<PAGE>
As filed with the Securities and Exchange Commission on October 11, 1996
Registration No. 333-3589
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------
AMENDMENT
NO. 3
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------
IMATEC, LTD.
(Name of small business issuer in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 3861 11-3289398
-------- ------- ------------
(State or other juris- (Primary Standard Industrial (I.R.S. Employer
diction of organization) Classification Code No.) Identification No.)
</TABLE>
150 E. 58th Street
New York, NY 10155
(212) 826-0440
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
150 E. 58th Street
New York, NY 10155
(212) 826-0440
(Address, including zip code, and telephone number, including area code,
of registrant's principal place of business or intended place of business)
Hanoch Shalit
Chief Executive Officer
150 E. 58th Street
New York, NY 10155
(212) 826-0440
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
Copies to:
Clifford A. Brandeis, Esq. Lawrence B. Fisher, Esq.
Zukerman Gore & Brandeis, LLP Orrick, Herrington & Sutcliffe LLP
900 Third Avenue 666 Fifth Avenue
New York, New York 10022 New York, NY 10103
(212) 223-6700 (212) 506-5000
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis, pursuant to Rule 415 under the Securities
Act of 1933, check the following box: /X/
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
=============================================================================
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Proposed
maximum
offering price
per share
of Common
Stock and Proposed
Redeemable maximum
Title of each class of Common Stock aggregate Amount of
securities to be Amount to be Purchase offering price registration
registered registered Warrant(1) per Unit(1) fee
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock par
value $.0001 per share (2) 1,150,000 $ 5.00 $ 5,750,000 $ 1,742.42
- ---------------------------------------------------------------------------------------
Redeemable Common Stock
Purchase Warrants (3) ... 4,600,000 $ .25 $ 1,150,000 $ 348.48
- ---------------------------------------------------------------------------------------
Common Stock, par value
$.0001 per share (4)(5) . 4,600,000 $ 6.50 $29,900,000 $ 9,060.61
- ---------------------------------------------------------------------------------------
Redeemable Common Stock
Purchase Warrants(6) .... 2,150,000 $ .25 $ 537,500 $ 162.88
- ---------------------------------------------------------------------------------------
Common Stock, par value
$.0001 per share (5)(7) . 2,150,000 $ 6.50 $13,975,000 $ 4,234.85
- ---------------------------------------------------------------------------------------
Underwriter's Warrants ... -- $.0001 $ -- $ --
- ---------------------------------------------------------------------------------------
Common Stock, par value
$.0001 per share (8) .... 100,000 $ 6.00 $ 600,000 $ 181.82
- ---------------------------------------------------------------------------------------
Redeemable Common Stock
Purchase Warrants (8) ... 400,000 $ .30 $ 120,000 $ 36.36
- ---------------------------------------------------------------------------------------
Common Stock, $.0001 par
value per share (5)(9) .. 400,000 $ 7.80 $ 3,120,000 $ 945.45
- ---------------------------------------------------------------------------------------
Common Stock,
$.0001 par value per
share (10) .............. 579,194 $ 5.00 $ 2,862,990 $ 877.57
- ---------------------------------------------------------------------------------------
Common Stock, $.0001
par value per share (11) 2,210,000 $ 5.00 $11,050,000 $ 3,348.48
- ---------------------------------------------------------------------------------------
Total .................................................................. $20,938.92
- ---------------------------------------------------------------------------------------
Amount Previously Paid ................................................. $39,472.04
- ---------------------------------------------------------------------------------------
Amount Due ............................................................. $ 0
- ---------------------------------------------------------------------------------------
</TABLE>
- ------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to rule 457.
(2) Includes shares of Common Stock included in the underwriter's
over-allotment option.
(3) Includes Redeemable Common Stock Purchase Warrants included in
underwriter's over-allotment option.
(4) Issuable upon exercise of the Redeemable Common Stock Purchase Warrants,
including the Redeemable Common Stock Purchase Warrants included in the
underwriter's over-allotment option.
(5) Pursuant to Rule 416, this Registration Statement also covers such
indeterminable additional shares of Common Stock as may become issuable
as a result of anti-dilution provisions of the Redeemable Warrants.
(6) Represents Redeemable Common Stock Purchase Warrants being registered on
behalf of lenders who have provided interim financing to the Company.
(7) Issuable upon exercise of the Redeemable Common Stock Purchase Warrants
being registered on behalf of lenders who have provided interim
financing to the Company.
(8) Reserved for issuance upon exercise of the Underwriter's Warrants.
(9) Issuable upon exercise of the Redeemable Common Stock Purchase Warrants
included in the Underwriter's Warrants.
(10) Represents Common Stock being registered on behalf of lenders who have
provided interim financing to the Company.
(11) Represents shares of Common Stock being registered on behalf of the
founding stockholders of the Company.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
IMATEC, LTD.
CROSS REFERENCE SHEET
(SHOWING LOCATION IN THE PROSPECTUS OF INFORMATION REQUIRED BY ITEMS 1
THROUGH 23, PART I, OF FORM SB-2)
<TABLE>
<CAPTION>
Item in Form SB-2 Prospectus Caption
------------------- -------------------
<S> <C> <C>
1. Front of Registration Statement and Outside Front Cover
of Prospectus.............................................. Facing Page of Registration Statement; Outside Front
Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus.................................................. Inside Front Cover Page of Prospectus; Outside Back
Cover Page of Prospectus
3. Summary Information and Risk Factors ....................... Prospectus Summary; Risk Factors
4. Use of Proceeds............................................. Use of Proceeds
5. Determination of Offering Price ............................ Outside Front Cover Page of Prospectus; Underwriting;
Risk Factors
6. Dilution.................................................... Dilution; Risk Factors
7. Selling Security Holders.................................... Outside Front Cover Page of Prospectus;
Selling Security Holders
8. Plan of Distribution........................................ Outside Front Cover Page of Prospectus; Risk Factors;
Underwriting
9. Legal Proceedings .......................................... Business - Legal Proceedings
10. Directors, Executive Officers, Promoters and Control
Persons .................................................... Management
11. Security Ownership of Certain Beneficial Owners and
Management.................................................. Principal Security Holders
12. Description of Securities................................... Description of Securities; Underwriting
13. Interest of Named Experts and Counsel ...................... Experts; Legal Matters
14. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities.............................. Inside Front Cover Page of Prospectus; Underwriting
15. Organization Within Last 5 Years ........................... Prospectus Summary; The Company; Business; Certain
Transactions
16. Description of Business..................................... Business; Risk Factors
17. Management's Discussion and Analysis or Plan of Operation... Plan of Operations
18. Description of Property..................................... Business - Properties
19. Certain Relationships and Related Transactions ............. Certain Transactions
20. Market for Common Equity and Related Stockholder
Matters..................................................... Outside Front Cover Page of Prospectus; Prospectus
Summary; Description of Securities; Underwriting
21. Executive Compensation ..................................... Management - Executive Compensation
22. Financial Statements........................................ Selected Financial Information; Financial Statements
23. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures ....................... Change in Accountants
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
PROSPECTUS
SUBJECT TO COMPLETION, DATED OCTOBER 11, 1996
IMATEC, LTD.
1,000,000 SHARES OF COMMON STOCK [LOGO]
AND
4,000,000 REDEEMABLE WARRANTS
Imatec, Ltd. (the "Company") hereby offers 1,000,000 shares (the "Shares")
of common stock, par value $.0001 per share (the "Common Stock") and
4,000,000 redeemable Common Stock purchase warrants (the "Redeemable
Warrants"). The Shares and the Redeemable Warrants (collectively, the
"Securities") may be purchased separately and will be separately tradeable
immediately upon issuance. It is currently anticipated that the initial
public offering prices of the Common Stock and the Redeemable Warrants will
be $5.00 and $.25, respectively. Each Redeemable Warrant entitles the
registered holder thereof to purchase one share of Common Stock at an
exercise price of $6.50, subject to adjustment, commencing on the date of
this Prospectus until _________, 1999 [36 months from the date of this
Prospectus], at which time the Redeemable Warrants shall expire. Upon the
prior written consent of A.S. Goldmen & Co., Inc. (the "Underwriter"), each
Redeemable Warrant is redeemable by the Company at any time after ________,
1997, [9 months from the date of this Prospectus] at a redemption price of
$.10 per Redeemable Warrant, on 30 days' prior written notice, provided that
the average closing bid price of the Common Stock as reported on the Nasdaq
SmallCap Market ("Nasdaq") equals or exceeds $7.50 for any 20 trading days
within a period of 30 consecutive trading days ending on the fifth trading
day prior to the date of notice of redemption. See "Risk Factors" and
"Description of Securities."
(Cover continued on next page)
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS"
BEGINNING ON PAGE 7 AND "DILUTION."
------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
================================================================================
Price Underwriting Proceeds to
to Public Discount (1) Company (2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share of Common Stock .... $ $ $
- --------------------------------------------------------------------------------
Per Redeemable Warrant ...... $ $ $
- --------------------------------------------------------------------------------
Total (3) ................... $ $ $
================================================================================
</TABLE>
(1) Does not include additional compensation to the Underwriter in the form
of a non-accountable expense allowance equal to 3% of the gross proceeds
of this offering (this "Offering"). For indemnification and contribution
arrangements with, and additional compensation payable to, the
Underwriter, see "Underwriting."
(2) Before deducting estimated expenses of this Offering payable by the
Company of $680,000, including the non-accountable expense allowance
payable to the Underwriter.
(3) The Company has granted to the Underwriter a 45 day option, to purchase
up to an additional 150,000 shares of Common Stock and/or 600,000
Redeemable Warrants on the same terms and conditions as set forth above
solely to cover over-allotments, if any. If such over-allotment option
is exercised in full, the total Price to Public, Underwriting Discount
and Proceeds to Company will be $ _________, $ _________ and $ ________,
respectively. See "Underwriting."
------
The Securities are being offered by the Underwriter, subject to prior sale
when, as and if delivered to and accepted by the Underwriter, and subject to
the approval of certain legal matters by its counsel and certain other
conditions. The Underwriter reserves the right to withdraw, cancel or modify
this Offering and to reject any order in whole or in part. It is expected
that the delivery of the certificates representing the Securities and payment
therefor will be made at the offices of A.S. Goldmen & Co., Inc., Iselin, New
Jersey, or its counsel on or about , 1996.
A.S. GOLDMEN & CO., INC.
The date of this Prospectus is _________________, 1996
<PAGE>
(cover continued from previous page)
Prior to this Offering, there has been no public market for the
Securities, and no assurance can be given that such a market will develop
upon completion of this Offering, or if developed, that it will be sustained.
The initial public offering prices of the Securities and the exercise price
and other terms and conditions of the Redeemable Warrants have been
arbitrarily determined by negotiations between the Company and the
Underwriter and do not necessarily bear any relationship to the Company's
assets, book value, results of operations or other generally accepted
criteria of value. Application has been made for listing of the Common Stock
and the Redeemable Warrants on Nasdaq under the symbols IMEC and IMECW,
respectively. See "Risk Factors" and "Underwriting."
This Prospectus also relates to the registration by the Company, at its
expense, (a) for the account of the Company of 4,000,000 shares of Common
Stock issuable by the Company upon the exercise of 4,000,000 Redeemable
Warrants to be issued in this Offering, (b) for the account of various
security holders who provided interim bridge financing (the "Bridge
Financing") to the Company (collectively, the "Bridge Selling Security
Holders") of an aggregate of (i) 579,194 shares of Common Stock after giving
effect, as of October 31, 1996, to the "Bridge Financing Restructuring," as
such term is defined in "Plan of Operations -- Liquidity and Capital
Resources", (ii) 2,150,000 Redeemable Warrants, and (iii) 2,150,000 shares of
Common Stock issuable by the Company upon the exercise of such 2,150,000
Redeemable Warrants issued to the Bridge Selling Security Holders, and (c)
for the account of the founding stockholders of the Company (the "Founding
Selling Security Holders") of an aggregate of 2,210,000 shares of Common
Stock. Except with respect to 150,000 shares of Common Stock being registered
on behalf of certain of the Founding Selling Security Holders (including
72,093 shares for Dr. Hanoch Shalit, the Company's President and Chief
Executive Officer) and any open market purchases on or after the effective
date of this Offering, the Founding Selling Security Holders have agreed with
the Underwriter not to effect any sales of their Common Stock or any other
securities of the Company, whether or not beneficially owned, until 18 months
after the date of this Prospectus without the prior written consent of the
Underwriter. The Bridge Selling Security Holders have agreed with the Company
not to effect any sales of their Common Stock and Redeemable Warrants (or any
shares of Common Stock issuable upon exercise of the Redeemable Warrants)
until 24 months and 18 months, respectively, after the date of this
Prospectus. The Company will not receive any proceeds from any of the
securities offered for sale by either the Bridge Selling Security Holders or
the Founding Selling Security Holders, although it will receive proceeds from
the exercise of the Redeemable Warrants by the Bridge Selling Security
Holders. The Bridge Selling Security Holders and the Founding Selling
Security Holders are sometimes hereinafter referred to collectively as the
"Selling Security Holders," and all of the securities offered for sale by the
Selling Security Holders are hereinafter referred to as the "Selling Security
Holders' Securities." See "Selling Security Holders," and "Description of
Securities."
