be treated as a tax-free
reorganization pursuant to Section 368(a) of the Internal Revenue Code of 1986,
as amended (the "Code") and is eligible to be accounted for as a pooling of
interests under applicable accounting rules;
NOW, THEREFORE, in order to consummate the Merger, and in consideration of
the mutual representations, warranties, covenants, and agreements contained
herein the parties agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, certain terms shall have the meanings ascribed to
them, as follows:
"AGREEMENT" shall refer to this agreement.
"ASSETS" shall have meaning ascribed to it in Section 3.12.
"AUDITED CLOSING DATE FINANCIAL STATEMENTS" shall mean the audited closing
date financial statements of Insight derived pursuant to the procedures set
forth in Exhibit 1.
"BUSINESS CONDITION" shall, with respect to any corporate entity or group of
corporate entities, mean the business, financial condition, results of
operations, and assets of such corporate entity or group of corporate entities.
"CGCL" shall mean the California General Corporation Law.
"CLAIM" shall have the meaning ascribed to it in Section 9.1.
"CLAIM NOTICE" shall have the meaning ascribed to it in Section 9.4.
"CLOSING DATE" shall have the meaning ascribed to it in Section 2.2.
1
<PAGE>
"CLOSING" shall have the meaning ascribed to it in Section 2.2.
"CODE" shall have meaning ascribed to it in the second Whereas clause.
"CONFIDENTIALITY AGREEMENT" shall have the meaning ascribed to it in Section
5.2.
"DAMAGES" shall have the meaning ascribed to it in Section 9.3.
"DATE OF THIS AGREEMENT" shall mean the date set forth in the introductory
paragraph of this Agreement.
"DECEMBER 31, 1995 FINANCIAL STATEMENTS" shall have meaning ascribed to it
in Section 3.13.1(i).
"DISPUTE" shall have the meaning ascribed to it in Section 9.9.
"DISSENTING SHARES" shall mean shares of Insight Capital Stock which qualify
as dissenting shares under CGCL Section 1300(b) and receive cash in lieu of New
Image Common in the Merger.
"EFFECTIVE DATE" shall have the meaning ascribed to it in Section 2.3.
"EFFECTIVE TIME" shall have the meaning ascribed to it in Section 2.3.
"ESTIMATED CLOSING DATE BALANCE SHEET" shall refer to Exhibit 3.13A.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"EXCHANGE AGENT" shall have the meaning ascribed to it in Section 2.7.1.
"EXCHANGE RATIO" shall have meaning ascribed to it in Section 2.4.
"FINANCIAL STATEMENTS" shall have meaning ascribed to it in Section 3.13.1.
"GAAP" shall refer to generally accepted accounting principles.
"HAZARDOUS MATERIAL" shall have the meaning ascribed to it in Section 3.10.
"HTMI" shall have meaning ascribed to it in Section 3.27.
"INSIGHT" shall have the meaning ascribed to it in the introductory
paragraph to this agreement.
"INSIGHT A PREFERRED" means the Insight Series A Preferred Stock described
in the Insight Restated Articles.
"INSIGHT B PREFERRED" means the Insight Series B Preferred Stock described
in the Insight Restated Articles.
2
<PAGE>
"INSIGHT CAPITAL STOCK" shall refer, collectively, to the Insight Common,
the Insight A Preferred, and the Insight B Preferred.
"INSIGHT COMMON" means the Insight Common Stock described in the Insight
Restated Articles.
"INSIGHT COMMON PURCHASE RIGHTS" shall have the meaning ascribed to it in
Section 3.3.3.
"INSIGHT DISCLOSURE SCHEDULE" shall mean the disclosure schedule provided to
New Image as contemplated in Article III.
"INSIGHT GUARANTORS" shall refer to the shareholders of Insight who provide
guaranties as contemplated by Section 7.5 and Article IX.
"INSIGHT INTELLECTUAL PROPERTY RIGHTS" shall have the meaning ascribed to it
in Section 3.24.1.
"INSIGHT OFFICERS' CERTIFICATE" shall have the meaning ascribed to it in
Section 7.1.
"INSIGHT RESTATED ARTICLES" shall have the meaning ascribed to it in
Section 3.3.2.
"INSIGHT RETURNS" shall have the meaning ascribed to it in Section 3.17.1.
"INVENTORIES" shall have the meaning ascribed to it in Section 3.21.
"LATEST BALANCE SHEET" shall mean the Insight December 31, 1995, balance
sheet included in its unaudited financial statements attached as part of Exhibit
3.13B.
"LIENS" shall have the meaning ascribed to it in Section 3.12.
"MERGER" shall refer to the merger of Insight and Sub pursuant to the terms
of Exhibit 2.1.
"MERGER AGREEMENT" shall refer to Exhibit 2.1.
"NASD" shall refer to the National Association of Securities Dealers, Inc.
"NEW IMAGE" shall have the meaning ascribed to it in the introductory
paragraph to this agreement.
"NEW IMAGE PREFERRED" shall refer to New Image Industries, Inc. Preferred
Stock, $.001 par value.
"NEW IMAGE COMMON" shall refer to New Image Industries, Inc. common stock,
$.001 par value.
"NEW IMAGE COMMON PURCHASE RIGHTS" shall have the meaning ascribed to it in
Section 4.2.1.
3
<PAGE>
"NEW IMAGE DISCLOSURE DOCUMENTS" shall refer to New Image filings under the
Exchange Act.
"NEW IMAGE DISCLOSURE SCHEDULE" shall have the meaning ascribed to it in the
introductory paragraph to Article IV.
"NEW IMAGE EXCHANGE SHARES" shall mean the shares of New Image Common
exchanged for Insight Capital Stock pursuant to this Agreement and the Merger
Agreement. New Image Exchange Shares do not include shares of New Image Common
(i) which would otherwise have been allocable to the shares of Insight Capital
Stock which qualify as Dissenting Shares or (ii) which are reserved for issuance
upon exercise of Insight Common Purchase Rights assumed hereunder.
"NEW IMAGE FINANCIAL STATEMENTS" shall have the meaning ascribed to it in
Section 4.7.
"NEW IMAGE INTELLECTUAL PROPERTY RIGHTS" shall have the meaning ascribed to
it in Section 4.10.1.
"NEW IMAGE LOAN EXCHANGE SHARES" shall mean the shares of New Image Common
issued in exchange for Pre-March Loans.
"NOTICES" shall have the meaning ascribed to it in Section 12.3.
"OFFICER CLAIM CERTIFICATE" shall have the meaning ascribed to it in Section
9.5.
"PERMITS" shall mean the franchises, permits, licenses, and other similar
authority described in Exhibit 3.9.
"POST-FEBRUARY LOANS" shall mean loans from Insight shareholders after
February 29, 1996.
"PRE-MARCH LOANS" shall mean loans from Insight shareholders and other
related parties to Insight made prior to March 1, 1996.
"SEC" shall mean the Securities and Exchange Commission.
"SECURITIES ACT" shall refer to the Securities Act of 1933, as amended.
"SEPTEMBER 30, 1994 FINANCIAL STATEMENTS" shall have the meaning ascribed to
it in Section 3.13.1.
"SEPTEMBER 30, 1995 FINANCIAL STATEMENTS" shall have the meaning ascribed to
it in Section 3.13.1.
"SUB" shall have the meaning ascribed to it in the introductory paragraph to
this agreement.
"SURVIVING CORPORATION" shall have the meaning ascribed to it in Section
2.1.
"TAX," "TAXES," and "TAXABLE" shall have the meanings ascribed to them in
Section 3.17.4.
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"TAXING AUTHORITY" shall have the meaning ascribed to it in Section 3.17.4.
"TRANSACTION COSTS" shall have the meaning ascribed to it in Section 5.4.
"1996 AUDIT RELEASE DATE" shall have meaning ascribed to it in Section 9.1.
ARTICLE II
THE MERGER
2.1 THE MERGER.
2.1.1 Subject to the terms and conditions of this Agreement and
the Agreement of Merger substantially in the form of Exhibit 2.1 ("Merger
Agreement"), Sub shall be merged with and into Insight (the "Merger"), and
Insight shall be the surviving corporation in the Merger (Insight, as the
surviving corporation is sometimes referred to herein as the "Surviving
Corporation"). At the Effective Time, the separate existence of Sub shall cease
and Insight, as the surviving corporation in the Merger, shall continue its
corporate existence under the CGCL. To effectuate the Merger, Insight and Sub
shall execute and file, among other things, the Merger Agreement (or other
appropriate documents) in the office of the California Secretary of State in
accordance with the applicable provisions of the CGCL.
2.1.2 At the Effective Time, the Articles of Incorporation and
Bylaws of Sub shall be the Articles of Incorporation and Bylaws of the Surviving
Corporation; and the officers and directors of Sub immediately prior to the
Merger shall become the officers and directors of the Surviving Corporation.
2.2 CLOSING. The closing of the Merger (the "Closing") shall take place
at an agreed time on the first business day (the "Closing Date") after
satisfaction or waiver of the latest to occur of the conditions set forth in
Articles VI through VIII, at the offices of Higgs, Fletcher & Mack LLP, 401 West
A Street, Suite 2000, San Diego, California unless a different date or place is
agreed to in writing by the parties. At the same time as the Closing or as soon
as practicable thereafter, the parties shall cause the Merger to become
effective under the CGCL.
2.3 EFFECTIVE DATE; EFFECTIVE TIME. The Merger shall become effective
on the date of the filing of the Merger Agreement, together with any other
required documents of Insight and Sub, with the California Secretary of State in
accordance with the CGCL. The date when the Merger becomes effective, is
referred to as the "Effective Date," and the time when the Merger becomes
effective is referred to as the "Effective Time."
2.4 CONVERSION OF INSIGHT CAPITAL STOCK. At the Effective Time, for all
of the issued and outstanding Insight Capital Stock and Insight Common Purchase
Rights, New Image shall exchange New Image Common and assume Insight Common
Purchase rights such that the sum of shares of New Image Common which are (i)
issued in exchange for Insight Capital Stock and (ii) subject to Insight Common
Purchase Rights assumed by New Image shall be 511,397. The exchange ratio shall
be a fraction (the "Exchange Ratio") the numerator of which is 511,397 and
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the denominator of which is the sum of (i) the number of shares of Insight
Common issued and outstanding, (ii) the number of shares of Insight Common
issuable upon exercise of Insight Common Purchase Rights issued and outstanding,
(iii) the number of shares of Insight A Preferred, if any, issued and
outstanding, and (iv) the number of shares of Insight B Preferred, if any,
issued and outstanding. For each share of Insight Capital Stock, the holder
will be entitled to receive a number of shares of New Image Common equal to one
multiplied by the Exchange Ratio.
2.5 INSIGHT COMMON PURCHASE RIGHTS. At the Effective Time, each
outstanding option or warrant to purchase Insight Common, whether vested or
unvested, will be assumed by New Image. Each such purchase right so assumed
shall continue to have, and be subject to, the same terms and conditions set
forth in the agreements and plans, if any, under which such right was created as
in effect immediately prior to the Effective Time, except that (i) such purchase
right shall be exercisable (when vested) for that number of whole shares of New
Image Common equal to the product of the number of shares of Insight Common that
were issuable upon exercise of such right immediately prior to the Effective
Time multiplied by the Exchange Ratio, rounded to the nearest whole number of
shares of New Image Common, and (ii) the per share exercise price for New Image
Common issuable upon exercise of such purchase right shall be equal to the
quotient determined by dividing the exercise price per share of Insight Common
at which such right was exercisable immediately prior to the Effective Time by
the Exchange Ratio, rounded up to the nearest whole cent.
2.6 DISSENTERS' RIGHTS. Notwithstanding anything in this Agreement to
the contrary, Dissenting Shares shall be converted into the right to receive
such consideration as may be determined to be due with respect to such shares
pursuant to the CGCL, provided, however, that Dissenting Shares outstanding
immediately prior to the Effective Date and held by a holder who shall after the
Effective Date, withdraw his demand for purchase or lose his right to demand
purchase, in either case pursuant to the CGCL, shall be deemed to be converted,
as of the Effective Date, into New Image Common as specified in Section 2.4,
without interest and the number of Dissenting Shares shall be decreased,
accordingly. Insight agrees that, except with the prior written consent of New
Image or as required under the CGCL, it will not voluntarily make any payment
with respect to, or settle or offer to settle, any demand for purchase of,
Insight Common prior to the Effective Date.
2.7 EXCHANGE OF CERTIFICATES REPRESENTING INSIGHT CAPITAL STOCK.
2.7.1 New Image or its agent shall act as exchange agent
("Exchange Agent") to effect the exchange of certificates representing Insight
Common, other than Dissenting Shares, for certificates representing New Image
Common in accordance with the provisions hereof and the Merger Agreement.
2.7.2 Promptly following the Effective Date, to each person who
was, at the Effective Date, a holder of record of Insight Capital Stock and who
is exchanging such stock for New Image Common pursuant to the provisions hereof:
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(i) New Image shall cause to be mailed a letter of
transmittal and instructions in the form of Exhibit 2.7.2 for use in effecting
the surrender of each certificate that evidences Insight Capital Stock to be
exchanged pursuant to the Merger. Such letter of transmittal shall include
representations that the shareholder will not reoffer or resell the New Image
Common being received in exchange except in compliance with applicable state and
federal securities laws.
(ii) Insight shall cause to be mailed a statement setting
forth such shareholder's pro rata share of Transaction Costs.
2.7.3 Upon receipt of (i) a certificate evidencing a shareholder's
Insight Capital Stock together with a letter of transmittal duly completed and
validly executed in accordance with the instructions thereto and (ii) a letter
from the Escrow Holder identified in Section 2.7.4, stating that such
shareholder has remitted his share of the Transaction Costs, New Image shall
cause to be distributed to such shareholder, one or more certificates
representing the New Image Common to which such shareholder is entitled by
virtue of this Agreement and the Merger. In the event New Image receives a
letter of transmittal from a shareholder but not the letter from the Escrow
Holder relating to such shareholder, New Image shall register such shareholder's
certificate(s) for New Image Common in the name of the Escrow Holder as trustee
for such shareholder and shall deliver such certificates to the Escrow Holder.
2.7.4 The Escrow Holder shall be Ritchey Fisher Whitman & Klein,
Attorneys at Law and counsel to Insight. Pursuant to this Agreement and
resolutions to be approved by shareholders of Insight, and subject to (i)
limitations specified therein and in the letter of transmittal described in
Section 2.7.2 and (ii) compliance with applicable state and federal securities
laws, in the event such shareholder does not remit his share of the Transaction
Costs within the period ending 30 days after the 1996 Audit Release Date, the
Escrow Holder shall have the authority to sell, on behalf of the such
shareholder, as many of his shares of New Image Common as is necessary to pay
such shareholder's share of the Transaction Costs. If such shareholder pays his
share of the Transaction Costs in full at any time during the period after his
certificate(s) are delivered to Escrow Holder and within the period ending 30
days after the 1996 Audit Release Date, the Escrow Holder shall cause the
related certificate(s) to be reissued into the name of the shareholder and
delivered to him.
2.7.5 Until surrendered as contemplated in this Section 2.7, each
certificate (other than certificates representing Dissenting Shares) which
immediately prior to the Effective Date shall have represented Insight Capital
Stock, shall be deemed at and after the Effective Date to represent only a
number of shares of New Image Common equal to the number of shares of Insight
Capital Stock represented by such certificate multiplied by the Exchange Ratio.
2.7.6 On the Effective Date, the stock transfer books of Insight
shall be closed and there shall be no further registration of transfers of
shares of Insight Capital Stock or exercises of warrants or options for Insight
Common. From and after the Effective Date, the holders of certificates
evidencing ownership of Insight Capital Stock outstanding immediately
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prior to the Effective Date shall cease to have any rights with respect to such
shares except as otherwise provided herein or by law.
2.8 ISSUANCE OF NEW IMAGE COMMON FOR PRE-MARCH LOANS.
2.8.1 At the Effective Time, for each Pre-March Loan then
outstanding, New Image will exchange a number of shares of New Image Common
equal to the principal amount of such loan together with interest accrued
thereon through the Closing Date multiplied by a fraction the numerator of which
is 296,603 and the denominator of which is the aggregate amount of all Pre-March
Loans then outstanding together with interest accrued thereon through the
Closing Date.
2.8.2 Promptly following the Effective Date, to each person who
was, at the Effective Date, a payee under a Pre-March Loan:
(i) New Image shall cause to be mailed a letter of
transmittal and instructions in the form of Exhibit 2.8 for use in effecting the
exchange of such loan for New Image Common. Such letter of transmittal shall
include representations that the exchanging payee will not reoffer or resell the
New Image Common being received in exchange except in compliance with applicable
state and federal securities laws.
(ii) Insight shall cause to be mailed a statement setting
forth such payee's pro rata share of Transaction Costs.
2.8.3 Upon receipt of (i) evidence satisfactory to New Image of a
payee's Pre-March Loan together with a letter of transmittal duly completed and
validly executed in accordance with the instructions thereto and (ii) a letter
from the Escrow Holder identified in Section 2.8.4, stating that such payee has
remitted his share of the Transaction Costs, New Image shall cause to be
distributed to such payee, one or more certificates representing the New Image
Common to which such payee is entitled by virtue of this Agreement. In the
event New Image receives a letter of transmittal from a payee but not the letter
from the Escrow Holder relating to such payee, New Image shall register such
payee's certificate(s) for New Image Common in the name of the Escrow Holder as
trustee for such payee and shall deliver such certificate(s) to the Escrow
Holder.
2.8.4 The Escrow Holder shall be Ritchey Fisher Whitman & Klein,
Attorneys at Law and counsel to Insight. Pursuant to this Agreement, and
agreements between parties whose services may give rise to Transaction Costs,
and subject to (i) limitations specified therein and in the letter of
transmittal and (ii) compliance with applicable state and federal securities
laws, in the event such payee does not remit his share of the Transaction Costs
within the period ending 30 days after the 1996 Audit Release Date the Escrow
Holder shall have the authority to sell, on behalf of the such payee, as many of
his shares of New Image Common as is necessary to pay such payee's share of the
Transaction Costs. If such payee pays his share of the Transaction Costs in
full at any time after his certificate(s) are delivered to the Escrow Holder and
within the period
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ending 30 days after the 1996 Audit Release Date, the Escrow Holder shall cause
the related certificate(s) to be reissued into the name of the payee and
delivered to him.
2.9 TREATMENT OF FRACTIONAL SHARES. No fractional shares of New Image
Common shall be issued hereunder or in the Merger, and the number of shares of
New Image Common issued pursuant to the Merger shall be rounded up to the
nearest whole number. Subject to such rounding of fractions, such shares shall
be calculated for each Insight shareholder and each payee under a Pre-March Loan
based on the aggregate number of shares of New Image Common issuable to such
holder pursuant to the Merger or such payee pursuant to Section 2.8.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INSIGHT
Subject to the exceptions set forth in the Insight disclosure schedule (the
"Insight Disclosure Schedule") delivered to and acknowledged by New Image
concurrently herewith, Insight hereby represents and warrants to New Image as of
each of the following dates or times, except as a specific representation or
warranty may be expressly more limited, (i) the Date of this Agreement, (ii) the
Closing Date, and (iii) the Effective Time, as follows:
3.1 SUBSIDIARIES. Insight does not own or control, directly or
indirectly, any interest in any other corporation, association, partnership,
limited liability company, or other business entity.
3.2 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Insight is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of California and has all requisite corporate power and
authority to carry on its business as now conducted. Insight is duly qualified
to transact business and is in good standing in each jurisdiction in which the
failure so to qualify would have a material adverse effect on the Business
Condition of Insight.
3.3 CAPITALIZATION; OPTIONS AND WARRANTS; VOTING RIGHTS; AND SECURITIES
LAWS.
3.3.1 The authorized capital stock of Insight consists of
10,000,000 shares of Insight Common, without par value, and 6,000,000 shares of
Insight Preferred of which 1,500,000 have been designated Insight Series A
Preferred and 3,500,000 have been designated Insight Series B Preferred.
Exhibit 3.3.1 is a schedule of Insight Capital Stock which is issued and
outstanding on the Date of this Agreement showing as to each holder his name and
address and the number of shares and class of Insight Capital Stock owned.
Attached to the Insight Officers' Certificate delivered at the Closing will be a
true and correct revised list of the holders of Insight Capital Stock, showing
the same information as to ownership of Insight Capital Stock issued and
outstanding as of the Closing.
3.3.2 All of the issued and outstanding shares of Insight Capital
Stock have been duly authorized and are validly issued, fully paid, and
nonassessable. The designations, powers, preferences, rights, qualifications,
limitations, and restrictions in respect of each class and series of authorized
Insight Capital Stock are set forth in Insight's Amended and Restated Articles
of
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Incorporation filed with the California Secretary of State on August 24, 1995
(the "Insight Restated Articles").
3.3.3 All outstanding options, warrants, rights (including
conversion or preemptive rights), agreements, or understandings for the purchase
or acquisition from Insight of any shares of Insight Capital Stock
(collectively, the "Insight Common Purchase Rights") as of the Date of this
Agreement are set forth in Exhibit 3.3.3. Attached to the Insight Officers'
Certificate delivered at the Closing will be a true and correct revised list of
the holders of Insight Common Purchase Rights outstanding as of the Closing.
3.3.4 Insight is not a party or subject to any agreement or
understanding and there is no agreement or understanding which, in any case,
affects or relates to the voting or giving of written consents (i) with respect
to any Insight Capital Stock or (ii) by any director of Insight.
3.3.5 All the outstanding securities of Insight were issued in
compliance with all applicable federal and state securities laws, except where
the failure to so comply would not have a material adverse effect on the
Business Condition of Insight.
3.3.6 Exhibit 3.3.6 is a schedule of the Pre-March Loans setting
forth as to each, the payee's name, address, tax-payer identification or social
security number, and the principal amount together with interest accrued thereon
through the Closing Date.
3.4 AUTHORIZATION. Insight has full corporate power and authority to
execute and deliver this Agreement and the Merger Agreement, and to perform its
obligations under and to consummate the transactions contemplated by this
Agreement and the Merger Agreement. As of the Date of this Agreement, other
than the shareholder approval of this Agreement and the Merger Agreement, all
corporate action on the part of Insight has been duly and validly taken. As of
the Closing Date and the Effective Date, all corporate action on the part of
Insight will have been duly and validly taken. Assuming due execution and
delivery by New Image and Sub, as applicable, this Agreement and the Merger
Agreement constitute the legal, valid, and binding obligations of Insight,
enforceable against Insight in accordance with their terms, except as such
enforcement may be limited by bankruptcy, insolvency, moratorium,
reorganization, or similar laws affecting creditors' rights generally, and to
general equitable principles.
3.5 LITIGATION, CLAIMS AND POTENTIAL CLAIMS. To its knowledge, there is
no action, claim, arbitration, suit, proceeding, or investigation pending or, to
its knowledge, currently threatened, against Insight which questions the
validity of this Agreement and/or the Merger Agreement or the right of Insight
to enter into either of them or to consummate the transactions contemplated
hereby or thereby, or which might result either individually or in the
aggregate, in any materially adverse change in the Business Condition of
Insight. The foregoing includes, without limitation, actions pending or
threatened (or any basis therefor known to Insight) involving the prior
employment of any of Insight's employees, their use in connection with Insight's
business of any information or techniques allegedly proprietary or confidential
to any of their former employers, or their obligations under any agreements with
prior employers. Insight is
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not a party or subject to the provisions of any order, writ, injunction,
judgment, or decree of any court or government agency or instrumentality. There
is no action, suit, proceeding, or investigation by Insight currently pending or
which Insight intends to initiate. To its best knowledge, there is no present
defect in any of Insight's products that have been manufactured by Insight, or
manufactured by others and sold by Insight, that would be likely to give rise to
a product liability claim, action, suit, arbitration, investigation, hearing,
notice of claim, or other legal, administrative, or governmental proceeding, the
ultimate outcome of which would have a material adverse effect on the Business
Condition of Insight.
3.6 COMPLIANCE WITH LAW. The business and operations of Insight have
been and are being conducted in accordance with all applicable federal, state,
and local laws, rules, and regulations, except in those instances in which
failure to comply would not have a material adverse effect on the Business
Condition of Insight. The execution and delivery by Insight of this Agreement
and the Merger Agreement, the performance by Insight of its obligations under
this Agreement and the Merger Agreement, and the consummation of the
transactions contemplated hereby and thereby, do not and will not, with or
without the giving of notice or the lapse of time, or both: (i) require any
authorization, consent, approval, license, exemption of, or filing or
registration with, any court or governmental department, commission, board,
bureau, agency, or instrumentality of government, the lack of which would have a
materially adverse effect on the Business Condition of Insight, (ii) violate or
conflict with any provision of law, statute, rule, regulation, or executive
order to which Insight is subject or by which the assets or properties of
Insight are bound or affected, where such violation or conflict would be
expected to have a material adverse effect on such Business Condition, (iii)
violate or conflict with any order, writ, judgment, injunction, decree,
determination, or award applicable to Insight, or by which the property or
assets of Insight are bound or affected, (iv) violate or conflict with any
provision of the Articles of Incorporation or Bylaws of Insight, (v) violate or
conflict with, result in a breach of, or constitute (with or without notice or
lapse of time or both) a default under, any indenture, loan, or credit
agreement, note agreement, deed of trust, mortgage, security agreement, or other
agreement, lease or instrument, commitment or arrangement to which Insight is a
party or by which Insight or any of its properties, assets, or rights is bound
or affected, where such violation would be expected to have a material adverse
effect on such Business Condition, (vi) result in the creation or imposition of
any lien, mortgage, security interest, charge, or encumbrance upon any of the
properties or assets of Insight under any agreement (written or oral) or other
instrument to which Insight is a party, or by which the properties or assets of
Insight are bound or affected, or (vii) violate or conflict with the terms or
conditions, or result in the loss or suspension of any license, legal privilege,
or legal right enjoyed by Insight where such loss or suspension would have a
material adverse effect on such Business Condition.
3.7 AGREEMENTS. Except for agreements explicitly contemplated hereby
and by the Merger Agreement, Insight is not a party or subject to any of the
following:
(i) any employee plan or contract that provides for
bonuses, pensions, options, stock purchase, deferred compensation, retirement
payments, or profit sharing plan or arrangement,
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(ii) any collective bargaining or other contract or
agreement with any labor union,
(iii)any real property lease,
(iv) any employment agreement consulting contract or other
similar agreement not terminable at will without penalty to Insight,
(v) any noncompetition agreement or contract which
restricts Insight from doing business anywhere in the world,
(vi) any contract or agreement pursuant to which any person
has the right to receive any participation or other payment which is based or
measured in whole or in part upon the gross or net receipts of Insight, or
(vii)any other contract or agreement that includes a
purchase or other commitment that is substantially in excess of the normal
current requirements of its business or was made at a price or rate
substantially in excess of the then current market price or on terms and
conditions substantially more onerous than is usual and customary in its
business and which, either individually or in the aggregate, constitute payment
obligations for Insight in excess of $50,000.
3.8 RELATED-PARTY TRANSACTIONS. As of the Closing and the Effective
Time, (i) except for $450,000 of Post-February Loans (which are set forth in
Exhibit 3.8) and other loans approved by New Image, Insight will not be indebted
to any employee, officer, director, or shareholder; or member of his or her
family, and (ii) as of the Date of this Agreement, none of such persons will be
or is indebted to Insight, and (iii) as of the Date of this Agreement, Insight
will not have made (or committed to make) and has not made (or committed to
make) loans or extended or guaranteed credit to any of such persons. None of
such persons has any direct or indirect ownership interest in any firm or
corporation with which Insight is affiliated or with which Insight has a
business relationship, or any firm or corporation that competes with Insight,
except that employees, officers, or directors of Insight and members of their
families may own stock in publicly traded companies that may compete with
Insight. Except for the Post-February Loans, no member of the immediate family
of any officer or director of Insight is directly or indirectly interested in
any material contract with Insight.
3.9 PERMITS. Insight has all franchises, permits, licenses, and any
similar authority (collectively, "Permits") necessary for the conduct of its
business, the lack of which could materially and adversely affect the Business
Condition of Insight. Exhibit 3.9 sets forth all of Insight's Permits. Insight
is not in default in any material respect under any Permit.
3.10 ENVIRONMENTAL AND SAFETY LAWS. Insight has not received any notice
of any claim, proceeding, or investigation under federal, state, or local law,
or any law of any foreign jurisdiction, relating to air, soil, subsurface, or
water pollution; soil monitoring; or the storage, treatment, disposal, removal,
remediation, release, discharge, or emission of any Hazardous
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Material (as defined below), with respect to the business activity of Insight.
Insight has never owned, leased, or operated or otherwise controlled any real
property at which a claim or proceeding is presently pending or threatened, nor,
to its knowledge, is there any condition on any such property which would give
rise to any such claim or proceeding under federal, state, or local law, or any
law of any foreign jurisdiction, relating to air, soil, subsurface, water
pollution, soil monitoring, or the storage, treatment, disposal, removal,
remediation, release, discharge or emission of any Hazardous Material. For the
purposes of this Agreement, "Hazardous Material" shall mean any flammables,
asbestos, explosives, radioactive materials, hazardous waste, toxic substances,
or related material, including, without limitation, any substances defined as or
included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," or "toxic substances," under any applicable federal,
state, local, or foreign law, rule, regulation, or order; or which any federal,
state, local, or foreign law, rule, regulation, or order designates as
potentially dangerous to public health and/or safety when present in the
environment.
3.11 MANUFACTURING AND MARKETING RIGHTS. Insight has not granted rights
to manufacture, produce, assemble, license, market, or sell its products to any
other person and is not bound by any agreement that affects Insight's exclusive
right to develop, manufacture, assemble, distribute, market, or sell its
products.
3.12 TITLE TO PROPERTY AND ASSETS. Insight has good and marketable title
to all of its properties and assets of every kind and nature, whether tangible
or intangible, wherever located, used in the conduct of its business all of
which are set forth in Exhibit 3.12 (the "Assets"), free and clear of all
mortgages, liens (including, without limitation, tax liens), charges, security
interests, claims of infringement, conditions, restrictions, encumbrances, and
obligations (collectively, "Liens"). Exhibit 3.12 includes a complete list of
all real property owned by or leased to Insight. All such leases are valid,
enforceable, and effective in accordance with their terms. There is not under
any such lease any existing or claimed default by Insight or any event or
condition which with notice or lapse of time or both would constitute a material
default by Insight, and all rentals, royalties, or other payments accruing
thereunder prior to the Date of this Agreement have been fully paid. No lease
under which Insight is lessee of any real property contains any provision which
either (i) treats a sale or transfer of any or all of the outstanding stock of
Insight or a merger of Insight with another person as an assignment of Insight's
leasehold interest or (ii) otherwise requires the consent of the lessor in the
event of any such sale, transfer, or merger. The Assets are adequate for the
operation of the business of Insight as presently conducted. The tangible
assets are in good operating condition and repair.
3.13 FINANCIAL STATEMENTS.
3.13.1 Insight has agreed to provide monthly interim financial
statements pursuant to Section 5.8. Attached as Exhibit 3.13A is Insight's
estimated Closing Date balance sheet (the "Estimated Closing Date Balance
Sheet"). Attached as Exhibit 3.13B are the following financial statements
(collectively such interim financial statements, the Estimated Closing Date
Balance Sheet and the following financial statements are referred to as the
"Financial Statements"):
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(i) the unaudited consolidated balance sheet (the "Latest
Balance Sheet") of Insight at December 31, 1995, together with the related
statements of operations, shareholders' equity, and cash flow for the three-
month period then ended (collectively, the "December 31, 1995 Financial
Statements"); and
(ii) the audited consolidated balance sheets of Insight at
September 30, 1995 and 1994 together with the related statements of operations,
shareholders' equity, and cash flow for the twelve-month periods then ended (the
"September 30, 1995 Financial Statements" and "September 30, 1994 Financial
Statements," respectively), accompanied by the opinion thereon of Coopers &
Lybrand LLP, independent public accountants.
Each of the statements comprising the Financial Statements, including any notes
thereto are, or in the case of the interim statements will be, in accordance
with the books and records of Insight, have been prepared in accordance with
GAAP and fairly present the financial condition of Insight as of the dates
thereof and its results of operations, shareholders' equity, and cash flows for
the periods covered thereby. Except for the Estimated Closing Date Balance
Sheet, in the preparation of the Financial Statements, GAAP has or will be
applied on a basis consistent with prior periods. The Estimated Closing Date
Balance Sheet Shall be prepared on a basis consistent with prior internally
proposed financial statements. The notes evidencing the Post-February Loans
have and will be accounted for in accordance with their terms. Other than
liabilities which have arisen since December 31, 1995 in the ordinary course of
business, Insight has not incurred any material debt, liability, or obligation
of any kind, direct or indirect, whether accrued, fixed, contingent or
otherwise, except fees and expenses incurred in the ordinary course of business
and consistent with Insight's covenants and agreements in Article V.
3.13.2 Insight has no accrued liability or contingent liability
which is not provided for in the Insight December 31, 1995 Financial Statements
and the Estimated Closing Date Balance Sheet or where the amount of the payment
to discharge it will exceed the amount of the related accrual or reserve.
3.13.3 Insight's net asset value at the Closing Date will not be
less than a negative $2,900,000 plus a downward adjustment in an amount which
shall be mutually agreed to reflect a write-off for Chart-It.
