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IMAGING TECHNOLOGIES CORPORATION
SUBORDINATED NOTE PURCHASE AGREEMENT
September 17, 1998
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TABLE OF CONTENTS
PAGE
Section 1 AUTHORIZATION AND SALE OF SUBORDINATED PROMISSORY NOTES AND WARRANTS 1
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1.1 AUTHORIZATION 1
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1.2 SALE OF SUBORDINATED NOTES AND WARRANTS. 1
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Section 2 CLOSING DATE; DELIVERY 1
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2.1 CLOSING DATE 1
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2.2 DELIVERY 1
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Section 3 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY 2
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3.1 ORGANIZATION AND STANDING 2
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3.2 CORPORATE POWER; AUTHORIZATION 2
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3.3 ISSUANCE AND DELIVERY OF THE SECURITIES 2
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3.4 GOVERNMENTAL CONSENTS 2
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3.5 SEC DOCUMENTS; FINANCIAL STATEMENTS 3
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3.6 NO MATERIAL MISSTATEMENT 3
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3.7 NO MATERIAL ADVERSE CHANGE 3
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3.8 USE OF PROCEEDS 3
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Section 4 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASERS 3
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4.1 AUTHORIZATION 4
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4.2 INVESTMENT EXPERIENCE 4
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4.3 INVESTMENT INTENT 4
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4.4 REGISTRATION OR EXEMPTION REQUIREMENTS 4
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4.5 NO LEGAL, TAX OR INVESTMENT ADVICE 4
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4.6 LEGENDS 4
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Section 5 CONDITIONS TO CLOSING OF PURCHASERS 5
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5.1 REPRESENTATIONS AND WARRANTIES 5
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5.2 PERFORMANCE 5
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5.3 QUALIFICATIONS 5
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5.4 COMPLIANCE CERTIFICATE 5
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5.5 FULL PARTICIPATION 5
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5.6 OPINION OF COMPANY COUNSEL 5
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Section 6 CONDITIONS TO CLOSING OF COMPANY 5
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6.1 REPRESENTATIONS AND WARRANTIES 6
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6.2 COVENANTS 6
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6.3 QUALIFICATIONS 6
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Section 7 MISCELLANEOUS 6
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7.1 AMENDMENTS AND WAIVERS 6
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7.2 GOVERNING LAW 6
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7.3 SURVIVAL 6
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7.4 SUCCESSORS AND ASSIGNS 6
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7.5 ENTIRE AGREEMENT 7
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7.6 NOTICES, ETC 7
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7.7 SEVERABILITY OF THIS AGREEMENT 7
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7.8 COUNTERPARTS 7
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7.9 FURTHER ASSURANCES 7
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7.10 EXPENSES 7
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7.11 ACKNOWLEDGMENT 7
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Schedule A -- Schedule of Purchasers
Schedule B -- Schedule of Exceptions
Exhibit A-1 -- Form of Non-Convertible Subordinated Promissory Note
Exhibit A-2 -- Form of Convertible Subordinated Promissory Note
Exhibit B -- Form of Warrant
Exhibit C -- Form of Opinion of Company Counsel
IMAGING TECHNOLOGIES CORPORATION
SUBORDINATED NOTE PURCHASE AGREEMENT
This Subordinated Note Purchase Agreement (the "Agreement") is made as of
September 17, 1998, by and among Imaging Technologies Corporation, a Delaware
corporation (the "Company"), with its principal office at 11031Via Frontera, Xxx
Xxxxx, Xxxxxxxxxx 00000, and the purchasers set forth on SCHEDULE A hereto (the
"Purchasers").
Section 1
AUTHORIZATION AND SALE OF SUBORDINATED PROMISSORY NOTES AND WARRANTS
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1.1 AUTHORIZATION. The Company has authorized the sale and issuance of
non-convertible subordinated promissory notes in the form of EXHIBIT A-1
attached hereto (the "Non-Convertible Notes") and convertible subordinated
promissory notes in the form of EXHIBIT A-2 attached hereto (the "Convertible
Notes" and together with the Non-Convertible Notes, the "Subordinated Notes") in
the aggregate principal amounts as set forth on Schedule A attached hereto under
the headings "Principal Amount of Non-Convertible Note" and "Principal Amount of
Convertible Note," respectively (collectively, the "Proceeds") and warrants in
the form of EXHIBIT B attached hereto ("the Warrants") to purchase up to the
number of shares of the Company's Common Stock (the "Common Stock") set forth
opposite each such Purchaser's name on SCHEDULE A hereto under the heading
"Number of Warrant Shares."