The sale of the Selling Security Holders' Securities may be effected from
time to time in transactions (which may include block transactions by or for
the account of the Selling Security Holders) in the over-the-counter market
or in negotiated transactions, through the writing of options on the Selling
Security Holders' Securities, through a combination of such methods of sale,
or otherwise. Sales may be made at fixed prices which may be changed, at
market prices prevailing at the time of sale, or at negotiated prices. If any
Selling Security Holder sells his, her or its Securities, or options thereon,
pursuant to this Prospectus at a fixed price or at a negotiated price which
is, in either case, other than the prevailing market price or in a block
transaction to a purchaser who resells, or if any Selling Security Holder
pays compensation to a broker-dealer that is other than the usual and
customary discounts, concessions or commissions, or if there are any
arrangements either individually or in the aggregate that would constitute a
distribution of the Selling Security Holders' Securities, a post-effective
amendment to the Registration Statement of which this Prospectus is a part,
would need to be filed and declared effective by the Securities and Exchange
Commission before such Selling Security Holders could make such sale, pay
such compensation or make such a distribution. The Company is under no
obligation to file a post-effective amendment to the Registration Statement
of which this Prospectus is a part under such circumstances.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements after the close of each fiscal year.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AND/OR THE REDEEMABLE WARRANTS OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED,
MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified by, and must be read in conjunction
with, the more detailed information and financial statements set forth
elsewhere in this Prospectus. Unless otherwise indicated herein, all share
and per share information does not give effect to (i) the exercise of the
Underwriter's over-allotment option to purchase up to an additional 150,000
shares of Common Stock and/or 600,000 Redeemable Warrants and the issuance of
up to 600,000 shares of Common Stock upon exercise of the Redeemable Warrants
included in the Underwriter's over-allotment option; (ii) the issuance of
6,150,000 shares of Common Stock issuable upon exercise of the Redeemable
Warrants, including the Redeemable Warrants offered by the Bridge Selling
Security Holders; (iii) the issuance upon exercise of warrants granted to the
Underwriter (the "Underwriter's Warrants") of up to 100,000 shares of Common
Stock and 400,000 Redeemable Warrants, and the underlying 400,000 shares of
Common Stock issuable upon exercise of the Redeemable Warrants contained in
the Underwriter's Warrants; and (iv) 500,000 shares of Common Stock reserved
for issuance upon the exercise of stock options that may be granted pursuant
to the Company's stock option plan. See "Management -- Stock Option Plan" and
"Underwriting." Unless otherwise indicated herein, all share and per share
information gives effect to (i) a 1-for-4 reverse stock split effected in May
1995 and (ii) a 22,100-for-1 stock split effected in October 1995.
THE COMPANY
Imatec, Ltd. (the "Company") was formed in 1988 to develop, design, market
and license its proprietary technology, which enhances image reproduction by
reducing distortion that normally occurs in the imaging process, for
application in such markets as medical imaging, graphic arts, computers,
cinematography and TV/video. Each application will be a system (an "Imatec
20/20(TR) System") of hardware and software components expressly designed for
a specific market. Based on the results of extensive testing, the Company has
developed an Imatec 20/20(TR) System for medical diagnostic imaging devices
which is capable of improving the quality of film reproduction of images
taken by medical diagnostic imaging devices such as Magnetic Resonance
Imaging scanners ("MRI"), computer tomography scanners ("CT") and Ultrasound
scanners. The Imatec 20/20 System for medical diagnostic imaging devices
achieves this goal regardless of the type of medical imaging film used and as
a consequence, may result in cost savings to the user. The Company has also
developed an Imatec 20/20 System for the medical imaging field of
teleradiology; which is the viewing of the same medical image on different
monitor screens in separate locations. Although the first applications of the
Company's technology have been for the medical diagnostic imaging field,
which only require black and white reproduction, the Company recently began
developing an Imatec 20/20 System designed to reduce distortions of
reproduction of color images and which is intended to facilitate the
Company's development of Imatec 20/20 Systems for non-medical imaging fields.
The Company's technology is designed to objectively measure the image
characteristics of an original image and compare it to its reproduced image,
computing the existing tone and color distortions between the two images and
correcting such distortions. Current imaging systems create reproductions
that have distortions and are usually adjusted subjectively during the
reproduction process. Aspects of the Company's technology are set forth in
three United States patents and one European patent (the "Patents") which
have been licensed to the Company from Dr. Hanoch Shalit, the Company's
President and Chief Executive Officer. The Company has designed, built and
tested a prototype of an Imatec 20/20 System that can be used with MRI, CT
and Ultrasound scanners.
In 1995, U.S. sales of MRI, CT and Ultrasound machines were approximately
$1.59 billion, representing sales of approximately 9,775 units. In addition,
approximately $235 million was spent in 1994 in connection with upgrading and
improving these medical imaging devices either to extend the life of the
machines or to add on technical improvements. At the end of 1995, there were
approximately 96,680 MRI, CT and Ultrasound machines operating in the United
States. Based on industry statistics, the U.S. market for medical imaging
devices represents approximately 40% of the worldwide market. See "Business
- -- The Company -- The Medical Imaging Market."
3
<PAGE>
The Company's strategy is to (i) license the Company's technology and the
Imatec 20/20 System developed for the medical diagnostic imaging field to
manufacturers of medical imaging products such as scanners, cameras and image
reproduction systems, (ii) engage in marketing activities to facilitate the
licensing of the Company's technology and its Imatec 20/20 Systems and (iii)
continue its research and development activities with respect to other
applications of the Company's technology in the medical imaging field and in
other imaging fields, such as graphic arts, cinematography, computers and
TV/video. The Company does not presently intend to engage in any
manufacturing, sales, distribution or service activities with respect to its
Imatec 20/20 Systems or products that incorporate the Company's technology.
The Company is a development stage company and was incorporated in the
State of New York on November 17, 1988 and reincorporated in the State of
Delaware on October 19, 1995. The Company maintains its offices at 150 E.
58th Street, New York, NY 10155 and its telephone number is (212) 826-0440.
4
<PAGE>
THE OFFERING
Securities Offered............. 1,000,000 shares of Common Stock and
4,000,000 Redeemable Warrants. See
"Description of Securities."
Securities Registered for the
Selling Security Holders..... An aggregate of 579,194 shares of Common
Stock (after giving effect to the Bridge
Financing Restructuring as of October 31,
1996) and 2,150,000 Redeemable Warrants (and
the shares of Common Stock issuable upon
exercise of the Redeemable Warrants) are
being registered hereby and may be sold by
the Bridge Selling Security Holders,
although the Bridge Selling Security Holders
have agreed with the Company not to effect
any sales of their Common Stock and
Redeemable Warrants (or any shares of Common
Stock issuable upon exercise of the
Redeemable Warrants) until 24 months and 18
months, respectively, from the date of this
Prospectus. An additional 2,210,000 shares
of Common Stock are being registered and may
be sold by the Founding Selling Security
Holders, although except with respect to
150,000 shares of Common Stock and any open
market purchases on or after the effective
date of this Offering, the Founding Selling
Security Holders have agreed with the
Underwriter not to effect any sales of their
shares of Common Stock or any other
securities of the Company, whether or not
beneficially owned, until 18 months after
the date of this Prospectus without the
prior written consent of the Underwriter.
None of the Selling Security Holders'
Securities are being underwritten in this
Offering and the Company will not receive
any proceeds from their sale although it
will receive the exercise price of $6.50 per
share in the event that any Redeemable
Warrants are exercised. See "Plan of
Operations -- Liquidity and Capital
Resources" and "Selling Security Holders".
Terms of Redeemable Warrants... Each Redeemable Warrant entitles the holder
thereof to purchase one share of Common
Stock at an exercise price of $6.50 per
share at any time commencing on the date of
this Prospectus until ________, 1999 [36
months after the date of this Prospectus]
subject to adjustment in certain
circumstances. Each Redeemable Warrant, is
redeemable by the Company commencing
________, 1997 [9 months after the date of
this Prospectus]. The Redeemable Warrants
are redeemable by the Company with the
consent of the Underwriter and will be
subject to redemption at a redemption price
of $.10 per Redeemable Warrant, on 30 days
prior written notice, provided that the
average closing bid price of the Common
Stock as reported by Nasdaq equals or
exceeds $7.50 per share, for any 20 trading
days within a period of 30 consecutive
trading days ending on the fifth trading day
prior to the date of the notice of
redemption. See "Description of Securities."
Common Stock Outstanding:
Prior to the closing of this
Offering..................... 2,761,785 shares
After the closing of this
Offering..................... 3,789,194(1) shares
5
<PAGE>
Use of Proceeds................ Research and development, repayment of
indebtedness, marketing and licensing and
working capital purposes. See "Use of
Proceeds."
Risk Factors................... The Securities offered hereby involve a high
degree of risk and immediate and substantial
dilution. See "Risk Factors" and "Dilution."
Proposed Nasdaq Symbols (2):
Common Stock................ IMEC
Redeemable Warrants.......... IMECW
- ------
(1) Gives effect to the Bridge Financing Restructuring in which, among other
things, (i) 551,785 outstanding shares of Common Stock issued in the
Bridge Financing were returned by the Bridge Selling Security Holders to
the Company for cancellation, and (ii) 579,194 shares of Common Stock
were issued to the Bridge Selling Security Holders in connection with the
conversion of Notes issued in the Bridge Financing. See "Plan of
Operations -- Liquidity and Capital Resources."
(2) Application has been made for quotation of the Common Stock and the
Redeemable Warrants on Nasdaq. See "Risk Factors -- No Assurance of
Public Trading Market or Continued Nasdaq Inclusion; Risk of Low-Priced
Securities."
6
<PAGE>
RISK FACTORS
Development Stage Company; Lack of Revenues; Accumulated Deficit;
Continued Losses for the Foreseeable Future; No Assurance of
Profitability. The Company is in the development stage and, to date, has
earned nominal revenues from operations. Since inception in November 1988,
the Company's principal activities have been (i) research and development
related to the Company's technology and the Imatec 20/20 System for the
medical diagnostic imaging field, (ii) testing of the Imatec 20/20 System
designed for the medical diagnostic imaging field, and (iii) the filing of,
and other activities related to obtaining, the Patents. Primarily as a result
of expenses incurred in connection with research and development and related
activities, as of December 31, 1995 and August 31, 1996 the Company had an
accumulated deficit of $1,280,109 and $2,837,005, respectively. The Company
has continued to incur losses since August 31, 1996. Potential investors
should be aware of the problems, delays, expenses, difficulties and risks
encountered by a company in the development stage, many of which may be
beyond the Company's control. Such risks may include, but are not limited to,
unanticipated problems relating to the continued developing, testing and
marketing of the Company's technology. In addition, the Company will also
face a number of risks specific to entities attempting to introduce new
technologies, including, but not limited to, the existence or development of
competing technologies, the existence or development of new technologies that
are incompatible with the Company's technology, the inability of the Company
to respond in a timely manner to changing technologies, the potential
obsolescence of the Company's technology as a result of changing
technologies, and the failure of a market to develop for Imatec 20/20
Systems. The Company expects to continue to incur losses until such time, if
ever, as the Company's revenues exceed its expenses. There can be no
assurance that the application of the Company's technology to the medical
diagnostic imaging field, or to any other fields, will be successful, or that
the Company will be able to successfully license or otherwise exploit its
technology or any of its Imatec 20/20 Systems. There can be no assurance that
the Company will ever achieve profitability. See "Business," "Plan of
Operations" and Financial Statements.
Significant Capital Requirements; Dependence on Proceeds of this
Offering. The Company's cash requirements are significant. The Company is
dependent on the net proceeds of this Offering to implement its current
business plan. The Company intends to substantially increase its level of
business activities following the consummation of this Offering and, in
connection therewith, will incur significant expenses without the guarantee
of any revenues. See "Plan of Operations" and "Use of Proceeds."
Possible Need For Additional Financings. Although the Company anticipates
that the net proceeds of this Offering will be sufficient to finance its
activities for at least the 12 months following the date of this Prospectus,
there is no assurance that the Company will not require additional financing
and if required, that such additional financing will be available to the
Company on acceptable terms, or at all. Factors that may lead to a need for
additional financing include delays in market acceptance, changes in
technologies or the need for the Company to directly engage in the
manufacture, sales, distribution and service of products based on the
Company's technology. There can be no assurance that the Company will not
suffer from these or any other problems, any of which may have a material
adverse effect on the Company See "Plan of Operations."
Uncertainty of Market Acceptance of the Company's Technology. Although the
Company has successfully tested the Imatec 20/20 System with respect to the
medical diagnostic imaging field, the Company is unknown in the marketplace
and there can be no assurance that a market for products that incorporate the
Company's technology will develop. Consequently, although the Company will
seek to license the Company's technology and Imatec 20/20 System to third
parties in the medical diagnostic imaging field, there can be no assurance
that the Company will be successful in generating any licensing income. In
addition, part of the Company's strategy is to continue its research and
development activities with respect to the Company's technology for other
applications in the medical imaging field and in other imaging fields, such
as graphic arts, computer, cinematography and TV/video. The Company has
recently began developing an Imatec 20/20 System designed to reduce
distortion of reproduction of color images, and which is intended to
facilitate the Company's application of an Imatec 20/20 System to non-medical
imaging fields. There can be no assurance, however, that the Company will be
able to apply its technology to any other markets or that a market will
develop for the Imatec 20/20 System in the medical diagnostic imaging field
or any other field, or that the Company's technology or Imatec 20/20 Systems
will ever receive acceptance from any intended users. See "Business -- The
Company's Business Strategy."
7
<PAGE>
Risks of Technological Change; Competition. The image enhancement field is
subject to rapid and significant technological change that may render the
Company's technology or an Imatec 20/20 System obsolete or products that
incorporate the Company's technology obsolete or incompatible with the
machines they are intended to complement. In addition, such rapid changes may
impose additional, unforeseen costs on the Company in that the Company may be
required to modify its technology and Imatec 20/20 Systems to adapt to such
changes. There can be no assurance that the Company will be able to
successfully modify or upgrade its technology and Imatec 20/20 Systems as may
be necessary in a timely manner, or at all.
While the Company is not aware of any entities that build image
enhancement devices that compete with the Company's technology or its Imatec
20/20 Systems, there are a number of entities that are engaged in the
research and development of image enhancement products. These entities may in
the future develop technologies or products that compete with the Company's
technology or its Imatec 20/20 Systems. Potential competitors of the Company
include independent companies, universities and public and private research
organizations, most of which are well established and have substantially
greater marketing, financial, technological and other resources than the
Company. In addition, the medical imaging field in particular is dominated by
large, well established corporations. There can be no assurance that
competitors will not succeed in securing patents and/or developing
technologies or products that are more effective than the Company's
technology or its Imatec 20/20 Systems, as a result of which the Company's
technology and Imatec 20/20 Systems may become obsolete or non-competitive.
See "Business -- Competition".