3.14 CHANGES. Since December 31, 1995, there has not been:
3.14.1 any change in the assets, liabilities, financial condition,
or operating results of Insight from that reflected in the Financial Statements,
except changes in the ordinary course of business which have not been, in the
aggregate, materially adverse to the Business Condition of Insight;
3.14.2 any damage, destruction, or loss, whether or not covered by
insurance, materially and adversely affecting the Business Condition of Insight;
3.14.3 any waiver by Insight of a valuable right or of a material
debt owed to it;
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3.14.4 any satisfaction or discharge of any lien, claim, or
encumbrance or payment of any obligation by Insight, except in the ordinary
course of business and which is not material to the Business Condition of
Insight;
3.14.5 any change or amendment to a material contract or
arrangement by which Insight or any of its assets or properties is bound or
subject;
3.14.6 any material change in any compensation arrangement or
agreement with any employee;
3.14.7 any change in accounting methods or practices (including,
without limitation, any change in depreciation or amortization policies or
rates) of Insight;
3.14.8 any revaluation by Insight of any of its assets;
3.14.9 any declaration, setting aside, or payment of a dividend or
other distribution in respect of the capital stock of Insight, or any direct or
indirect redemption, purchase, or other acquisition by Insight of any of the
Insight Capital Stock;
3.14.10 any loan by Insight to any person or entity, or guaranty by
Insight of any loan;
3.14.11 any waiver or release of any material right or claim of
Insight, except in the ordinary course of business;
3.14.12 any commencement or notice or threat of commencement of any
civil litigation or any governmental proceeding against or investigation of
Insight or its affairs; or
3.14.13 any agreement entered into by Insight to do any of the
things described in the preceding clauses 3.14.1 through 3.14.12.
3.15 EMPLOYEES AND LABOR. Exhibit 3.15 is a complete list of all
employees (full-time or part-time) of Insight as of the date of this Agreement.
An updated list as of the Closing Date attached to the Closing Date Insight
Officers' Certificate will be a complete list of all employees as of the Closing
Date. Such schedule sets forth as to each Insight employee (i) the terms of
employment, (ii) the rate of compensation, and (iii) the applicable severance or
bonus arrangements upon termination, if any. Insight has delivered to New Image
accurate copies of all handbooks, manuals and writings describing Insight's
employment policies. Insight, has complied in all material respects with all
laws relating to the employment of labor, including provisions thereof relating
to wages, hours, equal opportunity, collective bargaining, and the payment and
withholding of taxes.
3.16 EMPLOYEE BENEFIT PLANS. Insight does not have any Employee Benefit
Plan as defined in the Employee Retirement Income Security Act of 1974.
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3.17 TAXES.
3.17.1 All Tax (as defined herein) returns, statements, reports,
and forms (including estimated Tax returns and reports and information returns
and reports) required to be filed prior to the Closing and prior to the
Effective Date with any Taxing Authority (as defined herein) with respect to all
Taxable periods ending with the Effective Date, by or on behalf of Insight
(collectively, the "Insight Returns"), have been or will be completed and filed
when due (including any extensions of such due date), and all amounts shown due
thereon on or before the Closing Date and the Effective Date have been satisfied
or accrued in full on or before such dates. The Latest Balance Sheet and the
Estimated Closing Date Balance Sheet each (i) fully accrues all actual and
contingent liabilities for Taxes (including interest and penalties where
applicable) with respect to all periods through their respective dates, and
Insight has not, and will not, incur any Tax liability (including interest and
penalties where applicable) in excess of the amounts reflected on such balance
sheets for the periods ending on their respective dates, and (ii) fully accrues
all liabilities for Taxes (including penalties and interest) payable after the
dates of the Latest Balance Sheet and the Estimated Closing Date Balance Sheet,
in each case with respect to all transactions and events occurring on or prior
to its date. All withholding Tax requirements imposed on Insight for all
taxable periods ending with the Date of this Agreement, the Closing Date, and
the Effective Date will have been satisfied in full or accrued for as of such
dates. All information set forth in the notes to the Financial Statements
relating to Tax matters is true, complete, and accurate in all material
respects. Exhibit 3.17.1 is a schedule of all Taxes due as of the Date of this
Agreement, including all penalties and interest due in connection therewith, and
a description of all agreements with each Tax Authority with which Insight has
an agreement concerning the terms of payments of Taxes and related penalties and
interest, if any. A complete and accurate schedule of all Taxes due as of the
Closing Date, including all penalties and interest due in connection therewith,
and a description of all agreements with each Tax Authority with which Insight
has an agreement as of such date concerning the terms of payments of Taxes and
related penalties and interest, if any, will be attached to the Insight
Officers' Certificate.
3.17.2 No material Tax liability since the date of the Latest
Balance Sheet has been incurred other than in the ordinary course of business.
Insight has collected or withheld, and paid to the applicable financial
institutions or Taxing Authorities all amounts required to be collected or
withheld. Neither Insight nor any member of an affiliated or combined group of
which Insight has been a member has been granted any extension or waiver of the
limitation period applicable to any Insight Return.
3.17.3 There is no material claim, audit, action, suit, proceeding,
or investigation now pending or threatened against or with respect to Insight in
respect of any Tax or assessment. No notice of deficiency or similar document
of any Tax Authority has been received by Insight, and there are no liabilities
for Taxes (including liabilities for interest additions to tax and penalties
thereon and related expenses) with respect to the issues that have been raised
(and are currently pending) by any Tax Authority. (Any exception to this
warranty which is included in the Insight Disclosure Schedule shall set forth in
detail the amount and due dates of the taxes overdue, any
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penalties and interest which have accrued, and any agreement concerning the
terms of payment of such taxes, penalties, and interest.)
3.17.4 For purposes of this Agreement, the following terms have the
following meanings: "Tax" (and, with correlative meaning "Taxes" and "Taxable")
means any foreign, federal, state, or local tax assessment or other like
governmental charge imposed by any governmental entity (a "Taxing Authority")
responsible for the imposition of any such Tax, including, without limitation,
payroll, withholding, and other payroll-related taxes.
3.18 PURCHASE AND SALE OBLIGATIONS. Since the date of the Latest Balance
Sheet, all purchase and sale orders made by or on behalf of Insight have been
made in the usual and ordinary course of its business in accordance with
Insight's normal practices. Exhibit 3.18 sets forth all outstanding purchase
orders issued after December 31, 1995, the original amount of which was $25,000
or more, and as to each (i) the vendor's name and address, (ii) a description of
the items covered, (iii) the current status of the order, and (iv) whether
Insight payments are current and within terms. After the Date of this
Agreement, Insight will not enter into any purchase obligation in excess of
$25,000 without the prior written consent of New Image.
3.19 INSURANCE. Insight has in full force and effect fire and casualty
insurance policies, with extended coverage, sufficient in amount (subject to
reasonable deductibles) to allow it to replace any of its properties that might
be damaged or destroyed and Insight has insurance against other hazards, risks,
and liabilities to persons and property to the extent and in the manner
customary for companies in similar businesses similarly situated. Exhibit 3.19
is a complete and correct list and summary description of all self insured
risks, and all insurance policies held by Insight, disclosing the risks insured
against, coverage limits, deductible amounts, annual premiums, and other
material provisions. Insight has no potential liability with respect to
retrospective premium adjustments.
3.20 NO CHANGE OF CONTROL PROVISION. Insight is not a party or subject
to any agreement, contract, or other obligation which would require the making
of any payment other than payments as contemplated by this Agreement to any
employee of Insight or to any other person as a result of the consummation of
the transactions contemplated herein.
3.21 INVENTORY. The inventories of raw materials, work in process, and
finished goods (collectively, "Inventories") shown on the Latest Balance Sheet
and the Estimated Closing Date Balance Sheet consist of items of a quality and
quantity usable and salable in the ordinary course of business by Insight,
except for obsolete and slow-moving items and items below standard quality, all
of which have been written down on the books of Insight to net realizable market
value or have been provided for by adequate reserves. All items included in
Inventories are the property of Insight and in its possession and control, and
have been acquired by Insight in the ordinary course of business. No item
included in Inventories has been pledged as collateral or is held by Insight on
consignment from others. The Inventories shown on all Financial Statements and
the Estimated Closing Date Balance Sheet are based on quantities determined by
physical count or measurement, taken within the preceding twelve months, and are
valued at the lower of cost (determined on a first-in, first-out basis) or
market value and on a basis consistent with that of
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prior years. The preceding sentence shall not be construed as requiring a
physical count or measurement of Insight inventory other than in connection with
the preparation of the September 30, 1995 Financial Statements and the Audited
Closing Date Financial Statements.
3.22 ACCOUNTS RECEIVABLE. Subject to changes in accounts receivable and
inventory which are within the scope of activities Insight is permitted to take
pursuant to Section 5.1.1, all accounts receivable of Insight are shown on the
Estimated Closing Date Balance Sheet and arose from valid sales in the ordinary
course of business and the net amount of accounts receivable shown in the
Estimated Closing Date Balance Sheet is good and will be collected net of the
allowance for doubtful accounts.
3.23 WARRANTY OBLIGATIONS AND RETURNS. Insight maintains in the ordinary
course of business adequate reserves for anticipated warranty liability or
obligations and/or return of products previously shipped to customers. The
reserves on the Estimated Closing Date Balance Sheet for customer returns and
warranty obligations which have occurred or may occur are adequate to cover the
profit margin previously recognized on items returned and to be returned and the
cost of repairs and replacements for all warranty claims, which in either case
may arise with respect to products manufactured prior to the Closing.
3.24 PATENTS, TRADEMARKS, ETC.
3.24.1 To its knowledge, Insight owns or has the right to use, or
prior to the Closing Date will own or have the right to use, free and clear of
all Liens, charges, claims, and restrictions, all patents, trade secrets,
trademarks, service marks, trade names, copyrights, licenses, and rights
necessary to its business as now conducted ("Insight Intellectual Property
Rights"), and, to Insight's knowledge, has not and is not infringing upon or
otherwise acting adversely to the right or claimed right of any person under or
with respect to any of the foregoing. Exhibit 3.24.1 sets forth all corporate
names, trade names, trademarks, service marks, patents, patent applications, and
registered copyrights comprising the Insight Intellectual Property Rights and
all options, licenses or agreements relating to such rights. There are no
outstanding options, licenses, or agreements of any kind relating to the
foregoing held by any third party of which Insight is aware except those made in
the ordinary course of business which will have no material adverse effect on
the Business Condition of Insight. Insight has not received any written
communications alleging that Insight has violated any patent, trademark, service
mark, trade name, copyright or trade secret, or other proprietary right of any
other person or entity. Insight is not aware that any of its employees is
obligated under any fiduciary duty or any contract (including licenses,
covenants, or commitments of any nature) or other agreement, or subject to any
judgment, decree, or order of any court or administrative agency, that would
limit the scope of the activities of such employee to promote the interests of
Insight or that would conflict with Insight's business as currently conducted or
proposed. Except for inventions to which it has gained ownership or rights
sufficient to carry on its business as currently conducted and proposed, and
subject only to exceptions noted in Section 3.24.1 of the Insight Disclosure
Schedule, no officer, director, or employee of Insight owns or has a license to
any patent, trade secret, trademark, service mark, trade name, copyright,
license or other rights which in any way conflicts with the Insight Intellectual
Property Rights or with Insight's business as currently or proposed to
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be conducted. To Insight's knowledge, all filings with respect to Insight
Intellectual Property Rights which require a filing in order to achieve
protection under patent, trademark, or copyright laws, as applicable, have been
made in a timely manner so that none of the rights which would accrue upon a
timely filing have been or will be denied as a result of an untimely filing and
it has received no notice or assertion from any governmental agency or any other
person or entity that any of such filings was not a timely filing.
3.24.2 Insight has taken reasonable security measures to protect
the confidentiality of its trade secrets.
3.25 FRAUD. No officer, director, or principle shareholder of Insight
has willfully deceived any officer of New Image with the intent to induce New
Image to alter its position to its injury or risk. For this purpose a deceit is
either (i) the suggestion, as a fact, of that which is not true, by one who does
not believe it to be true, (ii) the assertion, as a fact, of that which is not
true, by one who has no reasonable ground for believing it to be true, (iii) the
suppression of a fact, by one who is bound to disclose it, or who gives
information of other facts which are likely to mislead for want of communication
of that fact, or (iv) a promise, made without any intention of performing it.
3.26 DISCLOSURE. All information relating to and concerning Insight
contained in this Agreement, any Exhibit to this Agreement, the Insight
Disclosure Schedule or in any other certificate, instrument, or schedule given
by Insight to New Image or its representatives in connection with this Agreement
or the Merger Agreement, is true and correct in all material respects, and
Insight has not omitted to state any material fact necessary to prevent the
statements made herein and therein, in light of the circumstances under which
they were made, from being misleading.
3.27 HTMI LICENSE. With respect to Insight's license(s) to use patent(s)
of High Tech Medical Instrumentation ("HTMI") as such patent(s) are currently
being used in Insight's products, such license(s):
(i) is/are valid and enforceable and in full force and
effect,
(ii) is/are not the subject of any dispute between Insight
and HTMI,
(iii) have no provision which would give HTMI grounds to
assert that Insight's entry into this Agreement or the Merger Agreement or the
transactions contemplated herein or therein is or would be a breach of its
license(s) to Insight, and
(iv) Insight has been and is performing all things on its
part to be performed thereunder in accordance with license terms.
3.28 COMPLIANCE WITH COVENANTS. As of the Closing Date and the Effective
Date, Insight will be in full compliance with its covenants and agreements
contained in Article V.
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3.29 PAYABLES AGING. Exhibit 3.29 is a schedule of Insight payables as
of the date of the Latest Balance Sheet categorized to show payables 30 days old
or less, from 31 to 60 days old, from 61 to 90 days old, and over 90 days old.
Neither the dollar amount of Insight payables which are or will be more than 30
days old as of (i) the Date of this Agreement or (ii) the Closing Date, will
exceed the dollar amount of payables which were more than 30 days old as of the
date of the Latest Balance Sheet by more than $600,000. In determining the
amount of such excess, accounts payable owing to Sony and Costar which have not
been outstanding longer than permitted by their respective payment terms shall
be disregarded. Insight represents that as of the Closing, Insight will have
paid $44,329 of amounts owing to the California EDD and $125,834 of the current
amounts owing to the Internal Revenue Service.
3.30 POOLING OF INTERESTS. To its knowledge, based upon consultation
with its independent accountants, neither Insight nor its directors, officers,
or stockholders has taken any action which would interfere with New Image's
ability to account for the Merger as a pooling of interests.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF NEW IMAGE AND SUB
Subject to the exceptions set forth in the New Image disclosure schedule
(the "New Image Disclosure Schedule") delivered to and acknowledged by Insight
concurrently herewith and except as disclosed in the New Image Disclosure
Documents, New Image and Sub each hereby represents and warrants to Insight as
of the Date of this Agreement, as follows:
4.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each of New Image
and Sub is a corporation duly organized, validly existing, and in good standing
under the laws of its state of incorporation and has all requisite corporate
power and authority to carry on its businesses as now being conducted. New
Image is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure to so qualify would have a material adverse
effect on the Business Condition of New Image. New Image has delivered to
Insight complete and correct copies of the Certificate of Incorporation and
Bylaws of New Image and the Articles of Incorporation and Bylaws of Sub, as
amended to the date hereof.
4.2 CAPITALIZATION AND VOTING RIGHTS.
4.2.1 As of the Date of this Agreement, the authorized capital
stock of New Image consists of 10,000,000 shares of New Image Common and
1,000,000 shares of New Image Preferred. At the close of business on December
31, 1995, 4,794,438 shares of New Image Common were outstanding, and 1,384,677
shares of New Image Common were subject to issuance upon the exercise of
outstanding stock options, stock purchase rights, and warrants (collectively,
"New Image Common Purchase Rights"). No shares of New Image Common were held by
New Image in its treasury, and no shares of New Image Preferred were
outstanding. As of the close of business on the day prior to the Closing Date,
the number of shares of New Image
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Common issued and outstanding will be as set forth in the New Image Officers'
Certificate delivered on the Closing Date.
4.2.2 All of the outstanding shares of New Image Common have been
duly authorized and are validly issued, fully paid, nonassessable and free of
preemptive rights. As of the Date of this Agreement, the authorized capital
stock of Sub consists of 100,000 shares of Common Stock without par value, all
of which are owned by New Image and have been duly authorized and are validly
issued, fully paid, nonassessable.
4.2.3 Except for New Image Common Purchase Rights, there are no
outstanding options, warrants, calls, conversion rights, agreements, or
understandings for the purchase or acquisition from New Image or Sub of any
shares of either of their capital stock. New Image is the owner of all
outstanding shares of capital stock of each of its subsidiaries and all such
shares have been duly authorized and are validly issued, fully paid, and
nonassessable.
4.3 VALID ISSUANCE OF NEW IMAGE EXCHANGE SHARES. The New Image Exchange
Shares have been duly authorized and, when issued in accordance with the terms
of this Agreement and the Merger Agreement, will be validly issued, fully paid,
nonassessable, free of preemptive rights, and issued in compliance with all
applicable securities laws as presently in effect of the United States and each
of the states whose securities laws govern the issuance of such securities. The
issuance of New Image Exchange Shares and New Image Loan Exchange Shares is
exempt from the registration requirements of Section 5 of the Securities Act, by
reason of Section 4(2) thereof and exempt from the qualification requirements of
California securities laws by reason of Section 25100(o) thereof.
4.4 AUTHORIZATION. As applicable, each of New Image and Sub has full
power and authority, whether corporate or otherwise, to execute and deliver this
Agreement and the Merger Agreement, and to perform its respective obligations
under, and to consummate the transactions contemplated by, this Agreement and
the Merger Agreement, and all corporate actions of New Image and Sub necessary
for such execution, delivery, and performance have been duly and validly taken,
including but not limited to, approvals under applicable corporation laws and
rules and regulations promulgated by the National Association of Securities
Dealers, Inc. ("NASD"). Assuming due execution and delivery by Insight, as
applicable, this Agreement and the Merger Agreement each constitutes the legal
valid, and binding obligation of New Image and Sub, enforceable against New
Image and Sub, as applicable, in accordance with its terms subject, as to
enforcement of remedies, to applicable federal and state bankruptcy, insolvency,
moratorium, reorganization, or similar law affecting creators' rights generally
and to general equitable principles. The execution and delivery of this
Agreement and the Merger Agreement by New Image and Sub, as applicable, do not,
and the performance and consummation by New Image and Sub of the applicable
transactions contemplated by such agreements will not (i) conflict with or
result in a breach or violation of or default under, or give rise to any right
of acceleration (whether by notice or lapse of time or both) or termination of
any of the terms, conditions or provisions of, any note, bond, mortgage,
indenture, lease, material license, material agreement, or other material
instrument or obligation to which New Image and/or Sub is a party or by which
any of New Image's assets or properties are bound; (ii) violate any judgment,
order, injunction or decree
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applicable to New Image or any of its assets or properties; or (iii) violate any
federal or state statute, rule or regulation applicable to New Image or any of
its assets or properties; or (iv) contravene or violate the Certificate of
Incorporation or Bylaws of New Image or the Articles of Incorporation or Bylaws
of Sub, except for conflicts, breaches, violations, defaults, accelerations,
terminations or contraventions referred to in clause (i) above which would not
have a material adverse effect on the Business Condition of New Image. No
consent, approval, authorization, order, or registration, of or with any court
or any regulatory authority or any other governmental body is required for the
consummation by New Image or Sub of the transactions contemplated by this
Agreement and the Merger Agreement.
4.5 LITIGATION. There are no actions, proceedings, or litigation of any
nature, pending or, to the knowledge of New Image, threatened against or
involving New Image or any of its assets, or against or involving any of its
officers, directors, employees or consultants in connection with the business or
affairs of New Image, and New Image is not subject to and is not in default with
respect to any writ, order, judgment, injunction, or decree. New Image is not
aware of any facts which might if adversely determined, reasonably result in
matters described in this Section 4.5 having a material adverse effect on the
Business Condition of New Image. The foregoing includes, without limitation,
inquiries, claims, investigations or actions pending or threatened (or any basis
therefor known to New Image) by the NASD, the SEC, or any state securities
regulator.
4.6 COMPLIANCE WITH LAW. New Image holds all licenses, franchises,
permits, and authorizations necessary for the lawful conduct of its business and
has complied, and is currently in compliance, with all applicable statutes,
laws, ordinances, rules, and regulations of all federal state, local, and
foreign governmental bodies, agencies, and subdivisions having, asserting, or
claiming jurisdiction over it or over any part of its operations, except where
the failure to be in compliance has not had and is not reasonably expected to
have a material adverse effect on the Business Condition of New Image.
4.7 SECURITIES EXCHANGE COMMISSION DOCUMENTS; NEW IMAGE FINANCIAL
STATEMENTS. New Image has furnished Insight with true and complete copies of
its report on Form 10-Q for the quarter ended December 31, 1995, its 1995 Annual
Report, its Proxy Statement for its 1995 Annual Meeting, and its report on Form
10-K for its year ended June 30, 1995 (where applicable without exhibits,
although exhibits will be made available to Insight at its request). All such
filings were filed with the SEC and, as applicable, with the NASD, and state
securities regulatory agencies, on a timely basis. As of their respective
dates, the New Image Disclosure Documents complied in all material respects with
the requirements of the Exchange Act and/or the Securities Act as applicable,
and none of such documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances in which they
were made, not misleading, except to the extent corrected by a subsequently
filed New Image Disclosure Document. The financial statements of New Image
included in the New Image Disclosure Documents (the "New Image Financial
Statements") comply as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with GAAP consistently
applied (except as may be
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indicated in the notes thereto or, in the case of unaudited statements, as
permitted by Form 10-Q) and fairly present the consolidated financial position
of New Image and its consolidated subsidiaries at the dates thereof together
with the related statements of operations, shareholders equity, and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal, recurring audit adjustments). There has been no change in New Image's
accounting policies except as described in the notes to the New Image Financial
Statements.
4.8 CHANGES. Since December 31, 1995, there has not been:
4.8.1 any change in the assets, liabilities, financial condition,
or operating results of New Image from that reflected in the New Image Financial
Statements, except changes in the ordinary course of business which have not
been, in the aggregate, materially adverse;
4.8.2 any damage, destruction, or loss, whether or not covered by
insurance, which materially and adversely affected the Business Condition of New
Image;
4.8.3 any waiver by New Image of a valuable right or of a material
debt owed to it;
4.8.4 any satisfaction or discharge of any lien, claim, or
encumbrance; or payment of any obligation by New Image, except in the ordinary
course of business or as was not material to the Business Condition of New
Image;
4.8.5 any change or amendment to a material contract or other
arrangement by which New Image or any of its assets or properties is bound or
subject;
4.8.6 any material change in any compensation arrangement or
agreement with any employee;
4.8.7 any revaluation by New Image of any of its assets;
4.8.8 any declaration, setting aside, or payment of a dividend or
other distribution in respect of the capital stock of New Image, or any direct
or indirect redemption, purchase, or other acquisition by New Image of any
material amount of its shares of capital stock;
4.8.9 any loan by New Image to any person or entity, or guaranty
by New Image of any loan, other than advances and loans to employees in the
ordinary course of business or in connection with New Image's headquarters move;
4.8.10 any waiver or release of any material right or claim of New
Image, except in the ordinary course of business;
4.8.11 any commencement, or notice or threat of commencement, of
any civil litigation or any governmental proceeding against or investigation of
New Image or its affairs; or
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4.8.12 any agreement entered into by New Image to do any of the
things described in the preceding clauses 4.8.1 through 4.8.11.
4.9 NO DEFAULTS. Neither New Image nor any of its subsidiaries is, or
has received notice that it is or would be with the passage of time, (i) in
violation of any provision of its Certificate of Incorporation or Bylaws, or
(ii) in default or violation of any term condition or provision of (a) any
judgment, decree, order, injunction, or stipulation applicable to New Image or
any of its subsidiaries or (b) any agreement, note, mortgage, indenture,
contract, lease, instrument, permit, concession, franchise, or license to which
New Image or any of its subsidiaries is a party or by which New Image or any of
its subsidiaries or their properties or assets may be bound, which violation or
default referred to in clause (ii) would, individually or in the aggregate, have
a material adverse effect on the Business Condition of New Image.
4.10 PATENTS, TRADEMARKS, ETC.
4.10.1 To its knowledge, New Image owns or has the right to use, or
prior to the Closing Date will own or have the right to use, free and clear of
all Liens, charges, claims, and restrictions, all patents, trade secrets,
trademarks, service marks, trade names, copyrights, licenses, and rights
necessary to its business as now conducted ("New Image Intellectual Property
Rights"), and, to New Image's knowledge, has not and is not infringing upon or
otherwise acting adversely to the right or claimed right of any person under or
with respect to any of the foregoing. Exhibit 4.10 contains all corporate
names, trade names, trademarks, service marks, patents, patent applications, and
registered copyrights comprising the New Image Intellectual Property Rights.
There are no outstanding options, licenses, or agreements of any kind relating
to the foregoing held by any third party of which New Image is aware except
those made in the ordinary course of business which will have no material
adverse effect on the Business Condition of New Image. New Image has not
received any written communications alleging that New Image has violated any
patent, trademark, service mark, trade name, copyright or trade secret, or other
proprietary right of any other person or entity by reason of any such activity.
New Image is not aware that any of its employees is obligated under any
fiduciary duty or any contract (including licenses, covenants, or commitments of
any nature) or other agreement, or subject to any judgment, decree, or order of
any court or administrative agency, that would limit the scope of the activities
of such employee to promote the interests of New Image or that would conflict
with New Image's business as currently conducted or proposed. Except for
inventions to which it has gained ownership or rights sufficient to carry on its
business as currently conducted or proposed, New Image does not believe it is or
will be necessary to utilize any invention made by an employee prior to his or
her employment by New Image.
4.10.2 New Image has taken reasonable security measures to protect
the confidentiality of its trade secrets.
4.11 DISCLOSURE. No representation or warranty made by New Image in this
Agreement, nor any document, written information, statement, financial
statement, certificate, schedule, or exhibit prepared and furnished, or to be
prepared and furnished, by New Image or its representatives pursuant hereto or
in connection with the transactions contemplated hereby,
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contains or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact necessary to make the statements or facts
contained herein or therein not misleading in light of the circumstances under
which they were furnished. To the knowledge of New Image after reasonable
inquiry, there is no event, fact, or condition that materially and adversely
affects the Business Condition of New Image and Sub taken as a whole, or that
reasonably could be expected to do so, that has not been set forth in this
Agreement, in the New Image Disclosure Schedule or the New Image Disclosure
Documents.
ARTICLE V
CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE
TIME; ADDITIONAL AGREEMENTS
During the period from the Date of this Agreement and continuing until the
earlier of the termination of this Agreement and the Effective Time (except as
otherwise provided herein), the parties agree (except to the extent that the
other parties shall otherwise consent in writing) that:
5.1 CONDUCT OF INSIGHT BUSINESS. Insight shall run its business in the
usual, regular, and ordinary course of business in substantially the same manner
as heretofore conducted. Insight shall promptly notify New Image of any event
or occurrence not in the ordinary course of business of Insight, and any event
of which Insight is aware which reasonably would be expected to have a material
and adverse effect on the Business Condition of Insight. Except as expressly
contemplated by this Agreement or disclosed in the Insight Disclosure Schedule,
after the Date of this Agreement Insight shall not without the prior written
consent of New Image:
(i) except with respect to (a) terms of options or warrants
outstanding on the date hereof, or (b) conversion of Insight A Preferred and
Insight B preferred into Insight Common in accordance with their terms, issue,
deliver, or sell, authorize or propose the issuance, delivery or sale of, or
purchase or propose the purchase of, any shares of its capital stock or
securities convertible into capital stock;
(ii) grant any severance or termination pay to any director,
officer, employee, or consultant;
(iii)transfer or license to any person or entity any right
to, or agree to an amendment to its rights under, the Insight Intellectual
Property Rights;
(iv) enter into or amend any agreement pursuant to which any
other party is granted manufacturing, marketing, distribution, or other similar
rights of any type or scope with respect to any product of Insight;
(v) commence a lawsuit other than for breach of this
Agreement;
(vi) except as contemplated herein, declare or pay any
dividend on or make any other distribution (whether in cash, stock, or property)
in respect of any of its capital stock, or split, combine, or reclassify any of
its capital stock or issue or authorize the issuance of
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any other securities in respect of, in lieu of, or in substitution for shares of
its capital stock; or repurchase or otherwise acquire, directly or indirectly,
any shares of its capital stock;
(vii)acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, association, or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets which, in the case of assets, are material individually or in
the aggregate, to the Business Condition of Insight;
(viii)sell, lease, license, or otherwise dispose of any of
Insight's properties or assets except sales in the ordinary course of business
of products manufactured or distributed by it at customary prices on customary
terms;
(ix) incur any indebtedness for borrowed money or guarantee
any such indebtedness or issue or sell any debt securities or guarantee any debt
securities of others from March 1, 1996 to the Closing, except loans from its
shareholders in the amount of $450,000;
(x) adopt or amend any employee benefit plan, program,
policy or other arrangement, or enter into any employment contract, pay any
special bonus or special remuneration to any director, employee, or consultant,
or increase the salaries or wage rates of its employees or the aggregate amount
of its payroll;
(xi) without the prior written consent of New Image, enter
into any purchase order for goods or services, marketing, or advertising in an
amount exceeding $25,000; or
(xii)operate Insight so as to have a negative "cash" account
on the Insight balance sheet contained in the Audited Closing Date Financial
Statements.
5.2 ACCESS TO INFORMATION. Insight and New Image have entered into one
or more written agreements respecting the exchange of information between the
parties and related matters (collectively, the "Confidentiality Agreement"),
Insight and New Image shall each afford the other and their respective
accountants, counsel, and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time, to (i) all of its
properties, books, contracts, commitments, and records, and (ii) all other
information concerning its business, properties, and personnel as the other may
reasonably request. Insight and New Image each agrees to provide to the other
and its accountants, counsel, and other representatives copies of internal
financial statements promptly upon request. No information or knowledge
obtained in any investigation pursuant to this Section 5.2 shall affect or be
deemed to modify any representation or warranty contained herein or the
conditions to the obligations of the parties to consummate the Merger.
5.3 CONSENTS. Each of New Image and Insight shall promptly apply for or
otherwise seek, and use its commercially reasonable efforts to obtain, all
consents and approvals required to be obtained by it for the consummation of the
Merger. Insight shall use its best effort to obtain
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approval of its shareholders of the Merger as well as to obtain all necessary
consents, waivers, and approvals under any of Insight's agreements, contracts,
licenses, or leases in connection with the Merger, except such consents and
approvals, if any, that New Image and Insight agree that Insight shall not seek
to obtain (as such agreement(s) not to obtain consents and approvals are
reflected in the Insight Disclosure Schedule).
5.4 TRANSACTION COSTS. All costs and expenses incurred by Insight in
connection with this Agreement, the Merger Agreement, and the transactions
contemplated hereby and thereby, including, without limitation, attorneys fees,
accounting fees, and fees of any brokers or advisors consulted in connection
with the transactions relating to this Agreement (collectively, the "Transaction
Costs") shall be borne and paid by Insight shareholders. New Image agrees to
pay up to one-half of the first $25,000 of the Coopers & Lybrand LLP fees
incurred and to be incurred in connection with services rendered in connection
with the preparation of the Audited Closing Date Financial Statements. The
Transaction Costs shall have had no net impact on the net asset value of Insight
as of the Closing Date.
5.5 PUBLIC ANNOUNCEMENTS. New Image and Insight each will consult in
advance with the other concerning the timing and content of any announcement,
press release, and public statement concerning the Merger and will not make any
such announcement, release, or statement without the other's prior written
consent; provided, however, that New Image may make any public statement
concerning the Merger without Insight's prior written consent if, in the
reasonable written opinion of counsel for New Image such statement or
announcement is required to comply with applicable law and, before making such
announcement New Image has provided to Insight copies of both such written
statement or announcement that it proposes to make and such written opinion of
counsel.
5.6 TAX AND POOLING STATUS OF REORGANIZATION. New Image and Insight
shall use commercially reasonable efforts to cause the Merger to be a
reorganization within the meaning of Section 368(a) of the Code and a
transaction which qualifies for pooling treatment under applicable accounting
rules. Each of New Image and Insight shall use its best efforts to cause itself
and each of its officers, directors, and 10% shareholders not to take any action
that would adversely affect the ability of New Image to account for the business
combination contemplated by this Agreement and the Merger Agreement as a pooling
of interests under applicable accounting rules.
5.7 ELECTION OR APPOINTMENT OF NEW IMAGE DIRECTOR. Promptly following
the Effective Date, Mark Stevens shall be appointed to the New Image Board of
Directors. Thereafter for so long as the recipients of New Image Exchange
Shares and New Image Loan Exchange Shares own seven percent (7%) or more of the
outstanding New Image Common, whenever Mark Stevens or other person serving as
the representative of the holders of New Image Exchange Shares and New Image
Loan Exchange Shares on the New Image board comes up for election, the board
will nominate Mark Stevens or other person acceptable to a majority of such
holders for reelection or election, as the case may be, to such board. This
Section shall not be construed as requiring the New Image directors to appoint
or nominate any person whose appointment or
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election, in the good faith exercise of business judgment, would not be in the
best interests of all of the New Image shareholders.
5.8 INSIGHT INTERIM FINANCIAL STATEMENTS. Commencing with financial
statements for the month of January 1996, Insight agrees to provide New Image
monthly with an unaudited consolidated balance sheet at month-end together with
the related statements of operations, shareholders' equity, and cash flow for
the month and the period of its current fiscal year then ended. Such financial
statements shall meet the requirements of the final paragraph of Section 3.13.1.
Those for the months of January through February, 1996, shall be provided by
April 15, 1996, those for the month of March shall be provided by April 25,
1996, and those for the months of April 1996 through the Effective Date shall be
provided within 15 calendar days of the applicable month-end.