1.2 SALE OF SUBORDINATED NOTES AND WARRANTS. Subject to the terms and
conditions of this Agreement, the Company agrees to issue and sell to each
Purchaser, and each Purchaser agrees severally and not jointly to purchase from
the Company, both a Non-Convertible Note and a Convertible Note in the principal
amounts set forth opposite such Purchaser's name on SCHEDULE A attached hereto
under the headings "Principal Amount of Non-Convertible Note" and "Principal
Amount of Convertible Note," respectively (collectively, the "Purchase Price"),
and a Warrant to purchase up to the number of shares of Common Stock set forth
opposite the Purchaser's name on SCHEDULE A hereto under the heading "Number of
Warrant Shares.".
Section 2
CLOSING DATE; DELIVERY
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2.1 CLOSING DATE. The closing of the purchase and sale of the Subordinated
Notes hereunder (the "Closing") shall be held at the offices of Xxxxxx Xxxx LLP,
1600 Pioneer Tower, 000 XX Xxxxx Xxxxxx, Xxxxxxxx, Xxxxxx 00000, at 11:00a.m. on
September 17, 1998, or at such other time and place upon which the Company and
the Purchasers shall agree. The date of the Closing is hereinafter referred to
as the "Closing Date."
2.2 DELIVERY. At the Closing, the Company will deliver to each Purchaser a
Non-Convertible Note and a Convertible Note each made payable to such Purchaser
in the principal amounts as set forth opposite the Purchaser's name on SCHEDULE
A hereto under the headings "Principal Amount of Non-Convertible Note" and
"Principal Amount of Convertible Note," respectively, and a Warrant to purchase
up to the number of shares of Common Stock set forth opposite the Purchaser's
name on SCHEDULE A hereto under the heading "Number of Warrant Shares." Such
delivery shall be against payment of the purchase price therefor by check or
wire transfer to the Company in the amount of the Purchase Price.
Section 3
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
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The Company represents and warrants to each Purchaser as of the Closing
Date that, except as set forth on the Schedule of Exceptions attached hereto as
SCHEDULE B (the "Schedule of Exceptions"), which exceptions shall be deemed to
be representations and warranties as if made hereunder:
3.1 ORGANIZATION AND STANDING. The Company is a corporation duly organized
and validly existing under, and by virtue of, the laws of the State of Delaware
and is in good standing as a domestic corporation under the laws of said state.
3.2 CORPORATE POWER; AUTHORIZATION. The Company has all requisite legal and
corporate power and has taken all requisite corporate action to execute and
deliver this Agreement, to sell and issue the Subordinated Notes and the
Warrants (collectively, the "Securities") and to carry out and perform all of
its obligations under this Agreement and the Securities. This Agreement and the
Securities each constitute the legal, valid and binding obligation of the
Company, enforceable in accordance with their respective terms, except (i) as
limited by applicable bankruptcy, insolvency, reorganization or similar laws
relating to or affecting the enforcement of creditors' rights generally and (ii)
as limited by equitable principles generally. The execution and delivery of this
Agreement and the Securities does not, and the performance of this Agreement and
the Securities and the compliance with the provisions hereof and thereof and the
issuance, sale and delivery of the Securities by the Company will not,
materially conflict with, or result in a material breach or violation of the
terms, conditions or provisions of, or constitute a material default under, or
result in the creation or imposition of any material lien pursuant to the terms
of, the Certificate of Incorporation or Bylaws of the Company or any statute,
law, rule or regulation or any state or federal order, judgment or decree or any
indenture, mortgage, lease or other material agreement or instrument to which
the Company or any of its properties is subject.
3.3 ISSUANCE AND DELIVERY OF THE SECURITIES. The issuance and delivery of
the Securities is not subject to preemptive or any other similar rights of the
stockholders of the Company or any liens or encumbrances.
3.4 GOVERNMENTAL CONSENTS. No consent, approval, order or authorization of,
or registration, qualification, designation, declaration or filing with, any
federal, state, or local governmental authority on the part of the Company is
required in connection with the consummation of the transactions contemplated by
this Agreement except for: (i) the filing of a Notice of Transaction pursuant to
Section 25102(f) of the California Corporate Securities Law of 1968, as amended,
and the rules thereunder (the "Law"), which filing will be effected within the
time prescribed by law; and (ii) such other qualifications or filings under the
Securities Act of 1933, as amended (the "Securities Act"), and the regulations
thereunder and all other applicable securities laws as may be required in
connection with the transactions contemplated by this Agreement, which filings
will be effected within the time prescribed by law.
