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EXHIBIT 19
SUBORDINATION AND INTERCREDITOR AGREEMENT
THIS SUBORDINATION AND INTERCREDITOR AGREEMENT, dated as of December 24,
1996 (the "Agreement"), is entered into by and among COAST BUSINESS CREDIT, a
Division of Southern Pacific Thrift & Loan Association ("Coast"), DENTSPLY
INTERNATIONAL INC. ("Creditor"), and NEW IMAGE INDUSTRIES, INC., and INSIGHT
IMAGING SYSTEMS, INC. (together, "Debtor"), with respect to the Amended and
Restated Loan Agreement, dated May 22, 1996, between Coast and Debtor (the
"Coast Agreement"), and the Credit Agreement, of even date herewith, by and
between Creditor and Debtor (the "Credit Agreement") .
WHEREAS, Creditor and Debtor desire to enter into the Credit Agreement,
pursuant to which, upon the terms and subject to the conditions contained
therein, Creditor will make available to Debtor a line of credit up to an
aggregate principal amount of $3,000,000;
WHEREAS, subject to the execution and delivery of this Agreement, Coast,
to whom Debtor is indebted pursuant to the Coast Loan Documents (as hereinafter
defined), will consent to the execution and delivery by Debtor of the Credit
Agreement;
WHEREAS, by a letter of even date herewith (the "Forbearance Letter"),
Coast has agreed to forbear, through March 25, 1997 or such earlier date as set
forth in the Forbearance Letter (the "Forbearance Period"), from exercising any
of its default rights and remedies in connection with the violation of any and
all covenants of which Debtor is in breach as of the date hereof and any and
all covenants contained in the Coast Agreement and the Mercury Agreement which
may occur subsequent to the date hereof through the Forbearance Period, but not
including any default arising from failure to pay principal and interest due
and payable after the date hereof (other than any payment which may be or
become due as a result of a default of Debtor to comply with the Solvency
Covenant (as defined in the Forbearance Letter) or any non-payment covenant);
NOW, THEREFORE, in consideration of Coast's agreement to continue to
advance credit to Debtor under the Coast Agreement, the execution by Creditor
of the Credit Agreement and Coast's execution of the Forbearance Letter, Coast,
Creditor and Debtor, intending to be legally bound hereby, hereby agree as
follows:
1. In addition to the other words and terms defined herein, the following
words and terms used in this Agreement have the meanings ascribed to them in
this Section 1:
"Blockage Period" means the period commencing on the date of
Creditor's receipt of notice from Coast that a Triggering Event has occurred,
and expiring on the date which is the earliest to occur of (i) 120 days
thereafter, (ii) when the Triggering Event is no longer continuing or has been
waived in writing by Coast, and (iii) the termination of this Agreement in
accordance with Section 7 hereof; provided that Blockage Periods shall not
exceed a total of 120 days in the aggregate in any
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eight (8) month period.
"Coast Collateral" means the "Collateral" as defined in the Coast
Agreement.
"Coast Indebtedness" means any and all presently existing or hereafter
arising indebtedness, claims, debts, liabilities, and obligations of Debtor now
or hereafter owing to Coast pursuant to the Coast Loan Documents or the Mercury
Agreement, whether direct or indirect, whether contingent or of any other
nature, character, or description (including all interest accruing after
commencement of any case, proceeding, or other action relating to the
bankruptcy, insolvency, or reorganization of Debtor, whether or not such
interest is an allowable claim in any such proceeding).
"Coast Loan Documents" means, collectively, the Coast Agreement and
any and all other documents, instruments and agreements executed in connection
therewith.
"Creditor Agreements" means the agreements, instruments and documents
executed by and between Creditor and Debtor which are described on Exhibit A
hereto, and any and all present or future security agreements, deeds of trust
or other agreements, instruments and documents entered into by and between
Debtor and Creditor securing the same or encumbering any of Debtor's assets or
properties.
"Creditor Indebtedness" means the indebtedness of Debtor that, at any
time and from time to time following the execution of the Creditor Agreements,
may be owed by Debtor to Creditor pursuant to and/or evidenced by the Creditor
Agreements, not to exceed an aggregate principal amount of $3,000,000 plus
interest.