No Manufacturing, Sales, Distribution and Technical Services Support
Capabilities; Limited Marketing Capabilities. The Company does not presently
intend to engage in the manufacturing process or the accompanying sales,
distribution and technical services support functions. The Company will be
dependent on licensees of its technology or Imatec 20/20 Systems and other
third parties with which it will attempt to establish commercial
relationships in connection with the manufacturing, distribution and service
of products that incorporate its technology or Imatec 20/20 Systems. The
manufacturing, sales, distribution and service of products are capital and
labor intensive, and beyond the Company's current capabilities. Similarly,
the Company has, and will continue to have for the foreseeable future,
limited marketing and licensing capabilities. The Company's marketing and
licensing strategy will rely on unaffiliated licensees and other third
parties to successfully manufacture and effect sales of products which
incorporate the Company's technology or its Imatec 20/20 Systems as well as
provide the necessary service, repair and technical support. There can be no
assurance that the Company will be able to rely on unaffiliated licensees and
third parties to successfully effect the manufacture, sales and service of
products incorporating the Company's technology or its Imatec 20/20 Systems,
or that the Company will not have to make significant additional capital
expenditures in the event that it cannot rely on such licensees and third
parties. Moreover, any such additional capital expenditures are beyond the
Company's current means, and may also include the employment of additional
personnel, in order to successfully effect the manufacture, sales,
distribution or service of products incorporating the Company's technology or
its Imatec 20/20 Systems. See "Business -- The Company's Business Strategy"
"--Manufacturing and Distribution."
No Assurance as to Validity or Enforceability of Intellectual Property
Rights. The Company is the exclusive licensee of the Patents. The owner and
licensor of the Patents is Dr. Hanoch Shalit, the Company's President and
Chief Executive Officer. Notwithstanding the Company's exclusive license with
respect to the Patents, there can be no assurance that others will not
independently develop similar technologies, or design around the Patents. If
others are able to design around the Patents, the Company's business will be
materially adversely affected. Further, the Company will have very limited,
if any, protection of its proprietary rights in those jurisdictions where it
has not effected any patent filings or where it fails to obtain patent
protection despite filing therefor.
Even though the Patents have been issued by the United States Patent and
Trademark Office and the European Patent Office, challenges may be instituted
by third parties as to the validity and enforceability of the Patents. There
also can be no assurance that third parties will not be able to successfully
assert a claim with regard to the Patents and/or the Company's technology or
its Imatec 20/20 Systems under their own intellectual property rights. The
Company is not presently aware of any challenges to the Patents. Similarly,
the Company may also have to institute legal actions in order to protect
infringement of its Patents by third parties. The Company is not presently
aware of any such infringements. The costs of litigation or settlement in
connection with the
8
<PAGE>
defense of any third party challenges relative to the validity and
enforceability of its Patents and/or to prevent any infringement of the
Patents by third parties, which pursuant to the License Agreement are the
Company's responsibilities, could be substantial. Moreover, in the event that
the Company was unsuccessful in any such litigation, the Company could be
materially adversely affected.
In certain instances, for business reasons, the Company may choose not to
seek patent protection for all of its innovations. In such instances, the
Company may rely on trade secrets and know-how to protect its innovations.
There can be no assurance that protectable trade secrets or know-how will be
established or, if established, that they will remain protected, or that
others will not independently and lawfully develop similar or superior
innovations. The Company requires all employees to sign non-disclosure,
non-competition, confidentiality and invention assignment agreements.
Similarly, all directors, consultants and other parties to whom confidential
information has been or will be disclosed have agreements containing
confidentiality provisions and covenants not to compete. There can be no
assurance, however, that any such confidentiality or non-compete provisions
will be complied with or will be enforceable. See "Business -- Intellectual
Property" and "Management -- Executive Compensation."
Possible Need for FDA Clearance. The Company is presently uncertain
whether the Company, or a potential licensee of the Company's technology or
the Imatec 20/20 System for medical imaging applications, will obtain any
required clearances for medical devices from the United States Food and Drug
Administration ("FDA") for the Imatec 20/20 System for medical imaging
applications. The clearance process is expensive and time consuming. In order
to clinically test, produce, and market a medical device that requires FDA
clearance, the Company or a licensee, as the case may be, must satisfy
numerous mandatory procedures, regulations, and safety standards established
by the FDA, and comparable state and foreign regulatory agencies. Typically,
such standards require that the products be cleared by the FDA as safe and
effective for their intended use prior to being marketed for human
applications. In the event that any FDA clearances are required, there can be
no assurance that any such clearances will be granted, or that the length of
time for clearance will not be extensive, or that the cost of attempting to
obtain any such clearances will not be prohibitive.
The FDA employs a rigorous system of regulations and requirements
governing the clearance processes for medical devices, requiring, among other
things, the presentation of substantial evidence, including clinical studies,
establishing the safety and efficacy of new medical devices. The principal
methods by which FDA clearance is obtained are pre-market approval ("PMA"),
which is for products that are not comparable to any other product in the
market, or filing a pre-market notification under Section 510(k) of the
Federal Food, Drug and Cosmetic Act (a "510(k)") which is for products that
are substantially equivalent to products that have already received FDA
clearance. Although both methods may require clinical testing of the products
in question under an approved protocol, because PMA clearance relates to more
unique, invasive and/or potentially higher risk products, the PMA procedure
is more complex and time consuming. Applicants under the 510(k) procedure
must prove that the products for which clearance is sought are substantially
equivalent to products on the market prior to the Medical Device Amendments
of 1976, or products approved thereafter pursuant to the 510(k). The review
period for a 510(k) application is approximately ninety (90) days from the
date of filing the application, although there can be no assurance that the
review period will not extend beyond such a period.
Under the PMA procedure, the applicant is required to conduct substantial
clinical testing to determine the safety, efficacy and potential hazards of
the product. The review period under a PMA application is one hundred eighty
(180) days from the date of filing, and the application is not automatically
deemed cleared if not rejected during that period. The preparation of a PMA
application is significantly more complex, expensive and time consuming than
the 510(k) procedure. Further, the FDA can request additional information,
which can prolong the clearance process.
The Company is of the belief, based upon the non-invasive nature of the
Company's technology, the Imatec 20/20 System for medical imaging
applications and other factors, that only a 510(k) application and approval
will be required for the Imatec 20/20 System for medical imaging
applications, although there can be no assurance that a PMA will not be
required.
In order to conduct human clinical studies for any medical procedure
proposed for the Company's products, the Company or a licensee, as the case
may be, could also be required to obtain an Investigational Device
9
<PAGE>
Exemption ("IDE") from the FDA or clearance of an Institutional Review Board
("IRB"), which would further increase the time before potential FDA
clearance. In order to obtain an IDE, the Company or a licensee, as the case
may be, may be required to submit an application to the FDA or an IRB,
including a complete description of the product, and detailed medical
protocols that would be used to evaluate the product. In the event an
application were found to be in order, an IDE would ordinarily be granted
promptly thereafter.
The FDA also imposes various requirements on manufacturers and sellers of
medical devices under its jurisdiction, such as medical device listing,
labeling, manufacturing practices, record keeping and reporting requirements.
The FDA may also require post-market testing and surveillance programs to
monitor a product's effect. In the event that the Company or a licensee, as
the case may be, is required to obtain clearance for the Imatec 20/20
Systems, there can be no assurance that the appropriate clearance from the
FDA will be obtained, that the process to obtain such clearance will not be
excessively expensive or lengthy, or that the Company or a licensee, as the
case may be, will have sufficient funds to pursue such clearances.
Accordingly, the inability of the Company or potential licensees, as the case
may be, to receive requisite clearance for the Imatec 20/20 Systems would
prevent the Company from commercializing its technologies as intended, and
would have a material adverse effect on the business of the Company.
Even after regulatory clearance is obtained, any such clearance may
include significant limitations on indicated uses. Further, regulatory
clearances are subject to continued review, and later discovery of previously
unknown problems may result in restrictions with respect to a particular
product or manufacturer, including withdrawal of the product from the market,
or sanctions or fines being imposed on the Company or licensee, as the case
may be.
Distribution of the Imatec 20/20 Systems or licensing of the Company's
technology in countries other than the United States may be subject to
regulation in those countries. There can be no assurance that the Company or
licensee, as the case may be will be able to obtain the approvals necessary
outside of the United States. See "Business -- FDA Clearance."
Management's Broad Discretion in Application of Proceeds. Although the
Company intends to apply the net proceeds from the sale of the Common Stock
and Redeemable Warrants in the manner described under "Use of Proceeds," it
has broad discretion within such proposed uses as to the precise allocation
of the net proceeds, the timing of expenditures and all other aspects of the
use thereof. Further, approximately 43.3% of the net proceeds of this
Offering are allocated to working capital, which is a general category that
gives management a significant degree of latitude as to the expenditure
thereof. See "Use of Proceeds."
Company's Obligation to Make Substantial Payments to Principal
Stockholder. The Company will be obligated to make substantial payments to
Dr. Hanoch Shalit, its President, Chief Executive Officer and Chairman of the
Board of Directors and a principal stockholder of the Company, regardless of
whether the Company ever achieves any revenues. Pursuant to the terms of his
five-year exclusive employment agreement, the Company is obligated to pay to
Dr. Shalit a base salary of $60,000 per annum, which shall increase at the
rate of 5% per annum, plus benefits. Dr. Shalit is also entitled to receive a
bonus of $10,000 for every $1,000,000 of gross annual sales received by the
Company. In addition, pursuant to the terms of the License Agreement, Dr.
Shalit is entitled to receive an annual flat royalty fee of $140,000 for so
long as the Company or any successor of the Company is in existence. However,
in the event that Dr. Shalit is no longer President, Chief Executive Officer
and Chairman of the Board of the Company for any reason whatsoever, but the
Company, or any successor of the Company, continues in existence, the annual
flat royalty fee shall increase to $250,000. The annual flat royalty fee
increases at the rate of 5% per annum so long as the Company or any successor
of the Company continues to be in existence.
Dependence Upon Key Personnel. The Company's success depends upon the
continued involvement of Dr. Hanoch Shalit, the Company's President and Chief
Executive Officer. The loss or unavailability of Dr. Shalit could materially
adversely affect the Company. On July 1, 1995, the Company entered into a
five-year employment agreement with Dr. Shalit. The Company is the sole
beneficiary of a "key man" life insurance policy on the life of Dr. Shalit in
the principal amount of $1,000,000. See "Management" and "Certain
Transactions."
Limited Business Experience of Management; Need for Additional
Personnel. Since its inception in 1988, the Company has primarily engaged in
research and development activities and the manufacture of test and pre-
10
<PAGE>
production prototypes of an Imatec 20/20 System for the medical diagnostic
imaging field. Presently, the Company has only three executive officers; Dr.
Hanoch Shalit, Lawrence P. Kollender and James A. Smith. Dr. Hanoch Shalit,
the Company's President and Chief Executive Officer does not have any
experience in operating a business engaged in the licensing of intellectual
property. Mr. Kollender, the Company's Vice President of Marketing and Sales,
is primarily responsible for the marketing and sales activities of the
Company. Mr. Smith, the Company's Chief Financial Officer, is primarily
responsible for the Company's financial matters. The Company's ability to
implement its business plan, the essential elements of which are licensing,
marketing and research and development activities, will depend upon the
Company's ability to hire and retain senior level, highly-skilled personnel
experienced in the operation of certain aspects of the Company's business,
such as accounting, management, licensing and marketing. Competition for such
personnel is intense and there can be no assurance that the Company will be
successful in attracting and retaining personnel. The Company's failure to
attract and retain such additional personnel would have a material adverse
effect on the Company. See "Management."
No Product Liability Insurance. The Company's business could expose the
Company to product liability claims. The Company currently has no product
liability insurance, although it intends to attempt to obtain such insurance
before any of its products are sold commercially. There can be no assurance
that the Company will be able to obtain such insurance on acceptable terms or
that such insurance, if obtained, will provide adequate coverage against
potential liabilities.
Control by Officers and Directors. Upon the closing date of this Offering,
the Company's current officers and directors will own approximately 25.7% of
the issued and outstanding shares of Common Stock. Accordingly, although not
representing a majority of the Company's voting securities, the current
management of the Company will nevertheless be able to significantly
influence the election of the Company's directors and generally direct the
affairs of the Company. See "Management," "Principal Stockholders" and
"Description of Securities-Common Stock."
Immediate Substantial Dilution. Upon the closing date of this Offering,
purchasers of the Common Stock offered hereby will experience immediate and
substantial dilution of the net tangible book value of their investment in
the Company of $3.42 per share, or approximately 68% per share. See
"Dilution."
Absence of Dividends. The Company has never paid any dividends with
respect to its Common Stock and does not anticipate paying dividends on its
Common Stock in the foreseeable future. Any earnings which the Company may
realize in the foreseeable future will be retained to finance the growth of
the Company. See "Description of Securities" and "Dividend Policy."
Potential Litigation. In connection with its Bridge Financing
Restructuring six of the investors in the Company's Bridge Financing,
representing an aggregate of five "Units" (as that term is defined in Plan of
Operations -- Liquidity and Capital Resources"), have not, to date, advised
the Company whether they will choose "Option A" or "Option B" (as those terms
are defined in "Plan of Operations -- Liquidity and Capital Resources"). In
the event that any of these investors fail to choose either Option A or
Option B on or before October 25, 1996, the Company will deem such investor
to have chosen Option A. Such an investor may thereafter institute litigation
against the Company disputing the Option they are deemed to have chosen
and/or seeking to enforce the original terms and conditions of their
investment in the Company. The Company intends to vigorously defend any such
litigation. See "Plan of Operations -- Liquidity and Capital Resources".
Anti-Takeover Provisions; Issuance of Preferred Stock. The Company's Board
of Directors has the authority to issue up to 2,000,000 shares of preferred
stock in one or more series and to determine the number of shares in each
series, as well as the designations, preferences, rights and qualifications
or restrictions of those shares without any further vote or action by the
stockholders. The rights of the holders of Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of any preferred
stock that may be issued in the future. The issuance of preferred stock could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company. The Company has no
present plans to issue shares of preferred stock. In addition, the Company is
subject to the anti-takeover provisions of Section 203 of the Delaware
General Corporation Law. In general, this statute prohibits a publicly-held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. See "Description of
Securities -- Preferred Stock."
11
<PAGE>
Speculative Nature of Redeemable Warrants; Adverse Effect of Possible
Redemption of Redeemable Warrants. The Redeemable Warrants do not confer any
rights of Common Stock ownership on its holders, such as voting rights or the
right to receive dividends, but rather, merely represent the right to acquire
shares of Common Stock at a fixed price for a limited period of time.