3.5 SEC DOCUMENTS; FINANCIAL STATEMENTS. As of their respective filing
dates, all documents (the "SEC Documents") filed by the Company with the
Securities and Exchange Commission (the "SEC") complied in all material respects
with the requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") or the Securities Act, as applicable. None of the SEC Documents
as of their respective dates contained any untrue statement of 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 under which they
were made, not misleading.
3.6 NO MATERIAL MISSTATEMENT None of the representations or warranties of
the Company contained in this Agreement or in the Securities, and none of the
other information furnished to Purchasers or their representatives in connection
with this Agreement, when considered as a whole, contains, or will contain, any
misstatement of a material fact or omits to state any fact necessary in light of
the circumstances under which made, to make those statements which have been
made, not misleading.
3.7 NO MATERIAL ADVERSE CHANGE. Except as otherwise disclosed herein, since
March31, 1998, there have not been any changes in the assets, liabilities,
financial condition, business prospects or operations of the Company from that
reflected in the SEC Documents except changes in the ordinary course of business
which have not been, either individually or in the aggregate, materially
adverse.
3.8 USE OF PROCEEDS. The Company shall use the Proceeds for the purposes of
redeeming outstanding shares of its Series C Preferred Stock and for working
capital.
Section 4
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASERS
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Each Purchaser hereby represents and warrants to the Company as of the
Closing Date as follows:
4.1 AUTHORIZATION. Purchaser represents and warrants to the Company that:
(i) Purchaser has all requisite legal and corporate or other power and capacity
and has taken all requisite corporate or other action to execute and deliver
this Agreement and his or its Securities, to purchase his or its Securities and
to carry out and perform all of his or its obligations under this Agreement; and
(ii) this Agreement and his or its Securities each constitute the legal, valid
and binding obligation of the Purchaser, enforceable in accordance with its
terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, or similar laws relating to or affecting the enforcement of
creditors' rights generally and (b) as limited by equitable principles
generally.
4.2 INVESTMENT EXPERIENCE. Purchaser is an "accredited investor" as defined
in Rule501(a) under the Securities Act. Purchaser is aware of the Company's
business affairs and financial condition and has had access to and has acquired
sufficient information about the Company to reach an informed and knowledgeable
decision to purchase his or its Securities. Purchaser has such business and
financial experience as is required to give it the capacity to protect his or
its own interests in connection with the purchase of his or its Securities.
4.3 INVESTMENT INTENT. Purchaser is purchasing his or its Securities for
his or its own account as principal, for investment purposes only, and not with
a present view to, or for, resale, distribution or fractionalization thereof, in
whole or in part, within the meaning of the Securities Act. Purchaser
understands that its acquisition of his or its Securities has not been
registered under the Securities Act or registered or qualified under any state
securities law in reliance on specific exemptions therefrom, which exemptions
may depend upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein. Purchaser has, in connection with his or
its decision to purchase his or its Securities, relied solely upon the SEC
Documents and the representations and warranties of the Company contained
herein. Purchaser will not, directly or indirectly, offer, sell, pledge,
transfer or otherwise dispose of (or solicit any offers to buy, purchase or
otherwise acquire or take a pledge of) his or its Securities except in
compliance with the Securities Act, and the rules and regulations promulgated
thereunder.
4.4 REGISTRATION OR EXEMPTION REQUIREMENTS. Purchaser further acknowledges
and understands that his or its Securities may not be resold or otherwise
transferred except in a transaction registered under the Securities Act or
unless an exemption from such registration is available.
4.5 NO LEGAL, TAX OR INVESTMENT ADVICE. Purchaser understands that nothing
in this Agreement or any other materials presented to Purchaser in connection
with the purchase and sale of his or its Securities constitutes legal, tax or
investment advice. Purchaser has consulted such legal, tax and investment
advisors as he or it, in his or its sole discretion, has deemed necessary or
appropriate in connection with his or its purchase of his or its Securities.
4.6 LEGENDS. To the extent applicable, each of the Securities shall be
endorsed with the legend set forth below:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES. THE SECURITIES EVIDENCED BY THIS CERTIFICATE
MAY NOT BE OFFERED, SOLD OR TRANSFERRED FOR VALUE DIRECTLY OR INDIRECTLY, IN THE
ABSENCE OF SUCH REGISTRATION UNDER THE ACT AND QUALIFICATION UNDER APPLICABLE
STATE LAWS, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND
QUALIFICATION UNDER APPLICABLE STATE LAWS, THE AVAILABILITY OF WHICH IS TO BE
ESTABLISHED TO THE REASONABLE SATISFACTION OF THE COMPANY."