"Creditor Line Interest Rate" means the rate of four percent (4%) in
excess of the prime rate of interest set forth in the Money Rates Section of
the New York edition of the Wall Street Journal, rounded up to the nearest
one-eighth, or such lesser rate permitted by applicable law, if such rate would
violate applicable law.
"Letter of Intent" means the letter of intent, of even date herewith,
by and between New Image Industries, Inc. ("New Image") and Creditor with
respect to the acquisition of New Image by Creditor.
"Mercury Agreement" means the loan documents assigned to Coast by
Mercury on the date hereof.
"Triggering Event" means an event of default under the Coast Agreement
which has not been waived or which is not then subject to Coast's forbearance
under the terms of the Forbearance Letter.
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2. Creditor (as to (a) only) and Debtor (as to (a) and (b)) represent to
Coast that:
a. Creditor and Debtor are parties to the Credit Agreement pursuant to
which, upon the terms and subject to the conditions therein, Creditor
will make available to Debtor a line of credit up to the aggregate
principal amount of $3,000,000.
b. Debtor agrees, and Creditor consents and acknowledges, that the face of
any and all Creditor Agreements shall be permanently and conspicuously
marked with the following legend: "Subject to that certain
Subordination and Intercreditor Agreement executed by and among Coast
Business Credit, Dentsply International Inc., and New Image Industries,
Inc. and Insight Imaging Systems, Inc., dated as of December 24, 1996"
and, after being so marked, copies of said agreements and instruments
shall be promptly delivered to Coast. Creditor shall xxxx all of its
books and records in such manner as to indicate that the payment and
enforcement of the Creditor Indebtedness and the Creditor Agreements
are subject to the terms of this Agreement.
3. Creditor and Debtor agree with Coast that:
a. The Creditor Indebtedness shall be and hereby is subordinated to the
extent provided herein, and the payment therefor shall be deferred if
and when required pursuant to the terms hereof, to any and all rights,
claims, demands, indebtedness, action or causes of action of any nature
whatsoever that Coast may now have, or hereafter may have against
Debtor with respect to the Coast Indebtedness.
b. No scheduled payment of interest or principal shall be made prior to
the expiration of the Forbearance Period. In addition, upon the
commencement of a Blockage Period, (i) Creditor's right to receive any
and all payments of interest and principal on the Creditor Indebtedness
shall immediately cease, notwithstanding the terms of the Creditor
Indebtedness, for a period commencing on the first day of such Blockage
Period and continuing for the duration of such Blockage Period and (ii)
Coast shall have no obligation to make loans to Debtor under the Coast
Loan Documents from and after the commencement of such Blockage Period.
c. The Creditor Indebtedness may be secured by security interests and
liens in and upon the following assets of Debtor: such of the Coast
Collateral which is described in the Creditor Agreements, provided,
however, as set forth below, such security interests and liens in and
upon the Coast Priority Collateral (as hereinafter defined) shall be at
all times junior and subordinate to all security interests and liens of
Coast in and upon the Coast Priority Collateral.
As between Coast and Creditor, and notwithstanding the terms or time of
granting or perfection of any security interest or lien, the time of
filing or recording of any financing statements, assignments, or any
other documents, instruments, or
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agreements under the Uniform Commercial Code or any other applicable
law, Coast shall have a first priority security interest in and lien
upon the Coast Collateral (the "Coast Priority Collateral"). The lien
and security interest priority provided herein shall not be altered or
otherwise affected by any amendment, modification, supplement,
extension, renewal, restatement, or refinancing of any of the Creditor
Indebtedness or of any of the Coast Indebtedness, nor by any action or
inaction which Coast or Creditor may take or fail to take in respect of
any of the respective collateral.
