CREDIT AGREEMENT
This Agreement is made by and between Photomatrix, Inc. ("Borrower")
and Imperial Bank, a California banking corporation ("Bank").
Subject to the terms and conditions of this Agreement, any security
agreement(s) executed by Borrower in favor of Bank, any note(s) executed by
Borrower in favor Bank, or any other agreements executed in conjunction
therewith (collectively, the "Loan Documents"), Bank shall make a term loan to
Borrower in an amount not to exceed $600,000.00, maturing on June 29, 2002. To
induce Bank to make loans to Borrower and in consideration of any loan or loans
Bank may make to Borrower, Borrower warrants and agrees as follows:
1. REPRESENTATIONS OF BORROWER
Borrower represents and warrants that:
1.01 Existence and Rights. Borrower is a corporation duly organized and
existing and in good standing under the laws of California, without limit as to
the duration of its existence and is authorized and in good standing to do
business in the State of California; Borrower has corporate powers and adequate
authority, rights and franchises to own its property and to carry on its
business as now conducted, and is duly qualified and in good standing in each
State in which the character of the properties owned by it therein or the
conduct of its business makes such qualification necessary; and Borrower has the
power and adequate authority to make and carry out this Agreement.
1.02 Agreement Authorized. The execution, delivery and performance of
this Agreement are duly authorized and do not require the consent or approval of
any governmental body or other regulatory authority; are not in contravention of
or in conflict with any law or regulation or any term or provision of Borrower's
articles of incorporation, by-laws, as the case may be, and this Agreement is
the valid, binding and legally enforceable obligation of Borrower in accordance
with its terms; subject only to bankruptcy, insolvency or similar laws affecting
creditors rights generally.
1.03 No Conflict. The execution, delivery and performance of this
Agreement are not in contravention of or in conflict with any agreement,
indenture or undertaking to which Borrower is a party or by which it or any of
its property may be bound or affected, and do not cause any lien, charge or
other encumbrance to be created or imposed upon any such property by reason
thereof.
1.04 Litigation. There is no litigation or other proceeding pending or
threatened against or affecting Borrower which if determined adversely to
Borrower or its interest would have a material adverse effect on the financial
condition of Borrower, and Borrower is not in default with respect to any order,
writ, injunction, decree or demand of any court or other governmental or
regulatory authority.
1.05 Financial Condition. The balance sheet of Borrower as of March 31,
1998, a copy of which has heretofore been delivered to Bank by Borrower, and all
other statements and data submitted in writing by Borrower to Bank in connection
with this request for credit are true and correct, and said balance sheet truly
presents the financial condition of Borrower as of the date thereof, and has
been prepared in accordance with generally accepted accounting principles on a
basis consistently maintained. Since such date, there have been no material
adverse changes in the financial condition or business of Borrower. Borrower has
no knowledge of any liabilities, contingent or otherwise, at such date not
reflected in said balance sheet, and Borrower has not entered into any special
commitments or substantial contracts which are not reflected in said balance
sheet, other than in the ordinary and normal course of its business, which may
have a materially adverse effect upon its financial condition, operations or
business as now conducted.
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1.06 Title to Assets. Borrower has good title to its assets, and the
same are not subject to any liens or encumbrances other than those permitted by
Section 3.03 hereof.
1.07 Tax Status. Borrower has no liability for any delinquent state,
local or federal taxes, and, if Borrower has contracted with any government
agency, Borrower has no liability for renegotiation of profits.
1.08 Trademarks, Patents. Borrower, as of the date hereof, possesses
all necessary trademarks, trade names, copyrights, patents, patent rights, and
licenses to conduct its business as now operated, without any known conflict
with the valid trademarks, trade names, copyrights, patents and license rights
of others.
1.09 Regulation U. The proceeds of any loan (the "Loan" or
collectively, if more than one, the "Loans") extended pursuant to the Loan
Documents shall not be used to purchase or carry margin stock (as defined within
Regulation U of the Board of Governors of the Federal Reserve system).