Section 5
CONDITIONS TO CLOSING OF PURCHASERS
-----------------------------------
Each Purchaser's obligation to purchase his or its Securities at the
Closing is, at the option of the Purchaser, subject to the fulfillment or waiver
as of the Closing Date of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company contained in Section 3 shall be true on and as of the Closing with
the same effect as though such representations and warranties had been made on
and as of the date of such Closing.
5.2 PERFORMANCE. The Company shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
5.3 QUALIFICATIONS. All authorizations, approvals, or permits, if any, of
any governmental authority or regulatory body of the United States or of any
state that are required as of the Closing in connection with the lawful issuance
and sale of his or its Securities pursuant to this Agreement shall have been
duly obtained and shall be effective as of the Closing.
5.4 COMPLIANCE CERTIFICATE. The President and Chief Executive Officer of
the Company shall have delivered to Purchaser a certificate certifying that the
conditions specified in Sections 5.1 and 5.2 have been fulfilled.
5.5 FULL PARTICIPATION. Each other Purchaser shall have purchased the
Securities in the principal amounts set forth opposite such Purchaser's name on
SCHEDULE A attached hereto and Xxxxx Xxxx (the "Other Investor"), who is
purchasing a subordinated note and warrant under a certain Subordinated Note
Purchase Agreement dated the date hereof, shall have purchased the subordinated
note and warrant in the amounts set forth opposite the Other Investor's name on
SCHEDULE A attached thereto.
5.6 OPINION OF COMPANY COUNSEL. Each Purchaser shall have received from
Xxxxxxx, Xxxxxxx & Xxxxxxxx LLP, counsel for the Company, an opinion dated the
date of the Closing, in substantially the form as EXHIBIT C attached hereto.
Section 6
CONDITIONS TO CLOSING OF COMPANY
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The Company's obligation to sell and issue the Securities at the Closing
is, at the option of the Company, subject to the fulfillment or waiver of the
following conditions:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
each Purchaser contained in Section4 shall be true on and as of the Closing with
the same effect as though such representations and warranties had been made on
and as of the date of such Closing.
6.2 COVENANTS. Each Purchaser shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by the Purchaser on or before the
Closing.
6.3 QUALIFICATIONS. All authorizations, approvals, or permits, if any, of
any governmental authority or regulatory body of the United States or of any
state that are required as of the Closing in connection with the lawful issuance
and sale of his or its Securities pursuant to this Agreement shall have been
duly obtained and shall be effective as of the Closing.
Section 7
MISCELLANEOUS
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7.1 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively but only if
so expressly stated), only with the written consent of the Company and the
holders of a majority of the aggregate principal amount of the Subordinated
Notes purchased hereunder. Any amendment or waiver effected in accordance with
this Section shall be binding upon each holder of any of the Securities
purchased under this Agreement at the time outstanding, each future holder of
all such Securities, and the Company.
7.2 GOVERNING LAW. This Agreement shall be governed in all respects by and
construed in accordance with the laws of the State of Oregon without any regard
to conflicts of laws principles. Each party hereby irrevocably submits to the
non-exclusive jurisdiction of the state and federal courts sitting in Portland,
Multnomah County, Oregon, for the adjudication of any dispute hereunder or in
connection herewith, and hereby waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby waives personal service of process and consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address for such notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof.
7.3 SURVIVAL. The representations, warranties, covenants and agreements
made in this Agreement shall survive any investigation made by the Company or
the Purchasers and the Closing.
7.4 SUCCESSORS AND ASSIGNS. The provisions hereof shall inure to the
benefit of, and be binding upon, the successors, assigns, heirs, executors and
administrators of the parties to this Agreement. Notwithstanding the foregoing,
no Purchaser shall assign its rights or obligations under this Agreement without
the prior written consent of the Company.
7.5 ENTIRE AGREEMENT. This Agreement, together with the Securities,
constitutes the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof.