Specifically, commencing on the date of this Prospectus, holders of the
Redeemable Warrants may exercise their right to acquire the Common Stock and
pay an exercise price of $6.50 per share, subject to adjustment, prior to
___________, 1999 [36 months after the date of this Prospectus] after which
date any unexercised Redeemable Warrants will expire and have no further
value. Moreover, following this Offering, the market value of the Redeemable
Warrants is uncertain and there can be no assurance that the market value of
the Redeemable Warrants will equal or exceed their initial public offering
prices. There can be no assurance that the market price of the Common Stock
will ever equal or exceed the exercise price of the Redeemable Warrants, and
consequently, whether it will ever be profitable for the holders of the
Redeemable Warrants to exercise their Redeemable Warrants.
In addition, the Redeemable Warrants are subject to redemption by the
Company, subject to the approval of the Underwriter, commencing _____, 1997
[nine (9) months after the date of this Prospectus], on 30 days' prior
written notice, at a price of $.10 per Redeemable Warrant if the average
closing bid price for the Common Stock as reported on Nasdaq, equals or
exceeds $7.50 per share, for any 20 trading days within a period of 30
consecutive trading days ending on the fifth trading day prior to the date of
the notice of redemption. In the event that the Redeemable Warrants are
redeemed by the Company, holders of the Redeemable Warrants will lose their
right to exercise their Redeemable Warrants after the 30 day notice period.
Upon receipt of notice of redemption, holders of Redeemable Warrants would be
required to: (i) exercise the Redeemable Warrants and pay the exercise price
at a time when it may be disadvantageous for them to do so; (ii) sell the
Redeemable Warrants at the then market price, if any, when they might
otherwise wish to hold the Redeemable Warrants; or (iii) accept the
redemption price, which is likely to be substantially less than the market
value of the Redeemable Warrants at the time of redemption. In the event that
holders of the Redeemable Warrants elect not to exercise their Redeemable
Warrants upon notice of redemption, the unexercised Redeemable Warrants will
be redeemed prior to exercise, and the holders thereof will lose the benefit
of the appreciated market price of the Redeemable Warrants, if any, and/or
the difference between the market price of the underlying Common Stock as of
such date and the exercise price of such Warrants, as well as any possible
future price appreciation in the Common Stock. See "Description of
Securities--Redeemable Warrants."
Current Prospectus and State Registration Required to Exercise
Warrants. The Redeemable Warrants are not exercisable unless, at the time of
exercise, the Company has a current prospectus covering the shares of Common
Stock issuable upon exercise of the Redeemable Warrants and such shares have
been registered, qualified or deemed to be exempt under the securities or
"blue sky" laws of the state or residence of the exercising holder of the
Redeemable Warrants. In addition, in the event that any holder of the
Redeemable Warrants attempts to exercise any Redeemable Warrants at any time
after nine months from the date of this Prospectus, the Company will be
required to file a post-effective amendment to the Registration Statement of
which this Prospectus is a part and deliver a current prospectus before the
Redeemable Warrants may be exercised. Although the Company has undertaken to
use its best efforts to have all of the shares of Common Stock issuable upon
exercise of the Redeemable Warrants registered or qualified on or before the
exercise date and to maintain a current prospectus relating thereto until the
expiration of the Redeemable Warrants, there is no assurance that it will be
able to do so. The value of the Redeemable Warrants may be greatly reduced if
a current prospectus covering the Common Stock issuable upon the exercise of
the Redeemable Warrants is not kept effective or if such Common Stock is not
qualified or exempt from qualification in the States in which the holders of
the Redeemable Warrants then reside. The Redeemable Warrants will be
separately tradeable immediately upon issuance and may be purchased
separately from the Common Stock. Although the Redeemable Warrants will not
knowingly be sold to purchasers in jurisdictions in which the Redeemable
Warrants are not registered or otherwise qualified for sale, investors may
purchase the Redeemable Warrants in the secondary market or may move to
jurisdictions in which the shares underlying the Redeemable Warrants are not
registered or qualified during the period that the Redeemable Warrants are
exercisable. In such event, the Company will be unable to issue shares to
those persons desiring to exercise their Redeemable Warrants unless and until
the shares are qualified for sale in jurisdictions in which such purchasers
reside, or an exemption from such qualification exists in such jurisdictions,
and holders of the Redeemable Warrants would have no choice but to attempt to
sell the Redeemable Warrants in a jurisdiction where such sale is permissible
or allow them to expire unexercised. See "Description of
Securities--Redeemable Warrants."
12
<PAGE>
Shares Eligible for Future Sale. Upon the closing date of this Offering,
there will be 3,789,194 shares of Common Stock outstanding after giving
effect to the Bridge Financing Restructuring and the Company's sale of the
Securities offered hereby. (3,939,194 if the Underwriter's over-allotment
option is exercised in full) all of which will be registered. Of such shares,
579,194 are being registered on behalf of the Bridge Selling Security Holders
and 2,210,000 shares of Common Stock are being registered on behalf of the
Founding Selling Security Holders pursuant to the registration statement of
which this Prospectus is a part. Except with respect to 150,000 shares of
Common Stock being registered on behalf of certain of the Founding Selling
Security Holders (including 72,093 shares for Dr. Hanoch Shalit, the Chief
Executive Officer and President of the Company) and any open market purchases
on or after the effective date of this Offering, the Founding Selling
Security Holders, have agreed with the Underwriter, not to directly or
indirectly offer, sell, transfer, or otherwise encumber or dispose of any of
the Company's securities, whether or not beneficially owned, for a period of
18 months after the date of this Prospectus unless otherwise permitted by the
Underwriter. The Bridge Selling Security Holders have agreed with the Company
not to effect any sales of their Common Stock and Redeemable Warrants (or any
shares of Common Stock issuable upon exercise of the Redeemable Warrants)
until 24 months and 18 months, respectively, after the date of this
Prospectus. Possible or actual sales of the Company's outstanding Common
Stock by certain of the present stockholders may, in the future, have a
depressive effect on the price of the Common Stock should a public market
develop for such shares. See "Shares Available for Future Sale,"
"Management--Stock Option Plan," "Principal Stockholders," and
"Underwriting."
The 4,000,000 Redeemable Warrants being offered by the Company and the
2,150,000 Redeemable Warrants being registered for the account of the Bridge
Selling Security Holders entitle the holders thereof to purchase up to an
aggregate of 6,150,000 shares of Common Stock any time during the period
commencing on the date of this Prospectus and expiring 36 months from the
date of this Prospectus. Sales of either the Redeemable Warrants or the
underlying shares of Common Stock, or even the existence of the Redeemable
Warrants, may depress the price of the Common Stock or the Redeemable
Warrants in any markets that may develop for such Securities. See "Selling
Security Holders," "Plan of Operations--Liquidity and Capital Resources,"
"Shares Eligible for Future Sale" and "Underwriting."
No Assurance of Public Trading Market or Continued Nasdaq Inclusion; Risk
of Low-Priced Securities. Prior to this Offering, there has been no public
market for the Securities, and there can be no assurance that an active
public market for the Common Stock or Redeemable Warrants will develop after
the completion of this Offering, or if developed, be sustained. To qualify
for initial listing on Nasdaq, the Company must have, among other criteria,
$4,000,000 in total assets and $2,000,000 in total capital and surplus, at
least 300 stockholders, and a minimum bid price of $3.00. In order to qualify
for continued listing on Nasdaq, a company, among other things, must have
$2,000,000 in total assets, $1,000,000 in capital and surplus and a minimum
bid price of $1.00 per share. If the Company is unable to satisfy the
maintenance requirements for quotation on Nasdaq, of which there can be no
assurance, it is anticipated that the Securities would be quoted in the
over-the-counter market National Quotation Bureau ("NQB") "pink sheets" or on
the NASD OTC Electronic Bulletin Board. As a result, an investor may find it
more difficult to dispose of, or obtain, accurate quotations as to the market
price of the Securities, which may materially adversely affect the liquidity
of the market for the Securities. In addition, if the Securities are delisted
from Nasdaq they might be subject to the low-priced security or so-called
"penny stock" rules that impose additional sales practice requirements on
broker-dealers who sell such securities. For any transaction involving a
penny stock the rules require, among other things, the delivery, prior to the
transaction, of a disclosure schedule required by the Securities and Exchange
Commission (the "Commission") relating to the penny stock market. The
broker-dealer also must disclose the commission payable to both the
broker-dealer and the registered representative and current quotations for
the securities. Finally, monthly statements must be sent disclosing recent
price information for the penny stocks held in the customer's account. It is
presently expected that the Underwriter will be the principal market maker in
the Securities. Such market making activity may be discontinued at any time.
The prices and liquidity of the Securities may be materially adversely
affected if such market making activity were discontinued for any reason.
Although the Company believes that the Securities will not be defined as a
penny stock due to their anticipated listing on Nasdaq, in the event the
Securities subsequently become characterized as a penny stock, the market for
and liquidity of the Securities could be severely affected. In such an event,
the regulations relating to penny stocks could limit the ability of
broker-dealers to sell the Securities and, thus, the ability of purchasers in
the Offering to sell their Securities in the secondary market.
13
<PAGE>
USE OF PROCEEDS
The estimated net proceeds to the Company from the sale of the Securities
offered hereby, after deducting the underwriting discount and estimated
offering expenses, will be approximately $4,720,000, (or approximately
$5,503,000 if the Underwriter's over-allotment option is exercised in full).
The Company intends to allocate the net proceeds of the Offering
approximately as follows:
Approximate Approximate
Amount Percentage
------------- -------------
Research and development(1) ...... $1,000,000 21.2%
Repayment of indebtedness(2) ..... 925,000 19.6%
Marketing and licensing(3) ...... 750,000 15.9%
Working capital ................. 2,045,000 43.3%
------------- -------------
Total ......................... $4,720,000 100.0%
============= =============
- ------
(1) Consists of expenditures for equipment, materials and outside consultants
and in connection with research and development activities with respect
to the application of the Imatec 20/20 System designed for the medical
diagnostic imaging field to other medical imaging fields and developing
an Imatec 20/20 System for non-medical imaging fields. In addition, the
Company may also from time to time purchase technologies which may
enhance or further the application of the Company's technology, although
the Company has no understandings or arrangements to do so at this time.
(2) Reflects repayment of principal amount of $925,000 of Notes, pursuant to
the Bridge Financing Restructuring. See "Plan of Operations -- Liquidity
and Capital Resources."
(3) Consists of expenditures in connection with participating in trade shows
(which includes constructing a booth for, and renting space at, trade
shows, preparation of special marketing materials, and travel to and
attendance at trade shows), preparation of marketing materials, hiring of
sales and marketing personnel and consultants, advertising and general
marketing and licensing activities.
The initial application for the use of proceeds represents management's
estimates based upon current business and economic conditions. Although the
Company does not contemplate material changes in the proposed use of
proceeds, to the extent the Company finds that adjustment is required by
reason of existing business conditions, the amounts shown may be adjusted
among the uses indicated above.
The Company believes that the net proceeds of this Offering will be
sufficient for the Company to sustain its operations and implement its
business plan for at least twelve (12) months after the date of this
Prospectus, although there can be no assurance that such net proceeds will be
sufficient to finance the Company's operations for such period.
To the extent that the Company's expenditures are less than projected
and/or the net proceeds of this Offering increase as a result of the exercise
by the Underwriter of its over-allotment option, the resulting balance will
be retained and used for general working capital purposes. The net proceeds
of this Offering that are not expended immediately shall be deposited in
interest bearing accounts, or invested in government obligations,
certificates of deposit or similar short-term, low risk investments.
DIVIDEND POLICY
The Company has never paid cash or other dividends and does not expect to
pay any cash or other dividends in the foreseeable future with respect to its
Common Stock. The Company's future dividend policy will depend upon the
Company's earnings, capital requirements, financial condition and other
factors considered relevant by the Company's Board of Directors. The Company
presently intends to retain any earnings which the Company may realize in the
foreseeable future to finance the growth of the Company.
14
<PAGE>
DILUTION
The Company had a pro forma net tangible book value of $1,152,094 or $.41
per share of Common Stock as of August 31, 1996, after giving effect to the
Bridge Financing Restructuring. Net tangible book value per share is
determined by dividing the net tangible book value of the Company (total
tangible assets less total liabilities) by the number of outstanding shares
of Common Stock. After giving effect to the receipt of the net proceeds from
the sale of the Common Stock and Redeemable Warrants by the Company and the
initial application of the net proceeds therefrom, the net tangible book
value of the Company at August 31, 1996 would have been $5,975,181 or $1.58
per share, representing an immediate dilution of $3.42 (or approximately 68%)
per share to the public investors as illustrated by the following table:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share of Common Stock .. $5.00
Pro forma net tangible book value per share before Offering ...... $ .41
Increase in net tangible book value per share of Common Stock
attributable to public investors ................................ 1.17
------
Adjusted net tangible book value per share upon the Offering ..... 1.58
-------
Dilution per share to public investors (1) ....................... $3.42
=======
</TABLE>
- ------
(1) In the event that the Underwriter exercises its over-allotment option in
full, the adjusted net tangible book value after this Offering would be
approximately $1.72 per share, which would result in immediate dilution
in net tangible book value to public investors of approximately $3.28 per
share.
The following table sets forth, as of the date of this Prospectus, the
number of shares of Common Stock purchased, the percentage of Common Stock
purchased, the total consideration paid, the percentage of total
consideration paid, and the average price per share paid, by the existing
stockholders of the Company and the investors in the Offering.
<TABLE>
<CAPTION>
Number of Percent Percent of
Shares of Total Total Consid- Total Consid- Average Price
Purchased Shares eration Paid eration Paid Per Share
----------- ---------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Present Stockholders(1). 2,789,194 74% 26% $ 1,718,904 $ .62
Public Investors ....... 1,000,000 26% 74% 5,000,000(2) $5.00
----------- ---------- --------------- ---------------
Total .................. 3,789,194 100% 100% $ 6,718,904
=========== ========== =============== ===============
</TABLE>
- ------
(1) Adjusted to give effect to the Bridge Financing Restructuring. See "Plan
of Operations -- Liquidity and Capital Resources."
(2) Allocates no value to the Redeemable Warrants offered hereby.