2. AFFIRMATIVE COVENANTS OF BORROWER
Borrower agrees that so long as it is indebted to Bank, under
borrowings, or other indebtedness, or so long as Bank has any obligation to
extend credit to Borrower, it will, unless Bank shall otherwise consent in
writing:
2.01 Rights and Facilities. Maintain and preserve all rights,
franchises and other authority adequate for the conduct of its business;
maintain its properties, equipment and facilities in good order and repair;
conduct its business in an orderly manner without voluntary interruption and, if
a corporation or partnership, maintain and preserve its existence.
2.02 Insurance. Maintain public liability, property damage and workers'
compensation insurance and insurance on all its insurable property against fire
and other hazards with responsible insurance carriers to the extent usually
maintained by similar businesses and/or in the exercise of good business
judgment and as to property insurance have Bank named as loss payee in an
Lenders "Loss Payable" Endorsement Form 438BFU or equivalent.
2.03 Taxes and Other Liabilities. Pay and discharge, before the same
become delinquent and before penalties accrue thereon, all taxes, assessments
and governmental charges upon or against it or any of its properties, and all
its other liabilities at any time existing, except to the extent and so long as:
a. The same are being contested in good faith and by appropriate
proceedings in such manner as not to cause any materially adverse
effect upon its financial condition or the loss of any right to
redemption from any sale thereunder; and
b. It shall have set aside on its books reserves (segregated to the
extent required by generally accepted accounting practice) deemed by it
adequate with respect thereto.
2.04 Financial Covenants.
a. Minimum Tangible Net Worth. Have and maintain Tangible Net Worth of
no less than $2,400,000.00 as of June 30, 1998, increasing to
$2,600,000.00 as of September 30, 1998, $3,200,000.00 as of December
31, 1998, and $3,500,000.00 thereafter. Tangible Net Work shall
increase at each fiscal year-end following fiscal 1999 by the sum of
50% of net income during the year (no reduction for losses) plus 100%
of any additional contributed equity. "Tangible Net Worth" is defined
as the excess of all assets (excluding any value for goodwill,
trademarks, patents, copyrights, organization expense and other similar
intangible items), over all liabilities.
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b. Maximum Leverage. Have and maintain Leverage of not more than
2.75:1. "Leverage" is defined as the sum of all liabilities divided by
Tangible Net Worth.
c. Minimum Debt Service Coverage. Debt Service Coverage shall be no
less than 1.25:1. "Debt Service Coverage" is defined as the following
ratio: [EBITDA less cash taxes] divided by the sum of [CPLTD at the end
of the period plus interest expense incurred during the most recent
quarter annualized]. The ratio will be calculated commencing with the
first full fiscal quarter after closing of Borrower's merger with I-PAC
Manufacturing, Inc., with EBITDA annualized during that first quarter,
the six-month period annualized following the second quarter, and the
nine-month period annualized following the third quarter, with a
rolling four-quarter period calculated quarterly thereafter.
2.05 Records and Reports. Maintain a standard and modern system of
accounting in accordance with generally accepted accounting principles on a
basis consistently maintained; permit Bank's representatives to have access to,
and to examine its properties, books and records at all reasonable times and
upon reasonable notice during normal business hours; and furnish Bank:
a. Monthly Financial Statement. Within thirty (30) days after the close
of each month of each fiscal year of Borrower, commencing with the
month next ending, a balance sheet, profit and loss statement, and
reconciliation of Borrower's capital accounts, as of the close of such
period and covering operations for the portion of Borrower's fiscal
year ending on the last day of such period, all in reasonable detail,
prepared in accordance with generally accepted accounting principles on
a basis consistently maintained by Borrower and certified by an
appropriate officer of Borrower;
b. Annual Financial Statement. As soon as available, and in any event
within one hundred twenty (120) days after the close of each fiscal
year of Borrower, a report of Company as of the close of and for each
fiscal year, all in reasonable detail, prepared on an audited basis by
an independent certified public accountant selected by Borrower and
reasonably acceptable to Bank, in accordance with generally accepted
accounting principles on a basis consistently maintained by Borrower
and certified by an appropriate officer of Borrower;
c. Other Information. Such other information relating to the affairs of
Borrower as the Bank reasonably may request from time to time;
d. Management Letter. In connection with each fiscal year end financial
statement furnished to Bank hereunder, any management letter of
Borrower's independent certified public accountant.
2.06 Notice of Default. Promptly notify Bank in writing of the
occurrence of any Event of Default hereunder or any event which upon notice and
lapse of time would be an Event of Default.