5.9 NO NEGATIVE CASH. Insight shall not permit its balance sheet cash
account to be negative at the Closing Date.
ARTICLE VI
CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER
The obligations of New Image and Insight to effect the transactions
contemplated hereby are subject to satisfaction or express waiver of each of the
following conditions:
6.1 DISSENTING SHARES. The combined amount of Dissenting Shares and
Insight Common owned by New Image shall not exceed ten percent (10%) of the
total number of shares of Insight Capital Stock outstanding immediately prior to
the Effective Date.
6.2 SHAREHOLDER APPROVAL. This Agreement and the Merger Agreement shall
have been approved by the shareholders of Insight in accordance with the CGCL
and Insight's Articles of Incorporation and Bylaws.
6.3 NO ACTIONS OR PROCEEDINGS. No claim, action, suit, investigation,
or proceeding shall be pending or threatened before any court or governmental
agency which presents a substantial risk of the restraint or prohibition of the
transactions contemplated by this Agreement or the Merger Agreement or the
obtaining of material damages or other relief in connection therewith.
6.4 GOVERNMENT APPROVALS. All authorizations, consents, orders, or
approvals of, or declarations or filings with, or expiration of waiting periods
imposed by, any governmental entity necessary for the consummation of the
transactions contemplated by this Agreement including, but not limited to, such
requirements under applicable state securities laws, shall have been filed,
occurred, or been obtained.
6.5 INSIGHT AFFILIATE AGREEMENTS. New Image shall have received
sufficient agreements in substantially the form of Exhibit 6.5 (the "Insight
Affiliate Agreement") from affiliates of
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Insight and holders of Insight Capital Stock to satisfy continuity of interest
requirements for the transactions contemplated herein to qualify as a tax free
reorganization within the meaning of Section 368(a) of the Code and for pooling
of interests accounting under applicable accounting rules.
6.6 STATUTES. No action shall have been taken, and no statute, rule,
regulation, or order shall have been enacted, promulgated, or issued or deemed
applicable to the Merger by any governmental entity which would (i) make the
consummation of the Merger illegal, (ii) prohibit New Image's or Insight's
ownership or operation of all or a material portion of the business or assets of
Insight or New Image or compel New Image or Insight to dispose of or hold
separate all or a material portion of the business or assets of Insight or New
Image as a result of the Merger, or (iii) render New Image, Sub, or Insight
unable to consummate the Merger, except for any waiting period provisions.
ARTICLE VII
FURTHER CONDITIONS TO OBLIGATIONS OF NEW IMAGE AND SUB
The obligations of New Image and Sub to effect the transactions
contemplated hereby are subject to the satisfaction at or prior to the Closing
Date (or where so indicated the Effective Date) of the following further
conditions, any of which may be waived in whole or in part by New Image and Sub
in writing:
7.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Insight set forth in this Agreement shall be true and correct in all material
respects (except for such representations and warranties which are qualified by
their terms by a reference to materiality, which representations and warranties
as so qualified shall be true in all respects) as of the Date of this Agreement,
the Closing Date, and the Effective Time, and New Image shall have received a
certificate signed by the chief executive officers and the chief financial
officers of Insight (the "Insight Officers' Certificate") in the form of
Exhibit 7.1 to such effect as of the Closing and a second such certificate as of
the Effective Time.
7.2 PERFORMANCE OF OBLIGATIONS OF INSIGHT. Insight shall have performed
in all material respects all obligations and covenants required to be performed
by it under this Agreement and the Merger Agreement prior to the Closing Date,
including, without limitation, the provision to New Image in a timely manner of
all information requested by it. A certification as to such performance shall
be included in the Insight Officers' Certificates as of the Closing and the
Effective Time.
7.3 OPINION OF INSIGHT'S COUNSEL. New Image shall have received an
opinion dated the Closing Date of Ritchey, Fisher, Whitman & Klein, counsel to
Insight, in form and substance reasonably satisfactory to New Image,
substantially in the form attached as Exhibit 7.3.
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7.4 PRE-MARCH LOANS. Holders of the Pre-March Loans shall have agreed
to exchange amounts owing in connection with such loans for New Image Common as
contemplated in Section 2.8.
7.5 GUARANTEES OF INSIGHT SHAREHOLDERS. A percentage of recipients of
New Image Exchange Shares and New Image Loan Exchange Shares acceptable to New
Image shall have signed guarantees in the form of Exhibit 7.5 (which provides
for shareholder liability pro-rata to receipt of New Image Exchange Shares and
New Image Loan Exchange Shares).
7.6 ESTIMATED CLOSING DATE BALANCE SHEET. Insight shall have delivered
to New Image the Estimated Closing Date Balance Sheet which shall have been
reviewed for reasonableness by Coopers & Lybrand LLP.
7.7 NEW IMAGE FINANCING. New Image shall have obtained debt financing
from Coast Business Credit with an availability as of the Closing Date of not
less than $4,000,000.
7.8 ESTOPPEL STATEMENTS. Insight shall have obtained estoppel
statements in the form of Exhibit 7.8, dated the Closing Date, from its
directors and officers.
7.9 AFFILIATED CAPITAL CORP. There shall be no defaults, or events
which with the giving of notice or passage of time or both would constitute a
default, under the Insight contract with Affiliated Capital Corp.; and
Affiliated Capital Corp. shall have consented to this Agreement and the Merger.
7.10 MORTENSEN AGREEMENT. Suzanne Mortensen shall have agreed, in a
writing acceptable to New Image, to continue to supply Insight with
subassemblies in accordance with current volumes and prices.
7.11 CONSENTS. All consents required under Insight contracts for the
transactions contemplated in this Agreement and the Merger Agreement shall have
been obtained or waived by New Image.
7.12 CORDEV CORPORATION AGREEMENTS. All CorDev Corporation agreements
with Insight shall have terminated without further cost or obligation to
Insight, New Image, or the Surviving Corporation.
7.13 APPROVAL OF NEW IMAGE BOARD OF DIRECTORS. The Board of Directors of
New Image shall have approved this Agreement and the consummation of the
transactions contemplated herein.
7.14 APPROVAL OF INSIGHT DISCLOSURE SCHEDULE AND EXHIBITS. As of the
Date of this Agreement, New Image has not finished its review of items provided
by Insight as disclosures, schedules, and exhibits or completed its due
diligence activities on the Insight Disclosure Schedule or exhibits provided or
to be provided by Insight pursuant to this Agreement. In the completion of such
activities, New Image shall not have found any circumstance or combination of
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circumstances, whether known to it prior to the Date of this Agreement or
learned thereafter, which it determines in its sole discretion to create a
material risk that its original business objectives (financial, manufacturing,
and marketing) in the transactions contemplated herein and in the Merger
Agreement will not be achieved or that the transactions contemplated in this
Agreement will not be eligible to be accounted for as a pooling of interests
under applicable accounting rules.
7.15 ENVIRONMENTAL RISKS. New Image shall have reached a level of
comfort satisfactory to it that Insight has no material environmental or safety
risk of the kind described in Section 3.10.
7.16 AGREEMENT ON EXHIBITS. New Image and Insight shall have come to
agreement with respect to the contents of their disclosure schedules and
Exhibits to be provided as contemplated in Section 12.16.
7.17 POOLING LETTER. Coopers & Lybrand LLP shall have issued and
delivered to New Image and Insight a letter stating that Insight is a poolable
entity as of the Closing Date.
7.19 REPLACEMENT OF CLOSING COSTS. To the extent Insight has paid
Transaction Costs prior to the Closing, such payment shall have been fully
reimbursed by recipients of New Image Exchange Shares and New Image Loan
Exchange Shares.
ARTICLE VIII
FURTHER CONDITIONS TO OBLIGATIONS OF INSIGHT
The obligations of Insight to effect the transactions contemplated hereby
are subject to the satisfaction at or prior to the Closing Date (or where so
indicated, the Effective Time) of the following further conditions, any of which
may be waived in whole or in part by Insight in writing:
8.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of New Image and Sub set forth in this Agreement shall be true and correct in
all material respects (except for such representations and warranties which are
qualified by their terms by a reference to materiality, which representations
and warranties as so qualified shall be true in all respects) as of the Closing
Date and the Effective Time.
8.2 PERFORMANCE OF OBLIGATIONS OF NEW IMAGE AND SUB. New Image and Sub
shall have performed in all material respects all obligations and covenants
required to be performed by them under this Agreement and the Merger Agreement,
and Insight shall have received a certificate signed by the chief executive
officer and the chief financial officer of New Image in the form of Exhibit 8.2
to such effect.
8.3 OPINION OF NEW IMAGE'S COUNSEL. Insight shall have received an
opinion dated the Closing Date of Higgs, Fletcher & Mack LLP, counsel to New
Image, in form and substance reasonably satisfactory to Insight, substantially
in the form attached as Exhibit 8.3.
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8.4 BOARD MEMBERSHIP. Prior to the Closing Date, the New Image Board of
Directors shall have taken steps to appoint Mark Stevens to the New Image Board
of Directors as of the Effective Time.
8.5 RELEASE OF SHAREHOLDER GUARANTEE. Any personal guarantee of the
Insight loan at Silicon Valley Bank shall have been canceled and released by
that Bank.
8.6 AGREEMENT ON EXHIBITS. New Image and Insight shall have come to
agreement with respect to the contents of the disclosure schedules and Exhibits
to be provided as contemplated in Section 1.16.
ARTICLE IX
INDEMNIFICATION BY INSIGHT SHAREHOLDERS
9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS, AND AGREEMENTS.
The obligations of Insight with respect to its representations, warranties,
covenants, and agreements will survive the Closing and the Effective Date and
continue in full force and effect, except that following the Closing Date, the
liability of Insight shall shift to the Insight Guarantors who shall be solely
liable for Insight indemnities under this Article IX. Except as to (i) Claims
arising out of the matters scheduled on Exhibit A to Exhibit 7.5 and (ii) any
Claim for which a Claims Notice has been delivered to the Insight Guarantors on
or before the day New Image's audited consolidated financial statements for the
period ended June 30, 1996, are released (the "1996 Audit Release Date") and
which remains pending on such release date, the Guarantor's indemnity obligation
with respect to Damages arising out of breach of such representations,
warranties, covenants, and agreements shall terminate at midnight on such
release date. Except as to Claims arising out of the matters scheduled on
Exhibit A to Exhibit 7.5 which have been made and are unresolved as of midnight
on the second annual anniversary of the 1996 Audit Release Date, Guarantor's
indemnity obligation with respect to damages arising out of the matters
scheduled on Exhibit A to Exhibit 7.5 shall terminate at midnight on such second
annual anniversary date.
9.2 LIABILITY THRESHOLD. In considering liability for Damages, Damages
for all Claims shall be aggregated. The Insight Guarantors shall have no
liability with respect to Claims until the aggregate Damages for all Claims
exceeds $400,000. Notwithstanding the preceding sentence, with respect to
Claims arising under Section 3.17 involving criminal charges, Insight Guarantors
shall be liable for all Damages without regard to the $400,000 threshold or the
amount of other Claims, if any, which may arise out of this Agreement.
9.3 INDEMNITY. Except as limited by other provisions of this Article
IX, from and after the Effective Time New Image and the Surviving Corporation
(on and after the Closing Date) shall be indemnified and held harmless by
Insight Guarantors against, and reimbursed on demand for, any liability, damage,
loss, obligation, demand, judgment, fine, penalty, cost or expense (including
reasonable attorney's fees and expense, and the costs of investigation, incurred
in
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connection therewith and any amounts paid in settlement thereof) (collectively
the "Damages") imposed on or reasonably incurred by New Image or the Surviving
Corporation because of any misrepresentation or breach of any representation,
warranty, covenant, or agreement ("Claim") on the part of Insight under this
Agreement. "Damages" as used herein is not limited to matters asserted by third
parties, but includes Damages incurred or sustained by New Image, in the absence
of Claims by a third party.
9.4 NOTICE OF CLAIMS. New Image or the Surviving Corporation shall give
notice (the "Claim Notice") to the Insight Guarantors promptly following New
Image or the Surviving Corporation's becoming aware of any Claim which has or
may give rise to Damages. Such notice shall specify the nature and amount of
the Claim asserted. Notwithstanding the foregoing, provided such Claim Notice
is given prior to termination of the Insight Guarantors' indemnity with regard
to the Claim involved, a delay by New Image in giving such notice shall not
limit the indemnity provided by Section 9.3 except to the extent the failure to
provide such notice in a timely fashion results in a material increase in the
Damages to be paid by the Insight Guarantors or materially prejudices the
defense of the Claim asserted.
9.5 CLAIMS. A Claim Notice shall be accompanied by a certificate signed
by an officer of New Image (an "Officer Claim Certificate") setting forth a
Claim against the Insight Guarantors:
(i) stating that New Image or the Surviving Corporation has
paid or properly accrued or knows of facts giving rise to a reasonable
probability that it will have to pay or accrue Damages in an aggregate stated
amount with respect to which New Image or the Surviving Corporation is entitled
to payment from such guarantors, and
(ii) specifying in reasonable detail the individual items of
Damages included in the amount so stated, the date each such item was paid or
properly accrued, or the basis for such anticipated liability, and the nature of
the misrepresentation or breach to which such item is related.
Each Insight Guarantor shall, subject to the provisions of Section 9.6, deliver
to New Image cash equal to the Damages claimed multiplied by the percentage
which the New Image Exchange Shares and New Image Loan Exchange Shares to which
such guarantor is entitled under this Agreement bears to all New Image Exchange
Shares and Loan Exchange Shares.
9.6 OBJECTIONS TO CLAIM. For a period of 30 days following the sending
of any Officer Claim Certificate to them, any or all of the Insight Guarantors
may notify New Image of any objection he or they may have to the Claim(s)
involved.
9.7 RESOLUTION OF CONFLICTS. In case any Insight Guarantor shall object
in writing to the indemnity of New Image in respect of any Claim, such guarantor
and New Image shall attempt in good faith to agree upon the rights of the
respective parties with respect to such Claim. If the Insight Guarantor(s) and
New Image are unable to agree or the required indemnity payments are
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not made, New Image or any one or more of the Insight Guarantors may commence an
action pursuant to Section 9.9.
9.8 THIRD-PARTY CLAIMS. In the event New Image receives a written
third-party Claim or potential Claim which New Image believes may result in a
demand against the Insight Guarantors, New Image shall promptly notify the
Insight Guarantors of such Claim and they shall be entitled, at their expense
and option, to participate in any defense of such Claim. New Image shall have
the right to settle any such Claim with the written consent of Insight
Guarantors holding a majority of such shares, which consent shall not be
unreasonably withheld. In the event that holders of a majority of such shares
have consented to any such settlement of a Claim, the Insight Guarantors shall
have no power or authority to object to such settlement. New Image shall use
reasonable, diligent efforts to defend any third-party Claim which is not
settled with the consent of the Insight Guarantors.
9.9 DISPUTES. Any dispute or controversy between the parties arising
out of this Article IX (each dispute or controversy being referred to as a
"Dispute") shall be handled exclusively as provided in this Section and not
pursuant to litigation in a court of law or other tribunal. Any Dispute which
is not otherwise resolved shall, upon the demand of either party, be determined
and settled by arbitration in San Diego, California under California substantive
law and the Commercial Arbitration Rules of the American Arbitration
Association. The parties further agree that:
(i) ATTORNEYS FEES. The arbitrator shall include attorney
fees and costs in the award to the prevailing party.
(ii) DISCOVERY. The parties shall be entitled to reasonable
and necessary discovery in accordance with the provisions of California Code of
Civil Procedure Section 1283.05.
(iii) FINDINGS AND CONCLUSIONS. The award shall include
findings of fact and conclusions of law showing the legal and factual basis for
the arbitrator's decision.
(iv) ERRORS OF LAW. The award shall be subject to appeal to
the San Diego Superior Court with respect to errors of law (but not with respect
to errors of fact). For an appeal to be given effect, the party seeking to
appeal must give notice of intent to appeal to the arbitrator and the other
party to the arbitration within ten days following the date notice of the award
is received by such party and the appeal itself must be filed with the court
within 30 days of receipt of such notice of award.
(v) ENFORCEMENT. The final award may be entered by any
court of competent jurisdiction.
9.10 NO INDEMNITY TO GUARANTORS FROM INSIGHT. Insight Guarantors shall
have no right to contribution or indemnity from Insight with respect to any
amount incurred or paid by them with respect to Claims or Damages.
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ARTICLE X
INDEMNIFICATION BY NEW IMAGE
New Image agrees to indemnify the officers and directors of Insight
against, and hold them harmless from, any liability for any penalty or interest
accruing after the Closing Date on Taxes (including interest and penalties)
owing by Insight on the Closing Date to the extent the accrual of such penalty
or interest is solely attributable to failure to pay the amounts owing on such
Taxes promptly following the Effective Time.
ARTICLE XI
TERMINATION
11.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing:
11.1.1 by mutual agreement of New Image and Insight;
11.1.2 by the Board of Directors of Insight or New Image if the
Closing shall not have occurred on or prior to May 20, 1996, through no fault of
the terminating party;
11.1.3 by either Insight or New Image if (i) there shall be a non-
appealable order of a Federal or state court in effect preventing consummation
of the Merger, (ii) there shall be any action taken, or any statute, rule,
regulation or order enacted, promulgated, or issued or deemed applicable to the
Merger by any governmental entity that would make consummation of the Merger
illegal, or (iii) any of the representations and warranties of the other party
set forth herein, in its exhibits, its disclosure schedules, or in its other
documents or information was materially false or such other party shall have
failed to comply with or perform any material covenant, agreement, or condition
to have been performed by it on or prior to the Closing; or
11.1.4 by New Image upon the occurrence of one or more events
beyond its control which prevent its performance of this Agreement or which the
members of its Board of Directors believe, in the reasonable exercise of their
business judgment, would, individually or in combination, have a material
adverse effect upon the operations or Business Condition of the combined
companies following the Merger.
11.1.5 by New Image upon a determination made in its sole
discretion in the course of its review of matters disclosed by Insight prior to
the Date of this Agreement or thereafter, that any of such matters, individually
or in combination, creates a material risk that its original business objectives
(financial, manufacturing, and marketing) in the transactions contemplated
herein and in the Merger Agreement will not be achieved or that the transactions
contemplated in this Agreement will not be eligible to be accounted for as a
pooling of interests under applicable accounting rules.
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11.1.6 by New Image upon the commencement of an action by any
shareholder of Insight to enjoin any of the transactions contemplated in this
Agreement or the Merger Agreement.
11.2 EFFECT OF TERMINATION.
11.2.1 If Insight has performed all matters to be performed by it
prior to the Closing and the Closing has not occurred prior to May 9, 1996, and
Insight elects to terminate this Agreement pursuant to the provisions of 11.1.2,
New Image shall pay Insight a "break-up fee" equal to $125,000. Notwithstanding
the preceding sentence, if New Image's failure to close (i) is caused by
inability of New Image to obtain sufficient credit facilities to fund the
combined companies or (ii) occurs under circumstances which would permit it to
refuse to close because of the non-occurrence of a condition set forth in
Articles VI through VIII which is not within its control or which would permit
it to terminate this Agreement pursuant to Section 11.1.2, 11.1.3, 11.1.4,
11.1.5, or 11.1.6, then New Image shall not be liable for the break-up fee. In
the event Insight elects to terminate this Agreement and New Image owes Insight
the break-up fee, such fee shall be the sole damage recoverable by Insight from
New Image under this Agreement.
11.2.2 Except as provided in Section 11.2.1, in the event of the
termination and abandonment hereof prior to the Closing pursuant to the
provisions of this Article XI, this Agreement shall become void and have no
effect, without any liability on the part of any party or its directors,
officers, or stockholders; provided, however, that if either party fails to
perform its obligations hereunder, except as provided in Section 11.2.1, the
other party shall have the right to seek available legal and equitable remedies
except that in no event shall either party shall be liable to the other for
incidental or consequential damages.
11.3 TERMINATIONS HEREUNDER NOT EXCLUSIVE. Nothing in this Article XI
shall be construed as limiting the ability of either party from terminating this
Agreement at any time prior to the Effective Date based upon a material breach
of the other.
ARTICLE XII
GENERAL PROVISIONS
12.1 AMENDMENT. This Agreement may be amended or modified in whole or in
part at any time only by an agreement in writing executed in the same manner as
this Agreement.
12.2 EXTENSION AND WAIVER. At any time prior to the Closing Date, either
Insight or New Image may (i) extend the time for the performance of any of the
obligations or other acts of the other party, (ii) waive any inaccuracy in the
representations and warranties of the other party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance by the other
party with any of the agreements or conditions contained herein, the fulfillment
of which is a condition precedent to such party's obligation to consummate this
Agreement. Any agreement on the part of a party to any such extension or waiver
shall only be valid if set forth in an instrument in writing signed on behalf of
such party by its president or other authorized person. Any such
36
<PAGE>
waiver or extension shall not operate as a waiver or extension of any other or
subsequent condition or obligation.
12.3 NOTICES. All notices, demands, requests, consents, approvals, or
other communications (collectively, "Notices") required or permitted to be given
hereunder or which are given with respect to this Agreement shall be in writing
and may be personally served or may be deposited in the United States mail
registered or certified, return receipt requested, postage prepaid, addressed as
follows:
To New Image or Sub New Image Industries, Inc.
2283 Cosmos Court
Carlsbad, CA 92009
Attn.: President
With a copy to:
Higgs, Fletcher & Mack LLP
401 West A Street, Suite 2000
San Diego, CA 92101
Attention: Franklin T. Lloyd, Esq.
To Insight Insight Imaging Systems, Inc.
981 D Industrial Road
San Carlos, CA 94070
Attn: President
With a copy to:
Ritchey Fisher Whitman & Klein
1717 Embarcadero Road
Palo Alto, CA 94303
Attention: Lawrence A. Klein, Esq.
or such other address as such party shall have specified most recently by
written notice. Notice mailed as provided herein shall be deemed given on the
date of actual receipt.
12.4 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original but all of which taken together shall
constitute one and the same instrument.
12.5 GOVERNING LAW. This Agreement shall be governed by, interpreted
under, and construed and enforced in accordance with the laws of the State of
California applicable to agreements made and to be performed wholly within the
State of California.
37
<PAGE>
12.6 ENTIRE AGREEMENT. The parties agree that the term sheet dated
February 29, 1996, has been entirely superseded by the term sheet signed by New
Image on April 13, 1996, and such February 29 term sheet is of no further force
or effect and that all versions of this Agreement not bearing the footer "69779
1H%02!.Doc 4.21.96 FINAL" and that certain "Supplemental Agreement, dated April
22, 1996, are superseded by this Agreement. They also agree that the terms of
this Agreement and other documents and instruments referred to herein are
intended by the parties as a final expression of their agreement with respect to
the subject matter of this Agreement (including the matters covered by the term
sheet signed by New Image on April 13, 1996) and may not be contradicted by
evidence of any prior or contemporaneous written or oral agreement. The parties
further intend that no extrinsic evidence whatsoever may be introduced to
impeach the written terms of this Agreement in any legal proceeding involving
this Agreement.
12.7 THIRD PARTY RIGHTS. The parties do not intend to confer any benefit
hereunder on any person, firm or corporation other than the parties and the
holders of New Image Exchange Shares and New Image Loan Exchange Shares.
12.8 TITLES AND HEADINGS. Titles and headings of sections of this
Agreement are for convenience of reference only and shall not affect the
construction of any provision of this Agreement.
12.9 EXHIBITS. When finalized as contemplated in Section 12.16, each of
the Exhibits shall be an integral part of this Agreement and incorporated herein
by this reference.
12.10 FURTHER ASSURANCES. Each of the parties agrees to do such further
acts and things and to execute and deliver such additional agreements and
instruments as the other may reasonably require to consummate, evidence, or
confirm the agreements contained herein in the manner contemplated hereby.
12.11 ASSIGNMENT. This Agreement and the rights, duties, and obligations
hereunder may not be assigned by either party without the prior written consent
of the other party, and any attempted assignment in the absence of the required
consent shall be void.
12.12 SUCCESSORS AND ASSIGNS. This Agreement and the provisions hereof
shall be binding upon each of the parties and their permitted successors and
assigns.
12.13 PARTIAL INVALIDITY. If any provision of this Agreement is found to
be invalid by any court, the invalidity of such provision shall not affect the
validity of the remaining provisions hereof.
12.14 ATTORNEYS FEES. In the event of litigation concerning this
Agreement the prevailing party or parties in such litigation shall be entitled
to reimbursement from the party or parties opposing such prevailing party or
parties of all reasonable attorneys fees and costs incurred in such litigation.
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<PAGE>
12.15 NEW IMAGE AND SUB ONE PARTY. For purposes of references to a
"party" other than Insight, the reference shall be deemed to be a reference to
both New Image and Sub unless the context clearly requires otherwise.
12.16 CONCERNING DISCLOSURE SCHEDULES AND EXHIBITS. The parties agree
that the disclosure schedules and Exhibits and all other material provided on
and before the Date of this Agreement are incomplete and/or not final and that
each party will deliver its disclosure schedule and Exhibits to the other no
later than the close of business on the third full business day prior to the
Closing Date. Such delivery shall be by hand delivery, addressed to the persons
named at the addresses provided in the Section 12.3; provided that an additional
copy of the schedule being delivered by Insight to New Image shall be delivered
to: Robert S. Colman, Colman, Furlong & Co., One Maritime Plaza #2535, San
Francisco, California 94111.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
signed and delivered.
NEW IMAGE INDUSTRIES, INC. INSIGHT IMAGING SYSTEMS, INC.
By: By:
--------------------------- ---------------------------
Dewey F. Edmunds, President Mark Stevens, President
WISDOM ACQUISITION CORP.
By:
---------------------------
Dewey F. Edmunds, President
39
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
NEW IMAGE INDUSTRIES, INC.
WISDOM ACQUISITION CORP.
AND
INSIGHT IMAGING SYSTEMS, INC.
_____________________
MAY 9, 1996
_____________________
EXHIBIT VOLUME
The accompanying exhibits are accepted as the exhibits to the above Agreement
and Plan of Reorganization.
Dated: May __, 1996.
New Image Industries, Inc. Insight Imaging Systems, Wisdom Acquisition
Inc. Corp.
- - -------------------------- ------------------------ ------------------
Dewey F. Edmunds Mark Stevens Dewey F. Edmunds
President President President
<PAGE>
LIST OF EXHIBITS
1 Audited Closing Date Financial Statements Procedure
2.1 Merger Agreement
2.7.2 Transmittal Letter and Instructions for Holders of Insight Capital
Stock
2.8 Transmittal Letter and Instructions for Payees Under Pre-March Loans
3.3.1 Schedule of Insight Capital Stock
3.3.3 Schedule of Insight Common Purchase Rights
3.3.6 Schedule of Pre-March Loans
3.8 Schedule of Post-February Loans
3.9 Schedule of Insight Permits
3.12 Schedule of Assets
3.13A Estimated Closing Date Balance Sheet
3.13B Insight Financial Statements
3.15 Schedule of Employees (full-time and part-time)
3.17.1 Schedule of Insight Taxes, Interest, Penalties, and Agreements with
Tax Authorities
3.18 Schedule of Insight Purchase Orders in Excess of $25,000
3.19 Schedule of Insight Self-Insured Risks and Insurance Policies
3.24.1 Schedule of Insight Intellectual Property Rights and Related
Agreements
3.29 Schedule of Insight Payables as of the Date of the Latest Balance
Sheet
4.10 Schedule of New Image Intellectual Property Rights and Related
Agreements
6.5 Insight Affiliate Agreement
7.1 Insight Officers' Certificate
7.3 Opinion of Insight's Counsel
7.5 Insight Shareholder Guarantee
7.8 Estoppel Statements
8.2 New Image Officers' Certificate
8.3 Opinion of New Image Counsel
<PAGE>
EXHIBIT 1
AUDITED CLOSING DATE FINANCIAL STATEMENT PROCEDURE
This procedure is attached as Exhibit 1 to that certain Agreement and Plan
of Reorganization by and among New Image Corporation, New Image Acquisition
Corp., and Insight Corporation, dated May 9, 1996 (the "Agreement"). Defined
terms used in this procedure shall have the same meanings as in the Agreement.
Within 30 days following the Closing Date, Insight shall cause Coopers &
Lybrand LLP to perform and deliver to New Image an audit of Insight as of the
Closing Date and for the period of the Insight fiscal year then ended and
prepare an audited consolidated balance sheet of Insight as of the Closing Date
and the related statements of operations shareholders equity, and cash flows for
the Insight fiscal year to date then ended, accompanied by the opinion thereon
of Coopers & Lybrand LLP, independent public accountants. If Coopers & Lybrand
LLP fails to deliver the Audited Closing Date Balance Sheet within such 30 day
period, Arthur Andersen LLP shall perform such audit and its audit shall be the
Audited Closing Date Balance Sheet for all purposes hereunder without any right
on the part of Insight or its shareholders to disagree.
If Coopers & Lybrand LLP delivers the Audited closing Date Balance Sheet
within such 30-day period, then within 15 days of receipt of the such financial
statements from Coopers & Lybrand LLP, New Image shall cause Arthur Andersen LLP
to review and deliver to New Image a report on disagreements, if any, concerning
such audited financial statements.
If there are disagreements between Coopers & Lybrand LLP and Arthur
Andersen LLP concerning the accuracy or completeness of such financial
statements and the parties are unable to resolve them voluntarily within 20 days
of delivery of the Arthur Andersen LLP report to Insight, such disputes shall be
resolved promptly by Deloitte & Touche LLP whose resolution shall be final and
binding on the parties.
The financial statements derived pursuant to the procedures set forth in
this Section shall be the Audited Closing Date Financial Statements for all
purposes under the Agreement.
<PAGE>
EXHIBIT 2.1
AGREEMENT OF MERGER
This agreement of merger ("Agreement") is entered into on May __, 1996,
between Insight Imaging Systems, Inc. ("Survivor"), a California corporation,
Wisdom Acquisition Corp. ("Disappearing"), a California corporation, the
constituent corporations in this merger and New Image Industries, Inc., a
Delaware corporation, the parent of Disappearing ("Parent").
A. The issued and outstanding stock of Disappearing consists of 100,000
shares of Common Stock, without par value.
B. The pre-merger issued and outstanding stock of Survivor consists of
6,373,764 shares of Common Stock, without par value and no shares of Preferred
Stock.
C. Parent is a Delaware corporation that owns 100 percent of the issued
and outstanding shares of Disappearing.
WHEREFORE, the parties agree, as follows:
1. STATEMENT OF MERGER. The parties agree that Disappearing shall be
merged into Survivor, and that the terms and conditions of the merger are as
stated in this Agreement. At and as of the "Effective Time," as defined below,
the separate existence of Disappearing shall cease, and Survivor shall succeed,
without other transfer, to all the rights and property of Disappearing, and
shall be subject to all the debts and liabilities of Disappearing, in the same
manner as if Survivor itself had incurred them.
2. ARTICLES OF INCORPORATION. The Articles of Incorporation of Survivor
shall be amended and restated at and as of the Effective Time to read in full as
set forth in Exhibit A.
3. CONVERSION OF SURVIVOR'S SHARES. At and as of the Effective Time,
each share of Pre-Merger Common Stock of Survivor shall be converted into
.0554392 shares of common stock, $.001 par value, of Parent.
4. CONVERSION OF DISAPPEARING'S SHARES. At and as of the Effective Time,
each share of common stock, without par value, of Disappearing shall be
converted into one share of common stock, without par value, of Survivor.
5. EFFECTIVE TIME. An executed counterpart of this Agreement and
officers' certificates of each of the constituent corporations shall be filed in
the office of the California Secretary of State. The merger shall become
effective at the time of that filing (the "Effective Time").
<PAGE>
IN WITNESS WHEREOF, Survivor, Disappearing, and Parent as duly authorized
by their respective boards of directors, have caused this Agreement to be
signed.
Wisdom Acquisition Corp. Insight Imaging Systems, Inc.
By _____________________________ By _____________________________
Dewey F. Edmunds, President Mark Stevens, President
By _____________________________ By _____________________________
Harold R. Orr, Secretary Frederick C. Walter, Secretary
New Image Industries, Inc.
By _____________________________
Dewey F. Edmunds, President
By ______________________________
Harold R. Orr, Assistant Secretary
2
<PAGE>
CERTIFICATE OF APPROVAL
OF
AGREEMENT OF MERGER
Mark Stevens and Frederick C. Walter certify that:
1. They are the President and the Secretary, respectively, of Insight Imaging
Systems, Inc., a California corporation.
2. The Agreement of Merger in the form attached was duly approved by the board
of directors and shareholders of the corporation.
3. The classes of shares and the numbers of shares of each class which are
outstanding are:
Number of Shares of
Class Class Outstanding
------------------------- -------------------
Common Stock 6,373,764
Preferred Stock None
4. The shareholder approval was by a number of shares of each class which
equaled or exceeded the vote required. The vote required was a majority of
the common stock and a majority of the preferred stock voting separately.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this Certificate are true and correct
of our own knowledge.
DATED: May __, 1996
______________________________
Mark Stevens, President
______________________________
Frederick C. Walter, Secretary
<PAGE>
CERTIFICATE OF APPROVAL
OF
AGREEMENT OF MERGER
Dewey F. Edmunds and Harold R. Orr certify that:
1. They are the President and the Secretary, respectively, of Wisdom
Acquisition Corp., a California corporation.
2. The Agreement of Merger in the form attached was duly approved by the board
of directors and shareholders of the corporation.
3. The shareholder approval was by the holders of 100% of the outstanding
shares of the corporation.
4. There is only one class of shares and the number of shares outstanding is
100,000.