The foregoing table assumes no exercise of the Redeemable Warrants or any
stock options, of which none are currently issued. To the extent that any
options issued by the Company in the future or the Redeemable Warrants are
exercised, there may be further dilution to the new investors in this
Offering.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at August
31, 1996. This information should be read in conjunction with the financial
statements and the notes thereto which are included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
August 31, 1996
---------------------------------
Actual As Adjusted(1)
--------------- --------------
<S> <C> <C>
Bridge notes payable ....................................... $ 3,084,284(2) 0
Stockholders' (Deficit) Equity:
Preferred Stock, par value $.0001 per share, 2,000,000
shares authorized, no shares issued and outstanding . $ 0 $ 0
Common Stock, par value $.0001, 20,000,000 shares
authorized, 2,761,785 shares issued and outstanding
actual, and 3,789,194 as adjusted ................... 276 379
Additional paid-in capital ............................ 1,865,725 8,902,398
Deficit accumulated during the development stage ...... (2,837,005) (2,927,596)
--------------- --------------
Total stockholders' (deficit) equity ....................... $ (971,004) $ 5,975,181
=============== ==============
Total capitalization ....................................... $ 2,113,280 $ 5,975,181
=============== ==============
</TABLE>
- ------
(1) As adjusted to give effect to (i) the conversion of $2,150,000 of
principal indebtedness and $166,776 of accrued interest thereon into
579,194 shares of Common Stock, (ii) the forgiveness of $925,000 of
principal indebtedness and $122,511 of accrued interest thereon, (iii)
the cancellation of 1,850,000 Bridge Warrants, (iv) the write-off of
unamortized loan discount of $915,716 and deferred loan costs of
$222,386, all being deemed to occur as of October 31, 1996,and (v) the
sale of 1,000,000 shares of Common Stock and 4,000,000 Redeemable
Warrants in connection with this Offering at assumed initial public
offering prices of $5.00 and $.25, respectively, and the initial
application of the net proceeds therefrom. See "Plan of Operations --
Liquidity and Capital Resources" and "Use of Proceeds."
(2) Net of $915,716 of unamortized original issue discount.
16
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data has been derived from the financial
statements of the Company. In the opinion of the Company's management, all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the information set forth therein have been made. The selected
financial data should be read in conjunction with the Financial Statements
and related notes thereto, which are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
November 17, 1988
(inception) to
December 31, 1995 Eight months
Year Ended December 31 (Cumulative) Ended August 31,
---------------------------- ----------------- ------------------------------
1994 1995 1995 1996
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Income ...................................... $1,960 -- $133,973 -- --
------------ ------------ ----------------- ------------ --------------
Royalties ................................... -- $420,000 $420,000 $373,334 $95,083
Research and development .................... $17,881 $11,773 $337,389 -- $46,991
General and administrative .................. $99,243 $163,682 $598,613 $51,631 $531,518
Interest expense (net) ...................... -- $67,139 $58,080 -- $883,304
------------ ------------ ----------------- ------------ --------------
Net loss .................................... $(115,164) $(662,594) $(1,280,109) $(424,965) $(1,556,896)
============ ============ ================= ============ ==============
Net loss per share .......................... $(.02) $(.12) $(.22) $(.07) $(.26)
============ ============ ================= ============ ==============
Weighted average number of shares outstanding . 5,741,072 5,749,976 5,742,329 5,738,313 5,893,715
============ ============ ================= ============ ==============
</TABLE>
August 31, 1996
-------------------------------
As
Balance Sheet Data: Actual adjusted (1)
--------------- ------------
Working capital (deficit) .... $ 1,667,858 $5,785,983
Total assets ................. $ 2,369,215 $6,011,078
Total liabilities ............ $ 3,340,219(2) $ 35,897
Stockholders' equity (deficit) . $ (971,004) $5,975,181
- ------
(1) As adjusted to give effect to (i) the conversion of $2,150,000 of
principal indebtedness and $166,776 of accrued interest thereon into
579,194 shares of Common Stock, (ii) the forgiveness of $925,000 of
principal indebtedness and $122,511 of accrued interest thereon, (iii)
the cancellation of 1,850,000 Bridge Warrants, (iv) the write-off of
unamortized loan discount of $915,716 and deferred loan costs of
$222,386, all being deemed to occur as of October 31, 1996, and (v) the
sale of 1,000,000 shares of Common Stock and 4,000,000 Redeemable
Warrants in connection with this Offering at assumed initial public
offering prices of $5.00 and $.25, respectively, and the initial
application of the net proceeds therefrom. See "Plan of Operations --
Liquidity and Capital Resources" and "Use of Proceeds."
(2) Net of $915,716 of unamortized original issue discount.
17
<PAGE>
PLAN OF OPERATIONS
The Company was organized on November 17, 1988 and is in the development
stage. To date, the Company's activities have primarily consisted of research
and development activities with respect to the development of the Company's
technology and an Imatec 20/20 System for the medical diagnostic imaging
field. During this time, the Company has received only minimal revenues from
limited non-recurring consulting activities. The Company believes, based upon
its internal budgets, that the net proceeds of this Offering will be
sufficient for the Company to (i) engage in licensing the Company's
technology and Imatec 20/20 System developed for the medical diagnostic
imaging field to manufacturers of medical diagnostic imaging products such as
scanners, cameras and image reproduction systems, (ii) engage in marketing
activities to facilitate the licensing of the Company's technology and its
Imatec 20/20 Systems, (iii) continue research and development activities with
respect to other applications of the Company's technology in the medical
imaging field and in other imaging fields, such as graphic arts, computer,
cinematography and TV/video and (iv) otherwise conduct its operations for at
least the twelve (12) month period following the date of this Prospectus.
LIQUIDITY AND CAPITAL RESOURCES
The Company is in the development stage, and primarily as a consequence of
expenses incurred in connection with research and development activities, at
December 31, 1995 and August 31, 1996 the Company had an accumulated
stockholders' deficit of $1,280,109 and $2,837,005, respectively. The Company
has continued to incur losses since August 31, 1996.
To date, the Company has financed its operations principally from the sale
of securities and loans. In 1991, the Company issued an aggregate of 55,250
shares of Common Stock to an investor for aggregate gross proceeds of
$500,000. In 1994, the Company issued an aggregate of 12,615 shares of Common
Stock to two investors for aggregate gross proceeds of $114,224.
In the second and third quarters of 1995 the Company borrowed an aggregate
of $175,000 from five non-affiliated, accredited investors pursuant to one
(1) year promissory notes. All of these investors converted their respective
loans into Units in the Bridge Financing described immediately below.
On November 30, 1995, the Company effected the initial closing (the "First
Closing") of a private placement (the "Bridge Financing") pursuant to which
it sold an aggregate of 37 units (the "Units") to non-affiliated, accredited
investors, each Unit consisting of (a) a $50,000 10% promissory note due the
earlier of (i) fifteen (15) months from the date of issuance, (ii) the
Company's receipt of gross proceeds of at least $8,000,000 from a public or
private sale of its securities in which the Underwriter acted as the
underwriter or placement agent, respectively, or (iii) the Company's receipt
of gross proceeds of at least $4,500,000 from a public or private sale of its
securities in which the Underwriter did not act as the underwriter or
placement agent, respectively (the "Note"), (b) 6,897 shares of Common Stock,
and (c) 50,000 warrants (the "Bridge Warrants") exercisable at $1.00 per
share. See "Description of Securities." The Company received gross proceeds
from the sale of the 37 Units in the First Closing of $1,850,000, pursuant to
which it issued an aggregate of 255,194 shares of Common Stock and 1,850,000
Bridge Warrants. The investors in the First Closing received financial
statements from the Company which did not properly account for the Company's
research and development costs. As a result thereof, the Company circulated
revised financial statements and gave recission offers to all of the
investors in the First Closing, only one of whom accepted such recission
offer. All of the other investors in the First Closing affirmatively chose
not to rescind. On April 12, 1996 the Company effected a second closing of
the Bridge Financing (the "Second Closing") pursuant to which it received an
additional $2,150,000 in gross proceeds for which it issued an aggregate of
43 Units, 296,591 shares of Common Stock and 2,150,000 Bridge Warrants. The
net proceeds from the Bridge Financing were approximately $3,230,000 (after
commissions and expenses) and in connection therewith the Company issued
551,785 shares of Common Stock (including 25 shares of Common Stock which
resulted from rounding to the nearest whole share in connection with the
purchase of fractional units) and 4,000,000 Bridge Warrants. The Company used
the net proceeds from the Bridge Financing (i) to make a one-time payment of
$350,000 to the Company's President and Chief Executive Officer, Dr. Hanoch
Shalit, pursuant to the License Agreement and (ii) for marketing and working
capital purposes.
In connection with the issuance of Notes with an aggregate principal
amount of $4,000,000, 551.785 shares of Common Stock and 4,000,000 Bridge
Warrants in the Bridge Financing, the Company recorded an original issue
discount of $1,503,570 based upon the allocation of the relative fair market
value of the Notes, Bridge
18
<PAGE>
Warrants and the Common Stock on the date of issuance. The Company incurred
approximately $664,000 of offering costs related to the Bridge Financing, of
which approximately $415,000 was allocated to deferred debt issuance costs
with the remainder allocated to paid-in capital of the Common Stock and
Bridge Warrants issued therewith. The original issue discount is being
amortized over the term of the Notes as interest expense.
In order to qualify the Common Stock and Redeemable Warrants for listing
on Nasdaq, the Company was required by Nasdaq to restructure the Bridge
Financing (the "Bridge Financing Restructuring"). Accordingly, all of the
investors in the Bridge Financing (the "Bridge Investors") were given the
choice to either (i) convert on the closing date of this Offering, their
entire principal and accrued interest into shares of Common Stock at the rate
of $4.00 per share, retain the Bridge Warrants, and return all of the shares
of Common Stock that they received in the Bridge Financing ("Option A"), or
(ii) upon the closing of this Offering receive a one time payment equal to
fifty percent (50%) of the principal amount of their Note, not receive any
accrued interest whatsoever, and return all of the Bridge Warrants and Common
Stock that they received in the Bridge Financing ("Option B"). Bridge
Investors owning an aggregate of 38 Units elected Option A and Bridge
Investors owning an aggregate of 37 Units elected Option B. Those Bridge
Investors representing the remaining five (5) Units who fail to choose either
Option A or Option B by October 25, 1996 will be deemed to have chosen Option
A by the Company and the Company will cancel on its books and records the
Common Stock issued to them in the Bridge Financing. Consequently, the Bridge
Financing has been restructured such that, upon the closing of this Offering
(assuming a closing date of this Offering of October 31, 1996) the Company
will repay an aggregate of $925,000 of principal with respect to those
investors who chose Option B. The balance of the principal amount of the
Notes issued in the Bridge Financing, and all accrued interest thereon, is
being forgiven and will not be repaid. In addition, the Company will issue,
upon the closing date of this Offering an aggregate of 579,194 shares of
Common Stock (assuming a closing date of October 31, 1996) and 2,150,000
Bridge Warrants to those Bridge Investors who chose Option A. The balance of
1,850,000 Bridge Warrants and all 551,785 shares of Common Stock issued in
the Bridge Financing will be returned to the Company upon the closing of this
Offering.
In connection with the Bridge Financing Restructuring, which is contingent
on the closing of this Offering, the Company will (i) write-off $915,716 of
unamortized loan discount and $222,386 of deferred loan costs, and, (ii) will
recognize $1,047,511 of forgiveness of indebtedness income. See "Risk
Factors--Potential Litigation."
The Company believes that the net proceeds of this Offering will be
sufficient for the Company to sustain its operations and implement its
business plan for at least twelve (12) months after the date of this
Prospectus, although there can be no assurance that such net proceeds will be
sufficient to finance the Company's operations for such period.
NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1995, the Company had net operating loss carryforwards
under Section 172 of the Internal Revenue Code, as amended (the "Code"), of
approximately $900,000 for Federal income tax purposes which may be used to
offset future taxable income. The Federal income tax carryforward will expire
as follows: $130,000 in the year 2008; $75,000 in the year 2009; $94,000 in
the year 2010; and $601,000 in the year 2011.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
(SFAS No. 121) issued by the Financial Accounting Standards Board (FASB) is
effective for financial statements for fiscal years beginning after December
15, 1995. The new standard establishes guidelines regarding when impairment
losses on long-lived assets, which include plant and equipment, and certain
identifiable intangible assets, should be recognized and how impairment
losses should be measured. The Company adopted SFAS No. 121 as of January 1,
1996 and such adoption did not have a material effect on its financial
position or results of operations.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123) recently issued by FASB is effective
for specific transactions entered into after December 15, 1995, while the
disclosure requirements of SFAS No. 123 are effective for financial
statements for fiscal years beginning no later than December 15, 1995. The
new standard establishes a fair value method of accounting for stock-based
compensation plans and for transactions in which an entity acquires goods or
services from nonemployees in exchange for equity instruments. At the present
time, the Company has not adopted SFAS No. 123 because the Company has not
engaged in any transactions involving stock-based compensation subsequent to
December 15, 1995.
19
<PAGE>
BUSINESS
GENERAL
The Company was formed in 1988 to develop, design, market and license its
proprietary technology, which enhances image reproduction by reducing
distortion that normally occurs in the imaging process, for application in
such markets as medical imaging, graphic arts, computers, cinematography and
TV/video. Each application will be a system of hardware and software
components (an "Imatec 20/20 System"), expressly developed for a specific
market. Based on the results of extensive testing, the Company has developed
an Imatec 20/20 System for medical diagnostic imaging devices which is
capable of improving the quality of film reproduction of images taken by
medical diagnostic imaging devices such as MRI, CT and Ultrasound scanners.
The Imatec 20/20 System for medical diagnostic imaging devices achieves this
goal regardless of the type of medical imaging film used which may result in
cost savings to the user. The Company has also developed an Imatec 20/20
System for the medical field of teleradiology, which is the viewing of the
same medical image on different monitor screens in separate locations.
Although the first applications of the Company's technology have been for the
medical diagnostic imaging field, which only require black and white
reproduction, the Company recently began developing an Imatec 20/20 System
designed to reduce distortions of reproduction of color images and which is
intended to facilitate the Company's development of Imatec 20/20 Systems for
non-medical imaging fields.
The Company's technology is designed to objectively measure the image
characteristics of an original image and compare it to its reproduced image,
computing the existing tone and color distortions between the two images and
correcting such distortions. Current imaging systems create reproductions
that have distortions and are usually adjusted subjectively during the
reproduction process. Aspects of the Company's technology are set forth in
its Patents which have been licensed by the Company from Dr. Hanoch Shalit,
the Company's President and Chief Executive Officer. The Company has
designed, built and tested a prototype of a device incorporating the Imatec
20/20 System which can be used with MRI, CT and Ultrasound scanners.