7.6 NOTICES, ETC. All notices and other communications required or
permitted under this Agreement shall be in writing and may be delivered in
person, by facsimile, overnight delivery service or registered or certified
mail, addressed to the Company at the address set forth at the beginning of this
Agreement, or to the Purchasers at their respective addresses set forth on the
signature pages hereto or at such other address as the Company or each Purchaser
shall have furnished to the other parties in writing. All notices and other
communications shall be effective upon the earlier of actual receipt thereof by
the person to whom notice is directed or (i) in the case of notices and
communications sent by personal delivery or facsimile, one business day after
such notice or communication arrives at the applicable address or was
successfully sent to the applicable facsimile number, (ii) in the case of
notices and communications sent by overnight delivery service, at noon (local
time) on the second business day following the day such notice or communication
was sent, and (iii) in the case of notices and communications sent by United
States mail, seven days after such notice or communication shall have been
deposited in the United States mail.
7.7 SEVERABILITY OF THIS AGREEMENT. If any provision of this Agreement
shall be determined to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
7.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
7.9 FURTHER ASSURANCES. Each party to this Agreement shall do and perform
or cause to be done and performed all such further acts and things and shall
execute and deliver all such other agreements, certificates, instruments and
documents as the other party hereto may reasonably request in order to carry out
the intent and accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.
7.10 EXPENSES. Irrespective of whether the Closing is effected, the Company
shall pay all costs and expenses that it incurs with respect to the negotiation,
execution, delivery and performance of this Agreement and the Securities. If the
Closing is effected, the Company shall, at the Closing, reimburse the reasonable
fees of a single special counsel for Xx. Xxxxxx and American Industries, Inc.
and shall, upon receipt of a xxxx therefor, reimburse the out of pocket expenses
of such counsel.
7.11 ACKNOWLEDGMENT. By executing this Agreement, each Purchaser hereby
acknowledges and agrees that Xxxxxxx, Phleger& Xxxxxxxx LLP represents the
Company solely and that the Purchasers have each had an opportunity to consult
with their own attorney in connection with this Agreement and the Securities.
The foregoing agreement is hereby executed as of the date first above
written.
"COMPANY"
IMAGING TECHNOLOGIES CORPORATION,
a Delaware corporation
By: /s/Xxxxx Xxxxx
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Xxxxx Xxxxx, President and
Chief Executive Officer
"PURCHASERS"
AMERICAN INDUSTRIES, INC., An Oregon
corporation
By:/s/Xxxxxx Xxxxxxxx
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Its: President
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Address: 0000 XX Xxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxx 00000
/s/Xxxxxxx Xxxxxx
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Xxxxxxx Xxxxxx
Address: 00000 XX Xxxxxxxxxxx Xxxxxx
Xxxxxxxx, Xxxxxx 00000
SCHEDULE A
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SCHEDULE OF PURCHASERS
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Principal Principal
Amount of Amount of Total Principal Number
Purchaser Non-Convertible Convertible Amount of of Warrant
Name Note Note Notes Shares
--------- --------------- ----------- --------------- ----------
American $ 950,000 $ 437,500 $1,387,500 190,000
Industries, Inc.
Xxxxxxx Xxxxxx $ -- $ 237,500 $ 237,500 $ --
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TOTALS $ 950,000 $ 675,000 $1,625,000 190,000
=========== =========== ========== ========
SCHEDULE B
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SCHEDULE OF EXCEPTIONS
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The following are exceptions to the representations and warranties of Imaging
Technologies Corporation (the "Company") set forth in that certain Subordinated
Note Purchase Agreement dated as of September , 1998 (the "Agreement"), with
reference to the Section designations of the Agreement. The references to
specific Sections are not meant and should not be construed as limiting the
noted exceptions to a particular Section. Although the Company has used its
reasonable best efforts to cross-reference the exceptions to all applicable
representations and warranties, no assurance can be given that all necessary
cross-references have been identified and any exception noted below is therefore
deemed disclosed for purposes of all relevant Sections whether or not
cross-referenced. Capitalized terms not otherwise defined in this Schedule of
Exceptions have the meaning given them in the Agreement. Nothing herein
constitutes an admission of any liability or obligation of the Company nor an
admission against the Company's interest. The inclusion of any agreement or
other matter herein or any exhibit hereto should not be interpreted as
indicating that the Company has determined that such an agreement or other
matter is necessarily material to the Company.