5. The corporation is a wholly-owned subsidiary of New Image Industries, Inc.,
a Delaware corporation. No vote of the shareholders of New Image
Industries, Inc. was required.
We declare under penalty of perjury under the laws of the State of
California that the matters set forth in this Certificate are true and correct
of my own knowledge.
DATED: May __, 1996
______________________________
Dewey F. Edmunds, President
______________________________
Harold R. Orr, Secretary
<PAGE>
EXHIBIT A TO AGREEMENT OF MERGER
RESTATED ARTICLES OF INCORPORATION
OF
INSIGHT IMAGING SYSTEMS, INC.
I
The name of this corporation is Insight Imaging Systems, Inc.
II
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business, or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
III
This corporation is authorized to issue only one class of capital stock
designated "Common Stock." The number of shares of Common Stock is 100,000.
IV
The liability of the directors of the corporation for monetary damages shall
be eliminated to the fullest extent permissible under California law.
V
The corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the Corporations Code) for breach of duty to the
corporation and its stockholders through bylaw provisions or through
agreements with agents, or both, in excess of the indemnification otherwise
permitted by Section 317 of the Corporations Code, subject only to the
applicable limits set forth in Section 204 of the Corporations Code with
respect to actions for breach of duty to this corporation and its
shareholders.
<PAGE>
EXHIBIT 3.24.1
INTELLECTUAL PROPERTY RIGHTS OF
INSIGHT IMAGING SYSTEMS, INC.
CORPORATE NAMES: Insight Imaging Systems, Inc.
C-I Acquisition Corp.
TRADE NAMES,TRADEMARKS Insight
AND SERVICE MARKS: Plug 'n Play
MultiLink
Show-It
Smile Gallery
Image-It (U.S. trademark denied 6/95)
Power-It
PowerPack
Chart-It Serial No. 74/498.572
Publication Date: 8/29/95
Applicant: Chart-It, Inc.
Capture-It Serial No. 74/615660
Application Filed: 12/27/94
Applicant: Chart-It, Inc.
PATENT APPLICATIONS: Apparatus and Method for Eliminating the Fogging of
Intraoral Camera Images.
Inventor: William W. Stevens
Assignee: Insight Imaging Systems, Inc.
Date of Deposit: 2/22/96
<PAGE>
EXHIBIT 6.5
Affiliate Agreement
May ___, 1996
New Image Industries, Inc.
2283 Cosmos Court
Carlsbad, CA 92009
RE: Agreement and Plan of Reorganization (the "Agreement") by and among New
Image Industries, Inc. ("New Image"), a Delaware corporation, Wisdom
Acquisition Corp. ("Sub"), a California corporation and wholly-owned
subsidiary of New Image, and Insight Imaging Systems, Inc. ("Insight"), a
California corporation; and Agreement of Merger (the "Merger Agreement") by
and between Insight and Sub.
Gentlemen:
Terms used in this letter which are defined in the Agreement shall have the
same meanings herein as in the Agreement. I am a director, officer, or holder
of 10% or more of the voting power of Insight. I am delivering this letter
agreement to you as an inducement to you to engage in the Closing and Merger,
and to satisfy the covenant of Insight contained in Section 6.5 of the Agreement
and the condition to the New Image Closing obligation contained in Section 7.2
thereof. Pursuant to the Agreement and the Merger Agreement, I will acquire
shares of New Image Common at the Effective Time.
I understand that the Merger is intended to be effected in a manner which
will qualify the acquisition of Insight pursuant to the Agreement and the Merger
Agreement to be accounted for according to pooling of interests accounting
rules. I have also been informed that holding my shares in New Image following
the Merger may be a condition to the availability of such pooling of interests
accounting treatment. Accordingly, I agree that I will not sell, transfer, or
otherwise limit my economic risk associated with ownership of New Image Common
Stock received pursuant to the Agreement and the Merger Agreement until such
time as the financial results covering at least 30 days of post merger combined
operations have been published.
Very truly yours,
______________________________
(Print Name)
<PAGE>
Exhibit 7.5
INSIGHT SHAREHOLDER GUARANTY
This guaranty ("Guaranty") is made as of the ____ day of May, 1996, by the
undersigned ("Guarantor," together with other shareholders also signing this
form of guaranty, "Guarantors") in favor of New Image Industries, Inc. ("New
Image"), a Delaware corporation, and Insight Imaging Systems, Inc. ("Insight"),
a California corporation. Guarantor is a former shareholder of Insight and this
Guaranty is provided to New Image and Insight pursuant to Section 7.5 of the
Agreement and Plan of Reorganization, dated May 9, 1996, entered into by and
among New Image, Insight, and Wisdom Acquisition Corp., a California
corporation, (the "Agreement"). Capitalized terms not defined herein have the
meanings set forth in the Agreement.
1. AGREEMENTS OF GUARANTOR. Guarantor represents, warrants, covenants,
agrees, and undertakes for the benefit of New Image and Insight, as follows:
1.1 AGREEMENT TO BE BOUND. As of the Closing, Guarantor makes and
agrees to be bound by and responsible for each and all of the representations,
warranties, covenants, and agreements of Insight made, or in effect, or to be
made, or to be in effect at or after the Closing, subject to the limitations set
forth herein.
1.2 TIME FOR ASSERTION OF CLAIMS. Except as to (i) Claims arising
out of the matters scheduled on Exhibit A and (ii) any Claim for which a Claims
Notice has been delivered to Guarantor on or before the day New Image's audited
consolidated financial statements for the period ended June 30, 1996, are
released (the "1996 Audit Release Date") and which remains pending on such
release date, the Guarantor's indemnity obligation with respect to Damages
arising out of breach of such representations, warranties, covenants, and
agreements shall terminate at midnight on such release date. Except as to
Claims arising out of the matters scheduled on Exhibit A to Exhibit 7.5 which
have been made and are unresolved as of midnight on the date of the second
annual anniversary of the 1996 Audit Release Date, Guarantor's indemnity
obligation with respect to Damages arising out of the matters scheduled on
Exhibit A to Exhibit 7.5 shall terminate on such second annual anniversary date.
3. LIABILITY THRESHOLD. In considering liability for Damages, as defined
below, Damages for all Claims shall be aggregated. The Insight Guarantors shall
have no liability with respect to Claims until the aggregate Damages for all
Claims exceed $400,000 ("the 400,000 threshold"). Notwithstanding the preceding
sentence, with respect to Claims arising under Section 3.17 of the Agreement
involving criminal charges, Guarantor shall be liable for all Damages without
regard to the $400,000 threshold or the amount of other Claims, if any, which
may arise out of the Agreement.
<PAGE>
4. INDEMNITY. Except as limited by other provisions of this Guaranty,
from and after the Effective Time, Guarantor agrees to indemnify New Image and
Insight against; hold them harmless from; and reimburse them on demand for, any
liability, damage, loss, obligation, demand, judgment, fine, penalty, cost or
expense (including reasonable attorney's fees and expense, and the costs of
investigation incurred in connection therewith, and any amounts paid in
settlement thereof) (collectively the "Damages") imposed on or reasonably
incurred by New Image or Insight because of any misrepresentation or breach of
any representation, warranty, covenant, or agreement ("Claim") on the part of
Insight under the Agreement. "Damages" as used herein is not limited to matters
asserted by third parties, but includes Damages incurred or sustained by New
Image or Insight, in the absence of Claims by a third party. Notwithstanding
the foregoing, Guarantor's liability for indemnity shall be equal to the Damages
paid or incurred multiplied by the percentage which the New Image Exchange
Shares and New Image Loan Exchange Shares (collectively, herein "New Image
Shares") received by Guarantor bears to all New Image Shares.
5. CLAIMS.
5.1 NOTICE OF CLAIMS. New Image or Insight shall give notice (the
"Claim Notice") to the Guarantor and the other Guarantors promptly following New
Image or Insight's becoming aware of any Claim which has or may give rise to
Damages. Such notice shall specify the nature and amount of the Claim asserted.
Notwithstanding the foregoing, provided such Claim Notice is given prior to
termination of the Guarantor's indemnity with regard to the Claim involved, a
delay by New Image or Insight in giving such notice shall not limit the
indemnity provided hereunder except to the extent the failure to provide such
notice in a timely fashion results in a material increase in the Damages to be
paid by the Guarantor or materially prejudices the defense of the Claim
asserted.
5.2 CLAIMS. A Claim Notice shall be accompanied by a certificate
signed by an officer of New Image or Insight (an "Officer Claim Certificate")
setting forth a Claim against the Guarantor:
(i) stating that New Image or Insight has paid or properly
accrued or knows of facts giving rise to a reasonable probability that it will
have to pay or accrue Damages in an aggregate stated amount with respect to
which New Image or Insight is entitled to payment from such Guarantor, and
(ii) specifying in reasonable detail the individual items of
Damages included in the amount so stated, the date each such item was paid or
properly accrued, or the basis for such anticipated liability, and the nature of
the misrepresentation or breach to which such item is related.
5.3 OBJECTIONS TO CLAIM. For a period of 30 days following the
sending of any Officer Claim Certificate to him, Guarantor or any or all of the
other Guarantors may notify New Image of any objection he or they may have to
the Claim(s) involved.
5.4 SOLE METHOD OF PROVIDING INDEMNITY. Guarantor shall satisfy an
indemnity obligation first by offsetting the interest and then the principal
owing to him under any
2
<PAGE>
subordinated note(s) for Post-March Loans he may own; and then, if he does not
own such a note or the amount of it is insufficient fully to offset the
indemnity obligation, by surrendering New Image Common. In the event Guarantor
surrenders New Image Common to satisfy such an obligation, the value of such
common for this purpose shall be equal to the average daily closing price of New
Image Common as reported on NASDAQ (or other market where the shares are
trading) during the 30 trading days preceding the approval or final
determination of the Claim.
5.5 INDEMNITY CAP. Guarantor's maximum liability for indemnities
hereunder shall not exceed the sum of (i) the principal sum of Post-March Loans
owned by him plus (ii) the New Image Shares received pursuant to the Agreement.
6. RESOLUTION OF CONFLICTS. In case any Guarantor shall object in
writing to the indemnity of New Image in respect of any Claim, such guarantor
and New Image shall attempt in good faith to agree upon the rights of the
respective parties with respect to such Claim. If the Guarantor(s) and New
Image are unable to agree or the required indemnity payments are not made, New
Image or any one or more of the Guarantors may commence an action pursuant to
Paragraph 11.
7. THIRD-PARTY CLAIMS. In the event New Image receives a written third-
party Claim or potential Claim which New Image believes may result in a demand
against the Guarantors, New Image shall promptly notify the Guarantor of such
Claim and he and the other Guarantors shall be entitled, at their expense and
option, to participate in any defense of such Claim. New Image shall have the
right to settle any such Claim on terms which it believes are reasonable in
light of the risks and costs involved. In the event that holders of a majority
of such shares have consented to settlement of a Claim, such settlement shall be
conclusively presumed to be fair to Guarantor. New Image and Insight shall use
reasonable, diligent efforts to defend any third-party Claim which is not
settled.
8. NO INDEMNITY TO GUARANTOR FROM INSIGHT. The Guarantor shall have no
right to contribution or indemnity from Insight with respect to any amount
incurred or paid with respect to Claims or Damages.
9. AUTHORIZATION. Guarantor represents and warrants that he has the
legal capacity, power and authority to execute, deliver and perform this
Guaranty and this Guaranty is the valid and binding obligation of the Guarantor
enforceable in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally, and by general
principles of equity.
10. CONFLICTS. In the event of a conflict between terms of this Guaranty
and the terms of the Agreement, the terms of this Guaranty shall govern.
11. DISPUTES. Any dispute or controversy between the parties arising out
of this Guarantee (each dispute or controversy being referred to as a "Dispute")
which is not resolved by agreement shall be resolved by arbitration as provided
in this paragraph and not pursuant to litigation in a court of law or other
tribunal. Any Dispute which is not otherwise resolved shall, upon the demand of
either party, be determined and settled by arbitration in San Diego, California
3
<PAGE>
under California substantive law and the Commercial Arbitration Rules of the
American Arbitration Association. The parties further agree that:
(i) ATTORNEYS FEES. The arbitrator shall include attorney fees and
costs in the award to the prevailing party.
(ii) DISCOVERY. The parties shall be entitled to reasonable and
necessary discovery in accordance with the provisions of California Code of
Civil Procedure Section 1283.05.
(iii) FINDINGS AND CONCLUSIONS. The award shall include findings of
fact and conclusions of law showing the legal and factual basis for the
arbitrator's decision.
(iv) ERRORS OF LAW. The award shall be subject to appeal to the San
Diego Superior Court with respect to errors of law (but not with respect to
errors of fact). For an appeal to be given effect, the party seeking to appeal
must give notice of intent to appeal to the arbitrator and the other party to
the arbitration within ten days following the date notice of the award is
received by such party and the appeal itself must be filed with the court within
30 days of receipt of such notice of award.
(v) ENFORCEMENT. The final award may be entered by any court of
competent jurisdiction.
WHEREFORE, the parties have caused this Guaranty to be signed.
New Image Industries, Inc. Insight Imaging Systems, Inc.
By ________________________ By _______________________
Dewey F. Edmunds, President Mark Stevens, President
GUARANTOR:
_______________________
ATTACHMENT:
Exhibit A
4
<PAGE>
EXHIBIT A
1. Litigation Matters:
- HIGH TECH MEDICAL INSTRUMENTATION, INC. ("HTMI"). This matter relates
to allegations of flaws in the HTMI license with Insight and the way in
which the license was negotiated, including the allegations (the "HTMI
allegations") contained in the letters of (i) June 30, 1995, from HTMI
to Mr. William W. Stevens, (ii) September 6, 1995, from Mr. Thomas H.
Carlson to Mr. Miles C. Milbank, and (iii) of April 11, 1996, from to
Robert L. Anderson to Mr. Thomas H. Carlson. Without regard to whether
the matters giving rise to Damages were disclosed in the Insight
Disclosure Schedule or otherwise known to New Image prior to the date
of the Agreement or thereafter, subject to the $400,000 threshold, only
the following Damages relating to the HTMI Allegations shall be
recoverable under this indemnity:
- The amount of any judgment or award which is based on the HTMI
Allegations.
- 50% of the attorney's fees and costs paid or incurred in
defending against the HTMI Allegations if the trier of fact in
the forum where the matter is tried makes findings which are
inconsistent with the representations of Mr. Stevens in the
attached statement (the other 50% are recoverable pursuant to a
separate agreement).
- PERRY M. WILLIAMS. This matter relates to potential litigation by or
on behalf of Mr. Williams related to the items discussed in that
certain letter from David A. Prentice to the Board of Directors of
Insight Imaging Systems, Inc., dated May 6, 1996. All damages arising
out of such potential litigation shall, subject to the $400,000
threshold, be included in Damages against which New Image is
indemnified under this Guaranty without regard to whether the matters
giving rise to the Damages were disclosed in the Insight Disclosure
Schedule or otherwise known to New Image prior to the date of the
Agreement or thereafter.
2. Tax Matters:
- SALES TAXES. This matter relates to liabilities arising out of failures
to meet sales tax reporting, collection, and payment obligations,
including interest and penalties thereon, if any, to the extent such
obligations in all jurisdictions for sales through the Closing Date
exceed $830,000. All Damages in excess of $830,000 arising out of such
failures shall, subject to the $400,000 threshold, be included in
Damages against which New Image is indemnified under this Guaranty
without regard to whether the matters giving rise to the Damages were
disclosed in the Insight Disclosure Schedule or otherwise known to
New Image prior to the date of the Agreement or thereafter.
- PAYROLL TAXES. This matter relates to liabilities arising out of
failures to meet federal and state payroll tax reporting, collection,
and payment obligations in all jurisdictions for payrolls through the
Closing Date to the extent such liabilities exceed $614,000. All
Damages in excess of $614,000 arising out of such failures shall,
subject to the
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<PAGE>
$400,000 threshold, be included in Damages against which New Image is
indemnified under this Guaranty without regard to whether the matters
giving rise to the Damages were disclosed in the Insight Disclosure
Schedule or otherwise known to New Image prior to the date of the
Agreement or thereafter.
- PAYROLL TAX LIABILITIES - INTEREST AND PENALTIES. This matter relates
to penalties and interest on federal and state payroll tax reporting,
collection, and payment obligations in all jurisdictions for payrolls
through the Closing Date to the extent such penalties and interest
exceed $265,000. All Damages in excess of $265,000 related to such
penalties and interest shall, subject to the $400,000 threshold, be
included in Damages against which New Image is indemnified under this
Guaranty without regard to whether the matters giving rise to the
Damages were disclosed in the Insight Disclosure Schedule or otherwise
known to New Image prior to the date of the Agreement or thereafter.
- CRIMINAL LIABILITIES RELATING TO TAX MATTERS. This matter relates to
criminal charges with respect to Tax Matters. Guarantor shall be
liable for all Damages without regard to the $400,000 threshold or the
amount of other Claims, if any, which may arise out of the Agreement,
whether the matters giving rise to the Damages were disclosed in the
Insight Disclosure Schedule or otherwise known to New Image prior to
the date of the Agreement or thereafter.
STATEMENT OF WILLIAM S. STEVENS ATTACHED
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<PAGE>
REPRESENTATIONS OF WILLIAM W. STEVENS
IN RE EXHIBIT "A" TO INSIGHT SHAREHOLDER GUARANTY
AS IT PERTAINS TO LITIGATION MATTERS
INVOLVING HIGH TECH MEDICAL INSTRUMENTS, INC. ("HTMI")
------------------------------------------------------
William W. Stevens ("Williams") hereby represents that he agreed
personally to pay up to $100,000 of HTMI's legal costs in connection with the
litigation between HTMI and Fuji (the "HTMI/Fuji Litigation"). Stevens paid
these costs out of his personal funds. Such payments and the agreement
between Stevens and HTMI were Stevens' personal acts and did not involve
Insight Imaging Systems, Inc. ("Insight").
Stevens represents that he knows of no action or inaction of his which
he believes could constitute fraud in regard to any of his dealings with HTMI
or its representatives with regard to the HTMI/Fuji Litigation.
Stevens represents that he did not wrongfully cause HTMI to experience
economic duress or other economic hardship as a result of any of Stevens'
actions or inactions with respect to the payment of legal fees and costs with
respect to the HTMI/Fuji Litigation.
Stevens represents that he did not withhold any money to be paid to
HTMI's counsel in order to obtain any favorable treatment from HTMI including
receiving a favorable license agreement for Insight with respect to certain
patents owned by HTMI.
Stevens represents that he was not directly involved with the request
of HTMI that Insight turn over to HTMI a "patent defensibility opinion" and
to the best of his knowledge that belief there never was an improper refusal
by Insight to turn over such "patent defensibility opinion."
Stevens represents that he did not directly take part in any license
negotiations between HTMI and Insight.
Stevens represents that to the best of his knowledge, no employees,
agents, or representatives of Insight improperly used any knowledge that
Stevens had agreed to pay any of HTMI's legal costs in connection with the
HTMI/Fuji Litigation in their negotiations with HTMI concerning a patent
license agreement.
Stevens represents that prior to January 22, 1993, he had not received
any correspondence or documents regarding payment or legal costs in
connection with the HTMI/Fuji Litigation.
Stevens represents that he received an invoice dated January 22, 1993
for HTMI's counsel for approximately $3,000 but did not receive any other
invoices in regard to the HTMI/Fuji Litigation until June, 1993.
<PAGE>
Stevens represents that on July 20, 1993 he sent a check to HTMI's
attorneys, Banchero & Lasater, for $31,879.64 which paid all costs presented
to Stevens as of that date with regard to the HTMI/Fuji Litigation.
Stevens represents that on December 1, 1993 he paid $54,606.61 to
Banchero & Lasater, which represented all costs that Stevens was aware of
that had accrued and were outstanding at that date with regard to the
HTMI/Fuji Litigation that he owed.
Stevens represents that prior to June, 1995 he was never contacted by
anyone at HTMI (including Miles C. Milbank) or Banchero & Lasater alleging
that any purportedly delay in his payment of costs in connection with the
HTMI/Fuji Litigation had improperly given Insight leverage over HTMI in their
negotiations with respect to a patent license.
<PAGE>
EXHIBIT 7.8
ESTOPPEL STATEMENT
TO: Insight Imaging Systems, Inc. ("Insight"), a California corporation
New Image Industries, Inc. ("New Image'), a Delaware corporation
Wisdom Acquisition Corp. ("Sub"), a California corporation
I, the undersigned, am a director and/or officer and/or 10% or greater
shareholder of Insight. In connection with its acquisition by New Image and
merger with Sub, a wholly-owned subsidiary of New Image, I represent and warrant
to Insight, New Image and Sub, knowing and intending that they rely upon such
representation and warranty and knowing and intending that I will be estopped
from raising any dispute or claim which I do not now mention, that I do not now
have any dispute with or claim against Insight, do not know of any facts which
could or will give rise to any dispute with or claim against Insight, and claim
no personal ownership interest in any real or personal property of Insight,
including without limitation, any personal ownership interest in any technology
or proprietary information used by Insight.
Date: May ___, 1996
Signed: ________________________
Print Name: _______________________
<PAGE>
EXHIBIT 2.2
UNDERTAKING CONCERNING REGISTRATION RIGHTS
OF
CERTAIN HOLDERS OF NEW IMAGE COMMON
(May 17, 1996)
<PAGE>
TABLE OF CONTENTS
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Sale or Transfer of Shares; Legend. . . . . . . . . . . . . . . . 2
3. Required Registrations. . . . . . . . . . . . . . . . . . . . . . 2
4. Incidental Registration . . . . . . . . . . . . . . . . . . . . . 3
5. Registration Procedures . . . . . . . . . . . . . . . . . . . . . 4
6. Allocation of Registration Expenses . . . . . . . . . . . . . . . 4
7. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . 5
8. Indemnification with Respect to Underwritten Offering . . . . . . 6
9. Information by Holder . . . . . . . . . . . . . . . . . . . . . . 7
10. "Stand-Off" Agreement . . . . . . . . . . . . . . . . . . . . . . 7
11. Current Information . . . . . . . . . . . . . . . . . . . . . . . 7
12. Selection of Underwriter. . . . . . . . . . . . . . . . . . . . . 7
13. Participating Holders of Registrable Shares Bound . . . . . . . . 7
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<PAGE>
UNDERTAKING CONCERNING REGISTRATION RIGHTS
OF
FORMER INSIGHT SHAREHOLDERS
(May 17, 1996)
In consideration of that certain reorganization and merger contemplated in the
Agreement and Plan of Reorganization, dated April 22, 1996, (the "Agreement") by
and among New Image Industries, Inc. ("New Image"), a Delaware corporation, New
Image Acquisition Corp., a California corporation, and Insight Imaging Systems,
Inc. ("Insight"), a California corporation, New Image undertakes, for the
benefit of those who receive shares of New Image Common pursuant to the
transactions contemplated in the Agreement, to provide the following
registration rights to such recipients.
1. DEFINITIONS. As used in this Undertaking, the following terms shall
have the following respective meanings:
"AGREEMENT" shall have meaning ascribed to it in the introductory
paragraph.
"COMMISSION" means the Securities and Exchange Commission.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"INSIGHT" shall have meaning ascribed to it in the introductory paragraph.
"INSIGHT CAPITAL STOCK" shall mean shares of Insight Common Stock, Series A
Preferred Stock, and Series B Preferred Stock.
"NEW IMAGE" shall have meaning ascribed to it in the introductory
paragraph.
"NEW IMAGE COMMON" shall mean New Image Common Stock , $.001 par value.
"REGISTRATION STATEMENT" means a registration statement filed by New Image
with the Commission for a public offering and sale of securities of New Image
(other than a registration statement on Form S-8 or Form S-4, or their
successors, or any other form for a limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation).
"REGISTRATION EXPENSES" means the expenses described in Section 6.
"REGISTRABLE SHARES" means (i) shares of New Image Common received pursuant
to transactions contemplated in the Agreement and (ii) any other shares of New
Image Common issued in respect of such New Image Common (because of stock
splits, stock dividends, reclassifications, recapitalizations, or similar
events); PROVIDED, HOWEVER, that shares of New Image Common which are
Registrable Shares shall cease to be Registrable Shares upon any sale pursuant
to (i) a Registration Statement, (ii) Section 4(1) of the Securities Act, or
(iii) Rule 144 under the Securities Act.
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"SECURITIES ACT" shall refer to the Securities Act of 1933, as amended.
2. SALE OR TRANSFER OF SHARES; LEGEND.
2.1 The Registrable Shares and shares issued in respect of the
Registrable Shares are "restricted securities" within the meaning of that phrase
as used in Rule 144 under the Securities Act and shall not be sold or
transferred unless either (i) they first shall have been registered under the
Securities Act, or (ii) New Image first shall have been furnished with an
opinion of legal counsel, reasonably satisfactory to New Image, to the effect
that such sale or transfer is exempt from the registration requirements of the
Securities Act.
2.2 Each certificate representing the Registrable Shares and shares
issued in respect of the Registrable Shares shall bear a legend substantially in
the following form:
"The securities evidenced by this certificate have not been registered
under the federal Securities Act of 1933 (the "Securities Act"), have
not been registered or qualified under state securities laws (the
"Securities Laws"), and may not be transferred or sold except pursuant
to an effective registration or qualification under the Securities Act
and the Securities Laws or an exemption from such registration or
qualification requirements."
The foregoing legend shall be removed from the certificates representing
any Registrable Shares, at the request of the holder thereof, at such time as
they become eligible for resale pursuant to Rule 144(k) under the Securities
Act.
3. REQUIRED REGISTRATIONS.
3.1 At any time (i) after September 30, 1996, and (ii) when it will
not interfere with the parties' objectives for the reorganization and merger
contemplated herein to be as tax free under Section 368(a) of the Code and
accounted for as a pooling of interests under applicable accounting rules, one
or more of the holders of Registrable Shares, holding in the aggregate of at
least 50% thereof, may request, in writing, that New Image effect the
registration, under the Securities Act on an appropriate form, of such
Registrable Shares owned by such holder or holders provided the shares proposed
for registration have an aggregate offering price of at least $1,500,000 (based
on the then current market price or fair value). If the holders initiating the
registration intend to distribute the Registrable Shares by means of an
underwriting, they shall so advise New Image in their request. In the event
such registration is underwritten, the right of other holders of Registrable
Shares to participate shall be conditioned on such other holders participation
in such underwriting. Upon receipt of any such request, New Image shall
promptly give written notice of such proposed registration to such other
holders. Such other holders shall have the right, by giving written notice to
New Image within thirty (30) days after New Image gives its notice, to elect to
have included in such registration such of their Registrable Shares as such
other holders may request in such notice of election, subject to the approval of
the underwriter managing the offering. Thereupon, New Image shall, as
expeditiously as possible,
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<PAGE>
use its best efforts to effect the registration of all Registrable Shares which
New Image has been so requested to register.
3.2 New Image shall not be required to effect more than one
(1) registration pursuant to this Section 3. In addition, New Image shall not
be required to effect any registration (other than on Form S-3 or any successor
form relating to secondary offerings) within six (6) months after the effective
date of any other Registration Statement relating to a primary offering of
securities by New Image.
3.3 If at the time of any request to register shares pursuant to this
Section 3, New Image is engaged, or has fixed plans to engage within thirty (30)
days of the time of the request, in a registered public offering as to which the
holders of Registrable Shares may not include Registrable Shares pursuant to
Section 4 or is engaged in any other activity which, in the good faith
determination of New Image's Board of Directors, would be adversely affected by
the requested registration to the material detriment of New Image, then New
Image may at its option direct that such request be delayed for a period not in
excess of six months from the effective date of such offering or the date of
commencement of such other activity, as the case may be, such right to delay a
request may be exercised by New Image not more than once.
4. INCIDENTAL REGISTRATION.
4.1 Whenever New Image proposes to file a Registration Statement
(other than pursuant to Section 3) at any time and from time to time, it will,
prior to such filing, give written notice to all holders of Registrable Shares
of its intention to do so and, upon the written request of one or more of such
holders given within twenty (20) days after such notice (which request shall
state the intended method of disposition of such Registrable Shares), New Image
shall use its best efforts to cause all Registrable Shares which New Image has
been requested by such holder or holders to register to be registered, under the
Securities Act to the extent necessary to permit their sale or other disposition
in accordance with the intended methods of distribution specified in the request
of such holder or holders; provided that New Image shall have the right to
postpone or withdraw any registration effected pursuant to this Section 4
without obligation to any holder.
4.2 In connection with any offering under this Section 4 involving an
underwriting, New Image shall not be required to include any Registrable Shares
in such underwriting unless the holders thereof accept the terms of the
underwriting as agreed upon between New Image and the underwriters selected by
it, and then only in such quantity as will not, in the opinion of the
underwriters, jeopardize the success of the offering by New Image. If in the
opinion of the managing underwriter the registration of all, or part of, the
Registrable Shares which the holders have requested to be included would
materially and adversely affect such public offering, then New Image shall be
required to include in the underwriting only that number of Registrable Shares,
if any, which the managing underwriter believes may be sold without causing such
adverse effect. If the number of Registrable Shares to be included in the
underwriting in accordance with the foregoing is less than the total number of
shares which the holders of Registrable Shares have requested to be included,
then the holders of Registrable Shares who have requested registration and other
holders of shares of New Image Common entitled to include
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<PAGE>
shares in such registration shall participate in the underwriting pro rata based
upon their total ownership of Registrable Shares. If any holder would thus be
entitled to include more shares than such holder requested to be registered, the
excess shall be allocated among other requesting holders pro rata based upon
their total ownership of Registrable Shares.
5. REGISTRATION PROCEDURES. If and whenever New Image is required by the
provisions of this Agreement to use its best efforts to effect the registration
of any of the Registrable Shares under the Securities Act, New Image shall:
(i) file with the Commission and securities authorities, a
Registration Statement with respect to such Registrable Shares and use its best
efforts to cause that Registration Statement to become and remain effective;
(ii) as expeditiously as possible prepare and file with the
Commission any amendments and supplements to the Registration Statement and the
prospectus included in the Registration Statement as may be necessary to keep
the Registration Statement effective for a period of not less than one hundred
twenty (120) days from the effective date;
(iii) as expeditiously as possible furnish to each selling holder such
reasonable numbers of copies of the prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as such holder may reasonably request in order to facilitate the
public sale or other disposition of the Registrable Shares owned by the such
holder; and
(iv) as expeditiously as possible use its best efforts to register or
qualify the Registrable Shares covered by the Registration Statement under the
securities laws of such states as the selling holders shall reasonably request,
and do any and all other acts and things that may be necessary or desirable to
enable the selling holders to consummate the public sale or other disposition in
such states of the Registrable Shares owned by such holders; provided, however,
that New Image shall not be required in connection with this Section 5(iv) to
qualify as a foreign corporation or execute a general consent to service of
process in any jurisdiction.
If New Image has delivered preliminary or final prospectuses to the selling
holders and after having done so the prospectus is amended to comply with the
requirements of the Securities Act, New Image shall promptly notify the selling
holders and, if requested, the selling holders shall immediately cease making
offers of Registrable Shares and return all prospectuses to New Image. New
Image shall promptly provide the selling holders with revised prospectuses and,
following receipt of the revised prospectuses, the selling holders shall be free
to resume making offers of the Registrable Shares.
6. ALLOCATION OF REGISTRATION EXPENSES.
6.1 REGISTRATIONS UNDER SECTION 3. With respect to a registration
pursuant to Section 3, New Image will pay registration and filing fees, exchange
listing fees, and fees and disbursements of counsel for New Image; all other
Registration Expenses and other expenses
4
<PAGE>
associated with the registration shall be borne by the holders of Registrable
Shares whose shares are being registered; provided, however, that if a
registration is withdrawn at the request of such holders (other than as a result
of information concerning the business or financial condition of New Image which
is made known to such holders after the date on which such registration was
requested), the requesting holders shall pay all of the Registration Expenses of
such registration pro rata in accordance with the number of their Registrable
Shares requested to be included in such registration.
6.2 REGISTRATIONS UNDER SECTION 4. With respect to a registration
pursuant to Section 4, New Image will pay a share of Registration Expenses pro
rata to the number of shares being offered as compared to the number of shares
being offered by the participating holders of Registrable Shares, excluding
underwriting discounts, selling commissions and the fees and expenses of counsel
to the holders of Registrable Shares.
6.3 REGISTRATION EXPENSES. "Registration Expenses" shall mean all
expenses incurred by New Image in complying with this Undertaking, including,
without limitation, all registration and filing fees, exchange listing fees,
printing expenses, fees and disbursements of counsel for New Image, state
securities law fees and expenses, and the expense of any special audits incident
to or required by any such registration, but excluding underwriting discounts,
selling commissions and the fees and expenses of selling holders' counsel.
7. INDEMNIFICATION.
7.1 In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, New Image will
indemnify and hold harmless the seller of such Registrable Shares, each
underwriter of such Registrable Shares, and each other person, if any, who
controls such seller or underwriter within the meaning of the Securities Act or
the Exchange Act, against any losses, claims, damages or liabilities, joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act, the Exchange Act, state securities laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement
under which such Registrable Shares were registered under the Securities Act,
any preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to such Registration Statement, or
arise out of or are based upon the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; and New Image will reimburse such seller, underwriter
and each such controlling person for any legal or any other expenses reasonably
incurred by such seller, underwriter or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that New Image will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon any untrue statement or omission made in such Registration Statement,
preliminary prospectus or prospectus, or any such amendment or supplement, in
reliance upon and in conformity with information furnished to New Image, in
writing, by or on behalf of such seller, underwriter or controlling person
specifically for use in the preparation thereof.