THE MEDICAL IMAGING MARKET
In 1995, U.S. sales of MRI, CT and Ultrasound machines were approximately
$1.59 billion, representing sales of approximately 9,775 units. In addition,
approximately $235 million was spent in 1994 in connection with the upgrading
and improving these medical imaging devices either to extend the life of the
machines or to add on technical improvements. At the end of 1995, there were
approximately 96,680 MRI, CT and Ultrasound machines operating in the United
States. Based on industry statistics, the U.S. market for medical imaging
devices represents approximately 40% of the worldwide market.
IMATEC 20/20 SYSTEMS
Imatec 20/20 Systems are designed to improve a reproduced image so that it
more closely resembles the original image in terms of tone and color.
Presently, many image reproduction applications employ manual adjustments
based on subjecive assessment. The individual taking the image adjusts the
imaging taking device (i.e. the camera) by adjusting the light intensity,
exposure time, etc. The adjusting of these variables is based on the
operator's subjective perceptions. In the medical imaging process, however, a
number of variables, in addition to the subjective perceptions of the
operator, influence the fidelity of the final image as compared to the
original image. Such variables include lighting conditions, photographic
materials used, particular equipment characteristics, calibration, and
equipment age. Imatec 20/20 Systems employ an objective measurement of image
and tone rather than subjective assessments of image and tone to reduce the
distortion in the imaging process caused by these variables.
When used in connection with an MRI, CT or Ultrasound scanner, the Imatec
20/20 System uses a photometer (an instrument that measures properties
relating to light, especially luminous intensity) to measure the image tone
characteristics that appear on the screen of the medical imaging device via a
test pattern representing the tone of such images. Thereafter, a densitometer
(an instrument that measures the optical density of a film) measures the
image tone characteristics of the same image as reproduced on film via a test
pattern that represents the image as it appears on the film. Thereafter, the
characteristic of the screen image and the film image are transferred to a
computer which calculates the distortion function between the two images and
the required
20
<PAGE>
correction function. This computed correction function is automatically
transferred to a digital signal processor system that modifies the film image
reproduction signal on a pixel-by-pixel basis to create an image reproduced
on the film that more closely resembles the image and tone characteristics as
set forth on the screen.
This so-called closed loop system, which measures and compares the image
tone characteristics set forth on the screen and the image tone
characteristics reproduced on the film, adjusting for those variables that
influence the reproduced image, can take one of two forms. The Imatec 20/20
System can be an add-on to MRI, CT and Ultrasound scanners. In such
instances, the operator of the medical imaging device will be required to
make adjustments each time a variable that influences the final picture is
altered, such as a change in lighting conditions or the changing of the film.
Alternatively, the Imatec 20/20 System can also be incorporated inside MRI,
CT and Ultrasound scanners, in which event the Imatec 20/20 System can
automatically adjust for any change in these variables.
THE COMPANY'S BUSINESS STRATEGY
The Company's strategy is to (i) license the Company's technology and
Imatec 20/20 System developed for the medical diagnostic imaging field to
manufacturers of medical imaging products such as scanners, cameras and image
reproduction systems, (ii) engage in marketing activities to facilitate the
licensing of the Company's technology and its Imatec 20/20 Systems, and (iii)
continue its research and development activities with respect to other
applications of the Company's technology in the medical imaging field and for
other imaging fields, such as graphic arts, computer, cinematography, and
TV/video. The precise scope and length of any license granted by the Company
will be dependent upon the overall nature of the license agreement and the
remuneration to be received by the Company. The Company will simultaneously
seek to license Imatec 20/20 Systems both as an add-on device for new and
existing MRI, CT and Ultrasound scanners and as an enhancement to be included
inside new MRI, CT and Ultrasound scanners. The Company does not presently
intend to engage in any manufacturing, sales, distribution or service
activities with respect to its Imatec 20/20 Systems or products that
incorporate the Company's technology, or provide technical service in
connection therewith. The Company may assist a licensee in adapting the
Company's technology or an Imatec 20/20 System and preparing a technical
manual for any product that incorporates the Company's technology or Imatec
20/20 system, but will not engage in providing the actual technical
assistance to end-users of any such product. In the event that the Company is
unable to effectively license its technology or the Imatec 20/20 System the
Company may have to engage in manufacturing of products incorporating its
technology or the Imatec 20/20 System. See "Risk Factors -- No Manufacturing,
Sales, Distribution and Technical Services Support Capabilities; Limited
Marketing Capabilities."
MANUFACTURING, SALES AND DISTRIBUTION
As noted above, the Company has no present intention to engage in the
manufacturing, sales or distribution process. In the event that due to the
Company's inability to successfully license its technology or any Imatec
20/20 System the Company determined that it was necessary to manufacture,
sell and distribute imaging products incorporating the Company's technology
or Imatec 20/20 Systems, the Company would manufacture such products on a
contract manufacturing or original equipment manufacturer (OEM) basis and
have such products distributed by a network of independent regional
distributors. The Company presently has an arrangement with an independent
third party company that provides research and development services to the
Company from time to time. Such third party also has pre-production and
production capabilities. Consequently, since such third party is already
familiar with the Company's technology, the Company would engage such third
party on an OEM basis in the event that the Company was required to
manufacture products. The Company presently does not have any relationship
with any independent retail distributors.
MARKETING
The Company intends to market its technology and Imatec 20/20 Systems in a
number of ways, all of which are intended to facilitate the licensing of its
technology and Imatec 20/20 Systems. The Company will attend industry trade
shows in the United States where it believes it will gain additional exposure
to potential licensees for its technology and Imatec 20/20 Systems. The
Company also will seek to obtain awareness of Imatec 20/20 Systems through
the publishing of articles by Dr. Shalit, the first of which is expected to
be a series of
21
<PAGE>
articles commencing in November of 1996 in Medical Imaging, a trade magazine.
The Company also intends to gain exposure as well as keep current of emerging
and changing imaging standards by joining certain industry trade associations
and where feasible, having representatives of the Company serve on various
standards committees in the imaging field. The Company recently became a
member of the National Electronic Manufacturers Association ("NEMA") which is
an industry trade association for the medical imaging industry. In addition,
Dr. Shalit is currently a full voting member of the Digital Imaging
Communication in Medicine Committee ("DICOM"), a committee under the auspices
of NEMA and the American College of Radiology that is responsible for
creating standards in the image communication business. The Company also
intends to engage in general advertising in trade publications in order to
gain recognition of the Company and its Imatec 20/20 Systems. The Company has
a vice president of marketing to coordinate all of the Company's marketing
activities and intends to hire additional marketing personnel and consultants
subsequent to this Offering.
RESEARCH AND DEVELOPMENT
In applying the Imatec 20/20 System designed for the medical diagnostic
imaging field to other aspects of the medical imaging field, as well as in
connection with developing Imatec 20/20 Systems for other fields, the Company
intends to engage consultants and independent contractors from to time to
conduct research and development activities. The Company, in discreet
instances, may acquire certain technologies that the Company believes enhance
or further the application of the Company's technology or its Imatec 20/20
Systems to other imaging fields, although it will only effect such
acquisitions in those instances where the Company believes that acquisition
of such technologies is more economical and efficient than engaging in the
research and development itself. The Company does not have any current
arrangements or understandings at the present time to acquire any such
technologies.
The Company incurred $17,881, $11,773 and $46,991 in research and
development activities in 1994, 1995 and the eight months ended August 31,
1996, respectively. The Company presently intends to expend no more than
approximately $350,000 on research and development during the last four (4)
months of 1996.
COMPETITION
The image enhancement field is subject to rapid and significant
technological change that may render an Imatec 20/20 System obsolete or
products that incorporate the Company's technology obsolete or incompatible
with the machines they are intended to complement. In addition, such rapid
changes may impose additional, unforeseen costs on the Company in that the
Company may be required to modify its technology and Imatec 20/20 Systems to
adapt to such changes. There can be no assurance that the Company will be
able to successfully modify or upgrade its technology and Imatec 20/20
Systems as may be necessary in a timely fashion, or at all.
While the Company is not aware of any entities that build image
enhancement devices that compete with the Company's technology or Imatec
20/20 Systems, there are a number of entities that are engaged in the
research and development of image enhancement products. These entities may in
the future develop technologies or products that compete with the Company's
technology or Imatec 20/20 Systems. Potential competitors of the Company
include independent companies, universities and public and private research
organizations, most of which are well established and have substantially
greater marketing, financial, technological and other resources than the
Company. In addition, the medical imaging field in particular is dominated by
large, well established corporations. There can be no assurance that
competitors will not succeed in securing patents and/or developing
technologies or products that are more effective than the Company's
technology or Imatec 20/20 Systems, as a result of which the Company's
technology or Imatec 20/20 Systems may become obsolete or noncompetitive.
THE LICENSE AGREEMENT
The Company entered into a license agreement as of June 25, 1995 with Dr.
Hanoch Shalit, the Company's President and Chief Executive Officer (the
"License Agreement"). The License Agreement grants the Company the exclusive
right to make, use, sell and sublicense "Patentable Image Technology," which
is defined in the License Agreement as the three United States Patents and
certain foreign patent applications. Under the terms of
22
<PAGE>
the License Agreement, Dr. Shalit received from the Company a one-time
$350,000 payment in January 1996 subsequent to the First Closing of the
Bridge Financing. Dr. Shalit is also entitled to receive a flat royalty fee
of $140,000 per annum, payable in monthly installments of $11,667, for so
long as the Company and any successor of the Company is in existence (the
"Annual Royalty"); provided, however, that in the event that Dr. Shalit is no
longer President, Chief Executive Officer and Chairman of the Company for any
reason whatsoever, but the Company or any successor of the Company continues
in existence, the Annual Royalty shall automatically be increased to $250,000
per annum. Pursuant to the terms of the License Agreement, the Annual Royalty
shall increase by 5% every year as long as the Company or any successor of
the Company is in existence. The License Agreement also grants to the Company
the exclusive right as to inventions made by Dr. Shalit in the course of his
employment under his employment agreement with the Company. The Company's
obligations to pay the Annual Royalty shall continue until the expiration of
the License Agreement. The term of the License Agreement expires when the
last licensed patent expires, whether in the United States or abroad. Under
the License Agreement, the Company is obligated to use its reasonable best
efforts to make, use, sell and sublicense to others the Patentable Image
Technology.
INTELLECTUAL PROPERTY
The Company presently intends to make all appropriate filings and
registrations, or take all other actions the Company believes to be
necessary, to obtain and protect all patents, trademarks, copyrights,
tradenames, trade dress and all other intellectual property rights, if any,
relating to the Company, although there can be no assurances that the Company
will be able to effectively do so. In the event the Company is able to fully
establish intellectual property rights with respect to the technology used by
the Company, of which there can be no assurance, third parties may attempt to
exercise alleged rights in any of their patents, trademarks, copyrights or
other intellectual property or appropriate any patents, trademarks,
copyrights, or other intellectual property rights obtained by the Company,
and the Company's failure or inability to adequately protect any of its
intellectual property rights may have a material adverse effect on the
Company. In addition, there can be no assurance that third parties will not
be able to successfully assert a claim with regard to the Patents and/or the
Imatec 20/20 Systems under their own intellectual property rights.
The Company also requires all employees to sign non-disclosure,
non-competition, confidentiality and invention assignment agreements.
Under the License Agreement, the Company has an exclusive, worldwide
license from Dr. Hanoch Shalit, the Company's founder, principal stockholder
and Chief Executive Officer, to make, use, sell and sublicense to others the
Patentable Image Technology.
Subsequent to this Offering, the Company will seek to broaden its patent
protection and the application of the Company's technology and Imatec 20/20
Systems to other markets. When seeking to apply the Company's technology to
other markets, the Company most likely will first design a research prototype
of an Imatec 20/20 System for such market to test the technology in the
laboratory. Thereafter, a production prototype of such Imatec 20/20 System
will be constructed for testing at a beta, or third party, site. After
successful beta testing, the Company will then seek to market the Imatec
20/20 System and/or license the underlying technology.
FDA CLEARANCE
The FDA employs a rigorous system of regulations and requirements
governing the clearance processes for medical devices, requiring, among other
things, the presentation of substantial evidence, including clinical studies,
establishing the safety and efficacy of new medical devices. The principal
methods by which FDA clearance is obtained are pre-market approval, which is
for products that are not comparable to any other product in the market, or
filing a pre-market notification under Section 510(k) of the Federal Food,
Drug and Cosmetic Act which is for products that are substantially equivalent
to products that have already received FDA clearance. Although both methods
may require clinical testing of the products in question under an approved
protocol, because PMA clearance relates to more unique, invasive and/or
potentially higher risk products, the PMA procedure is more complex and time
consuming. Applicants under the 510(k) procedure must prove that the products
for which clearance is sought are substantially equivalent to products on the
market prior to the Medical Device Amendments of 1976, or products approved
thereafter pursuant to the 510(k). The review period for a 510(k) application
is approximately ninety (90) days from the date of filing the application,
although there can be no assurance that the review period will not extend
beyond such a period.
23
<PAGE>
Under the PMA procedure, the applicant is required to conduct substantial
clinical testing to determine the safety, efficacy and potential hazards of
the product. The review period under a PMA application is one hundred eighty
(180) days from the date of filing, and the application is not automatically
deemed cleared if not rejected during that period. The preparation of a PMA
application is significantly more complex, expensive and time consuming than
the 510(k) procedure. Further, the FDA can request additional information,
which can prolong the clearance process.
In order to conduct human clinical studies for any medical procedure
proposed for the Company's products, the Company, or a licensee of the
Company's technology or Imatec 20/20 System for medical imaging applications,
as the case may be, could also be required to obtain an Investigational
Device Exemption ("IDE") from the FDA or IRB, which would further increase
the time before potential FDA clearance. In order to obtain an IDE, the
Company or a licensee, as the case may be, may be required to submit an
application to the FDA or IRB, including a complete description of the
product, and detailed medical protocols that would be used to evaluate the
product. In the event an application were found to be in order, an IDE would
ordinarily be granted promptly thereafter.
EMPLOYEES
As of September 30, 1996, the Company had 4 full-time employees, Dr.