SECTION NUMBER EXCEPTIONS
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Section 3.2 CORPORATE POWER; AUTHORIZATION
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1. Pursuant to the terms of that certain Promissory
Note between McMican Corporation dba New Media Memory
and Bank of Xxxxx Xxxxx (the "Lender"), dated June
17, 1997, that certain Commercial Security Agreement
between McMican Corporation dba New Media Memory and
Lender, dated June 17, 1997, that certain Loan
Agreement between McMican Corporation dba New Media
Memory and Lender, dated October 20, 1997 and that
certain Change in Terms Agreement between McMican
Corporation dba New Media Memory and Lender, dated
May 17, 1998 (collectively, the "Xxxxx Xxxxx Line of
Credit"), the Company has outstanding approximately
$390,000 in principal amount of indebtedness. The
Xxxxx Xxxxx Line of Credit matured on August 15, 1998
and requires that the Company obtain Lender's written
consent prior to issuing the Subordinated Notes. The
Company is currently in the process of obtaining
additional credit from Imperial Bank to pay off all
amounts owed to the Lender under the Xxxxx Xxxxx Line
of Credit. As a result, the Company has not obtained
Lender's written consent to issuing the Subordinated
Notes.
2. Pursuant to its agreements with Imperial Bank, the
Company is required to obtain the written consent of
Imperial Bank prior to the sale and issuance of
Notes and Warrants pursuant to the Agreement, and
prior to the sale of certain other notes and warrants
and certain shares of the Company's common stock
being sold in connection herewith. The Company has
not obtained Imperial Bank's written consent.
Section 3.3 ISSUANCE AND DELIVERY OF SECURITIES
-----------------------------------
The Company has agreed to issue the Warrants to the
Purchasers pursuant to the Agreement, and certain
warrants (the "Other Warrants") to other investors
(the "Other Investors") under separate purchase
agreements. In addition, pursuant to the Agreement,
the Company has agreed to issue and sell to the
Purchasers the Convertible Notes, which are
convertible at the option of the Purchasers into
shares of the Company's Common Stock. Under the terms
of Section 4(g) of that certain Securities Purchase
Agreement dated August 21, 1997, between the Company
and the holders of the outstanding shares of the
Company's Series C Preferred Stock (the "Series C
Holders"), the Company is required to offer any
equity or convertible debt securities it intends to
issue to the Series C Holders prior to offering the
securities to any third party. The Company has not
offered the Warrants, the Convertible Notes or the
Other Warrants to the Series C Holders, who will
retain their right of first offer until the closing
of the Company's settlement with the Series C
Holders, which will not occur until after the Company
has issued the Warrants and the Convertible Notes to
the Purchasers and the Other Warrants to the Other
Investors.
Section 3.4 GOVERNMENTAL CONSENTS
---------------------
In connection with the issuance of the Subordinated
Notes and the Warrants under this Agreement, the
Company was required to obtain and has obtained a
qualification by permit from the Commissioner of
Corporations of the State of California to exempt the
payment of the interest under the Subordinated Notes
from the usury laws of the State of California.
Section 3.7 NO MATERIAL ADVERSE CHANGE
--------------------------
1. On June 19, 1998, the Company delivered notice to
the Series C Holders of its election to redeem for
cash all shares of Series C Preferred Stock tendered
for conversion in lieu of converting such shares.
Certain disputes have arisen between the Company and
the Series C Holders with respect to such notice and
the Company's right to redeem all shares of Series C
Preferred Stock tendered for conversion in lieu of
converting such shares. The Series C Holders have
asserted that the Company is in default of its
obligations to them.
2. The Company has recently been informed by Imperial
Bank, the Company's primary lender, that the Company
is not in compliance with all of the provisions of
its loan agreements with Imperial Bank, including
without limitation, the provisions regarding certain
minimum ratios the Company is required to maintain.
The Company's noncompliance with many of these
provisions results from the expected one-time charge
to earnings that the Company intends to include
in its financial statements as of and for the fiscal
year ended June 30, 1998, which one-time charge the
Company currently anticipates will be as much as
approximately $9,000,000.
3. On September 3, 1998, the Company issued unsecured
promissory notes to certain investors in the
aggregate principal amount of $500,000. Pursuant to
its agreements with Imperial Bank, the Company was
required to obtain Imperial Bank's consent prior to
issuing these notes. The Company did not obtain
Imperial Bank's consent.
4. See the disclosures in Section 3.3 above.
EXHIBIT A-1
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FORM OF NON-CONVERTIBLE SUBORDINATED PROMISSORY NOTE
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EXHIBIT A-2
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FORM OF CONVERTIBLE SUBORDINATED PROMISSORY NOTE
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EXHIBIT B
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FORM OF WARRANT
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EXHIBIT C
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FORM OF LEGAL OPINION
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