5
<PAGE>
7.2 In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, each seller of
Registrable Shares, severally and not jointly, will indemnify and hold harmless
New Image, each of its directors and officers and each underwriter (if any) and
each person, if any, who controls New Image or any such underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages or liabilities, joint or several, to which New Image, such directors and
officers, underwriter or controlling person may become subject under the
Securities Act, Exchange Act, state securities laws or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in any Registration Statement under which such
Registrable Shares were registered under the Securities Act, any preliminary
prospectus or final prospectus contained in the Registration Statement, or any
amendment or supplement to the Registration Statement; or arise out of or are
based upon any omission or alleged omission to state a material fact required to
be stated therein or necessary to make the statements therein not misleading, if
the statement or omission was made in reliance upon and in conformity with
information furnished in writing to New Image by or on behalf of such seller,
specifically for use in connection with the preparation of such Registration
Statement, prospectus, amendment or supplement; provided, however, that the
obligations of such sellers hereunder shall be limited to an amount equal to the
proceeds to such seller of Registrable Shares sold as contemplated herein.
7.3 Each party entitled to indemnification under this subsection 7
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided, that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld); and, provided, further, that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 7. The Indemnified Party may participate in such
defense at such party's expense; provided, however, that the Indemnifying Party
shall pay such expense if representation of such Indemnified Party by the
counsel retained by the Indemnifying Party would be inappropriate due to actual
or potential differing interests between the Indemnified Party and any other
party represented by such counsel in such proceeding. No Indemnifying Party, in
the defense of any such claim or litigation shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect of such claim or litigation, and no Indemnified Party shall
consent to entry of any judgment or settle such claim or litigation without the
prior written consent of the Indemnifying Party.
8. INDEMNIFICATION WITH RESPECT TO UNDERWRITTEN OFFERING. In the event
that Registrable Shares are sold pursuant to a Registration Statement in an
underwritten offering pursuant to Section 3, New Image agrees to enter into an
underwriting agreement containing customary representations and warranties with
respect to the business and operations of an issuer
6
<PAGE>
of the securities being registered and customary covenants and agreements to be
performed by such issuer, including without limitation customary provisions with
respect to indemnification by New Image of the underwriters of such offering.
9. INFORMATION BY HOLDER. Each holder of Registrable Shares included in
any registration shall furnish to New Image such information regarding such
holder and the distribution proposed by such holder as New Image may request in
writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Undertaking.
10. "STAND-OFF" AGREEMENT. Each holder of Registrable Shares, if
requested by New Image and an underwriter of New Image Common or other
securities of New Image to do so, shall agree not to sell or otherwise transfer
or dispose of any Registrable Shares or other securities of New Image held by
such holder for a specified period of time (not to exceed 120 days) following
the effective date of a Registration Statement; provided, that all holders of
Registrable Shares holding not less than the number of shares held by such
holder and all officers and directors of New Image enter into similar
agreements. Such agreement shall be in writing in a form satisfactory to New
Image and such underwriter. New Image may impose stop-transfer instructions
with respect to the Registrable Shares or other securities subject to the
foregoing restriction until the end of the stand-off period.
11. CURRENT INFORMATION. New Image agrees that it will:
(i) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act;
(ii) use its best efforts to file with the Commission in a
timely manner all reports and other documents required of New Image under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements); and
(iii) furnish to any holder of Registrable Shares upon request a
written statement by New Image as to its compliance with the reporting
requirements of said Rule 144, a copy of the most recent annual or quarterly
report of New Image, and such other reports and documents of New Image as such
holder may reasonably request to avail itself of any similar rule or regulation
of the Commission allowing it to sell any such securities without registration.
12. SELECTION OF UNDERWRITER. In the case of any registration effected
pursuant to this Undertaking, New Image shall have the right to designate the
managing underwriter in any underwritten offering.
13. PARTICIPATING HOLDERS OF REGISTRABLE SHARES BOUND. By participating
in an offering of Registrable Shares pursuant to this Undertaking, a holder of
Registrable Shares agrees to be
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<PAGE>
bound by all of the terms of this Undertaking to the same extent as if such
holder had been a signatory hereto.
Dated: May 17, 1996 New Image Industries, Inc.
By /s/ Dewey F. Edmunds
--------------------------------
Dewey F. Edmunds, President
8
<PAGE>
NEW IMAGE
INDUSTRIES, INC.
NUMBER SHARES
INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS
OF THE STATE OF DELAWARE CUSIP 645639 10 5
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.001 PAR VALUE OF
NEW IMAGE INDUSTRIES, INC.
transferabel only on the books of the Corporation by the holder hereof in
person or by duly authorized Attorney upon surrender of this certificate
properly endorsed. This certificate is not valid until countersigned by the
Transfer Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated
NEW IMAGE INDUSTRIES, INC.
[CORPORATE SEAL]
1990 DELAWARE
/s/ Hal Orr /s/ Dewey F. Edmunds
Treasurer President
COUNTERSIGNED AND REGISTERED:
U.S. STOCK TRANSFER CORPORATION
(GLENDALE, CA)
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
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The Corporation shall furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock of the
Corporation or series thereof and the qualifications limitations or
restrictions of such preferences and/or rights. Such requests shall be made
to the Corporation's Secretary at the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to the applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- Custodian
TEN ENT -- as tenants by the entireties -------- ---------
JT TEN -- as joint tenants with right of (Cust) (Minor)
survivorship and not as tenants under Uniform Gifts
in commmon to Minors Act
-----------------------
(State)
UNIF TRF MIN ACT -- Custodian (until age )
-------- --
(Cust)
under Uniform Transfer
--------- to Minors Act
(Minor)
-------------------
(State)
ADDITIONAL ABBREVIATIONS MAY ALSO BE USED THOUGH NOT IN THE ABOVE LIST.
FOR VALUE RECEIVED, hereby sell, assign and transfer unto
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PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- - ---------------------------------------
- - ---------------------------------------
- - --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Shares
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of theh common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
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to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
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X ------------------------------------------------
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NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
Signature(s) Guaranteed
By
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THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-16.
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SENIOR SUBORDINATED SECURED PROMISSORY NOTE
SUBJECT TO THAT CERTAIN SUBORDINATION AND INTERCREDITOR
AGREEMENT EXECUTED BY AND AMONG COAST BUSINESS CREDIT,
MERCURY PARTNERS, LLC, AND NEW IMAGE INDUSTRIES, INC., DATED AS OF
MAY 22, 1996
$500,000 San Diego, California
"Note Date": May 24, 1996
FOR VALUE RECEIVED, NEW IMAGE INDUSTRIES, INC., a Delaware corporation
("Borrower") promises to pay to Mercury Partners, LLC ("Payee") at 1110 Santa
Monica Blvd., Suite 2020, Los Angeles, California 90025, or such other place as
Payee may designate from time to time by written notice to Borrower, in lawful
money of the United States, the principal sum of Five Hundred Thousand Dollars
($500,000) with interest at the rate of ten percent (10.0%) per annum.
1. PAYMENTS.
1.1 Commencing on August 1, 1996 and on each August 1, November 1,
February 1 and May 1 thereafter until this Note has been paid in full, payments
of interest only shall be payable. If not paid when due, such interest not paid
shall be added to principal and shall bear interest at the rate of ten percent
(10.0%) per annum.
1.2 If not sooner paid, the entire unpaid principal balance, together
with any accrued and unpaid interest shall be due and payable on May 24, 1998
("MATURITY DATE").
2. SUBORDINATION CLAUSES.
2.1 SENIOR DEBT. This Note shall be subordinate to the obligations
of Borrower to Coast Business Credit, a division of Southern Pacific Thrift &
Loan Association ("Coast") under that certain Amended and Restated Loan and
Security Agreement dated as of May 22, 1996 ("Senior Debt"), subject to the
terms of that certain Intercreditor Agreement among Borrower, Payee and Coast of
even date herewith (the "Intercreditor Agreement").
2.2 DEFAULT ON SENIOR DEBT. No interest or principal payment shall
be paid under this Senior Subordinated Secured Promissory Note ("Note") while
Borrower is in default for failure to make any payment due under any of the
Senior Debt.
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3. SECURITY. This Note is secured by a Security Agreement of even date
herewith ("Security Agreement") granting a security interest in certain
collateral described in the Security Agreement. The Security Agreement contains
provisions for acceleration of the maturity of the obligations under this Note
and the Security Agreement on the occurrence of certain described events. This
Note and the Security Agreement, and any other documents or instruments
evidencing or securing the loan evidenced by this Note, as the same may be
modified supplemented or amended from time to time in accordance with their
respective terms, are hereinafter referred to as the "Loan Documents."
4. DEFAULTS; REMEDIES. All principal, interest or other sums remaining
unpaid under this Note and the Security Agreement shall, at Payee's option,
become immediately due and payable upon the expiration of 120 days after notice
is provided to Borrower of the occurrence of any of the following events (each,
an "Event of Default"):
4.1 The failure of Borrower to pay in full, within ten (10) days from
the date due, any payment of principal, interest or other sum due under this
Note;
4.2 The occurrence or happening of any Event of Default as defined in
the Security Agreement; or
4.3 The occurrence or happening of a default in any payment
obligations under any of the Senior Debt.
The failure of Payee to exercise any remedy provided hereunder or under the
Security Agreement shall not constitute a waiver of the right to exercise the
same or any other remedy. The acceptance by Payee of any payment hereunder
which is less than the payment in full of all amounts due and payable at the
time of such payment shall not constitute a waiver of the right to exercise any
of the foregoing remedies. Upon default in payments due hereunder, the
principal amount of this Note and all accrued interest shall bear interest at
the rate of twelve percent (12.0%) per annum until such default is cured.
5. PREPAYMENT. Borrower may prepay this Note in whole or in part upon
five (5) days prior notice at any time without penalty.
6. APPLICATION OF PAYMENTS. All payments received shall be applied first
to accrued interest then due, then to principal.
7. NON-NEGOTIABLE. This Note is non-negotiable.
8. WAIVERS. Borrower waives diligence, presentment, protest and demand
and also notice of protest, demand, dishonor and nonpayment of this Note, and
expressly agrees that this Note, or any payment hereunder may be extended from
time to time, all without in anyway affecting the liability of Borrower. The
right to plead any and all statutes of limitations as a defense to any demand on
this Note or any and all obligations or liabilities arising out of or in
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connection with this Note is expressly waived by Borrower to the fullest extent
permitted by law. No extension of the time for the payment of this Note, or any
installment hereof, made by agreement by Payee with any person now or hereafter
liable for the payment of this Note shall affect the original liability under
the terms of this Note by Borrower even if Borrower is not a party to such
agreement.
9. GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of California.
EXECUTED as of the Note Date.
BORROWER:
New Image Industries, Inc.,
a Delaware corporation
By: /s/ Harold R. Orr
------------------------------------
Harold R. Orr
Chief Financial Officer
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EXERCISABLE ONLY ON OR BEFORE MAY 24, 2001
NEW IMAGE INDUSTRIES, INC.
COMMON STOCK PURCHASE WARRANT
VOID AFTER MAY 24, 2001 OR SUCH EARLIER TIME
AS THE WARRANT EXPIRES BY ITS TERMS
WARRANT TO PURCHASE 80,000 SHARES OF COMMON STOCK OF
NEW IMAGE INDUSTRIES, INC. AT AN EXERCISE PRICE OF $3.06 PER SHARE
THESE SECURITIES HAVE BEEN ISSUED UNDER EXEMPTIONS FROM APPLICABLE STATE AND
FEDERAL SECURITIES LAWS AND REGULATIONS, AND MAY NOT BE TRANSFERRED UNLESS SUCH
TRANSFER WOULD BE EXEMPT FROM APPLICABLE STATE AND FEDERAL SECURITIES LAWS AND
REGULATIONS OR THE TRANSFER IS MADE UNDER AN EFFECTIVE REGISTRATION STATEMENT
THAT IS NOT SUBJECT TO A STOP ORDER. THIS DOCUMENT CONTAINS OTHER RESTRICTIONS
ON TRANSFER, AS WELL.
1. CERTIFICATE OF ENTITLEMENT. This certifies that Mercury Partners, LLC, a
California limited liability company, being herein called the "REGISTERED
HOLDER", is entitled to purchase (the "WARRANTS"), at any time on or before May
24, 2001 (the "EXPIRATION DATE"), 80,000 "WARRANT SHARES," each Warrant Share
consisting of one share of fully paid Common Stock, $0.001 par value ("Common
Stock"), of NEW IMAGE INDUSTRIES, INC. (the "COMPANY") , as such stock is
constituted at the date of this Warrant Agreement (but the shares included in a
Warrant Share may be adjusted from time to time as stated below), at the price
of $3.06 per Warrant Share, by surrendering this Common Stock Purchase Warrant
("WARRANT AGREEMENT"), with the purchase form included herein, at the executive
office of the Company at 2283 Cosmos Court, Carlsbad, California 92009, and by
paying in full the Exercise Price (as defined below) for the Warrant Shares as
to which this Warrant Agreement is exercised, and upon compliance with and
subject to the conditions set forth herein.
2. EXERCISE PRICE, DURATION AND TRANSFER AND EXERCISE OF WARRANTS
2.1 EXERCISE PRICE. The Registered Holder, subject to the provisions of
this Agreement, is entitled to purchase from the Company the number of Warrant
Shares above, as such Warrant Shares are constituted on the date the Warrants
evidenced hereby are exercised, at the price of $3.06 per Warrant Share (the
"WARRANT EXERCISE PRICE or WARRANT PRICE"), payable in full at the time such
Warrants are exercised. The Warrant Exercise Price shall be adjusted from time
to time upon the adjustment of the number of shares that may be purchased upon
the exercise of all Warrants issued pursuant to this Warrant Agreement in
accordance with Paragraph 3 hereof, so that the aggregate of the Warrant
Exercise Price paid and payable upon the exercise of all Warrants issued under
this Warrant Agreement shall not exceed the amount equal to $3.06 multiplied by
the original number of Warrant Shares.
2.2 DURATION. The Warrants granted under this Warrant Agreement expire on
the earlier of (i) May 24, 2001 or (ii), after May 24, 1998, the thirtieth
(30th) trading day (on a United States exchange or quotation system on which the
Common Stock of the Company is traded) following the date on which the Company
gives written notice to the Registered Holder that the last sales price on each
of the twenty (20) consecutive trading days was Eight Dollars ($8.00) per share
or higher, adjusted for the payment of dividends on the Common Stock in shares
of Common Stock (or securities convertible into, exchangeable for or otherwise
entitling the registered holder to receive Common Stock), subdivision of the
outstanding Common Stock into a greater number of shares of Common Stock or
combination of the outstanding Common Stock into a smaller number of shares of
Common Stock; and no attempted exercise of such Warrants after that date shall
have any effect ("EXPIRATION DATE").
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2.3 TRANSFER AND EXERCISE.
2.3.1 The Company shall keep, at its executive office a register,
in which, subject to such reasonable regulations as it may prescribe, the
Company shall register the Warrants at the time of issuance thereof and shall
transfer Warrants so registered as provided in this Warrant Agreement. Subject
to Paragraph 2.3.7, upon surrender for transfer of any Warrant at such office,
the Company shall execute and deliver to the name of the transferees a new
Warrant Agreement or Agreements evidencing Warrants to purchase a like number of
Warrant Shares. All Warrant Agreements presented for transfer or exchange shall
(if required by the Company) be Duly Endorsed or be accompanied by a written
instrument of transfer in form satisfactory to the Company Agreement duly
executed by the Registered Holder or his or her attorney duly authorized. For
purposes of this Warrant Agreement, the term "DULY ENDORSED" shall mean duly
endorsed in blank by the Person or Persons in whose name a Warrant Agreement is
registered or accompanied by a duly executed assignment separate from the
Warrant Agreement with the signatures thereon guaranteed by a commercial bank,
trust company or other financial institution of nationally recognized standing
in the United States.
2.3.2 Subject to Paragraph 2.3.8, a Registered Holder is entitled
to exercise his or her Warrants, in whole or in part, at any time, or from time
to time commencing on the date of issuance, upon written notice to the Company,
until 5:00 p.m. Pacific time on the Expiration Date or, if such day is not a
Business Day, then until 5:00 p.m. Pacific time on the next succeeding day that
shall be a Business Day by presenting and surrendering his Warrant Agreement to
the Company at the executive office of the Company, with the Exercise
Subscription Form set forth herein, duly executed and accompanied by proper
payment, of the Warrant for the number of Warrant specified in such form, all
subject to the terms and conditions of this Warrant Agreement. At the option of
the Registered Holder, the Exercise Price may be paid in cash or by certified or
official bank check or bank cashier's check payable to the order of the Company,
or by any combination of cash or such check or in the manner provided in
Paragraph 4.5. For purposes of this Warrant Agreement, the term "BUSINESS DAY"
shall mean any day except a Saturday, Sunday or other day on which commercial
banks in San Diego, California are authorized by law to close.
2.3.3 Subject to Paragraph 2.3.7, upon surrender of any Warrant
Agreement in conformity with the provisions of this Warrant Agreement, the
Company shall transfer to the Registered Holder under such Warrant Agreement
appropriate evidence of ownership of any Warrant Shares to which the Registered
Holder is entitled, registered or otherwise placed in, or payable to the order
of the Registered Holder, and shall deliver such evidence of ownership, together
with an amount in cash in lieu of any fraction of a Warrant Share as provided in
Paragraph 3.3 below.
2.3.4 If a Registered Holder exercises fewer than all of the
Warrants evidenced by such Registered Holder's Warrant Agreement, such Warrant
Agreement shall be surrendered to the Company and a new Warrant Agreement of the
same tenor evidencing such Registered Holder's remaining Warrants shall be
executed by the Company. The Company shall register such new Warrant Agreement
in the name of such Registered Holder and deliver the new Warrant Agreement to
such Registered Holder.
2.3.5 The Company shall pay all expenses in connection with, and
all taxes and other governmental charges that may be imposed in respect of, the
issue or delivery of any Warrant Shares issuable upon the exercise of any
Warrant. The Company shall not be required, however, to pay any tax or other
charge imposed in connection with any transfer involved in the issue of a
certificate for Warrant Shares in any name other than that of a Registered
Holder of a Warrant, and in such case the Company shall not be required to issue
or deliver any such stock certificate until such tax or other charge has been
paid or it has been established to the Company's reasonable satisfaction that
such tax or other charge is not due.
2.3.6 Each Person in whose name any such certificate for Warrant
Shares is issued shall for all purposes be deemed have become the holder of
record of the Warrant Shares represented thereby on the date on which the
Warrant Agreement was surrendered and payment of the purchase price and any
applicable taxes was made irrespective of the date of issue or delivery of such
certificate except that if the date of such surrender and payment is a date when
the stock transfer books of the Company for the Warrant Shares are closed, such
Person shall be deemed to have become the holder of such shares on the next
succeeding date on which such stock transfer books are open. The Company will
not close such stock transfer books at any one time for a period longer than 20
days.
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2.3.7 Notwithstanding any provision hereof to the contrary, no
Registered Holder may sell, transfer, hypothecate or encumber (a "TRANSFER") any
of the Warrants represented by this Warrant Agreement or any interest in this
Warrant Agreement without the prior written consent of the Company. The Company
shall consent to any such Transfer upon being provided at the cost and expense
of the Registered Holder, reasonable assurances that such Transfer does not
violate any applicable securities law or regulation, which assurances may
include, at the option of the Company, an opinion of counsel to the Registered
Holder (which counsel shall be reasonably approved by the Company) provided at
the expense of the Registered Holder that the Transfer may be made pursuant to
an exemption from applicable securities laws and regulations or a registration
statement that is then effective and not subject to any stop order.
Notwithstanding any provision herein to the contrary, transfer without
consideration to an inter vivos revocable trust where the Registered Holder has
the right to revoke the trust insofar as the interest to be transferred is
concerned shall not be deemed to constitute a Transfer.
2.3.8 Notwithstanding any provision hereof to the contrary, no
Registered Holder may exercise any of the Warrants represented by this Warrant
Agreement without the prior written consent of the Company. The Company shall
consent to any such exercise upon being provided at the cost and expense of the
Company, reasonable assurances that such exercise does not violate any
applicable securities law or regulation, which assurances may include at the
option of the Company an opinion of counsel to the Registered Holder (which
counsel shall be reasonably approved by the Company) provided at the expense of
the Company that the exercise may be made pursuant to an exemption from
applicable securities laws and regulations or a registration statement that is
then effective and not subject to any stop order.
3. ADJUSTMENTS IN WARRANT SHARES; FRACTIONAL SHARES
3.1 ANTI-DILUTION PROVISIONS. The number of Warrant Shares which may be
purchased upon the exercise hereof shall be subject to change or adjustment as
follows:
3.1.1 STOCK DIVIDENDS, SUBDIVISIONS, COMBINATIONS. In case the
Company shall (i) pay a dividend or make a distribution in respect of the Common
Stock in shares of Common Stock (or securities convertible into, exchangeable
for or otherwise entitling the registered holder to receive Common Stock),
(ii) subdivide the outstanding Common Stock into a greater number of shares of
Common Stock or (iii) combine the outstanding Common Stock into a smaller number
of shares of Common Stock, the number of shares of Common Stock purchasable upon
exercise of any Warrant immediately prior to the record date fixing shareholders
to be affected by such event shall be adjusted so that the Registered Holder
shall thereafter be entitled to receive that kind and number of shares of Common
Stock or other securities of the Company that the Registered Holder would have
owned or have been entitled to receive after the happening of any of the events
described above, had the Warrant been exercised immediately prior to the
happening of such event or any record date with respect thereto. An adjustment
made pursuant to this paragraph 3.1.1 shall become effective (i) immediately
after the record date in the case of a dividend or distribution and
(ii) immediately after the effective date in the case of a subdivision or
combination. If the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or other
distribution, and shall thereafter and before the distribution to stockholders
thereof legally abandon its plan to pay or deliver such dividend or
distribution, then thereafter no adjustment in the number of shares of Common
Stock issuable upon exercise of a Warrant then in effect shall be required by
reason of the taking of such record. No adjustment shall be made under this
Paragraph 3.1.1 unless such adjustment would require an increase or decrease of
at least one percent in the number of shares of Common Stock or other securities
of the Company that the Registered Holder would have owned or have been entitled
to receive had the Warrant been exercised, provided however, that any
adjustments which by reason of this sentence are not required to be made shall
be carried forward and taken into account in any subsequent adjustment, and all
calculations shall be made to the nearest one-hundredth of a share. The Warrant
Exercise Price per Warrant Share purchasable upon exercise of any Warrant shall
be subject to adjustment from time to time as follows: upon each adjustment of
the number of Warrant Shares purchasable pursuant to this Section 3.1, the
Warrant Exercise Price shall be reduced or increased, as the case may be, to a
price determined by dividing the aggregate Warrant Exercise Price of all Warrant
Shares in effect prior to such adjustment by the total maximum number of Warrant
Shares purchasable upon the exercise of all Warrants immediately after such
adjustment.
3.1.2 REORGANIZATION OR RECLASSIFICATION. In case of any capital
reorganization or any reclassification of the capital stock of the Company
(whether pursuant to a merger or consolidation or otherwise), each Warrant shall
thereafter be exercisable for the number of shares of stock or other securities
or property receivable upon such capital reorganization or reclassification of
capital stock, as the case may be, by a holder of
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the number of shares of Warrant Shares into which the Warrant was exercisable
immediately prior to such capital reorganization or reclassification of capital
stock; and, in any case, appropriate adjustment shall be made in the application
of the provisions herein set forth with respect to the rights and interests
thereafter of the Registered Holder of any Warrant to the end that the
provisions set forth herein shall thereafter be applicable, as nearly as
reasonably may be, in relation to any shares of stock or other securities or
property thereafter deliverable upon the exercise of the Warrant.
3.1.3 NOTICE. In the event that the Company shall propose at any
time to effect any transaction of the type described in Subsections 3.1.1 and
3.1.2 above or take any similar extraordinary corporate action affecting the
Company's capital stock (including but not limited to the transfer of
substantially all of the Company's assets), then, in connection with each such
event, the Company shall send notice thereof to all Registered Holders at least
20 days prior to the earlier of (i) the date on which such event is to become
effective, (ii) the record date for the shareholders affected by such event, or
(iii) the first date on which the Company intends to effect any such
transaction, in each case specifying in reasonable detail what the transaction
or event consists of and, if applicable, the aggregate amount or value of any
cash or property proposed to be distributed, paid, purchased or received by the
Company in connection therewith.
3.1.4 ADJUSTMENT UPON ISSUANCE OF SECURITIES.
i. If the Company shall issue any Common Stock (other than
"Excluded Stock," as defined below, or subdivisions, split-ups, combinations or
dividends, which are covered by subparagraphs 3.1.1 or 3.1.2), for no
consideration or for a consideration per share less than the Warrant Price in
effect immediately prior to the issuance of such Common Stock, the Warrant Price
in effect immediately after such issuance shall be adjusted, concurrent with
such issue (except as provided in this subparagraph i), to a price equal to the
quotient obtained by dividing:
(A) an amount equal to the sum of
(x) the total number of shares of Common Stock
outstanding (including any shares of Common Stock deemed to have been issued
pursuant to subdivision (3) of this subparagraph i and to subparagraph ii below)
immediately prior to such issuance multiplied by the Warrant Price in effect
immediately prior to such issuance (or higher price for which such shares of
Common Stock were actually issued), plus
(y) the consideration received by the Company upon
such issuance, by
(B) the total number of shares of Common Stock outstanding
(including any shares of Common Stock deemed to have been issued pursuant to
subdivision (3) of this subparagraph i and to subparagraph ii below) immediately
after the issuance of Common Stock.
(1) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
without deducting any discounts or commissions paid or incurred by the Company
in connection with the issuance and sale thereof.
(2) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined by the Board of
Directors of the Company, in accordance with generally accepted accounting
principles; provided, however, that if, at the time of such determination, the
Company's Common Stock is traded in the over-the-counter market or on a national
or regional securities exchange, such fair market value, as determined by the
Board of Directors of the Company, shall not exceed the aggregate "Current
Market Price" (as defined below) of the shares of Common Stock being issued.
(3) In the case of the issuance of (i) options to
purchase or rights to subscribe for Common Stock (other than Excluded Stock),
(ii) securities by their terms convertible into or exchangeable for Common Stock
(other than Excluded Stock), or (iii) options to purchase or rights to subscribe
for such convertible or exchangeable securities:
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(A) The aggregate maximum number of shares of
Common Stock deliverable upon exercise of such options to purchase or rights to
subscribe for Common Stock shall be deemed to have been issued at the time such
options or rights were issued and for a consideration equal to the consideration
(determined in the manner provided in subdivisions (1) and (2) above), if any,
received by the Company upon the issuance of such options or rights plus the
minimum purchase price provided in such options or rights for the Common Stock
covered thereby.
(B) The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities, or upon the exercise of options to
purchase or rights to subscribe for such convertible or exchangeable securities
and subsequent conversion or exchange thereof, shall be deemed to have been
issued at the time such securities were issued or such options or rights were
issued and for a consideration equal to the consideration received by the
Company for any such securities and related options or rights (excluding any
cash received on account of accrued interest or accrued dividends), plus the
additional consideration, if any, to be received by the Company upon the
conversion or exchange of such securities or the exercise of any related options
or rights (the consideration in each case to be determined in the manner
provided in subdivisions (1) and (2) above).
(C) Upon any change in the number of shares of
Common Stock deliverable upon exercise of any such options or rights or
conversion of or exchange for such convertible or exchangeable securities, or on
any change in the minimum purchase price of such options, rights or securities,
other than a change resulting from the antidilution provisions of such options,
rights or securities, the Warrant Price shall forthwith be readjusted to such
Warrant Price as would have obtained had the adjustment made upon (i) the
issuance of such options, rights or securities not exercised, converted or
exchanged prior to such change or (ii) the options or rights related to such
securities not converted or exchanged prior to such change, as the case may be,
been made upon the basis of such change.
(C) Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the expiration of any
options or rights related to such convertible or exchangeable securities, the
Warrant Price shall forthwith be readjusted to such Warrant Price as would have
obtained had the adjustment made upon the issuance of such options, rights,
convertible or exchangeable securities or options or rights related to such
convertible or exchangeable securities, as the case may be, been made upon the
basis of the issuance of only the number of shares of Common Stock actually
issued upon the exercise of such options or rights, upon the conversion or
exchange of such convertible or exchangeable securities or upon the exercise of
the options or rights related to such convertible or exchangeable securities, as
the case may be.
ii. "Excluded Stock" shall mean (a) up to 1,200,000 shares of
Common Stock issuable at a price below the Warrant Price under any employee,
consultant or Director inventive arrangement or plan adopted by the Board of
Directors of the Company, (b) shares of Common Stock issued in connection with
the acquisition of Insight Imaging Systems, Inc. by the Company, and (c) up to
700,000 shares of Common Stock in a private placement or placements prior to
July 31, 1996 provided that the private placement issuance price of such shares
is not less than $3.00 per share. All shares of Excluded Stock or stock
dividends, subdivisions, split-ups, combinations or dividends which are covered
by subparagraphs 3.1.1 or 3.1.2 shall be deemed to be outstanding for all
purposes of the computations of subparagraph 3.1.4.i above.
3.1.5 ADJUSTMENT OF EXERCISE PRICE. The Warrant Exercise Price
per Warrant Share purchasable upon exercise of any Warrant shall be subject to
adjustment from time to time as follows: upon each adjustment of the number of
Warrant Shares purchasable pursuant to this Section 3.1, the Warrant Exercise
Price shall be reduced or increased, as the case may be, to a price determined
by dividing the aggregate Warrant Exercise Price of all Warrant Shares in effect
prior to such adjustment by the total maximum number of Warrant Shares
purchasable upon the exercise of all Warrants immediately after such adjustment.
3.2 CONSOLIDATION, MERGER, OR SALE OF ASSETS. In addition to any other
rights of Registered Holders set forth herein, in case of any consolidation of
the Company with, or merger of the Company into, any other Person, any merger of
another Person into the Company (other than a merger which does not result in
any reclassification, conversion, exchange or cancellation of outstanding
securities as to which Warrants may then be exercised) or any sale or transfer
of all or substantially all of the assets of the Company to the Person formed by
such consolidation or resulting from such merger or which acquires such assets,
as the case may be, all Registered Holders shall have the right thereafter to
exercise their Warrants for the kind and amount of securities, cash and
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other property receivable upon such consolidation, merger, sale or transfer by a
holder of the number of securities as to which Warrants may then be exercised
for which their Warrants may have been exercised immediately prior to such
consolidation, merger, sale or transfer. Adjustments for events subsequent to
the effective date of such a consolidation, merger and sale of assets shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Agreement. In any such event, effective provisions shall be made in the
certificate or articles of incorporation of the resulting or surviving
corporation, in any contract of sale, conveyance, lease or transfer, or
otherwise so that the provisions set forth herein for the protection of the
rights of the Registered Holders shall thereafter continue to be applicable; and
any such resulting or surviving corporation shall expressly assume the
obligation to deliver, upon exercise, such shares of stock, other securities,
cash and property. The provisions of this Paragraph 3.2 shall similarly apply
to successive consolidations, mergers, sales, leases or transfers.
3.3 FRACTIONAL SHARES. No fractional shares of Common Stock will be
issued in connection with any subscription hereunder. In lieu of any fractional
shares which would otherwise be issuable, the Company shall pay cash equal to
the product of such fraction multiplied by the fair market value of one share of
Common Stock on the date of exercise, as determined in good faith by the
Company's Board of Directors.
4. OTHER PROVISIONS RELATING TO THE RIGHTS OF REGISTERED HOLDERS OF WARRANTS
4.1 RIGHTS OF REGISTERED HOLDERS. Prior to the exercise of any Warrant, a
Registered Holder shall not, by virtue hereof, be entitled to any rights of a
stockholder of the Company including, without limitation, the right to vote, to
receive dividends or other distributions or to receive any notice of meetings of
shareholders or any notice of any proceedings of the Company, except as may be
specifically provided for herein.
4.2 ASSIGNMENT OR TRANSFER. Subject to Paragraph 2, a Warrant is
transferable by the Registered Holder thereof by surrendering for transfer at
the executive office of the Company, this Warrant Agreement and the Assignment
Form, Duly Endorsed. Thereupon, one or more new Warrant Agreements evidencing
the transferred Warrants of authorized denominations will be issued to the
designated transferee or transferees, and, if necessary, a new Warrant Agreement
evidencing warrants not transferred will be issued to the original Registered
Holder. In any event, Warrants may not be sold, assigned, pledged or otherwise
transferred except in compliance with the Securities Act of 1933, as amended, if
applicable, and transfer or assignment may only be made in compliance with the
other terms of this Warrant Agreement.
4.3 RESERVATION OF SHARES. The Company hereby agrees that at all times
there shall be reserved for issuance and delivery upon exercise of any Warrant
such number of its authorized but unissued shares or other securities of the
Company from time to time issuable upon exercise of the Warrants as will be
sufficient to permit the exercise in full of the Warrants. All such shares
shall be duly authorized and, when issued upon such exercise, shall be validly
issued, fully paid, free and clear of all liens, security interests and charges.
4.4 DUE AUTHORIZATION AND ISSUANCE OF STOCK WARRANT AND SHARES. The
Company covenants and agrees that this Warrant and all shares of its Common
Stock which may be issued upon the exercise of the rights represented by this
Warrant will, upon issuance, be duly authorized and issued, fully paid and non-
assessable and free from all taxes, liens, and charges with respect to the
issuance thereof. The Company further covenants and agrees that during the
period within which the rights represented by this Stock Warrant may be
exercised, the Company will at all times have authorized and reserved, free of
preemptive or other rights, for the exclusive purpose of issuance upon exercise
of the rights provided under this Warrant, a sufficient number of shares of its
Common Stock to provide for the exercise of the rights represented herein.