d. If a Triggering Event has occurred and a Blockage Period has commenced,
Creditor agrees that it will not commence, prosecute or participate in
any administrative, legal or equitable action against Debtor or any of
the Coast Collateral or any other assets of the Debtor, or in any
administrative, legal, or equitable action that might adversely affect
Debtor or its interests, without Coast's prior written consent, which
consent may be withheld in Coast's sole discretion for any reason,
until the sooner to occur of (i) if a Triggering Event has occurred,
the first day after the expiration of the Blockage Period with respect
thereto, so long as on such date Coast has not yet commenced
enforcement of its rights and remedies with respect to the Coast
Priority Collateral; provided that if Coast has commenced enforcement
of its rights or remedies, Creditor may enforce its rights and remedies
at the end of the Blockage Period other than foreclosing on or
collecting any of the Coast Priority Collateral, and (ii) the date that
the Coast Loan Documents have been terminated and all of the Coast
Indebtedness has been paid in full; provided, however, Creditor shall
have the right (subject and subordinate to the Coast Loan Documents) to
file a claim in any voluntary or involuntary bankruptcy or insolvency
action or proceeding of Debtor.
e. Creditor shall give Coast a copy of any notice(s) of any default or
event of default under the Creditor Agreements or of any actions which
Creditor intends to take with respect thereto, concurrently with the
giving of such notice(s) to Debtor. Coast shall give Creditor a copy of
any notice(s) of any default or event of default under the Coast Loan
Documents or of any actions which Coast intends to take with respect
thereto, concurrently with the giving of such notice(s) to Debtor;
provided that the failure of Creditor or Coast to give such notice
shall not create any liability of such party to the other or affect
either party's rights under this Agreement.
4. If Creditor, in violation of this Agreement, shall commence, prosecute
or participate in any suit, action or proceeding against Debtor whenever
prohibited by the terms hereof, Debtor may interpose as a defense or dilatory
plea the making of this Agreement and Coast may intervene and interpose such
defense or plea in Coast's name or in the name of Debtor. If Creditor shall
attempt to enforce any of the Creditor Agreements whenever prohibited by the
terms hereof, Coast or Debtor may by virtue of this Agreement restrain the
enforcement thereof in Coast's name or in the name of Debtor. If Creditor shall
obtain any assets of Debtor or the proceeds thereof whenever prohibited by the
terms hereof as a result of any administrative, legal, or equitable action, or
otherwise, Creditor agrees to forthwith pay, deliver, and assign to Coast any
such assets or proceeds for application upon
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the Coast Indebtedness.
5. Except for scheduled payments of interest and principal as and to the
extent permitted by the terms of Section 3.b of this Agreement, Debtor agrees
with Coast that it will not, without Coast's prior written consent (which may
be withheld for any reason), pay to Creditor any sum on account of the Creditor
Indebtedness provided that notwithstanding the foregoing, Debtor may, following
the date on which the Letter of Intent is terminated, make principal
prepayments to Creditor so long as (i) no Blockage Period is then in effect,
(ii) no Event of Default has occurred and is continuing (under the criteria set
forth in Section 1 hereof under "Triggering Event") and (iii) Debtor has excess
borrowing availability pursuant to the borrowing formulas in the Coast
Agreement of not less than $100,000 both during the ten days prior to the
contemplated payment and on the date of payment after taking into account the
proposed payment.
6. Coast may grant extensions of the time of payment or performance of the
Coast Indebtedness and make compromises and settlements with Debtor and all
other persons with respect to the Coast Indebtedness, and release all or any
portion of the Coast Priority Collateral (subject to an obligation to use its
best efforts to realize the maximum proceeds from the disposition thereof), all
without the consent of Debtor or Creditor and all without affecting the
agreements of Creditor or Debtor hereunder.
7. Coast hereby consents to the Creditor Indebtedness subject to the terms
and conditions of this Agreement.
8. Coast agrees that the subordinations and relative priority agreements
set forth above are expressly conditioned upon the non-voidability and
perfection of the security interest to which another security interest is
subordinated and if the security interest to which another interest is
subordinated is not perfected or is voidable for any reason, then the
subordination provided for herein shall not be effective as to the particular
collateral; provided, however, that Creditor agrees that it shall not take any
action to void or attempt to void a security interest granted in favor of
Coast; provided further, however, notwithstanding anything to the contrary
contained herein, nothing shall prevent Creditor from serving on any creditors'
committee or filing a claim, or otherwise participating, in any voluntary or
involuntary bankruptcy or insolvency action or proceeding of Debtor.