2.07 Operating Accounts. Maintain all primary accounts and banking
relationship with Bank during the term of any loans from Bank to Borrower.
Borrower shall maintain, or cause to be maintained, on deposit with Imperial
Bank, non-interest bearing demand deposit balances sufficient to compensate Bank
for all services provided by Bank. Balances shall be calculated after reduction
for the reserve requirement of the Federal Reserve Board and uncollected funds.
Any deficiencies shall be charged directly to the Borrower on a monthly basis.
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2.08 Attorneys' Fees. Pay promptly to Bank without demand after notice,
with interest thereon from the date of expenditure at the rate applicable to any
loans from Bank to Borrower, reasonable attorneys' fees and all costs and
expenses paid or incurred by Bank in collecting or compromising any such loan
after the occurrence of an Event of Default, whether or not suit is filed. If
suit is brought to enforce any provision of this Agreement, the prevailing party
shall be entitled to recover its reasonable attorneys' fees and court costs in
addition to any other remedy or recovery awarded by the court.
2.09 Documentation Fee. Pay to the Bank a $250.00 documentation fee on
the new term loan Bank facility.
3. NEGATIVE COVENANTS OF BORROWER
Borrower agrees that so long as it is indebted to Bank, or so long as
Bank has any obligation to extend credit to Borrower, it will not, without
Bank's written consent:
3.01 Type of Business; Management. Make any substantial change in the
character of its business; or make any change in its executive management
(Chairman of the Board, Chief Executive Officer, President, and Chief Financial
Officer).
3.02 Outside Indebtedness. Other than in the ordinary course of
business and consistent with past practices, create, incur, assume or permit to
exist any indebtedness for borrowed moneys, other than loans from the Bank,
except obligations now existing as shown in the financial statement dated March
31, 1998, excluding those obligations being refinanced by Bank.
3.03 Liens and Encumbrances. Other than in the ordinary course of
business and consistent with past practices, create, incur, or assume any
mortgage, pledge, encumbrance, lien or charge of any kind upon any asset now
owned, other than liens for taxes not delinquent and liens in Bank's favor,
except for those already existing as of March 31, 1998.
3.04 Loans, Investments, Secondary Liabilities. Make any loans or
advances to any person or other entity other than in the ordinary and normal
course of its business and consistent with past practices or make any investment
in the securities of any person or other entity other than the United States
Government; or guarantee or otherwise become liable upon the obligation of any
person or other entity, except by endorsement of negotiable instruments for
deposit or collection in the ordinary and normal course of its business and
consistent with past practices.
3.05 Acquisition or Sale of Business; Merger or Consolidation. Except
in the ordinary course of business, purchaser or otherwise acquire the assets or
business of any person or other entity; or liquidate, dissolve merge or
consolidate, or commence any proceedings therefor; or sell any assets except in
the ordinary course of its business consistent with past practices; or except in
the ordinary course of business, sell, lease assign or transfer any substantial
part of its business or fixed assets, or any property or other assets necessary
for the continuance of its business as now conducted, including without
limitation, the selling of any dividends, property or other asset accompanied by
the leasing back of the same.
3.06 Capital Expenditures. Make or incur obligations for capital
expenditures, which includes purchase money indebtedness or capital lease
obligations, in excess of $100,000 in any one fiscal year.
3.07 Lease Liability. Make or incur additional liability for payments
of rent under leases of real property in excess of $100,000 or personal property
in excess of $50,000 in any one fiscal year.
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4. EVENTS OF DEFAULT
The occurrence of any of the following events (each an "Event of
Default") shall, at Bank's option, terminate Bank's commitment to lend and make
all sums of principal and interest then remaining unpaid on all Borrower's
indebtedness to Bank immediately due and payable, all without demand,
presentment or notice, all of which are hereby expressly waived:
4.01 Failure to Pay. Failure to pay any installment of principal or
interest on any indebtedness of Borrower to Bank.
4.02 Breach of Covenant. Failure of Borrower to perform any other term
or condition of this Agreement binding upon Borrower.
4.03 Breach of Warranty. Any of Borrower's representations or
warranties made herein or any statement or certificate at any time given in
writing pursuant hereto or in connection herewith shall be false or misleading
in any respect.