4.5 CASHLESS EXERCISE. The Holder may also exercise this Warrant in whole
or in part in a "cashless" or "net-issue" exercise of this Warrant. In such
event, the Holder will deliver this Warrant to the Company with a notice stating
the number of shares to be delivered to the Holder and the number of shares with
respect to which the Warrant is being surrendered in payment of the aggregate
Warrant Exercise Price for the shares to be delivered to the Holder and for the
shares as to which the Warrant is being surrendered. For purposes of this
provision, all shares as to which the Warrant is surrendered will be valued at
the Current Market Price (as defined below). The notice accompanying the
Warrant shall also set forth the number of shares remaining subject to the
Warrant. As an example of the foregoing, if the Warrant Exercise Price is
$0.3125 per share, the Current Market Price is $0.9375 per share, and the
Warrant were exercised in full, the Company would deliver 333,333 shares of the
Company's Common Stock to the Holder and the Warrant would be surrendered with
respect to the remaining 166,667 shares. The Company shall not be obligated to
issue fractional shares of Common Stock upon exercise of
6
<PAGE>
this Warrant but shall pay to the Holder an amount in cash equal to the Current
Market Price per share multiplied by such fraction (rounded to the nearest
cent), or in the example in the preceding sentence $0.32. "CURRENT MARKET
PRICE," for purposes of this Warrant Agreement shall be deemed to be the average
closing price for the last actual trade on a United States exchange or quotation
system on which the Common Stock is traded during the most recent five trading
days on which shares were actually traded.
4.6 REGISTRATION RIGHTS. See Exhibit "A," incorporated herein by
reference.
5. GENERAL PROVISIONS.
5.1 NOTICES. Unless otherwise specifically permitted by this Warrant
Agreement, all notices or other communications required or permitted under this
Warrant Agreement shall be in writing, and shall be personally delivered or sent
by registered or certified mail, postage prepaid, return receipt requested, or
sent by telecopy, provided that the telecopy cover sheet contain a notation of
the date and time of transmission, and shall be deemed received: (i) if
personally delivered, upon the date of delivery to the address of the person to
receive such notice, (ii) if mailed in accordance with the provisions of this
paragraph, two (2) business days after the date placed in the United States
mail, (iii) if mailed other than in accordance with the provisions of this
paragraph or mailed from outside the United States, upon the date of delivery to
the address of the person to receive such notice, or (iv) if given by telecopy,
when sent. Notices shall be given at the following addresses:
If to the Company:
New Image Industries, Inc.
2283 Cosmos Court
Carlsbad, California
Attention: Corporate Secretary
Telecopier: (619) 930-9999
With a copy to:
Higgs, Fletcher & Mack LLP
401 West "A" Street, Suite 2000
San Diego, California 92101
Attention: Franklin T. Lloyd, Esq.
Telecopier: (619) 696-1410
If to the Registered Holder:
Mercury Partners
11100 Santa Monica Blvd., Suite 2020
Los Angeles, CA 90025
Attention: Brad de Koning
Telecopier: (310) 444-3848
5.2 COMPLETE AGREEMENT; MODIFICATIONS. This Warrant Agreement and written
agreements, if any, entered into concurrently herewith (i) constitute the
parties' entire agreement, including all terms, conditions, definitions,
warranties, representations, and covenants, with respect to the subject matter
hereof, (ii) merge all prior discussions and negotiations between or among any
or all of them as to the subject matter hereof, and (iii) supersede and replace
all terms, conditions, definitions, warranties, representations, covenants,
agreements, promises and understandings, whether oral or written, with respect
to the subject matter hereof. Any provision of this Warrant may be amended or
waived if, and only if, such amendment or waiver is in writing and signed, by
the party against whom the waiver is to be effective. No failure or delay by
either party in exercising any right, power or privilege hereunder shall operate
as a waiver thereof nor shall any single or partial exercise thereof preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provide shall be cumulative and
not exclusive of any rights or remedies by law. Any amendment, alteration, or
modification requiring the signature of more than one party may be signed in
counterparts.
7
<PAGE>
5.3 FURTHER ACTIONS. Each party agrees to perform any further acts and
execute and deliver any further documents reasonably necessary to carry out the
provisions of this Warrant Agreement.
5.4 ASSIGNMENT. Neither party may assign its rights under this Warrant
Agreement without the prior written consent of the other party hereto.
5.5 SUCCESSORS AND ASSIGNS. Except as explicitly provided herein to the
contrary, this Warrant Agreement shall be binding upon and inure to the benefit
of the parties, their respective successors and permitted assigns.
5.6 SEVERABILITY. If any portion of this Warrant Agreement shall be held
by a court of competent jurisdiction to be invalid, void, or otherwise
unenforceable, the remaining provisions shall remain enforceable to the fullest
extent permitted by law if enforcement would not frustrate the overall intent of
the parties (as such intent is manifested by all provisions of the Warrant
Agreement, including such invalid, void, or otherwise unenforceable portion).
5.7 EXTENSION NOT A WAIVER. No delay or omission in the exercise of any
power, remedy, or right herein provided or otherwise available to any party
shall impair or affect the right of such party thereafter to exercise the same.
Any extension of time or other indulgence granted to a party hereunder shall not
otherwise alter or affect any power, remedy or right of any other party, or the
obligations of the party to whom such extension or indulgence is granted except
as specifically waived.
5.8 TIME OF ESSENCE. Time is of the essence of each and every term,
condition, obligation and provision hereof.
5.9 NO THIRD PARTY BENEFICIARIES. This Warrant Agreement and each and
every provision hereof is for the exclusive benefit of the parties hereto and
not for the benefit of any third party.
5.10 ATTORNEYS' FEES. Should any litigation (including any proceedings in
a bankruptcy court) or arbitration be commenced between the parties hereto or
their representatives concerning any provision of this Warrant Agreement or the
rights and duties of any person or entity hereunder, the party or parties
prevailing in such litigation or arbitration shall be entitled, in addition to
such other relief as may be granted, to the attorneys' fees and court or
arbitration costs incurred by reason of such litigation or arbitration,
including attorneys' and experts' fees incurred in preparation for or
investigation of any matter relating to such litigation or arbitration.
5.11 HEADINGS. The headings in this Warrant Agreement are inserted only as
a matter of convenience, and in no way define, limit, or extend or interpret the
scope of this Warrant Agreement or of any particular provision hereof.
5.12 REFERENCES. A reference to a particular paragraph of this Warrant
Agreement shall be deemed to include references to all subordinate paragraphs,
if any.
5.13 COUNTERPARTS. This Warrant Agreement may be signed in multiple
counterparts with the same force and effect as if all original signatures
appeared on one copy; and in the event this Agreement is signed in counterparts,
each counterpart shall be deemed an original and all of the counterparts shall
be deemed to be one agreement.
8
<PAGE>
5.14 APPLICABLE LAW. This Warrant Agreement shall be construed in
accordance with, and governed by, the laws of the State of California.
IN WITNESS WHEREOF, the parties have executed this Agreement as of May 24,
1996.
NEW IMAGE INDUSTRIES, INC.
By: /s/ Harold R. Orr
-----------------------------------
Its: CFO
-----------------------------------
MERCURY PARTNERS, LLC
By:
-----------------------------------
Its:
-----------------------------------
9
<PAGE>
EXERCISE SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER
DESIRING TO EXERCISE THE WITHIN WARRANTS OF
NEW IMAGE INDUSTRIES, INC.
Capitalized terms used but not defined herein shall have the meaning
assigned to them in the within Warrant Agreement between NEW IMAGE INDUSTRIES,
INC. and MERCURY PARTNERS dated as of May 24, 1996.
The undersigned Registered Holder hereby exercises __________________
Warrants evidencing the right to purchase shares of the Warrant Shares covered
by the within Warrant Agreement, according to the conditions thereof.
The undersigned Registered Holder herewith makes payment in full of the
Warrant Exercise Price on such shares of (i) $___________________ in cash or by
certified or official bank check or bank cashier's check payable to the order of
the Company, or by any combination of such cash or check and/or (ii) _________
shares of NEW IMAGE INDUSTRIES, INC. Common Stock pursuant to the "Cashless
Exercise" provisions of Paragraph 4.5 of the Warrant Agreement. In the case of
payment pursuant to the foregoing clause (ii), the undersigned Registered Holder
hereby agrees that the number of shares to be delivered to the Registered Holder
pursuant to this exercise is ____________ and that the Warrant will continue to
be exercisable for _________ shares, subject to adjustment, if any, under
Paragraph 4.5 based upon the Current Market Value of the shares.
[The Undersigned Registered Holder has hereby exercised fewer than all the
Warrants evidenced by the within Warrant Agreement and, therefore, requests that
a new Warrant Agreement evidencing the remaining Warrants evidenced by the
within Warrant Agreement be issued in the name of and delivered to the
Registered Holder.](1)
[ ]
By:
-----------------------------------------
Name:
Title:
Address
---------------------------------------------
---------------------------------------------
---------------------------------------------
Dated:
-----------------------
- - ------------------------------------------------------------
- - ------------------------------------------------------------
(1) To be included only if the Registered Holder is exercising fewer than all
of the Warrants evidenced by the within Warrant Agreement.
<PAGE>
ASSIGNMENT FORM
TO BE EXECUTED BY THE REGISTERED HOLDER
DESIRING TO EFFECT A TRANSFER OF THE
WITHIN WARRANTS OF
NEW IMAGE INDUSTRIES, INC.
The following abbreviations, when used in the Warrant Agreement, shall be
construed as though they were written out in full according to applicable laws
or regulations.
TEN COM - as tenants in common UNIF GIFT MIN ACT - ________ Custodian
TEN ENT - as tenants by the entireties ------------ (Cust) (Minor)
under the Uniform Gifts
JT TEN - as joint tenants with right to Minors
of survivorship and not Act ____________________
as tenants in common (State)
Additional abbreviations may also be used, though not in the above list.
FOR VALUE RECEIVED, in accordance with the Warrant Agreement between NEW
IMAGE INDUSTRIES, INC. and _____________________________________, dated as of
______________, the Securities Act of 1933, as amended, if applicable, and all
applicable state securities laws, the undersigned hereby sells, assigns and
transfers unto
----------------------------------------
(Name)
----------------------------------------
(Address)
the right to purchase ____________ Warrant Shares evidenced by the within
Warrant Agreement, and does hereby irrevocably constitute and appoint
_____________________________________________________________________________,
attorney to transfer the said right on the books of the Company with full power
of substitution.
By:
-----------------------------------------
Name:
Title:
Address
---------------------------------------------
---------------------------------------------
---------------------------------------------
Dated:
-----------------------
- - ------------------------------------------------------------
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within Warrant Agreement in every particular,
without alteration or enlargement, or a change whatsoever and must be guaranteed
by a commercial bank, trust company or by a financial institution of nationally
recognized standing in the United States.
<PAGE>
EXHIBIT A
TERMS OF THE REGISTRATION RIGHTS
OF THE WARRANT SHARES
Capitalized terms used herein and not otherwise defined shall have the
respective meanings given such terms in the Warrant Agreement (the "Agreement")
to which this Exhibit A is attached.
I
SECTION 1.1 DEFINITIONS. For purposes of this EXHIBIT A, the
following terms shall have the following meanings:
"Demand Registration" means a Demand Registration as defined in Section
2.1.
"Excess Amount" means the number of Registrable Securities requested by a
Holder or Holders to be sold pursuant to Section 2.1 or 2.2 which the managing
Underwriter or Underwriters determines exceeds the largest number of Registrable
Securities which can successfully be sold in an orderly manner in such offering
within a price range acceptable to the Company.
"Holder" means the Registered Holder (or any Permitted Transferee thereof).
"Other Holder Notice" means an Other Holder Notice as defined in Section
2.1.
"Piggy-Back Registration" means a Piggy-Back Registration as defined in
Section 2.2.
"Registrable Security" means any Warrant Share outstanding until (i) a
registration statement covering such has been declared effective by the SEC and
it has been disposed of pursuant to such effective registration statement, (ii)
it is sold under circumstances in which all of the applicable conditions of Rule
144 (or any similar provisions then in force) under the Securities Act are met
or it may be sold pursuant to Rule 144(k) under such Act or (iii) it has been
otherwise Transferred, the Company has delivered a new certificate or other
evidence of ownership for it not bearing the legend required pursuant to the
Warrant Agreement and it may be resold without subsequent registration under the
Securities Act.
"Requisite Share Number" means a number of Warrant Shares representing not
less than 50% of the total number of Warrant Shares then outstanding.
"Selling Holder" means a Holder who is selling Registrable Securities
pursuant to a registration statement under the Securities Act.
"Transfer" means any direct or indirect transfer, sale, assignment or other
disposition of Common Stock.
<PAGE>
"Underwriter" means a securities dealer who purchases any Registrable
Securities as principal in an underwritten offering and not as part of such
dealer's market-making activities.
II
SECTION 2.1 DEMAND REGISTRATION.
(a) REQUEST FOR REGISTRATION. At any time, any Holder or Holders owning,
individually or in the aggregate, at least the Requisite Share Number may make a
written request for registration under the Securities Act of all or part of its
or their Registrable Securities (a "Demand Registration"); PROVIDED that the
Holder or Holders making the request are together requesting that the Requisite
Share Number be registered, and PROVIDED FURTHER that the Company shall not be
obligated to effect more than one Demand Registration. Such request will
specify the number of shares of Registrable Securities proposed to be sold and
will also specify the intended method of disposition thereof. The Company shall
give written notice of such registration request within 10 days after the
receipt thereof to all other Holders. Within 20 days after receipt of such
notice by any Holder, such Holder may request in writing that Registrable
Securities be included in such registration. Each such request by such other
Holders (each, an "Other Holder Notice") shall specify the number of shares of
Registrable Securities proposed to be sold and the intended method of
disposition thereof. With respect to a Demand Registration initiated by the
Registered Holder (or Permitted Transferees) as described above, the Company
shall include such Demand Registration the Registrable Securities of any other
Registered Holder (or Permitted Transferee) requested to be so included and such
Holder shall be deemed to be a Holder who initiated a Demand Registration for
purposes of this Exhibit A, including, without limitation, Sections 2.1 and 2.3.
(b) EFFECTIVE REGISTRATION. A registration will not count as a Demand
Registration until it has become effective.
(c) UNDERWRITTEN OFFERING. If the Holder initiating a Demand Registration
so elects, the offering of such Registrable Securities pursuant to such Demand
Registration shall be in the form of an underwritten offering. The Company and
such Holder shall jointly select one or more nationally recognized firms of
investment bankers to act as the managing Underwriter or Underwriters in
connection with such offering and shall select any additional managers to be
used in connection with the offering.
(d) REQUIRED DELAYS. Notwithstanding anything contained in this Section
2.1 to the contrary, if any request for Demand Registration is delivered at a
time when the Company has determined or is currently planning to file a
Registration Statement with respect to an underwritten primary registration of
Common Stock on behalf of the Company (so long as a Registration Statement is
filed with respect thereto within two months of the Holder's or Holders' request
for Demand Registration), the Company may require the Holder or Holders to
postpone such request until the sooner of the expiration of the 120-day period
following the effective date of such registration or six months from the day of
the Holder's or Holders' request for such
2
<PAGE>
Demand Registration; and PROVIDED FURTHER, HOWEVER, that if such request is
delivered at a time when such registration would adversely affect a material
acquisition or merger to which the Company is a party, the Company may require
the Holder to postpone such request for an appropriate period (not to exceed 90
days). In either such event, the Company shall deliver a certificate signed by
the President or the Chairman confirming the Company's reasons for postponing
the registration.
SECTION 2.2 PIGGY-BACK REGISTRATION. If at any time the Company
proposes to file a registration statement under the Securities Act with respect
to an offering by the Company for its own account or for the account of any of
its respective security holders of any class of security of the same class as
the Registrable Securities (other than a registration statement on Form S-4 or
S-8 (or any substitute form that may be adopted by the SEC) or a registration
statement filed in connection with an exchange offer or offering of securities
solely to the Company's existing security holders), then the Company shall give
written notice of such proposed filing to the Holders as soon as practicable
(but in no event less than 10 days before the anticipated filing date), and such
notice shall offer such Holders the opportunity (subject to Section 2.1) to
register such number of shares of Registrable Securities as each such Holder may
request in writing within 5 days of receipt of such notice (which request shall
specify the Registrable Securities intended to be disposed of by such Holder and
the intended method of distribution thereof) (a "Piggy-Back" Registration").
The Company shall use its best efforts to cause the managing Underwriter or
Underwriters of a proposed underwritten offering to permit the Registrable
Securities requested to be included in a Piggy-Back Registration to be included
on the same terms and conditions as any similar securities of the Company
included therein to permit the sale or other disposition of such Registrable
Securities in accordance with the intended method of distribution thereof.
Subject to Section 2.3(b), any Holder shall have the right to withdraw its
request for inclusion of its Registrable Securities in any Piggy-Back
Registration by giving written notice to the Company of its request to withdraw
within 20 days of its request for inclusion. The Company may withdraw a Piggy-
Back Registration at any time prior to the time it becomes effective.
SECTION 2.3 REDUCTION OF OFFERING.
(a) Notwithstanding anything contained herein, if the managing Underwriter
or Underwriters of an offering described in Section 2.1 or 2.2 determine that
the size of the offering that the Holders, the Company or any other persons
intend to make is such that the success of the offering would be adversely
affected by inclusion of the Registrable Securities requested to be included,
then (i) with respect to a Demand Registration, if the size of the offering is
the basis of such Underwriter's or Underwriters' determination, the Company
shall not include in such registration an amount of Registrable Securities
requested to be included in such offering equal to the excess amount, such
reduction first to be allocated pro rata among the Holders or other persons who
did not initiate the request for a Demand Registration according to the number
of Registrable Securities requested for inclusion, with the Holder or Holders or
other persons who initiated the request for a Demand Registration entitled to
include shares therein to the maximum extent possible provided that if such
Holders cannot include all their shares in such offering, the amount of
Registrable Securities to be registered shall be reduced pro rata among the
initiating
3
<PAGE>
Holders and (ii) in the case of a Piggy-Back Registration, if securities are
being offered for the account of other persons as well as the Company, the
securities the Company seeks to include shall have priority over securities
sought to be included by any other person, (including the Holders) and, with
respect to the Registrable Securities intended to be offered by Holders, the
proportion by which the amount of such class of securities intended to be
offered by Holders is reduced shall not exceed the proportion by which tile the
amount of such class of securities intended to be offered t)y by such other
persons is reduced (it being understood that with respect to the Holders and
third parties such reduction may be all of such class of securities).
(b) If, as a result of the proration provisions of Section 2.3(a), any
Holder shall not be entitled to include all Registrable Securities in a Demand
Registration or Piggy-Back Registration that such Holder has requested to be
included, such Holder may elect to withdraw his request to include Registrable
Securities in such registration (a "Withdrawal Election"); PROVIDED HOWEVER,
that a Withdrawal Election shall be irrevocable and, after making a Withdrawal
Election, a Holder shall no longer have any right to include Registrable
Securities in the registration as to which Withdrawl Withdrawal Election was
made.
III
SECTION 3.1 FILINGS, INFORMATION. Whenever any Holder requests that any
Registrable Securities be registered pursuant to Section 2.1 hereof, the Company
will use its best efforts to effect the registration and the sale of such
Registrable Securities in accordance with the intended method of disposition
thereof as quickly as practicable, and in connection with any such request:
(a) The Company will as expeditiously as possible prepare and file with the
SEC a registration statement on any form for which the Company then qualifies or
which counsel for the Company shall deem appropriate and which form shall be
available for the sale of the Registrable Securities to be registered thereunder
in accordance with the intended method of distribution thereof, and use its best
efforts to cause such filed registration statement to become and remain
effective until the earlier of (i) 90 days from the date such registration
statement became effective or (ii) the date on which the sale of Registrable
Securities has been completed; PROVIDED that, if the Company shall furnish to
any Holder making a request pursuant to Section 2.1 a certificate signed by
either its Chairman or Chief Executive Officer stating that in his good faith
judgment it would be significantly disadvantageous to the Company or its
shareholders for such a registration statement to be filed as expeditiously as
possible, the Company shall have a period of not more than 90 days within which
to file such registration statement measured from the date of receipt of the
request in accordance with Section 2. 1.
(b) The Company will, prior to filing a registration statement or
prospectus or any amendment or supplement thereto, furnish to each Selling
Holder, one counsel representing all such Selling Holders, and each Underwriter,
if any, of the Registrable Securities covered by such registration statement
copies of such registration statement as proposed to be filed, together with
exhibits thereto, which documents will be subject to prompt review and approval
by the foregoing, and thereafter furnish to such Selling Holder, counsel and
Underwriter, if any, such
4
<PAGE>
number of copies of such registration statement, each amendment and supplement
thereto (in each case including all exhibits thereto and documents incorporated
by reference therein), the prospectus included in such registration statement
(including each preliminary prospectus) and such other documents as such Selling
Holder or Underwriter may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Selling Holder.
(c) After the filing of the registration statement, the Company will
promptly notify each Selling Holder of Registrable Securities covered by such
registration statement of any stop order issued or threatened by the SEC and
take all reasonable actions required to prevent the entry of such stop order or
to remove it if entered.
(d) The Company will use its best efforts to (i) register or qualify the
Registrable Securities under such other securities in blue sky laws of such
jurisdictions in the United States as any Selling Holder reasonably (in light of
such Selling Holder's intended plan of distribution) requests and (ii) cause
such Registrable Securities to be registered with or approved by such other
governmental agencies or authorities in the United States as may be necessary by
virtue of the business and operations of the Company and do any and all other
acts and things that may be reasonably necessary or advisable to enable such
Selling Holder to consummate the disposition of the Registrable Securities owned
by such Selling Holder; PROVIDED that the Company will not be required to (A)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this paragraph (d), (B) subject itself
to taxation in any such jurisdiction or (C) consent to general service of
process in any such jurisdiction.
(e) The Company will immediately notify each Selling Holder of such
Registrable Securities, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the occurrence of an event
requiring the preparation of a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable Securities,
such prospectus will not contain an untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading and promptly make available to each
Selling Holder any such supplement or amendment.
(f) The Company will enter into customary agreements (including, if
applicable, an underwriting agreement in customary form) and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of such Registrable Securities.
(g) The Company will deliver promptly to each Selling Holder of such
Registrable Securities and each Underwriter, if any, subject to restrictions
imposed by the United States federal government or any agency or instrumentality
thereof, copies of all correspondence between the SEC and the Company, its
counsel or auditors and all memoranda relating to discussions with the SEC or
its staff with respect to the registration statement and make available for
inspection by any Selling Holder of such Registrable Securities, any Underwriter
participating in any disposition pursuant to such registration statement and any
attorney, accountant or other professional retained by any such Selling Holder
or Underwriter (collectively, the "Inspectors"), (it being understood that the
Company is responsible for payment of the reasonable fees and
5
<PAGE>
expenses of only one counsel pursuant to clause (viii) of Section 3.2) all
financial and other records, pertinent corporate documents and properties of the
Company (collectively, the "Records"), subject to restrictions imposed by any
governmental authority governing access to classified information, as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees to
supply all information reasonably requested by any Inspectors in connection with
such registration statement. Records which the Company determines, in good
faith, to be confidential and which it notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in such
registration statement or (ii) the disclosure or release of such Records is
requested or required pursuant to oral questions, interrogatories, requests for
information or documents or a subpoena or other order from a court of competent
jurisdiction or other process; PROVIDED that prior to any disclosure or release
pursuant to clause (ii), the Inspectors shall provide the Company with prompt
notice of any such request or requirement so that the Company may seek an
appropriate protective order or waive such Inspectors' obligation not to
disclose such Records; and PROVIDED FURTHER, that if failing the entry of a
protective order or the waiver by the Company permitting the disclosure or
release of such Records, the Inspectors, upon advice of counsel, are compelled
to disclose such Records, the Inspectors may disclose that portion of the
Records which counsel has advised the Inspectors that the Inspectors are
compelled to disclose. Each Selling Holder of such Registrable Securities
agrees that information retained by it solely as a result of such inspections
(not including any information obtained from a third party who, insofar as is
known to the Selling Holder after reasonable inquiry, is not prohibited from
providing such information by a contractual, legal or fiduciary obligation to
the Company) shall be deemed confidential and shall not be used by it as the
basis for any market transactions in the securities of the Company or its
Affiliates unless and until such is made generally available to the public.
Each Selling Holder of such Registrable Securities further agrees that it will,
upon learning that disclosure of such Records is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company, at its expense,
to undertake appropriate action to prevent disclosure of the Records deemed
confidential.
(h) The Company will otherwise use its reasonable best efforts to comply
with all applicable rules and regulations of the SEC, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering a period of 12 months, beginning within three months after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act.
(i) The Company will use its best efforts (a) to cause all such
Registrable Securities to be listed on each national securities exchange on
which similar securities issued by the Company are then listed (if any), if the
listing of such Registrable Securities is then permitted under the rules of such
exchange or (b) to secure designation of all such Registrable Securities as a
National Association of Securities Dealers Automatic Quotation ("NASDAQ")
"national market system security" within the meaning of Rule 11Aa2-1 of the SEC
or, to secure NASDAQ authorization for such Registrable Securities, if similar
securities issued by the Company are so designated.
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(j) The Company may require each Selling Holder of Registrable Securities
to promptly furnish in writing to the Company such information regarding the
distribution of the Registrable Securities as the Company may from time to time
reasonably request and such other information as may be legally required in
connection with such registration.
Each Selling Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3.1(e)
hereof, such Selling Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such Selling Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3.l(e) hereof, and,
if so directed by the Company, such Selling Holder will deliver to the Company
all copies, other than permanent file copies then in such Selling Holder's
possession, of the most recent prospectus covering such Registrable Securities
at the time of receipt of such notice. In the event the Company shall give such
notice, the Company shall extend the period during which such registration
statement shall be maintained effective (including the period referred to in
Section 3.1(a) hereof) by the number of days during the period from and
including the date of the giving of notice pursuant to Section 3.1(e) hereof to
the date when the Company shall make available to the Selling Holders of
Registrable Securities covered by such registration statement a prospectus
supplemented or amended to conform with the requirements of Section 3.1(e)
hereof.
SECTION 3.2 REGISTRATION EXPENSES. In connection with any Demand
Registration pursuant to Section 2.1 hereof as to which no prior registration
rights under Section 2.2 hereof were available prior to the initial filing of
the registration statement with regard to such Demand Registration which would
have resulted in gross proceeds per share to Selling Holders in excess of the
Warrant Price per share, the Company shall pay the Registration Expenses, as
defined below, but otherwise, the Selling Holders shall pay such Registration
Expenses. In the case of any registration statement filed under Section 2.2
hereof as to which prior registration rights under Section 2.2 hereof were
available in two or more instances, the Company and the Selling Holders shall
pay the Registration Expenses in proportion to the shares of Common Stock of
each actually sold, but otherwise the Company shall pay such Registration
Expenses.
The term "Registration Expenses," for purposes of this section, means: (i)
all registration and filing fees, (ii) fees and expenses of compliance with
securities or blue sky laws (including fees and disbursements of counsel in
connection with blue sky qualifications of the Registrable Securities), (iii)
printing expenses, (iv) the Company's internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), (v) the fees and expenses, if any, incurred with
the listing of the Registrable Securities, (vi) fees and disbursements of
counsel for the Company and fees and expenses for independent certified public
accountants retained by the Company, (vii) the fees and expenses of any special
experts retained by the Company in connection with such registration, and (viii)
reasonable fees and expenses of one counsel (who shall be reasonably acceptable
to the Company) for all of the Selling Holders.
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The Company shall have no obligation to pay any underwriting fees,
discounts or commissions attributable to the sale of Registrable Securities, or
any out-of-pocket expenses of the Holders.
IV
SECTION 4.1 INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless each Selling Holder of Registrable Securities, its
officers, directors and agents, and each person, if any, who controls such
Selling Holder within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act from and against any loss, claim, damage or liability and
any action in respect thereof to which such Selling Holder, its officers,
directors and agents, and any such controlling person may become subject under
the Securities Act or otherwise, insofar as such loss, claim, damage, liability
or action arises out of, or is based upon, any untrue statement or prospectus
relating to the Registrable Securities (as amended or supplemented in the
Company shall have furnished any amendments or supplements thereto) or any
preliminary prospectus, or arises out of, or is based upon, any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and shall reimburse
each Selling Holder, its officers, directors and agents, and each such
controlling person for any legal and other expenses reasonably incurred by that
Selling Holder, its officers, directors and agents, or any such controlling
person in investigating or defending or preparing to defend against any such
loss, claim, damage, liability or action. The Company also agrees to indemnity
any Underwriters of the Registrable Securities, their officers and directors and
each person who controls such Underwriters on substantially the same basis as
that of the indemnification of the Selling Holders provided in this Section 4.1.
The indemnity agreement contained in this Section 4.1 shall not apply to amounts
paid in settlement of any such loss, claim, damage or liability and any action
in respect thereof if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable to any person for any loss, claim, damage, liability and any
action in respect thereof to the extent that it arises from or is based upon
written information relating to such person furnished expressly for use in
connection with such registration by such person.
SECTION 4.2 INDEMNIFICATION BY HOLDERS-OF REGISTRABLE SECURITIES. Each
Selling Holder agrees, severally but not jointly, to indemnify and hold harmless
the Company, its officers, directors and agents and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act to the same extent as the foregoing indemnity
from the Company to such Selling Holder, but only with reference to information
related to such Selling Holder furnished in writing by such Selling Holder or on
such Selling Holder's behalf expressly for use in any registration statement or
prospectus relating to the Registrable Securities, or any amendment or
supplement thereto, or any preliminary prospectus. Each Selling Holder also
agrees to indemnify and hold harmless Underwriters of the Registrable
Securities, their officers and directors and each person who controls such
Underwriters on substantially the same basis as that of the indemnification of
the Company provided in this Section 4.2. In no event, however, shall any
indemnity obligation under this Section 4.2 exceed the gross proceeds from the
offering received by such Selling Holder.
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SECTION 4.3 CONDUCT OF INDEMNIFICATION PROCEEDINGS. Promptly after
receipt by any person in respect of which indemnity may be sought pursuant to
Section 4.1 or 4.2 (an "Indemnified Party") of notice of any claim or the
commencement of any action, the Indemnified Party shall, if a claim in respect
thereof is to be made against the person against whom such indemnity may be
sought (an "Indemnifying Party") notify the Indemnifying Party in writing of the
claim or the commencement of such action provided that the failure to notify the
Indemnifying Party shall not relieve it from any liability which it may have to
an Indemnified Party otherwise than under Section 4.1 or 4.2 and except to the
extent of any actual prejudice resulting therefrom. If any such claim or action
shall be brought against an Indemnified Party, and it shall notify the
Indemnifying Party thereof, the Indemnifying Party shall be entitled to
participate therein, and, to the extent that it wishes, jointly with any other
similarly notified Indemnifying Party, to assume the defense thereof with
counsel satisfactory to the Indemnified Party. After notice from the
Indemnifying Party to the Indemnified Party of its election to assume the
defense of such claim or action, the Indemnifying Party shall not be liable to
the Indemnified Party for any legal or other expenses subsequently incurred by
the Indemnified Party in connection with the defense thereof other than
reasonable costs of investigation; PROVIDED that the Indemnified Party shall
have the right to employ separate counsel to represent the Indemnified Party and
its controlling persons who may be subject to liability arising out of any claim
in respect of which indemnity may be sought by the Indemnified Party against the
Indemnifying Party, but the fees and expenses of such counsel shall be for the
account of such Indemnified Party unless (i) the Indemnifying Party and the
Indemnified Party shall have mutually agreed to the retention of such counsel or
(ii) based upon the written opinion of counsel of such Indemnified Party
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them. No Indemnifying Party
shall, without the prior written consent of the Indemnified Party, effect any
settlement of any claim or pending or threatened proceeding in respect of which
the Indemnified Party is or could have been a party and indemnity could have
been sought hereunder by such Indemnified Party, unless settlement includes an
unconditional release of such Indemnified Party from all liability arising out
of such claim or proceeding.
SECTION 4.4 CONTRIBUTION. If the indemnification provided for in this
Article IV is unavailable to the Indemnified Parties in respect of any losses,
claims, damages or liabilities referred to herein, then each such Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such losses,
claims, damages or liabilities (i) as between the Company and the Selling
Holders on the one hand and the Underwriters on the other, in such proportion as
is appropriate to reflect the relative benefits received by the Company and the
Selling Holders on the one hand and the Underwriters on the other from the
offering of the Registrable Securities, or if such allocation is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits but also the relative fault of the Company and the Selling
Holders on the one hand and of the Underwriters on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations and (ii) as
between the Company on the one hand and each Selling Holder on the other, in
such proportion as is appropriate to reflect the relative fault of the Company
and of each Selling Holder in connection with such statements or omissions, as
well as any other relevant equitable considerations. The relative benefits
received by the Company and the Selling Holders
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on the one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the Company
and the Selling Holders and the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table on the
cover page of the prospectus bears to the total proceeds from the offering. The
relative fault of the Company and the Selling Holders on the one hand and of the
Underwriters on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company and the Selling Holders or by the Underwriters. The
relative fault of the Company on the one hand and of each Selling Holder on the
other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by such party,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Selling Holders agree that it would not be just and
equitable if contribution pursuant to this Section 4.4 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such Indemnified Party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 4.4, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and no Selling Holder
shall be required to contribute any amount in excess of the amount by which the
total price at which the Registrable Securities of such Selling Holder were
offered to the public (less underwriting discounts and commissions) exceeds the
amount of any damages which such Selling Holder has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. Each
Selling Holder's obligations to contribute pursuant to this Section 4.4 are
several in proportion to the proceeds of the offering received by such Selling
Holder bears to the total proceeds of the offering received by all the Selling
Holders and not joint.