Hanoch Shalit, who serves as the Company's President and Chief Executive
Officer, Lawrence P. Kollender, who serves as the Company's Vice President of
Sales and Marketing, James A. Smith, who serves as the Company's Chief
Financial Officer, and one administrative assistant. The Company also employs
2 part-time consultants, consisting of 1 computer programmer and 1 electronic
engineer. The Company believes that its relations with its employees are
good.
PROPERTIES
On January 31, 1996, the Company entered into a three (3) year lease for
approximately 2,048 square feet for its principal executive offices at 150
East 58th Street, NY, NY 10155 pursuant to which the Company pays rent of
approximately $5,600 per month. Dr. Hanoch Shalit, the Company's President
and Chief Executive Officer, has personally guaranteed the payments to be
made under such lease.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Company is a party.
24
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The names and ages of the directors and executive officers of the Company
are set forth below.
Name Age Position Held
---------------------- ----- --------------------------------------------
Dr. Hanoch Shalit .... 43 President, Chief Executive Officer, Chairman
of the Board of Directors, Principal
Accounting Officer and Secretary
Steven Ai ............ 42 Director
Neal Factor .......... 45 Director
Simon Cross .......... 45 Director
James A. Smith ....... 44 Chief Financial Officer
Lawrence P. Kollender 56 Vice President -- Marketing and Sales
The Company has agreed with Dr. Shalit that he shall be entitled to a
nominee on the Board of Directors until the expiration date of the last of
the three Patents. The Company has also agreed with the Underwriter that, for
a period of five years after the date of this Prospectus that it will use its
best efforts to cause one individual designated by the Underwriter and
acceptable to the Company to be elected to the Board of Directors, which
individual may be a director, officer, employee or affiliate of the
Underwriter. See "Underwriting." Directors serve until the next annual
meeting of stockholders and the election and qualification of their
successors. Directors will not receive any compensation for serving on the
Board of Directors. The officers are elected by the directors and serve,
subject to existing employment agreements, at the discretion of the Board of
Directors.
BACKGROUND OF EXECUTIVE OFFICERS AND DIRECTORS
Dr. Hanoch Shalit founded the Company in November 1988 and has been its
Chief Executive Officer, President, Chairman of the Board and Secretary since
inception. From September 1982 until June 1987 Dr. Shalit was employed as a
senior chemist with Chemco Photo Products, a private imaging company. From
June 1987 until the beginning of November 1988, Dr. Shalit was employed by
the FONAR Corporation, a public imaging company where he was the President of
the Photographic Sciences Division in charge of production, sales and service
for the FONAR Corporation's photographic products. Dr. Shalit earned a B.S.
(Honors) in the Sciences of Photography from the Polytechnic of Central
London (now know as University of Westminster) in Great Britain in 1978 and a
PhD in Physics from the University of London in 1981.
Mr. Steven Ai has been a director of the Company since November 30, 1995.
Since 1992, Mr. Ai has been the President of City Mill Co., Ltd., a private
company located in Honolulu, Hawaii, which owns and operates a chain of
retail home product stores. Prior to 1992, Mr. Ai was a manager with the
public accounting firm of KPMG Peat Marwick.
Mr. Neal Factor, who has been a director of the Company since November 30,
1995, has maintained a private law practice in New York City principally in
the areas of corporate and commercial law since 1979. Mr. Factor has
represented the Company since inception and receives compensation from the
Company for his legal services. See "Certain Transactions."
Mr. Simon Cross has been a director of the Company since July 15, 1996.
Since February 1993, Mr. Cross has been the general manager of Shackman
Instruments, a private company located in the United Kingdom which designs
and manufactures identification cameras and associated security systems. From
May 1992 to February 1993, Mr. Cross was the sales and marketing manager of
Techspan Systems plc, a private company located in the United Kingdom which
specializes in computer controlled large scale electronic displays. From June
1990 to May 1992, Mr. Cross was the director of X-Tek Systems Ltd., a private
company located in the United Kingdom which develops and manufactures high
definition microfocus x-ray systems for industrial inspection.
Mr. James A. Smith has been the Company's Chief Financial Officer since
September 24, 1996. From November 1992 until September 1996, Mr. Smith was
the controller of Ferrara Food Company, a public
25
<PAGE>
wholesale food company located in East Brunswick, New Jersey. From June 1995
until November 1995, Mr. Smith also served as a financial consultant to
William Greenberg Desserts & Cafes, Inc., a public company located in New
York City. From September 1990 to August 1992, Mr. Smith was the Vice
President of Finance and Chief Financial Officer of Ambico, Inc., a private
wholesale electronics distribution company located in Norwood, New Jersey.
Mr. Lawrence P. Kollender has been the Company's Vice President --
Marketing and Sales since January 3, 1996. Since January 1995, Mr. Kollender
has also been the President of LPK Unlimited, a private consulting firm to
companies in the software, electronics and service industries. From 1989
through December 1994, Mr. Kollender was the director of international
defense programs at the Grumman Corporation, which was a public company until
it was acquired by the Northrop Corporation.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the Company
to executive officers of the Company for the years ended December 31, 1993,
1994 and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
-----------------------
Annual Compensation Awards Payouts
-------------------------------------- ------------------------- ----------
Restricted
Name and Other Annual Stock LTIP All Other
Principal Position Year Salary($) Bonus($) Compensation($) Awards($) Options/SARs(#) Payouts($) Compensation ($)
----------------- ------ ------------ ---------- ------------- ---------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dr. Hanoch Shalit, 1995 $ 60,000(1) $ -0-(2) $ -0- $ -0- -0- $ -0- $ -0-
Chief Executive
Officer, 1994 $ 24,258 $ -0- $ -0- $ -0- -0- $ -0- $ -0-
President,
Director and 1993 $ 42,000 $ -0- $ -0- $ -0- -0- $ -0- $ -0-
Principal
Accounting
Officer
</TABLE>
- ------
(1) Pursuant to his employment agreement, Dr. Shalit's salary is payable at
the rate of $60,000 per calendar year. However, for the calendar year
ending 1995, Dr. Shalit received less than $60,000 because his employment
agreement did not become effective until July 1, 1995. See "Management --
Employment Agreements."
(2) Pursuant to his employment agreement, Dr. Shalit is entitled to receive a
bonus equal to $10,000 for every $1,000,000 of gross annual sales
received by the Company. See "Management -- Employment Agreements."
EMPLOYMENT AGREEMENTS
Effective July 1, 1995, the Company entered into a five-year employment
agreement with Dr. Hanoch Shalit. Under his employment agreement, Dr. Shalit
is to serve as the Company's President, Chief Executive Officer and Chairman
of the Board of Directors and receive an annual base salary of $60,000, which
shall increase at the rate of 5% per annum, plus benefits. Dr. Shalit is also
entitled to receive a bonus of $10,000 for every $1,000,000 of gross annual
sales received by the Company. In addition, Dr. Shalit's employment agreement
provides that, during the term of such employment agreement, he shall not
compete with the Company in the United States or Canada or disclose, without
the Company's consent, confidential information that has been or will be
disclosed to him by the Company. Dr. Shalit's employment with the Company
shall terminate upon his death or disability, the Company no longer being
involved in the imaging technology business, the bankruptcy of the Company or
the Company having been merged into or acquired by another company.
Furthermore, Dr. Shalit's employment may be terminated by the Company for
"cause," which is defined as either dishonesty detrimental to the best
interests of the Company or wilful disloyalty to the Company.
Effective September 24, 1996, the Company entered into a five-year
employment agreement with Mr. James A. Smith. Under his employment agreement,
Mr. Smith is to serve as the Company's Chief Financial Officer and receive an
annual salary of $95,000, plus benefits. In addition, Mr. Smith's employment
agreement provides that,
26
<PAGE>
during the term of his employment agreement and for three years thereafter,
he shall not compete with the Company or disclose, without the Company's
consent, confidential information that has been or will be disclosed to him
by the Company. Mr. Smith's employment agreement may be terminated by the
Company for any cause or no cause.
Effective January 3, 1996, the Company entered into a one-year employment
agreement with Mr. Lawrence P. Kollender. Under his employment agreement, Mr.
Kollender is to serve as the Company's Vice President of Marketing and Sales
and receive an annual base salary of $100,000, plus benefits. Mr. Kollender
is also entitled to receive a commission equal to 4% of the Company's annual
gross revenues in excess of $2.5 million. In addition, Mr. Kollender's
employment agreement provides that, during the term of such employment
agreement and for three years thereafter, he shall not compete with the
Company or disclose, without the Company's consent, confidential information
that has been or will be disclosed to him by the Company. Mr. Kollender's
employment agreement shall terminate if he suffers a disability, the Company
is no longer involved in the imaging technology business, or may be
terminated by the Company for any cause.
The Company is the sole beneficiary of a "key man" life insurance policy
on the life of Dr. Hanoch Shalit in the amount of $1 million.
There are no family relationships among any Directors or executive
officers.
DIRECTORS COMMITTEES
Subsequent to this Offering, the Company intends to seek to add at least
two (2) individuals to the Board of Directors to form an Audit Committee and
Compensation Committee. The Audit Committee will review the engagement of the
independent accountants, review and approve the scope of the annual audit
undertaken by the independent accountants and review the independence of the
accounting firm. The Audit Committee will also review the audit and non-audit
fees of the independent accountants and the adequacy of the Company's
internal control procedures. The Compensation Committee will review executive
compensation issues.
INDEMNIFICATION AGREEMENTS
The Company intends to enter into an Indemnification Agreement with each
of its Directors and any officer, employee, agent or fiduciary designated by
the Board of Directors (the "Indemnified Party") which provides that the
Company indemnify the Director or other party thereto to the fullest extent
permitted by applicable law. The agreement includes indemnification, to the
extent permitted by applicable law, against expenses, including reasonable
attorneys' fees, judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred by the Indemnified Party in connection with
any civil or criminal action or administrative proceeding arising out of the
Indemnified Party's performance of his duties as a Director or officer of the
Company. Such indemnification is available if the Indemnified Party acted in
good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the Company, and, with respect to any criminal
action, had no reasonable cause to believe his conduct was unlawful.
Under the Indemnification Agreement, the entitlement of an Indemnified
Party to indemnification will be determined by a majority vote of a quorum of
disinterested Directors, or if such quorum is not obtainable, either by
independent counsel or by the stockholders of the Company, as determined by
such disinterested Directors. If a change of control of the Company has
occurred, the entitlement of such Indemnified Party shall be determined by
independent counsel to the Company, unless such Indemnified Party requests
that either the Board or the stockholders make such determination.
Each Indemnification Agreement will require the Company to advance
litigation expenses at the request of the Indemnified Party who is a party
thereto whether prior to or after final resolution of a proceeding, provided
that he undertakes to repay such advances if it is ultimately determined that
he is not entitled to indemnification for his expense. The advance of
litigation expenses will therefore be mandatory upon satisfaction of certain
conditions by the Indemnified Party.
Provided that it can do so at a reasonable expense, the Company intends to
obtain officers' and directors' liability insurance from the net proceeds
hereof allocated to working capital which insurance would provide for
27
<PAGE>
a maximum of $10,000,000 of coverage, subject to a $100,000 corporate
reimbursement per occurrence payable by the Company. There can be no
assurance, however, that such insurance, or any similar coverage, will be
available to the Company, or if available, will be on terms and conditions
acceptable to the Company. Any payments made by the Company under an
Indemnification Agreement which are not covered by the insurance policy may
have an adverse impact on the Company's earnings. See "Description of
Securities -- Limitation on Liability of Directors."
STOCK OPTION PLAN
Incentive Stock Option Plan -- In February 1996, the Board of Directors of
the Company adopted and the stockholders of the Company subsequently
approved, the adoption of the Company's 1996 Stock Option Plan ("Stock Option
Plan"). The purpose of the Stock Option Plan is to enable the Company to
encourage key employees, officers, Directors and consultants to contribute to
the success of the Company by granting such individuals and Directors
nonqualified "stock options" within the meaning of Section 422 of The
Internal Revenue Code of 1986, as amended ("ISOs").
The Stock Option Plan will be administered by the Board of Directors or a
committee appointed by the Board of Directors (the "Committee") which will
determine, in its discretion, among other things, the recipients and vesting
of grants and the number of shares to be subject to such options.
The Stock Option Plan provides for the granting of options to purchase
Common Stock at an exercise price to be determined by the Board of Directors
or the Committee. Notwithstanding the foregoing, the Company has agreed with
the Underwriter that for a period of 18 months after the date of this
Prospectus, the Company will not grant any stock option having an exercise
price less than the greater of the fair market value of the Common Stock on
the date of the grant or the initial public offering price per share of
Common Stock.
The total number of shares with respect to which options may be granted
under the Stock Option Plan is 500,000.
Upon the exercise of an option, the holder must make payment of the full
exercise price. Such payment may be made in cash or in shares of Common
Stock, or in a combination of both. The Company may lend to the holder of an
option funds sufficient to pay the exercise price, subject to certain
limitations.
The Stock Option Plan may be terminated or amended at any time by the
Board of Directors, except that, without stockholder approval, the Stock
Option Plan may not be amended to increase the number of shares subject to
the Stock Option Plan, change the class of persons eligible to receive
options under the Stock Option Plan or materially increase the benefits of
participants.
As of the date of this Prospectus, no options have been granted under the
Stock Option Plan. No determinations have been made regarding the persons to
whom options will be granted in the future, the number of shares which will
be subject to such options or the exercise prices to be fixed with respect to
any option.
28
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of October 9, 1996, with
respect to the beneficial ownership of shares of Common Stock by (i) each
person known by the Company to be the owner of more than 5% of the
outstanding shares of Common Stock, (ii) each officer and director, and (iii)
all officers and directors as a group.
Percentage
Amount and Percentage of Shares
Nature of of Shares Owned
Name and Address of Beneficial Currently After the
Beneficial Owner Ownership(1)(2) Owned Offering(3)
----------------------- ------------- ------------ ------------
Dr. Hanoch Shalit 919,825(4) 33.3% 24.3%(5)
c/o Imatec, Ltd.
150 E. 58th Street
New York, NY 10155
James A. Smith -0- -0- -0-
c/o Imatec, Ltd.
150 E. 58th Street
New York, NY 10155
Lawrence P. Kollender -0- -0- -0-
c/o Imatec, Ltd.