9. If, at any time hereafter, Coast shall, in Coast's own judgment,
determine to discontinue the extension of credit to Debtor in accordance with
the terms of the Coast Loan Documents, Coast may do so. This Agreement shall
continue in full force and effect until the Coast Loan Documents have been
terminated and all of the Coast Indebtedness has been paid in full. Creditor
and Debtor agree that, if at any time all or any part of any payment previously
applied by Coast to the Coast Indebtedness is or must be returned by Coast, or
recovered from Coast for any reason (including the order of any bankruptcy
court), this Agreement shall automatically be reinstated to the same effect as
if the prior application had not been made, and, in addition, Debtor hereby
agrees to indemnify Coast against, and to save and hold Coast harmless from any
required return by
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Coast or recovery from Coast, of any of such payments because of its being
deemed preferential under applicable bankruptcy, receivership or insolvency
laws, or for any other reason.
10. This Agreement shall be binding upon the successors and assigns of
Creditor and Debtor, and shall inure to the benefit of the successors and
assigns of Coast.
11. All notices, demands, requests, consents, approvals, declarations or
other communications from one party hereto to another relating to this
Agreement shall be in writing and shall be delivered either in person, with
receipt acknowledged, or by regular, registered, or certified United States
mail, postage prepaid, or by facsimile, addressed as follows:
If to Coast at:
Coast Business Credit
00000 Xxxxxxxx Xxxxxxxxx, Xxxxx 0000
Xxx Xxxxxxx, XX 00000
Attn: Manager
Facsimile: 000-000-0000
If to Creditor at:
Dentsply International Inc.
000 Xxxx Xxxxxxx Xxxxxx
Xxxx, XX 00000
Attn: Xxxxxxx Xxxxx, Esq.
Facsimile: 000-000-0000
If to Debtor at:
New Image Industries, Inc.
0000 Xxxxxx Xxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
Attn: President
Facsimile: 000-000-0000
or at such other address as may be substituted by notice given as herein
provided. Giving or any notice required hereunder may be waived in writing by
the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been duly received on the date on which personally delivered, with
receipt acknowledged, or actually received via facsimile transmission, or three
(3) days after the same shall have been deposited in the United States mail.
12. The validity of this Agreement, its construction, interpretation and
enforcement, and
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the rights of the parties hereunder, 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 laws.
13. This Agreement may be executed in one or more counterparts and by
different parties on separate counterparts, each of which when so executed and
delivered shall be deemed to be an original, and all of which, when taken
together, shall constitute but one and the same Agreement.
14. Should any provision, clause or condition 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.
15. This Agreement and such other agreements, documents and instruments as
may be executed in connection herewith shall be construed as the entire and
complete agreement among the parties hereto and shall supersede all prior
negotiations, all of which are merged and integrated herein.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first above written.
("Creditor")
DENTSPLY INTERNATIONAL INC.
By /s/ Xxxxxx X. Xxxxx
Title: Senior Vice President
("Debtor")
NEW IMAGE INDUSTRIES, INC.
By /s/ Xxx Xxx
Title: Chief Financial Officer
INSIGHT IMAGING SYSTEMS, INC.
By /s/ Xxx Xxx
Title: Chief Financial Officer
("Coast")
COAST BUSINESS CREDIT, a division of
Southern Pacific Thrift & Loan Association
By /s/ Xxxx X. Xxxxx
Title: Vice President
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EXHIBIT A TO SUBORDINATION AND INTERCREDITOR AGREEMENT
o Credit Agreement, dated as of December 24, 1996, by and between New Image
Industries, Inc. and Insight Imaging Systems, Inc. and Dentsply
International Inc. (the "Credit Agreement").
o Any and all other indebtedness and liabilities arising from or relating to
the Credit Agreement including, without limitation, the Notes (as defined in
the Credit Agreement).