SECTION 5.1 PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No person
may participate in any written registration hereunder unless such person (a)
agrees to sell such person's securities on the basis provided in any
underwriting arrangements approved by the persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the team of such underwriting arrangements and these Registration
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Rights; PROVIDED that (i) such person will not be required to make any
representations or warranties except those which relate solely to themselves and
(ii) the liability of such person to any Underwriter under such underwriting
agreement will be limited to liability arising from misstatements in, or
omissions from, written information regarding such person for inclusion in the
prospectus.
SECTION 5.2 RULE 144. The Company covenants that it will use its
reasonable best efforts to file any reports required to be filed by it under the
Securities Act and the Exchange Act and that it will take such further action as
any Holder may reasonably request, all to the extent reasonably required from
time to time to enable Holders to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 or Rule 144A under the Securities Act, as such Rules
may be amended from time to time, or (b) any similar Rule or regulation
hereafter adopted by the SEC. Upon the request of any Holder, the Company will
deliver to such Holder a written statement as to whether it has complied with
such requirements.
SECTION 5.3 HOLDBACK AGREEMENTS. To the, extent not inconsistent with
applicable law, each Holder of Registrable Securities agrees not to effect any
sale or distribution of the issue being registered or of a similar security of
the Company, or any securities convertible into or exchangeable or exercisable
for such securities, including a sale pursuant to Rule 144 or Rule 144A under
the Securities Act, during the 14 days prior to, and during the 180-day period
beginning on, the effective date of the registration statement filed by the
Company (except as part of such registration) if, and to the extent, requested
by the managing Underwriters in the case of an underwritten public offering.
11
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COAST
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
Borrower (collectively): New Image Industries, Inc.
Insight Imaging Systems, Inc.
Address: 2283 Cosmos Court
Carlsbad, California 92009
Date: May 22, 1996
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this "Agreement") is
entered into on the above date between COAST BUSINESS CREDIT, a division of
Southern Pacific Thrift & Loan Association ("Coast"), a California corporation,
with offices at 12121 Wilshire Boulevard, Suite 1111, Los Angeles, California
90025, and the borrowers named above (jointly and severally, the "Borrower"),
whose chief executive office is located at the above address ("Borrower's
Address"). This Agreement amends and restates in full that certain Loan and
Security Agreement dated April 17, 1996 between Coast and New Image Industries,
Inc. ("New Image"). All loans and other credit accommodations outstanding under
the April 17, 1996 Loan Agreement shall, after the date hereof, constitute
Obligations under this Agreement. The Schedule to this Agreement (the
"Schedule") shall for all purposes be deemed to be a part of this Agreement, and
the same is an integral part of this Agreement. (Definitions of certain terms
used in this Agreement are set forth in Section 8 below.)
1. LOANS.
1.1 LOANS. Coast will make loans to Borrower (the "Loans"), in amounts
determined by Coast in its sole discretion, up to the amounts (the "Credit
Limit") shown on the Schedule, provided no Default or Event of Default has
occurred and is continuing.
1.2 INTEREST. All Loans and all other monetary Obligations shall bear interest
at the rate shown on the Schedule, except where expressly set forth to the
contrary in this Agreement. Interest shall be payable monthly, on the last day
of the month. Interest may, in Coast's discretion, be charged to Borrower's
loan account, and the same shall thereafter bear interest at the same rate as
the other Loans. Regardless of the amount of Obligations that may be
outstanding from time to time, Borrower shall pay Coast minimum monthly interest
during the term of this Agreement with respect to all of the Loans in the amount
set forth on the Schedule (the "Minimum Monthly Interest").
1.3 FEES. Borrower shall pay Coast the fee(s) shown on the Schedule, which are
in addition to all interest and other sums payable to Coast and are not
refundable.
1.4 LETTERS OF CREDIT. At the request of Borrower, Coast may, in its sole
discretion, arrange for the issuance of letters of credit for the account of
Borrower (collectively, "Letters of Credit"), by issuing guarantees to the
issuer of the letter of credit or by other means. All Letters of Credit shall
be in form and substance satisfactory to Coast in its sole discretion. The
aggregate face amount of all outstanding Letters of Credit from time to time
shall not exceed the amount shown on the Schedule (the "Letter of Credit
Sublimit"), and shall be reserved against Loans which would otherwise be
available hereunder. Borrower shall pay all bank charges for the issuance of
Letters of Credit. Any payment by Coast under or in connection with a Letter of
Credit shall constitute a Loan hereunder on the date such payment is made. Each
Letter of Credit shall have an expiry date no later than thirty days prior to
the Maturity Date. Borrower hereby agrees to indemnify, save, and hold Coast
harmless from any loss, cost, expense, or liability, including payments made by
Coast, expenses, and reasonable attorneys' fees incurred by Coast arising out of
or in connection with any Letters of Credit. Borrower agrees to be bound by the
regulations and interpretations of the issuer of any Letters of Credit
guarantied by Coast and opened for Borrower's account or by Coast's
interpretations of any Letter of Credit issued by Coast for Borrower's account,
and Borrower understands and agrees
<PAGE>
that Coast shall not be liable for any error, negligence, or mistake, whether of
omission or commission, in following Borrower's instructions or those contained
in the Letters of Credit or any modifications, amendments, or supplements
thereto. Borrower understands that Letters of Credit may require Coast to
indemnify the issuing bank for certain costs or liabilities arising out of
claims by Borrower against such issuing bank. Borrower hereby agrees to
indemnify and hold Coast harmless with respect to any loss, cost, expense, or
liability incurred by Coast under any Letter of Credit as a result of Coast's
indemnification of any such issuing bank. The provisions of this Loan
Agreement, as it pertains to Letters of Credit, and any other present or future
documents or agreements between Borrower and Coast relating to Letters of Credit
are cumulative.
2. SECURITY INTEREST.
2.1 SECURITY INTEREST. To secure the payment and performance of all of the
Obligations when due, Borrower hereby grants to Coast a security interest in all
of Borrower's interest in the following, whether now owned or hereafter
acquired, and wherever located: All Receivables, Inventory, Equipment, and
General Intangibles, including, without limitation, all of Borrower's Deposit
Accounts, and all money, and all property now or at any time in the future in
Coast's possession (including claims and credit balances), and all proceeds of
any of the foregoing (including proceeds of any insurance policies, proceeds of
proceeds, and claims against third parties), all products of any of the
foregoing, and all books and records related to any of the foregoing (all of the
foregoing, together with all other property in which Coast may now or in the
future be granted a lien or security interest, is referred to herein,
collectively, as the "Collateral").
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Coast to enter into this Agreement and to make Loans,
Borrower represents and warrants to Coast as follows, and Borrower covenants
that the following representations will continue to be true, and that Borrower
will at all times comply with all of the following covenants:
3.1 CORPORATE EXISTENCE AND AUTHORITY. Borrower, if a corporation, is and will
continue to be, duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation. Borrower is and will continue to
be qualified and licensed to do business in all jurisdictions in which any
failure to do so would have a material adverse effect on Borrower. The
execution, delivery and performance by Borrower of this Agreement, and all other
documents contemplated hereby (i) have been duly and validly authorized, (ii)
are enforceable against Borrower in accordance with their terms (except as
enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally), and (iii) do not violate Borrower's articles or certificate
of incorporation, or Borrower's by-laws, or any law or any material agreement or
instrument which is binding upon Borrower or its property, and (iv) do not
constitute grounds for acceleration of any material indebtedness or obligation
under any material agreement or instrument which is binding upon Borrower or its
property.
3.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Coast 30 days' prior written notice before changing its name
or doing business under any other name. Borrower has complied, and will in the
future comply, with all laws relating to the conduct of business under a
fictitious business name.
3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in the
heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule. Borrower will give Coast at least 30 days prior
written notice before opening any additional place of business, changing its
chief executive office, or moving any of the Collateral to a location other than
Borrower's Address or one of the locations set forth on the Schedule.
3.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at all
times in the future be, the sole owner of all the Collateral, except for items
of Equipment which are leased by Borrower. The Collateral now is and will
remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims, except for Permitted Liens. Coast now has, and
will continue to have, a first-priority perfected and enforceable security
interest in all of the Collateral, subject only to the Permitted Liens, and
Borrower will at all times defend Coast and the Collateral against all claims of
others. None of the Collateral now is or will be affixed to any real property
in such a manner, or with such intent, as to become a fixture. Borrower is not
and will not become a lessee under any real property lease pursuant to which
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the lessor may obtain any rights in any of the Collateral and no such lease now
prohibits, restrains, impairs or will prohibit, restrain or impair Borrower's
right to remove any Collateral from the leased premises. Whenever any
Collateral is located upon premises in which any third party has an interest
(whether as owner, mortgagee, beneficiary under a deed of trust, lien or
otherwise), Borrower shall, whenever requested by Coast, use its best efforts to
cause such third party to execute and deliver to Coast, in form acceptable to
Coast, such waivers and subordinations as Coast shall specify, so as to ensure
that Coast's rights in the Collateral are, and will continue to be, superior to
the rights of any such third party. Borrower will keep in full force and
effect, and will comply with all the terms of, any lease of real property where
any of the Collateral now or in the future may be located.
3.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral in good
working condition, and Borrower will not use the Collateral for any unlawful
purpose. Borrower will immediately advise Coast in writing of any material loss
or damage to the Collateral.
3.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at Borrower's
Address complete and accurate books and records, comprising an accounting system
in accordance with generally accepted accounting principles.
3.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements now
or in the future delivered to Coast have been, and will be, prepared in
conformity with generally accepted accounting principles (except, in the case of
unaudited financial statements, for the absence of footnotes and subject to
normal year-end adjustments) and now and in the future will fairly reflect the
financial condition of Borrower, at the times and for the periods therein
stated. Between the last date covered by any such statement provided to Coast
and the date hereof, there has been no material adverse change in the financial
condition or business of Borrower. Borrower is now and will continue to be
solvent.
3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely
filed, and will timely file, all tax returns and reports required by foreign,
federal, state and local law, and Borrower has timely paid, and will timely pay,
all foreign, federal, state and local taxes, assessments, deposits and
contributions now or in the future owed by Borrower. Borrower may, however,
defer payment of any contested taxes, provided that Borrower (i) in good faith
contests Borrower's obligation to pay the taxes by appropriate proceedings
promptly and diligently instituted and conducted, (ii) notifies Coast in writing
of the commencement of, and any material development in, the proceedings, and
(iii) posts bonds or takes any other steps required to keep the contested taxes
from becoming a lien upon any of the Collateral. As of the date hereof,
Borrower is unaware of any claims or adjustments proposed for any of Borrower's
prior tax years which could result in additional taxes becoming due and payable
by Borrower. Borrower has paid, and shall continue to pay all amounts necessary
to fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental agency.
Borrower shall, at all times, utilize the services of an outside payroll service
providing for the automatic deposit of all payroll taxes payable by Borrower.
3.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in all
material respects, with all provisions of all material foreign, federal, state
and local laws and regulations relating to Borrower, including, but not limited
to, those relating to Borrower's ownership of real or personal property, the
conduct and licensing of Borrower's business, and environmental matters.
3.10 LITIGATION. Except as disclosed in the Schedule, there is no claim, suit,
litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any governmental agency (or any basis therefor known to Borrower) which may
result, either separately or in the aggregate, in any material adverse change in
the financial condition or business of Borrower, or in any material impairment
in the ability of Borrower to carry on its business in substantially the same
manner as it is now being conducted. Borrower will promptly inform Coast in
writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against Borrower involving any single claim of
$50,000 or more, or involving $200,000 or more in the aggregate.
3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for
lawful business purposes. Borrower is not purchasing or carrying any "margin
stock" (as defined in Regulation G of the Board of Governors of the Federal
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Reserve System) and no part of the proceeds of any Loan will be used to purchase
or carry any "margin stock" or to extend credit to others for the purpose of
purchasing or carrying any "margin stock."
4. RECEIVABLES.
4.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and warrants
to Coast as follows: Each Receivable with respect to which Loans are requested
by Borrower shall, on the date each Loan is requested and made, represent an
undisputed bona fide existing unconditional obligation of the Account Debtor
created by the sale, delivery, and acceptance of goods or the rendition of
services in the ordinary course of Borrower's business.
4.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE. Borrower
represents and warrants to Coast as follows: All statements made and all unpaid
balances appearing in all invoices, instruments and other documents evidencing
the Receivables are and shall be true and correct and all such invoices,
instruments and other documents and all of Borrower's books and records are and
shall be genuine and in all respects what they purport to be. All sales and
other transactions underlying or giving rise to each Receivable shall fully
comply with all applicable laws and governmental rules and regulations. All
signatures and indorsements on all documents, instruments, and agreements
relating to all Receivables are and shall be genuine, and all such documents,
instruments and agreements are and shall be legally enforceable in accordance
with their terms.
4.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall deliver to
Coast transaction reports and loan requests, schedules of Receivables, and
schedules of collections, all on Coast's standard forms; provided, however, that
Borrower's failure to execute and deliver the same shall not affect or limit
Coast's security interest and other rights in all of Borrower's Receivables, nor
shall Coast's failure to advance or lend against a specific Receivable affect or
limit Coast's security interest and other rights therein. Loan requests
received after 10:30 AM will not be considered by Coast until the next Business
Day. Together with each such schedule, or later if requested by Coast, Borrower
shall furnish Coast with copies (or, at Coast's request, originals) of all
contracts, orders, invoices, and other similar documents, and all original
shipping instructions, delivery receipts, bills of lading, and other evidence of
delivery, for any goods the sale or disposition of which gave rise to such
Receivables, and Borrower warrants the genuineness of all of the foregoing.
Borrower shall also furnish to Coast an aged accounts receivable trial balance
in such form and at such intervals as Coast shall request. In addition,
Borrower shall deliver to Coast the originals of all instruments, chattel paper,
security agreements, guarantees and other documents and property evidencing or
securing any Receivables, upon receipt thereof and in the same form as received,
with all necessary indorsements, all of which shall be with recourse. Borrower
shall also provide Coast with copies of all credit memos as and when requested
by Coast.
4.4 COLLECTION OF RECEIVABLES. Borrower shall have the right to collect all
Receivables, unless and until an Event of Default has occurred. Borrower shall
hold all payments on, and proceeds of, Receivables in trust for Coast, and
Borrower shall deliver all such payments and proceeds to Coast within three
Business Days after receipt by Borrower, in their original form, duly endorsed
to Coast, to be applied to the Obligations in such order as Coast shall
determine. Coast may, in its discretion, require that all proceeds of
Collateral be deposited by Borrower into a lockbox account, or such other
"blocked account" as Coast may specify, pursuant to a blocked account agreement
in such form as Coast may specify. Coast or its designee may, at any time,
notify Account Debtors that Coast has been granted a security interest in the
Receivables.
4.5. REMITTANCE OF PROCEEDS. All proceeds arising from the disposition of any
Collateral shall be delivered to Coast within one Business Day after receipt by
Borrower, in their original form, duly endorsed to Coast, to be applied to the
Obligations in such order as Coast shall determine. Borrower agrees that it
will not commingle proceeds of Collateral with any of Borrower's other funds or
property, but will hold such proceeds separate and apart from such other funds
and property and in an express trust for Coast. Nothing in this Section limits
the restrictions on disposition of Collateral set forth elsewhere in this
Agreement.
4.6 DISPUTES. Borrower shall notify Coast promptly of all disputes or claims
relating to Receivables. Borrower shall not forgive (completely or partially),
compromise or settle any Receivable for less than payment in full, or agree to
do any of the foregoing, except that Borrower may do so, provided that: (i)
Borrower does so in good faith, in a commercially reasonable manner, in the
ordinary course of business, and in arm's length transactions, which are
reported to Coast on the regular reports provided to Coast; (ii) no Default or
Event of Default has occurred and is continuing; and (iii) taking
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into account all such discounts settlements and forgiveness, the total
outstanding Loans will not exceed the Credit Limit. Coast may, at any time
after the occurrence of an Event of Default, settle or adjust disputes or claims
directly with Account Debtors for amounts and upon terms which Coast considers
advisable in its reasonable credit judgment and, in all cases, Coast shall
credit Borrower's Loan account with only the net amounts received by Coast in
payment of any Receivables.
4.7 RETURNS. Provided no Event of Default has occurred and is continuing, if
any Account Debtor returns any Inventory to Borrower in the ordinary course of
its business, Borrower shall promptly determine the reason for such return and
promptly issue a credit memorandum to the Account Debtor in the appropriate
amount. In the event any attempted return occurs after the occurrence of any
Event of Default, Borrower shall (i) hold the returned Inventory in trust for
Coast, (ii) segregate all returned Inventory from all of Borrower's other
property, (iii) conspicuously label the returned Inventory as subject to Coast's
security interest, and (iv) immediately notify Coast of the return of any
Inventory, specifying the reason for such return, the location and condition of
the returned Inventory, and on Coast's request deliver such returned Inventory
to Coast.
4.8 VERIFICATION. Coast may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Receivables, by means of mail, telephone or otherwise, either in the name of
Borrower or Coast or such other name as Coast may choose.
4.9 NO LIABILITY. Coast shall not under any circumstances be responsible or
liable for any shortage or discrepancy in, damage to, or loss or destruction of,
any goods, the sale or other disposition of which gives rise to a Receivable, or
for any error, act, omission, or delay of any kind occurring in the settlement,
failure to settle, collection or failure to collect any Receivable, or for
settling any Receivable in good faith for less than the full amount thereof, nor
shall Coast be deemed to be responsible for any of Borrower's obligations under
any contract or agreement giving rise to a Receivable. Nothing herein shall,
however, relieve Coast from liability for its own gross negligence or willful
misconduct.
5. ADDITIONAL DUTIES OF THE BORROWER.
5.1 FINANCIAL AND OTHER COVENANTS. Borrower shall at all times comply with the
financial and other covenants set forth in the Schedule.
5.2 INSURANCE. Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Coast, in such form and amounts as Coast may
reasonably require, and Borrower shall provide evidence of such insurance to
Coast, so that Coast is satisfied that such insurance is, at all times, in full
force and effect. All liability insurance policies of Borrower shall name Coast
as an additional insured, and all property casualty and related insurance
policies of Borrower shall name Coast as a loss payee thereon and Borrower shall
cause a lenders loss payee endorsement in form reasonably acceptable to Coast.
Upon receipt of the proceeds of any such insurance, Coast shall apply such
proceeds in reduction of the Obligations as Coast shall determine in its sole
discretion, except that, provided no Default or Event of Default has occurred
and is continuing, Coast shall release to Borrower insurance proceeds with
respect to Equipment totaling less than $50,000, which shall be utilized by
Borrower for the replacement of the Equipment with respect to which the
insurance proceeds were paid. Coast may require reasonable assurance that the
insurance proceeds so released will be so used. If Borrower fails to provide or
pay for any insurance, Coast may, but is not obligated to, obtain the same at
Borrower's expense. Borrower shall promptly deliver to Coast copies of all
reports made to insurance companies.
5.3 REPORTS. Borrower, at its expense, shall provide Coast with the written
reports set forth in the Schedule, and such other written reports with respect
to Borrower (including budgets, sales projections, operating plans and other
financial documentation), as Coast shall from time to time reasonably specify.
Borrower shall provide separate reports for New Image Industries, Inc. and
Insight Imaging Systems, Inc.
5.4 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times but generally
on a quarterly basis, and on one Business Day's notice, Coast, or its agents,
shall have the right to inspect, audit and copy Borrower's books and records and
the Collateral (the "Audits"). Coast shall take reasonable steps to keep
confidential all confidential information obtained in any Audit, but Coast shall
have the right to disclose any such information to its auditors, regulatory
agencies, and attorneys, and pursuant to any subpoena or other legal process.
The Audits shall be at Borrower's expense and the charge for the Audits
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shall be $550 per person per day (or such higher amount as shall represent
Coast's then current standard charge for the same), plus reasonable out of
pocket expenses. Borrower will not enter into any agreement with any accounting
firm, service bureau or third party to store Borrower's books or records at any
location other than Borrower's Address, without first notifying Coast of the
same and obtaining the written agreement from such accounting firm, service
bureau or other third party to give Coast the same rights with respect to access
to books and records and related rights as Coast has under this Loan Agreement.
5.5 NEGATIVE COVENANTS. Borrower shall not, without Coast's prior written
consent, which consent shall not be unreasonably withheld, do any of the
following: (i) merge or consolidate with another corporation or entity, except
in a transaction in which (A) the shareholders of the Borrower hold at least 50%
of the common stock and all other capital stock of the surviving corporation
immediately after such merger or consolidation, and (B) the Borrower is the
surviving corporation; (ii) acquire any assets or enter into any other
transaction, except (A) in the ordinary course of business, or (B) in a
transaction or a series of transactions, which may not be considered to be in
the ordinary course of Borrower's business, not involving the payment of an
aggregate amount in excess of $100,000; (iii) sell or transfer any Collateral,
except for the sale of finished Inventory in the ordinary course of Borrower's
business, and except for the sale of obsolete or unneeded Equipment in the
ordinary course of business; (iv) store any Inventory or other Collateral with
any warehouseman or other third party; (v) sell any Inventory on a sale-or-
return, guaranteed sale, consignment, or other contingent basis; (vi) make any
loans of any money or other assets, except (A) advances to customers or
suppliers in the ordinary course of business, (B) travel advances, employee
relocation loans and other employee loans and advances in the ordinary course of
business, and (C) loans to employees, officers and directors for the purpose of
purchasing equity securities of the Borrower; (vii) incur any debts, outside the
ordinary course of business, which would have a material, adverse effect on
Borrower or on the prospect of repayment of the Obligations; (viii) guarantee or
otherwise become liable with respect to the obligations of another party or
entity; (ix) pay or declare any dividends on Borrower's stock (except for
dividends payable solely in stock of Borrower); (x) redeem, retire, purchase or
otherwise acquire, directly or indirectly, any of Borrower's stock, except that
Borrower may repurchase stock owned by employees, directors and consultants of
Borrower pursuant to terms of employment, consulting or other stock restriction
agreements at such time as any such employee, director or consultant terminates
his or her affiliation with the Borrower, for an aggregate purchase price not to
exceed $100,000 in any fiscal year; (xi) make any change in Borrower's capital
structure which would have a material adverse effect on Borrower or on the
prospect of repayment of the Obligations; or (xii) dissolve or elect to
dissolve. Transactions permitted by the foregoing provisions of this Section
are only permitted if no Default or Event of Default would occur as a result of
such transaction.
5.6 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against Coast with respect to any Collateral or relating to
Borrower, Borrower shall, without expense to Coast, make available Borrower and
its officers, employees and agents and Borrower's books and records, to the
extent that Coast may deem them reasonably necessary in order to prosecute or
defend any such suit or proceeding.
5.7 INDEMNITY. Borrower hereby agrees to indemnify Coast and hold Coast
harmless from and against any and all claims, debts, liabilities, demands,
obligations, actions, causes of action, penalties, reasonable costs and expenses
(including reasonable attorneys' fees), of every nature, character and
description, which Coast may sustain or incur based upon or arising out of any
of the Obligations, any actual or alleged failure to collect and pay over any
withholding or other tax relating to Borrower or its employees, any relationship
or agreement between Coast and Borrower, any actual or alleged failure of Coast
to comply with any writ of attachment or other legal process relating to
Borrower or any of its property, or any other matter, cause or thing whatsoever
occurred, done, omitted or suffered to be done by Coast relating to Borrower or
the Obligations (except any such amounts sustained or incurred as the result of
the gross negligence or willful misconduct of Coast). Notwithstanding any
provision in this Agreement to the contrary, the indemnity agreement set forth
in this Section shall survive any termination of this Agreement and shall for
all purposes continue in full force and effect.
5.8 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by Coast,
to execute all documents and take all actions, as Coast, may deem reasonably
necessary or useful in order to perfect and maintain Coast's perfected security
interest in the Collateral, and in order to fully consummate the transactions
contemplated by this Agreement.
6. TERM.
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6.1 MATURITY DATE. This Agreement shall continue in effect until the maturity
date set forth on the Schedule (the "Maturity Date"); provided that the Maturity
date shall automatically be extended, and this Agreement shall automatically and
continuously renew, for successive additional terms of one year each, unless one
party gives written notice to the other, not less than sixty days prior to the
next Maturity Date, that such party elects to terminate this Agreement effective
on the next Maturity Date. At the beginning of each one year renewal, Borrower
shall pay Coast a renewal fee of .5% of the Maximum Dollar Amount.
6.2 EARLY TERMINATION. This Agreement may be terminated prior to the Maturity
Date as follows: (i) by Borrower, effective three Business Days after written
notice of termination is given to Coast; or (ii) by Coast at any time after the
occurrence of an Event of Default, without notice, effective immediately. If
this Agreement is terminated by Borrower or by Coast under this Section 6.2,
Borrower shall pay to Coast a termination fee (the "Early Termination Fee") in
the amount shown on the Schedule. The Early Termination Fee shall be due and
payable on the effective date of termination and thereafter shall bear interest
at a rate equal to the rate applicable to the Receivable Loans.
6.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier effective
date of termination, Borrower shall pay and perform in full all Obligations,
whether evidenced by installment notes or otherwise, and whether or not all or
any part of such Obligations are otherwise then due and payable. Without
limiting the generality of the foregoing, if on the Maturity Date, or on any
earlier effective date of termination, there are any outstanding Letters of
Credit issued by Coast or issued by another institution based upon an
application, guarantee, indemnity or similar agreement on the part of Coast,
then on such date Borrower shall provide to Coast cash collateral in an amount
equal to the face amount of all such Letters of Credit plus all interest, fees
and cost due or to become due in connection therewith, to secure all of the
Obligations relating to said Letters of Credit, pursuant to Coast's then
standard form cash pledge agreement. Notwithstanding any termination of this
Agreement, all of Coast's security interests in all of the Collateral and all of
the terms and provisions of this Agreement shall continue in full force and
effect until all Obligations have been paid and performed in full; provided
that, without limiting the fact that Loans are subject to the discretion of
Coast, Coast may, in its sole discretion, refuse to make any further Loans after
termination. No termination shall in any way affect or impair any right or
remedy of Coast, nor shall any such termination relieve Borrower of any
Obligation to Coast, until all of the Obligations have been paid and performed
in full. Upon payment and performance in full of all the Obligations and
termination of this Agreement, Coast shall promptly deliver to Borrower
termination statements, requests for reconveyances and such other documents as
may be required to fully terminate Coast's security interests.
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and Borrower shall give
Coast immediate written notice thereof: (a) Any material warranty,
representation, statement, report or certificate made or delivered to Coast by
Borrower or any of Borrower's officers, employees or agents, now or in the
future, shall be untrue or misleading in a material respect; or (b) Borrower
shall fail to pay when due any Loan or any interest thereon or any other
monetary Obligation, which is not cured within 5 days of the date such payment
is due; or (c) the total Loans and other Obligations outstanding at any time
shall exceed the Credit Limit and such Event of Default is not cured within 5
days of the default; or (d) Borrower shall fail to deliver the proceeds of
Collateral to Coast as provided in Section 4.5 above, or shall fail to give
Coast access to its books and records or Collateral as provided in Section 5.4
above, or shall breach any negative covenant set forth in Section 5.5 above; or
(e) Borrower shall fail to comply with the financial covenants (if any) set
forth in the Schedule or shall fail to perform any other non-monetary Obligation
which by its nature cannot be cured; or (f) Borrower shall fail to perform any
other non-monetary Obligation, which failure is not cured within 5 Business Days
after the date due; or (g) Any levy, assessment, attachment, seizure, lien or
encumbrance (other than a Permitted Lien) is made on all or any part of the
Collateral which is not cured within 10 days after the occurrence of the same;
or (h) any default or event of default occurs under any obligation secured by a
Permitted Lien, which is not cured within any applicable cure period or waived
in writing by the holder of the Permitted Lien; or (i) Borrower breaches any
material contract or obligation, which has or may reasonably be expected to have
a material adverse effect on Borrower's business or financial condition; or (j)
Dissolution, termination of existence, insolvency or business failure of
Borrower; or appointment of a receiver, trustee or custodian, for all or any
part of the property of, assignment for the benefit of creditors by, or the
commencement of any proceeding by Borrower under any reorganization, bankruptcy,
insolvency, arrangement,
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readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, now or in the future in effect; or (k) the commencement of any
proceeding against Borrower or any guarantor of any of the Obligations under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect, which is not cured by the dismissal thereof within 30 days
after the date commenced; or (l) revocation or termination of, or limitation or
denial of liability upon, any guaranty of the Obligations or any attempt to do
any of the foregoing, or commencement of proceedings by any guarantor of any of
the Obligations under any bankruptcy or insolvency law; or (m) revocation or
termination of, or limitation or denial of liability upon, any pledge of any
certificate of deposit, securities or other property or asset of any kind
pledged by any third party to secure any or all of the Obligations, or any
attempt to do any of the foregoing, or commencement of proceedings by or against
any such third party under any bankruptcy or insolvency law; or (n) Borrower
makes any payment on account of any indebtedness or obligation which has been
subordinated to the Obligations, other than as permitted in the applicable
subordination agreement, or if any Person who has subordinated such indebtedness
or obligations terminates or in any way limits his subordination agreement; or
(o) there shall be a change in the record or beneficial ownership of an
aggregate of more than 20% of the outstanding shares of common stock of New
Image accompanied, within 6 months, by (i) a change in more than 50% of the
members of the board of directors of New Image and (ii) a change in the Chief
Executive Officer of Borrower; or (p) Borrower shall generally not pay its debts
as they become due, or Borrower shall conceal, remove or transfer any part of
its property, with intent to hinder, delay or defraud its creditors, or make or
suffer any transfer of any of its property which may be fraudulent under any
bankruptcy, fraudulent conveyance or similar law; or (q) there shall be a
material adverse change in Borrower's business or financial condition. Coast
may cease making any Loans hereunder during any of the above cure periods, and
thereafter if an Event of Default has occurred.
7.2 REMEDIES. Upon the occurrence, and during the continuance, of any Event of
Default, Coast, at its option, and without notice or demand of any kind (all of
which are hereby expressly waived by Borrower), may do any one or more of the
following: (a) Cease making Loans or otherwise extending credit to Borrower
under this Agreement or any other document or agreement; (b) Accelerate and
declare all or any part of the Obligations to be immediately due, payable, and
performable, notwithstanding any deferred or installment payments allowed by any
instrument evidencing or relating to any Obligation; (c) Take possession of any
or all of the Collateral wherever it may be found, and for that purpose Borrower
hereby authorizes Coast without judicial process to enter onto any of Borrower's
premises without interference to search for, take possession of, keep, store, or
remove any of the Collateral, and remain on the premises or cause a custodian to
remain on the premises in exclusive control thereof, without charge for so long
as Coast deems it reasonably necessary in order to complete the enforcement of
its rights under this Agreement or any other agreement; provided, however, that
should Coast seek to take possession of any of the Collateral by Court process,
Borrower hereby irrevocably waives: (i) any bond and any surety or security
relating thereto required by any statute, court rule or otherwise as an incident
to such possession; (ii) any demand for possession prior to the commencement of
any suit or action to recover possession thereof; and (iii) any requirement that
Coast retain possession of, and not dispose of, any such Collateral until after
trial or final judgment; (d) Require Borrower to assemble any or all of the
Collateral and make it available to Coast at places designated by Coast which
are reasonably convenient to Coast and Borrower, and to remove the Collateral to
such locations as Coast may deem advisable; (e) Complete the processing,
manufacturing or repair of any Collateral prior to a disposition thereof and,
for such purpose and for the purpose of removal, Coast shall have the right to
use Borrower's premises, vehicles, hoists, lifts, cranes, equipment and all
other property without charge; (f) Sell, lease or otherwise dispose of any of
the Collateral, in its condition at the time Coast obtains possession of it or
after further manufacturing, processing or repair, at one or more public and/or
private sales, in lots or in bulk, for cash, exchange or other property, or on
credit, and to adjourn any such sale from time to time without notice other than
oral announcement at the time scheduled for sale. Coast shall have the right to
conduct such disposition on Borrower's premises without charge, for such time or
times as Coast deems reasonable, or on Coast's premises, or elsewhere and the
Collateral need not be located at the place of disposition. Coast may directly
or through any affiliated company purchase or lease any Collateral at any such
public disposition, and if permissible under applicable law, at any private
disposition. Any sale or other disposition of Collateral shall not relieve
Borrower of any liability Borrower may have if any Collateral is defective as to
title or physical condition or otherwise at the time of sale; (g) Demand payment
of, and collect any Receivables and General
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Intangibles comprising Collateral and, in connection therewith, Borrower
irrevocably authorizes Coast to endorse or sign Borrower's name on all
collections, receipts, instruments and other documents, to take possession of
and open mail addressed to Borrower and remove therefrom payments made with
respect to any item of the Collateral or proceeds thereof, and, in Coast's sole
discretion, to grant extensions of time to pay, compromise claims and settle
Receivables and the like for less than face value; (h) Offset against any sums
in any of Borrower's general, special or other Deposit Accounts with Coast; and
(i) Demand and receive possession of any of Borrower's federal and state income
tax returns and the books and records utilized in the preparation thereof or
referring thereto. All reasonable attorneys' fees, expenses, costs, liabilities
and obligations incurred by Coast with respect to the foregoing shall be due
from the Borrower to Coast on demand. Coast may charge the same to Borrower's
loan account, and the same shall thereafter bear interest at the same rate as is
applicable to the Receivable Loans. Without limiting any of Coast's rights and
remedies, from and after the occurrence of any Event of Default, the interest
rate applicable to the Obligations shall be increased by an additional three
percent per annum.