4.04 Insolvency; Receiver or Trustee. Borrower shall become insolvent;
or admit its inability to pay its debts as they mature; or make an assignment
for the benefit of creditors; or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business.
4.05 Judgments, Attachments. Any money judgment, writ or warrant of
attachment, or similar process shall be entered or filed against Borrower or any
of its assets and shall remain unvacated, unbonded or unstayed for a period
later than five days prior to the date of any proposed sale thereunder.
4.06 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against Borrower and, if
instituted against it, shall be consented to.
5. MISCELLANEOUS PROVISIONS
5.01 Failure or Indulgence Not Waiver. No failure or delay on the part
of Bank or any holder of any note issued by Borrower to Bank, in the exercise of
any power, right or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power, right or privilege
preclude other or further exercise thereof or of any other right, power or
privilege. All rights and remedies existing under this Agreement or any note
issued in connection with a loan that Bank may make hereunder, are cumulative
to, and not exclusive of, any rights or remedies otherwise available.
5.02 Additional Remedies. The rights, powers and remedies given to Bank
hereunder shall be cumulative and not alternative and shall be in addition to
all rights, power and remedies given to Bank by law against Borrower or any
other person, including but not limited to Bank's rights of setoff or banker's
lien.
5.03 Inurement. The benefits of this Agreement shall inure to the
successors and assigns of Bank and the permitted successors and assigns of
Borrower.
5.04 Applicable Law. This Agreement and all other agreements and
instruments required by Bank in connection therewith shall be governed by and
construed according to the laws of the State of California, to the jurisdiction
of whose courts the parties hereby agree to submit.
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5.05 Offset. In addition to and not in limitation of all rights of
offset that Bank or other holder of any note issued by Borrower in favor of Bank
may have under applicable law, Bank or other holder of such notes shall, upon
the occurrence of any Event or Default or any event which with the passage of
time or notice would constitute such an Event of Default, have the right to
appropriate and apply to the payment of the outstanding under any such note any
and all balances, credits, deposits, accounts or monies of Borrower then and
thereafter with Bank or other holder, within ten (10) days after the Event of
Default, and notice of the occurrence of any Event of Default by Bank to
Borrower.
5.06 Severability. Should any one or more provisions of the Agreement
be determined to be illegal or unenforceable, all other provisions nevertheless
shall be effective.
5.07 Time of the Essence. Time is hereby declared to be of the essence
of this Agreement and of every part hereof.
5.08 Integration Clauses. Except for the Loan Documents, the Agreement
constitutes the entire agreement between Bank and Borrower regarding any loan or
loans from Bank to Borrower, and all prior communications verbal or written
between Borrower and Bank shall be of no further effect or evidentiary value. In
the event of a conflict or inconsistency among any other documents and
instruments and this Agreement, the provisions of this Agreement shall prevail.
5.09 Accounting. All accounting terms shall have the meanings applied
under generally accepted accounting principles unless otherwise specified.
5.10 Modification. This Agreement may be modified only by a writing
signed by both parties hereto.
6. GOVERNING LAW; JUDICIAL REFERENCE.
6.01 Governing Law. This Agreement shall be deemed to have been made in
the State of California and the validity, construction, interpretation, and
enforcement hereof, and the rights of the parties hereto, shall be determined
under, governed by, and construed in accordance with the internal laws of the
State of California, without regard to principles of conflicts of law.