7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and Coast
agree that a sale or other disposition (collectively, "sale") of any Collateral
which complies with the following standards will conclusively be deemed to be
commercially reasonable: (i) Notice of the sale is given to Borrower at least
seven days prior to the sale, and, in the case of a public sale, notice of the
sale is published at least seven days before the sale in a newspaper of general
circulation in the county where the sale is to be conducted; (ii) Notice of the
sale describes the collateral in general, non-specific terms; (iii) The sale is
conducted at a place designated by Coast, with or without the Collateral being
present; (iv) The sale commences at any time between 8:00 a.m. and 6:00 p.m;
(v) Payment of the purchase price in cash or by cashier's check or wire transfer
is required; (vi) With respect to any sale of any of the Collateral, Coast may
(but is not obligated to) direct any prospective purchaser to ascertain directly
from Borrower any and all information concerning the same. Coast shall be free
to employ other methods of noticing and selling the Collateral, in its
discretion, if they are commercially reasonable.
7.4 POWER OF ATTORNEY. Upon the occurrence, and during the continuance, of any
Event of Default, without limiting Coast's other rights and remedies, Borrower
grants to Coast an irrevocable power of attorney coupled with an interest,
authorizing and permitting Coast (acting through any of its employees, attorneys
or agents) at any time, at its option, but without obligation, with or without
notice to Borrower, and at Borrower's expense, to do any or all of the
following, in Borrower's name or otherwise, but Coast agrees to exercise the
following powers in a commercially reasonable manner: (a) Execute on behalf of
Borrower any documents that Coast may, in its sole discretion, deem advisable in
order to perfect and maintain Coast's security interest in the Collateral, or in
order to exercise a right of Borrower or Coast, or in order to fully consummate
all the transactions contemplated under this Agreement, and all other present
and future agreements; (b) Execute on behalf of Borrower any document
exercising, transferring or assigning any option to purchase, sell or otherwise
dispose of or to lease (as lessor or lessee) any real or personal property which
is part of Coast's Collateral or in which Coast has an interest; (c) Execute on
behalf of Borrower, any invoices relating to any Receivable, any draft against
any Account Debtor and any notice to any Account Debtor, any proof of claim in
bankruptcy, any Notice of Lien, claim of mechanic's, materialman's or other
lien, or assignment or satisfaction of mechanic's, materialman's or other lien;
(d) Take control in any manner of any cash or non-cash items of payment or
proceeds of Collateral; endorse the name of Borrower upon any instruments, or
documents, evidence of payment or Collateral that may come into Coast's
possession; (e) Endorse all checks and other forms of remittances received by
Coast; (f) Pay, contest or settle any lien, charge, encumbrance, security
interest and adverse claim in or to any of the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same; (g)
Grant extensions of time to pay, compromise claims and settle Receivables and
General Intangibles for less than face value and execute all releases and other
documents in connection therewith; (h) Pay any sums required on account of
Borrower's taxes or to secure the release of any liens therefor, or both; (i)
Settle and adjust, and give releases of, any insurance claim that relates to any
of the Collateral and obtain payment therefor; (j) Instruct any third party
having custody or control of any books or records belonging to, or relating to,
Borrower to give Coast the same rights of access and other rights with respect
thereto as Coast has under this Agreement; and (k) Take any action or pay any
sum required of Borrower pursuant to this Agreement and any other present or
future agreements. Any and all reasonable sums paid and any and all reasonable
costs, expenses, liabilities, obligations and attorneys' fees incurred by Coast
with respect to the foregoing shall be added to and become part
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of the Obligations, and shall be payable on demand. Coast may charge the
foregoing to Borrower's loan account and the foregoing shall thereafter bear
interest at the same rate applicable to the Receivable Loans. In no event shall
Coast's rights under the foregoing power of attorney or any of Coast's other
rights under this Agreement be deemed to indicate that Coast is in control of
the business, management or properties of Borrower.
7.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any sale
of the Collateral shall be applied by Coast first to the reasonable costs,
expenses, liabilities, obligations and attorneys' fees incurred by Coast in the
exercise of its rights under this Agreement, second to the interest due upon any
of the Obligations, and third to the principal of the Obligations, in such order
as Coast shall determine in its sole discretion. Any surplus shall be paid to
Borrower or other persons legally entitled thereto; Borrower shall remain liable
to Coast for any deficiency. If, Coast, in its sole discretion, directly or
indirectly enters into a deferred payment or other credit transaction with any
purchaser at any sale of Collateral, Coast shall have the option, exercisable at
any time, in its sole discretion, of either reducing the Obligations by the
principal amount of purchase price or deferring the reduction of the Obligations
until the actual receipt by Coast of the cash therefor.
7.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth in
this Agreement, Coast shall have all the other rights and remedies accorded a
secured party under the California Uniform Commercial Code and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between Coast and Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
Coast of one or more of its rights or remedies shall not be deemed an election,
nor bar Coast from subsequent exercise or partial exercise of any other rights
or remedies. The failure or delay of Coast to exercise any rights or remedies
shall not operate as a waiver thereof, but all rights and remedies shall
continue in full force and effect until all of the Obligations have been fully
paid and performed.
8. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"ACCOUNT DEBTOR" means the obligor on a Receivable.
"AFFILIATE" means, with respect to any Person, a relative, partner, shareholder,
director, officer, or employee of such Person, or any parent or subsidiary of
such Person, or any Person controlling, controlled by or under common control
with such Person.
"BUSINESS DAY" means a day on which Coast is open for business.
"CODE" means the Uniform Commercial Code as adopted and in effect in the State
of California from time to time.
"COLLATERAL" has the meaning set forth in Section 2.1 above.
"DEFAULT" means any event which with notice or passage of time or both, would
constitute an Event of Default.
"DEPOSIT ACCOUNT" has the meaning set forth in Section 9105 of the Code.
"ELIGIBLE INVENTORY" means Inventory which Coast, in its sole judgment, deems
eligible for borrowing, based on such considerations as Coast may from time to
time deem appropriate. Without limiting the fact that the determination of
which Inventory is eligible for borrowing is a matter of Coast's discretion,
Inventory which does not meet the following requirements will not be deemed to
be Eligible Inventory: Inventory which (i) consists of finished goods, in good,
new and salable condition which is not perishable, not obsolete or
unmerchantable, and is not comprised of raw materials (other than Components),
work in process, packaging materials or supplies; (ii) meets all applicable
governmental standards; (iii) has been manufactured in compliance with the Fair
Labor Standards Act; (iv) conforms in all respects to the warranties and
representations set forth in this Agreement; (v) is at all times subject to
Coast's duly perfected, first priority security interest; and (vi) is situated
at a one of the locations set forth on the Schedule. Without Coast's prior
written consent, no Inventory of Insight Imaging Sytems, Inc. shall be Eligible
Inventory after 120 days from the date of this Agreement, subject to an
extension of 30 days at the discretion of Coast, reasonably exercised.
"ELIGIBLE RECEIVABLES" means Receivables arising in the ordinary course of
Borrower's business from the sale of goods or rendition of services, which
Coast, in its good faith business judgment, shall deem eligible for borrowing,
based on such considerations as Coast may from time to time deem appropriate.
Without Coast's prior written consent, no Receivables of Insight Imaging
Systems, Inc. shall be Eligible Receivables after 120 days from the date of this
Agreement.
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"EQUIPMENT" means all of Borrower's present and hereafter acquired machinery,
molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible
personal property (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions or improvements to any of the foregoing, wherever
located.
"EVENT OF DEFAULT" means any of the events set forth in Section 7.1 of this
Agreement.
"GENERAL INTANGIBLES" means all general intangibles of Borrower, whether now
owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, inventions, designs, drawings, blueprints, patents,
patent applications, trademarks and the goodwill of the business symbolized
thereby, names, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, security and other deposits, rights in
all litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, all claims of Borrower against Coast, rights to purchase or sell real
or personal property, rights as a licensor or licensee of any kind, royalties,
telephone numbers, proprietary information, purchase orders, and all insurance
policies and claims (including without limitation life insurance, key man
insurance, credit insurance, liability insurance, property insurance and other
insurance), tax refunds and claims, computer programs, discs, tapes and tape
files, claims under guaranties, security interests or other security held by or
granted to Borrower, all rights to indemnification and all other intangible
property of every kind and nature (other than Receivables).
"INVENTORY" means all of Borrower's now owned and hereafter acquired goods,
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease (including without limitation
all raw materials, work in process, finished goods and goods in transit, and
including without limitation all farm products), and all materials and supplies
of every kind, nature and description which are or might be used or consumed in
Borrower's business or used in connection with the manufacture, packing,
shipping, advertising, selling or finishing of such goods, merchandise or other
personal property, and all warehouse receipts, documents of title and other
documents representing any of the foregoing.
"MAXIMUM DOLLAR AMOUNT" has the meaning set forth in Section 1 of the Schedule.
"OBLIGATIONS" means all present and future Loans, advances, debts, liabilities,
obligations, guaranties, covenants, duties and indebtedness at any time owing by
Borrower to Coast, whether evidenced by this Agreement or any note or other
instrument or document, whether arising from an extension of credit, opening of
a letter of credit, banker's acceptance, loan, guaranty, indemnification or
otherwise, whether direct or indirect (including, without limitation, those
acquired by assignment and any participation by Coast in Borrower's debts owing
to others), absolute or contingent, due or to become due, including, without
limitation, all interest, charges, expenses, fees, attorney's fees, expert
witness fees, audit fees, letter of credit fees, collateral monitoring fees,
closing fees, facility fees, termination fees, minimum interest charges and any
other sums chargeable to Borrower under this Agreement or under any other
present or future instrument or agreement between Borrower and Coast.
"PERMITTED LIENS" means the following: (i) purchase money security interests in
specific items of Equipment; (ii) leases of specific items of Equipment; (iii)
liens for taxes not yet payable; (iv) additional security interests and liens
consented to in writing by Coast, which consent shall not be unreasonably
withheld; (v) security interests being terminated substantially concurrently
with this Agreement; (vi) liens of materialmen, mechanics, warehousemen,
carriers, or other similar liens arising in the ordinary course of business and
securing obligations which are not delinquent; (vii) liens incurred in
connection with the extension, renewal or refinancing of the indebtedness
secured by liens of the type described above in clauses (i) or (ii) above,
provided that any extension, renewal or replacement lien is limited to the
property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; (viii)
liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods. Coast will have the
right to require, as a condition to its consent under subparagraph (iv) above,
that the holder of the additional security interest or lien sign an
intercreditor agreement on Coast's then standard form, acknowledge that the
security interest is subordinate to the security interest in favor of Coast, and
agree not to take any action to enforce its subordinate security interest
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so long as any Obligations remain outstanding, and that Borrower agree that any
uncured default in any obligation secured by the subordinate security interest
shall also constitute an Event of Default under this Agreement.
"PERSON" means any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation, government, or any
agency or political division thereof, or any other entity.
"RECEIVABLES" means all of Borrower's now owned and hereafter acquired accounts
(whether or not earned by performance), letters of credit, contract rights,
chattel paper, instruments, securities, documents and all other forms of
obligations at any time owing to Borrower, all guaranties and other security
therefor, all merchandise returned to or repossessed by Borrower, and all rights
of stoppage in transit and all other rights or remedies of an unpaid vendor,
lienor or secured party.
OTHER TERMS. All accounting terms used in this Agreement, unless otherwise
indicated, shall have the meanings given to such terms in accordance with
generally accepted accounting principles, consistently applied. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meanings
provided by the Code, to the extent such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 INTEREST COMPUTATION. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by Coast (including
proceeds of Receivables and payment of the Obligations in full) shall be deemed
applied by Coast on account of the Obligations three Business Days after receipt
by Coast of immediately available funds, and, for purposes of the foregoing, any
such funds received after 10:30 AM on any day shall be deemed received on the
next Business Day. Coast shall not, however, be required to credit Borrower's
account for the amount of any item of payment which is unsatisfactory to Coast
in its sole discretion, and Coast may charge Borrower's loan account for the
amount of any item of payment which is returned to Coast unpaid.
9.2 APPLICATION OF PAYMENTS. All payments with respect to the Obligations may
be applied, and in Coast's sole discretion reversed and re-applied, to the
Obligations, in such order and manner as Coast shall determine in its sole
discretion.
9.3 CHARGES TO ACCOUNTS. Coast may, in its discretion, require that Borrower
pay monetary Obligations in cash to Coast, or charge them to Borrower's Loan
account, in which event they will bear interest at the same rate applicable to
the Loans. Coast may also, in its discretion, charge any monetary Obligations
to Borrower's Deposit Accounts maintained with Coast.
9.4 MONTHLY ACCOUNTINGS. Coast shall provide Borrower monthly with an account
of advances, charges, expenses and payments made pursuant to this Agreement.
Such account shall be deemed correct, accurate and binding on Borrower and an
account stated (except for reverses and reapplications of payments made and
corrections of errors discovered by Coast), unless Borrower notifies Coast in
writing to the contrary within thirty days after each account is rendered,
describing the nature of any alleged errors or admissions.
9.5 NOTICES. All notices to be given under this Agreement shall be in writing
and shall be given either personally or by reputable private delivery service or
by regular first-class mail, or certified mail return receipt requested,
addressed to Coast or Borrower at the addresses shown in the heading to this
Agreement, or at any other address designated in writing by one party to the
other party. Notices to Coast shall be directed to the Commercial Finance
Division, to the attention of the Division Manager or the Division Credit
Manager. All notices shall be deemed to have been given upon delivery in the
case of notices personally delivered, or at the expiration of one Business Day
following delivery to the private delivery service, or two Business Days
following the deposit thereof in the United States mail, with postage prepaid.
9.6 SEVERABILITY. Should any provision of this Agreement be held by any court
of competent jurisdiction to be void or unenforceable, such defect shall not
affect the remainder of this Agreement, which shall continue in full force and
effect.
9.7 INTEGRATION. This Agreement and such other written agreements, documents
and instruments as may be executed in connection herewith are the final, entire
and complete agreement between Borrower and Coast and supersede all prior and
contemporaneous negotiations and oral representations and agreements, all of
which are merged and integrated in this Agreement. THERE ARE NO ORAL
UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES WHICH ARE NOT
SET FORTH IN THIS AGREEMENT OR IN OTHER WRITTEN AGREEMENTS SIGNED BY THE PARTIES
IN CONNECTION HEREWITH.
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<PAGE>
9.8 WAIVERS. The failure of Coast at any time or times to require Borrower to
strictly comply with any of the provisions of this Agreement or any other
present or future agreement between Borrower and Coast shall not waive or
diminish any right of Coast later to demand and receive strict compliance
therewith. Any waiver of any default shall not waive or affect any other
default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Coast shall be deemed to have been waived
by any act or knowledge of Coast or its agents or employees, but only by a
specific written waiver signed by an authorized officer of Coast and delivered
to Borrower. Borrower waives demand, protest, notice of protest and notice of
default or dishonor, notice of payment and nonpayment, release, compromise,
settlement, extension or renewal of any commercial paper, instrument, account,
General Intangible, document or guaranty at any time held by Coast on which
Borrower is or may in any way be liable, and notice of any action taken by
Coast, unless expressly required by this Agreement.
9.9 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither Coast, nor any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Coast shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower
or any other party through the ordinary negligence of Coast, or any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Coast, but nothing herein shall relieve Coast from
liability for its own gross negligence or willful misconduct.
9.10 AMENDMENT. The terms and provisions of this Agreement may not be waived
or amended, except in a writing executed by Borrower and a duly authorized
officer of Coast.
9.11 TIME OF ESSENCE. Time is of the essence in the performance by Borrower of
each and every obligation under this Agreement.
9.12 ATTORNEYS FEES, COSTS AND CHARGES. Borrower shall reimburse Coast for all
reasonable attorneys' fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by Coast, pursuant to, or
in connection with, or relating to this Agreement (whether or not a lawsuit is
filed), including, but not limited to, any reasonable attorneys' fees and costs
Coast incurs in order to do the following: prepare and negotiate this Agreement
and the documents relating to this Agreement; obtain legal advice in connection
with this Agreement or Borrower; enforce, or seek to enforce, any of its rights;
prosecute actions against, or defend actions by, Account Debtors; commence,
intervene in, or defend any action or proceeding; initiate any complaint to be
relieved of the automatic stay in bankruptcy; file or prosecute any probate
claim, bankruptcy claim, third-party claim, or other claim; examine, audit,
copy, and inspect any of the Collateral or any of Borrower's books and records;
protect, obtain possession of, lease, dispose of, or otherwise enforce Coast's
security interest in, the Collateral; and otherwise represent Coast in any
litigation relating to Borrower. If either Coast or Borrower files any lawsuit
against the other predicated on a breach of this Agreement, the prevailing party
in such action shall be entitled to recover its reasonable costs and attorneys'
fees, including (but not limited to) reasonable attorneys' fees and costs
incurred in the enforcement of, execution upon or defense of any order, decree,
award or judgment. Borrower shall also pay Coast's standard charges for
returned checks and for wire transfers, in effect from time to time. All
attorneys' fees, costs and charges to which Coast may be entitled pursuant to
this Paragraph may be charged by Coast to Borrower's loan account and shall
thereafter bear interest at the same rate as the Receivable Loans.
9.13 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective successors, assigns, heirs,
beneficiaries and representatives of Borrower and Coast; provided, however, that
Borrower may not assign or transfer any of its rights under this Agreement
without the prior written consent of Coast, and any prohibited assignment shall
be void. No consent by Coast to any assignment shall release Borrower from its
liability for the Obligations.
9.14 JOINT AND SEVERAL LIABILITY. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
9.15 LIMITATION OF ACTIONS. Any claim or cause of action by Borrower against
Coast, its directors, officers, employees, agents, accountants or attorneys,
based upon, arising from, or relating to this Loan Agreement, or any other
present or future document or agreement, or any other transaction contemplated
hereby or thereby or relating hereto or thereto, or any other matter, cause or
thing whatsoever, occurred, done, omitted or suffered to be done by Coast, its
directors, officers, employees,
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agents, accountants or attorneys, shall be barred unless asserted by Borrower by
the commencement of an action or proceeding in a court of competent jurisdiction
by the filing of a complaint within one year after the first act, occurrence or
omission upon which such claim or cause of action, or any part thereof, is
based, and the service of a summons and complaint on an officer of Coast, or on
any other person authorized to accept service on behalf of Coast, within thirty
(30) days thereafter. Borrower agrees that such one-year period is a reasonable
and sufficient time for Borrower to investigate and act upon any such claim or
cause of action. The one-year period provided herein shall not be waived,
tolled, or extended except by the written consent of Coast in its sole
discretion. This provision shall survive any termination of this Loan Agreement
or any other present or future agreement.
9.16 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used in
this Agreement for convenience. Borrower and Coast acknowledge that the
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. The term
"including", whenever used in this Agreement, shall mean "including (but not
limited to)". This Agreement has been fully reviewed and negotiated between the
parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against Coast or Borrower under any rule
of construction or otherwise.
9.17 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of Coast and Borrower
shall be governed by the laws of the State of California. As a material part of
the consideration to Coast to enter into this Agreement, Borrower (i) agrees
that all actions and proceedings relating directly or indirectly to this
Agreement shall, at Coast's option, be litigated in courts located within
California, and that the exclusive venue therefor shall be Los Angeles County;
(ii) consents to the jurisdiction and venue of any such court and consents to
service of process in any such action or proceeding by personal delivery or any
other method permitted by law; and (iii) waives any and all rights Borrower may
have to object to the jurisdiction of any such court, or to transfer or change
the venue of any such action or proceeding.
9.18 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND COAST EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN COAST AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF COAST OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH COAST OR BORROWER, IN ALL
OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
BORROWER:
NEW IMAGE INDUSTRIES, INC.
By /s/ Harold R. Orr
------------------------------
Harold R. Orr - CFO
INSIGHT IMAGING SYSTEMS, INC.
By /s/ Harold R. Orr
------------------------------
Harold R. Orr - CFO
COAST:
COAST BUSINESS CREDIT, a division of Southern Pacific Thrift & Loan
Association
By
------------------------------
Title
---------------------------
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COAST
SCHEDULE TO AMENDED AND RESTATED LOAN
AND SECURITY AGREEMENT
BORROWERS: NEW IMAGE INDUSTRIES, INC.
INSIGHT IMAGING SYSTEMS, INC.
ADDRESS: 2283 COSMOS COURT
CARLSBAD, CALIFORNIA 92009
DATE: MAY __, 1996
This Schedule forms an integral part of the Amended and Restated Loan and
Security Agreement of even date between Coast Business Credit, a division of
Southern Pacific Thrift & Loan Association, and the above-borrowers. All dollar
limitations herein represent aggregate maximums for both Borrowers.
1. CREDIT LIMIT
(Section 1.1): Loans in an amount not to exceed the lesser of a total
of $4,000,000 at any one time outstanding (the "Maximum
Dollar Amount"), or the sum of (a), (b) and (c):
(a) Loans (the "Receivable Loans") in an amount
not to exceed 80% of the amount of Borrower's
Eligible Receivables (as defined in Section 8
above), which are not more than 90 days old from
invoice date, including foreign Eligible
Receivables supported by letters of credit or
credit insurance assigned to Coast and otherwise
acceptable to Coast, plus 50% of foreign Eligible
Receivables due from account debtors which have a
verifiable credit history, shipped to a foreign
subsidiary of a large United States or Canadian
company with a demonstrated credit history or
shipped to a foreign corporation with a D&B rating
or similar rating agency equivalent to a 3A2 or
better and subject to credit review but otherwise
always at the sole discretion of Coast, plus
(b) Loans (the "Inventory Loans") in an amount
not to exceed the lesser of:
<PAGE>
(1) 50% of the value of Borrower's component
Eligible Inventory (being printers, monitors,
cameras and assembly parts) and 40% of the
value of Borrower's Eligible Inventory
consisting of finished goods, located at 2283
Cosmos Court, Carlsbad, California 92009, or
981 D Industrial Road, San Carlos, California
94070, for 120 days from the date hereof
subject to the possible extensions referenced
in Section 8 hereof, calculated at the lower
of cost or market value and determined on a
first-in, first-out basis, or
(2) $1,250,000; plus
(c) An equipment acquisition facility of up to
$500,000 with advances of 80% of new
equipment acceptable to Coast, less
installation charges and taxes and/or 80% of
the appraised forced liquidation value of
used equipment acceptable to Coast, less
installation charges and taxes. This
facility shall have minimum incremental draws
of $100,000. Each advance shall be payable
based on a thirty-six month amortization.
Letter of Credit Sublimit
(Section 1.5): $1,000,000
2. INTEREST.
Interest Rate
(Section 1.2): A rate equal to the "Prime Rate" plus 2.25% per annum,
calculated on the basis of a 360-day year for the
actual number of days elapsed. The interest rate
applicable to all Loans shall be adjusted monthly as of
the first day of each month, and the interest to be
charged for each month shall be based on the highest
"Prime Rate" in effect during said month, but in no
event shall the rate of interest charged on any Loans
in any month be less than 10% per annum. "Prime Rate"
means the actual "Reference Rate" or the substitute
therefor of the Bank of America NT & SA whether or not
that rate is the lowest interest rate charged by said
bank. If the Prime Rate, as defined, is unavailable,
"Prime Rate" shall mean the "Prime Rate" published in
the "Money Rates" column of the Wall Street Journal on
the first business day of
2
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the month, as the base rate on corporate loans posted
by at least 75% of the nations 30 largest banks.
Minimum Monthly
Interest (Section 1.2): $12,000 per month.
3. FEES (Section 1.3):
Loan Fee: $15,000, payable concurrently with this increase of
$1,500,000 in the Maximum Dollar Amount.
Facility Fee: $4,500, per calendar quarter, payable in advance (which
increases by $1,000 the facility fee referenced in the
April 17, 1996 Loan and Security Agreement).
Letter of
Credit Fees: 2.25% of the face amount of all standby letters of
credit and .125% of the face amount of all other
letters of credit, plus a fee of .125% of the face
amount of any drawn documentary letters of credit, plus
all normal and applicable bank fees and charges. After
the first anniversary of this Agreement, Coast reserves
the right, in its discretion, to adjust the letter of
credit fees if it determines, in its reasonable credit
judgement, that the pricing for the opening or guaranty
of letters of credit has changed.
4. MATURITY DATE.
(Section 6.1): May 1, 1997, subject to automatic renewal as provided
in Section 6.1 above, and early termination as provided
in Section 6.2 above.
Early Termination Fee
(Section 6.2): $8,500 multiplied by the number of full or partial
months from the effective date of termination to the
Maturity Date.
5. REPORTING.
(Section 5.3):
Borrower shall provide Coast with the following:
1. Monthly Receivable agings, aged by invoice date,
within ten days after the end of each month.
2. Monthly accounts payable agings, aged by invoice
date, and outstanding or held check registers
within ten days after the end of each month.
3
<PAGE>
3. Monthly perpetual inventory reports for the
Inventory valued on a first-in, first-out basis at
the lower of cost or market (in accordance with
generally accepted accounting principles) or such
other inventory reports as are reasonably
requested by Coast, all within ten days after the
end of each month.
4. Monthly internally prepared financial statements,
as soon as available, and in any event within
thirty days after the end of each month.
5. Quarterly internally prepared financial
statements, as soon as available, and in any event
within forty-five days after the end of each
fiscal quarter of Borrower.
6. Quarterly customer lists, including customer name,
address, and phone number.
7. Annual financial statements, as soon as available,
and in any event within 90 days following the end
of Borrower's fiscal year, certified by
independent certified public accountants
acceptable to Coast.
6. BORROWER INFORMATION:
Prior Names of Styles on Video, I.M.A.G.E. and
Borrower New Image Salon Systems
(Section 3.2):
Prior Trade
Names of Borrower
(Section 3.2): None
Existing Trade AcuCam, New Image, AcuChart, AcuPrinter,
Names of Borrower AcuCam PC, AcuView, AcuRay, MultiCam
(Section 3.2): and System One
Other Locations 20700-B Denker Ave.,
and Addresses Torrance, California 90501
(Section 3.3):
9700 Toledo Way
Irvine, California 92718
981 D Industrial Road
San Carlos, California 94070
Material Adverse
4
<PAGE>
Litigation None
(Section 3.10):
5
<PAGE>
7. OTHER COVENANTS
(Section 5.1): Borrower shall at all times comply with all of the
following additional covenants:
(1) In addition to all other conditions precedent
to Coast's obligation to extend financing to
Borrower hereunder, in no event shall Coast have
any obligation to advance the initial funds unless
(a) there is excess borrowing availability, after
deducting the initial advances, of at least
$500,000, (b) Borrower does not have any accounts
payable more than 90 days old unless scheduled by
written agreement, disputed in good faith or
reserved by Coast against borrowing availability,
(c) all taxes have been currently paid, and (d)
not less than $950,000 shall have been contributed
to the equity of Borrower in a manner acceptable
to Coast or shall be represented by debt
acceptable to Coast which is subordinated to the
Obligations. (2) Borrower has informed Coast
that Borrower may be issuing subordinated debt to
one or more entities. While the issuance of any
subordinated debt is subject to the approval of
Coast, in its reasonable credit judgment, Coast
will generally not object to the debt so long as
it does not exceed $500,000 in the aggregate, the
obligations are unsecured, interest does not
exceed 10% payable quarterly, principal payments
will not be due for at least two years from the
date hereof, there will be no cross default rights
and, at Coast's option, the debt will be subject
to a Subordination Agreement to be entered into
among Coast, the subordinated debt holder and
Borrower in form and substance reasonably
satisfactory to Coast. Such Subordination
Agreement will provide, among other things, that
there must be at least $100,000 of borrowing
availability, including any contemplated
subordinated debt payments, before any principal
payments on the subordinated debt may be made.
6
<PAGE>
Borrower: Coast:
NEW IMAGE INDUSTRIES, INC. COAST BUSINESS CREDIT, a division of
Southern Pacific Thrift & Loan
Association
By: /s/ Harold R. Orr By:
-------------------------- -------------------------------
CFO Barbara Nitkin, Vice President
INSIGHT IMAGING SYSTEMS, INC.
By: /s/ Harold R. Orr
--------------------------
CFO
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EXHIBIT 10.3
SERIES A SUBORDINATED PROMISSORY NOTE
(UNSECURED)
$++ ++, California
"Note Date": ++, 1996
FOR VALUE RECEIVED, INSIGHT IMAGING SYSTEMS, INC., a California corporation
("Borrower" or "Insight") promises to pay to ++ ("Payee") at ++, or such other
place as Payee may designate from time to time by written notice to Borrower, in
lawful money of the United States, the principal sum of ++ ($++) with interest
at the rate of ten percent (10.0%) per annum.
1. PAYMENTS.
1.1 Commencing on June 30, 1996 and on each September 30, December
31, March 31 and June 30 thereafter until this Note has been paid in full,
payments of interest only shall be payable.
1.2 On May 17, 1998, a principal only payment in the amount of 44% of
the principal sum shall be payable.
1.3 If not sooner paid, the entire unpaid principal balance, together
with any accrued and unpaid interest shall be due and payable on May 17, 1999
("MATURITY DATE").
2. SUBORDINATION CLAUSES.
2.1 SENIOR DEBT. This note shall be subordinate to up to $8 million
of amounts identified by Borrower ("Senior Debt") owing under loans to Borrower
(including loans currently in place or hereafter arising and in whatever amount
whether such future loans are in a total amount which is more or less than the
amounts owing under loans existing on the date hereof), whether secured or
unsecured, including amounts owing under Borrower's equipment leases (including
leases currently in place or hereafter arising in whatever amount whether such
future lease payment obligations are in a total amount which is more or less
than the lease payment obligations owing on the date hereof). For this purpose
"loan" shall include any cash advance and the face amount of any letter of
credit issued for the account of Borrower. In the event of liquidation of the
Borrower, Payee will not be entitled to payment until such Senior Debt has been
paid in full. In the event Borrower is acquired and becomes a wholly-owned
subsidiary of another person or entity ("acquiror") or all of its assets are
sold and its obligations assumed by another person or entity ("transferee"),
Payee agrees that the acquiror or transferee, as the case may be, shall have the
benefit of this Agreement and Senior Debt shall thereupon be amended to include
all loans (as defined herein) to the acquiror or transferee, as the case may be,
whether secured or unsecured, including amounts owing under equipment leases
with the same effect as if such loan
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or equipment lease had been made to Borrower as such are identified as Senior
Debt by Borrower. In the event of such an acquisition or transfer, the
combination of Insight and the acquiror or transferee, as the case may be, is
referred to as the "Combined Companies."
2.2 AUTOMATIC EXTENSION OF INTEREST AND PRINCIPAL PAYMENTS DUE DATES
UNDER CERTAIN CIRCUMSTANCES. No interest or principal payment shall be paid
under this Note or any other Series A Subordinated Note of Borrower ("Series A
Note") to the extent that Borrower and/or the Combined Companies, as the case
may be, is or are in default under any of the Senior Debt or if, on the date
such interest or principal payment is due after taking into account such
principal payment, there will be less than Two Hundred Fifty Thousand
($250,000.00) of "Borrowing Availability" under the principle credit facility
for Borrower or the Combined Companies, as the case may be. For this purpose,
Borrowing Availability means the amount which Borrower or the Combined
Companies, as the case may be, is eligible to borrow under its or their
principle revolving credit facility after deducting from total availability
under such facility the total of (a) the advances made thereunder plus (b) the
amounts of any letters of credit issued for the account of Borrower or the
Combined Companies, as the case may be. If any interest or principal payment
due under this Note, or portion thereof, is not permitted to be made pursuant to
this Paragraph 2, the due date for such interest or principal payment, or
portion thereof, shall be extended until the date upon which there is at least
Two Hundred Fifty Thousand ($250,000.00) of Borrowing Availability (both before
and after such payment, or portion thereof, is made).
2.3 AGREEMENT TO ENTER INTO WRITTEN SUBORDINATION AGREEMENT WITH
HOLDERS OF SENIOR DEBT. Payee agrees to enter into such written subordination
agreements as any holder of Senior Debt shall reasonably request; and to confirm
the subordinated status of amounts owing under this Note from time to time as
holders of Senior Debt may reasonably require.
3. SERIES A NOTES. This Note is one of a series of Insight subordinated
unsecured notes aggregating up to $850,000 which are denominated Series A
Subordinated Notes ("Series A Notes"). Insight represents that except for the
principal sum and the payee, all Series A Notes have identical terms. Insight
covenants with payee that any payment on this Note of less than the full amount
then due will be pro rata to amounts paid on all Series A Notes based on the
principal amounts owing.
4. APPLICATION OF PAYMENTS. All payments received shall be applied first
to accrued interest then due, then to principal.
5. NO ASSIGNMENT. Payee shall not assign this Note.
6. WAIVERS. Borrower waives diligence, presentment, protest and demand
and also notice of protest, demand, dishonor and nonpayment of this Note, and
expressly agrees that this Note, or any payment hereunder may be extended from
time to time, all without in anyway affecting the liability of Borrower. The
right to plead any and all statutes of limitations as a defense to any demand on
this Note or any and all obligations or liabilities arising out of or in
connection with this Note is expressly waived by Borrower to the fullest extent
permitted by law.
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No extension of the time for the payment of this Note, or any installment
hereof, made by agreement by Payee with any person now or hereafter liable for
the payment of this Note shall affect the original liability under the terms of
this Note by Borrower even if Borrower is not a party to such agreement.
7. GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of California.
EXECUTED as of the Note Date.
BORROWER:
Insight Imaging Systems, Inc.,
a California corporation
By:
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Mark Stevens, President
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