6.02 Judicial Reference.
a. Other than (i) nonjudicial foreclosure and all matters in connection
therewith regarding security interests in real or personal property; or
(ii) the appointment of a receiver, or the exercise of other
provisional remedies (any and all of which may be initiated pursuant to
applicable law), each controversy, dispute or claim between the parties
arising out of or relating to the Loan Documents, which controversy,
dispute or claim is not settled in writing within thirty (30) days
after the "Claim Date" (defined as the date on which a party subject to
the Loan Documents gives written notice to all other parties that a
controversy, dispute or claim exists), will be settled by a reference
proceeding in California in accordance with the provisions of Section
638 et seq. of the California Code of Civil Procedure, or their
successor section ("CCP"), which shall constitute the exclusive remedy
for the settlement of any controversy, dispute or claim concerning the
Loan Documents, including whether such controversy, dispute or claim is
subject to the reference proceeding and except as set forth above, the
parties waive their rights to initiate any legal proceedings against
each other in any court or jurisdiction other than the Superior Court
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in the County where the Real Property, if any, is located or Los
Angeles County if none (the "Court"). The referee shall be a retired
Judge of the Court selected by mutual agreement of the parties, and if
they cannot so agree within forty-five (45) days after the Claim Date,
the referee shall be promptly selected by the Presiding Judge of the
Court (or his representative). The referee shall be appointed to sit as
a temporary judge, with all of the powers for a temporary judge, as
authorized by law, and upon selection should take and subscribe to the
oath of office as provided for in Rule 244 of the California Rules of
Court (or any subsequently enacted Rule). Each party sahll have one
peremptory challenge pursuant to CCP ss. 170.6. The referee shall (a)
be requested to set the matter of hearing within sixty (60) days after
the date of selection of the referee and (b) try any and all issues of
law or fact and report a statement of decision upon them, if possible,
within ninety (90) days of the Claim Date. Any decision rendered by the
referee will be final, binding and conclusive and judgment shall be
entered pursuant to CCP ss. 644 in any court in the State of California
having jurisdiction. Any party may apply for a reference proceeding at
any time after thirty (30) days following notice to any other party of
the nature of the controversy, dispute or claim, by filing a petition
for a hearing and/or trial. All discovery permitted by this Agreement
shall be completed not later than fifteen (15) days before the first
hearing date established by the referee. The referee may extend such
period in the event of a party's refusal to provide requested discovery
for any reason whatsoever, including, without limitation, legal
objections raised to such discovery or unavailability of a witness due
to absence or illness. No party shall be entitled to "priority" in
conducting discovery. Depositions may be taken by either party upon
seven (7) days written notice, and request for production or inspection
of documents shall be responded to within ten (10) days after service.
All disputes relating to discovery which cannot be resolved by the
parties shall be submitted to the referee whose decision shall be final
and binding upon the parties. Pending appointment of the referee as
provided herein, the Superior Court is empowered to issue temporary
and/or provisional remedies, as appropriate.
b. Except as expressly set forth in this Agreement, the referee shall
determine the manner in which the reference proceeding is conducted
including the time and place of all hearings, the order of presentation
of evidence, and all other questions that arise with respect to the
course of the reference proceeding. All proceedings and hearings
conducted before the referee, except for trial, shall be conducted
without a court reporter except that when any party so requests, a
court reporter will be used at any hearing conducted before the
referee. The party making such a request shall have the obligation to
arrange for and pay for the court reporter. The costs of the court
reporter at the trial shall be borne equally by the parties.
c. The referee shall be required to determine all issues in accordance
with existing case law and the statutory laws of the State of
California. The rules of evidence applicable to proceedings at law in
the State of California will be applicable to the reference proceeding.
The referee shall be empowered to enter equitable as well as legal
relief, to provide all temporary and/or provisional remedies and to
enter equitable orders that will be binding upon the parties. The
referee shall issue a single judgment at the close oft he reference
proceeding which shall dispose of all of the claims of the parties that
are the subject of the reference. The parties hereto expressly reserve
the right to contest or appeal from the final judgment or any
appealable order or appealable judgment entered by the referee. The
parties hereto expressly reserve the right to findings of fact,
conclusions of laws, a written statement of decision, and the right to
move for a new trial or a different judgment, which new trial, if
granted, is also to be a reference proceeding under this provision.
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d. In the event that the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is
enacted), any dispute between the parties that would otherwise be
determined by the reference procedure herein described will be resolved
and determined by arbitration. The arbitration will be conducted by a
retired judge of the Court, in accordance with the California
Arbitration Act, ss. 1280 through ss. 1294.2 of the CCP as amended from
time to time. The limitations with respect to discovery as set forth
hereinabove shall apply to any such arbitration proceeding.
This Agreement is executed on behalf of the parties by duly authorized
representatives as of June 11, 1998.
IMPERIAL BANK ("Bank")
By:________________________________________
▇▇▇▇ ▇▇▇▇▇▇▇, Vice President
Date:______________________________________
PHOTOMATRIX, INC. ("Borrower")
By:________________________________________
Date:______________________________________
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