150 E. 58th Street
New York, NY 10155
Carmello Cotrino 663,000 24.0% 17.5%
8 Homsted Circle
Marlboro, NJ 07746
Louis Raneri 171,000 6.2% 4.5%
1266 41st Street
Brooklyn, NY 11218
Thomas Dunn 171,000 6.2% 4.5%
600 Hylan Boulevard
Staten Island, NY
10305
Steven Ai 55,250(6) 2.0% 1.5%
c/o City Mill Co.,
Ltd.
600 Nimits Highway
Honolulu, HI 96817
Neal Factor -0- -0- -0-
36 W. 44th Street,
Suite 1111
New York, NY 10036
Simon Cross -0- -0- -0-
c/o Imatec, Ltd.
150 E. 58th Street
New York, NY 10155
Officers and 975,075 35.3% 25.7%
directors as a group
(6 persons)
- ------
(1) The shares of Common Stock owned by each person or by the group, and the
shares included in the total number of shares of Common Stock
outstanding, have been adjusted in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934, as amended, to reflect the ownership of
shares issuable upon exercise of outstanding options, warrants or other
common stock equivalents which are exercisable within 60 days. As
provided in such Rule, such shares issuable to any holder are deemed
outstanding for the purpose of calculating such holder's beneficial
ownership but not any other holder's beneficial ownership.
(2) Unless otherwise noted, the Company believes that all persons named in
the table have sole voting and investment power with respect to all
shares of stock beneficially owned by them.
29
<PAGE>
(3) The shares of Common Stock included in the total number of shares of
Common Stock outstanding after the offering give effect to the Bridge
Financing Restructuring as of October 31, 1996. See "Plan of Operations
-- Liquidity and Capital Resources."
(4) The share ownership of Dr. Hanoch Shalit includes 12,615 shares of Common
Stock, consisting of 2,818 shares of Common Stock held by Richard Carey
and 9,797 shares of Common Stock held by Mr. Jim Jaeger, each a founding
stockholder of the Company, pursuant to an agreement dated November 9,
1993 among Dr. Shalit and Messrs. Carey and Jaeger in which Messrs. Carey
and Jaeger assigned the voting rights of such 12,615 shares of Common
Stock to Dr. Shalit. Accordingly, Dr. Shalit may be deemed to
beneficially own such 12,615 shares of Common Stock, although Dr. Shalit
is not entitled to receive any dividends with respect to such shares of
Common Stock and has no power of disposition over such shares of Common
Stock, or the right to any proceeds from any disposition of such shares
of Common Stock.
(5) Does not give effect to the registration and sale of 72,093 shares of
Common Stock by Dr. Shalit or the registration and sale of an aggregate
of 12,615 shares of Common Stock held by Messrs. Richard Carey and Jim
Jaeger which may be deemed to be beneficially owned by Dr. Shalit. See
"Selling Security Holders."
(6) All 55,250 shares of Common Stock beneficially owned by Steven Ai are
held by The Revocable Trust of David C. Ai, dated July 24, 1985, as
restated, of which Steven Ai serves as Chairman and, along with two other
individuals, is a trustee.
30
<PAGE>
SELLING SECURITY HOLDERS
The registration statement, of which this Prospectus forms a part, also
relates to the registration by the Company of (a) for the account of the
Bridge Selling Security Holders, an aggregate of (i) 579,194 shares of Common
Stock after giving effect, as of October 31, 1996, to the Bridge Financing
Restructuring, (ii) 2,150,000 Redeemable Warrants, and (iii) 2,150,000 shares
of Common Stock issuable by the Company upon the exercise of such 2,150,000
Warrants, and (b) an aggregate of 2,210,000 shares of Common Stock for the
account of the Founding Selling Security Holders. The Selling Security
Holders' Securities are not being underwritten by the Underwriter in
connection with this Offering. Except with respect to 150,000 shares of
Common Stock being registered on behalf of certain of the Founding Selling
Security Holders (including 72,093 shares of Common Stock owned by Dr. Hanoch
Shalit, the Chief Executive Officer and President of the Company) and any
open market purchases on or after the effective date of this Offering, the
Founding Selling Security Holders have agreed with the Underwriter, not to
directly or indirectly offer, sell, transfer or otherwise encumber or dispose
of their Common Stock or any other securities of the Company, whether or not
beneficially owned, for a period of eighteen (18) months after the date of
this Prospectus unless otherwise permitted by the Underwriter and the
Company. The Bridge Selling Security Holders have agreed with the Company not
to directly or indirectly offer, sell, transfer or otherwise encumber or
dispose of any of their Common Stock and Redeemable Warrants (or any shares
of Common Stock issuable upon exercise of the Redeemable Warrants) for a
period of 24 months, and 18 months, respectively, after the date of this
Prospectus. See "Principal Stockholders" and "Underwriting."
The sale of the Selling Security Holders' Securities by the Selling
Security Holders may be effected from time to time in transactions (which may
include block transactions by or for the account of the Selling Security
Holders) in the over-the-counter market or in negotiated transactions, or
through the writing of options on the Selling Security Holders' Securities, a
combination of such methods of sale, or otherwise. Sales may be made at fixed
prices which may be changed, at market prices prevailing at the time of sale,
or at negotiated prices.
The Selling Security Holders may effect such transactions by selling the
Selling Security Holders' Securities directly to purchasers, through
broker-dealers acting as agents for the Selling Security Holders or to
broker- dealers who may purchase shares as principals and thereafter sell the
Selling Security Holders' Securities from time to time in the
over-the-counter market, in negotiated transactions, or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Security Holders and/or the
purchasers for whom such broker-dealers may act as agents or to whom they may
sell as principals or both (which compensation as to a particular
broker-dealer may be in excess of customary commissions).
The Selling Security Holders and broker-dealers, if any, acting in
connection with such sales, might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act and any commission received by
them and any profit upon the resale of such securities might be deemed to be
underwriting discounts and commissions under the Securities Act.
Sales of any shares of Common Stock or Redeemable Warrants by the Selling
Security Holders, or even the existence of the right to exercise the
Redeemable Warrants, may depress the price of the Common Stock or the
Redeemable Warrants in any market that may develop for the Securities.
The following table sets forth certain information with respect to Selling
Security Holders for whom the Company is registering shares of Common Stock
and Redeemable Warrants for resale to the public. Other than Dr. Hanoch
Shalit, who is the President and Chief Executive Officer of the Company, and
Mr. Steven Ai who is a member of the Board of Directors of the Company, none
of the Selling Security Holders has had any position with, held any office,
or had any other material relationship with the Company.
Certain Founding Selling Security Holders in the table below may not sell
or otherwise transfer their Securities, whether or not beneficially owned,
for a period of 18 months from the date of this Prospectus without the
consent of the Underwriter. In the event such Selling Security Holder
received such consent, the sale shall be effected through the Underwriter who
shall be compensated in accordance with its customary practices for such
transactions. Unless otherwise indicated, ownership refers to ownership of
shares of Common Stock. See "Shares Eligible for Future Sale" and
"Underwriting."
31
<PAGE>
<TABLE>
<CAPTION>
Amount of Amount of Percent of
Amount of Securities Securities Securities
Securities Being Owned After Owned After
Name Owned Registered Offering(1) Offering(1)
----- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Richard W. Ahrens*
Common Stock .......................................... 6,596 6,596 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Jay Bernath*
Common Stock .......................................... 6,596 6,596 -0- -0-
Redeemable Warrants. .................................. 25,000 25,000 -0- -0-
Robert H. Binns*
Common Stock .......................................... 6,596 6,596 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
John Bogin*
Common Stock .......................................... 6,826 6,826 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Edward C. Brookins*
Common Stock .......................................... 6,596 6,596 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Joel Brownstein****
Common Stock .......................................... 5,525 5,525 -0- -0-
Redeemable Warrants ................................... -0- -0- -0- -0-
Richard Carey***
Common Stock .......................................... 2,818 2,818 -0- -0-
Redeemable Warrants ................................... -0- -0- -0- -0-
Nicole Cassino*
Common Stock .......................................... 27,302 27,302 -0- -0-
Redeemable Warrants ................................... 100,000 100,000 -0- -0-
John Catania*
Common Stock .......................................... 6,596 6,596 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Maria Cid*
Common Stock .......................................... 13,651 13,651 -0- -0-
Redeemable Warrants ................................... 50,000 50,000 -0- -0-
Bruce Cohen*
Common Stock .......................................... 6,596 6,596 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Craig Cohen*
Common Stock .......................................... 13,651 13,651 -0- -0-
Redeemable Warrants. .................................. 50,000 50,000 -0- -0-
Carmello Cotrino****
Common Stock .......................................... 663,000 663,000 -0- -0-
Redeemable Warrants ................................... -0- -0- -0- -0-
Amelia DiDomenico*
Common Stock .......................................... 13,651 13,651 -0- -0-
Redeemable Warrants ................................... 50,000 50,000 -0- -0-
D.J.'s Company*
Common Stock .......................................... 13,651 13,651 -0- -0-
Redeemable Warrants ................................... 50,000 50,000 -0- -0-
Thomas Dunn****
Common Stock .......................................... 171,000 171,000 -0- -0-
Redeemable Warrants ................................... -0- -0- -0- -0-
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Amount of Amount of Percent of
Amount of Securities Securities Securities
Securities Being Owned After Owned After
Name Owned Registered Offering(1) Offering(1)
----- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Dolores Esposito*
Common Stock .......................................... 6,596 6,596 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Walter S. Farr*
Common Stock .......................................... 13,651 13,651 -0- -0-
Redeemable Warrants ................................... 50,000 50,000 -0- -0-
Edward J. Farrell, Jr.*
Common Stock .......................................... 6,596 6,596 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Ivan Feng**
Common Stock .......................................... 22,100 22,100 -0- -0-
Redeemable Warrants ................................... -0- -0- -0- -0-
Richard Forte*
Common Stock .......................................... 13,192 13,192 -0- -0-
Redeemable Warrants ................................... 50,000 50,000 -0- -0-
Marc Foscolo*
Common Stock .......................................... 6,596 6,596 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Ian Freeman*
Common Stock .......................................... 13,651 13,651 -0- -0-
Redeemable Warrants ................................... 50,000 50,000 -0- -0-
Kenneth Gantz*
Common Stock .......................................... 13,192 13,192 -0- -0-
Redeemable Warrants ................................... 50,000 50,000 -0- -0-
Andrew P. Geiss*
Common Stock .......................................... 6,826 6,826 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Barry J. Gordon*
Common Stock .......................................... 13,192 13,192 -0- -0-
Redeemable Warrants ................................... 50,000 50,000 -0- -0-
Stacy Gozlan*
Common Stock .......................................... 13,651 13,651 -0- -0-
Redeemable Warrants ................................... 50,000 25,000 -0- -0-
Richard Guerriero*
Common Stock .......................................... 6,826 6,826 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Douglas R. Hellstrom*
Common Stock .......................................... 6,596 6,596 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Logan L. Hurst*
Common Stock .......................................... 6,596 6,596 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Jim Jaeger***
Common Stock .......................................... 9,797 9,797 -0- -0-
Redeemable Warrants ................................... -0- -0- -0- -0-
Emma M. Job*
Common Stock .......................................... 6,596 6,596 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Amount of Amount of Percent of
Amount of Securities Securities Securities
Securities Being Owned After Owned After
Name Owned Registered Offering(1) Offering(1)
----- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Paul E. Judd*
Common Stock .......................................... 27,302 27,302 -0- -0-
Redeemable Warrants ................................... 100,000 100,000 -0- -0-
Marc H. Klee*
Common Stock .......................................... 13,192 13,192 -0- -0-
Redeemable Warrants ................................... 50,000 50,000 -0- -0-
Robert C. Lannert*
Common Stock .......................................... 13,651 13,651 -0- -0-
Redeemable Warrants ................................... 50,000 50,000 -0- -0-
Donald L. Leonard*
Common Stock .......................................... 6,596 6,596 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Angela LoPresto*****
Common Stock .......................................... 106,826 106,826 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Frances LoPresto*
Common Stock .......................................... 6,596 6,596 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Kathleen F. & Arthur R. Medici, Joint Tenants with Right
of Survivorship*
Common Stock .......................................... 13,651 13,651 -0- -0-
Redeemable Warrants ................................... 50,000 50,000 -0- -0-
Jeffrey Michelson*
Common Stock .......................................... 13,651 13,651 -0- -0-
Redeemable Warrants ................................... 50,000 50,000 -0- -0-
Donald A. Nader*
Common Stock .......................................... 6,596 6,596 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Mohamed Omar Nawar*
Common Stock .......................................... 20,477 20,477 -0- -0-
Redeemable Warrants ................................... 75,000 75,000 -0- -0-
Arnold H. Neustadt and Francene Neustadt, JTWROS*
Common Stock .......................................... 6,596 6,596 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
New Vision*
Common Stock .......................................... 13,651 13,651 -0- -0-
Redeemable Warrants ................................... 50,000 50,000 -0- -0-
S. Edwin Noffel, IRA*
Common Stock .......................................... 6,596 6,596 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Michael Pressberg*
Common Stock .......................................... 6,596 6,596 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Provence Business* Consultants, Inc.
Common Stock .......................................... 26,384 26,384 -0- -0-
Redeemable Warrants ................................... 100,000 100,000 -0- -0-
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Amount of Amount of Percent of
Amount of Securities Securities Securities
Securities Being Owned After Owned After
Name Owned Registered Offering(1) Offering(1)
----- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Louis Raneri****
Common Stock .......................................... 171,000 171,000 -0- -0-
Redeemable Warrants ................................... -0- -0- -0- -0-
Jack Schnitzer*
Common Stock .......................................... 13,651 13,651 -0- -0-
Redeemable Warrants ................................... 50,000 50,000 -0- -0-
Dr. Hanoch Shalit**
Common Stock .......................................... 907,210 907,210 -0- -0-
Redeemable Warrants ................................... -0- -0- -0- -0-
Stephen Silverberg****
Common Stock .......................................... 72,000 72,000 -0- -0-
Redeemable Warrants ................................... -0- -0- -0- -0-
David Smith*
Common Stock .......................................... 6,826 6,826 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Anthony Stropoli*
Common Stock .......................................... 6,596 6,596 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Lorenzo Don Starling and Virginia Starling, Joint Tenants
with Right of Survivorship*
Common Stock .......................................... 13,651 13,651 -0- -0-
Redeemable Warrants ................................... 50,000 50,000 -0- -0-
The Revocable Trust of David C. Ai,
dated July 24, 1985, as restated**
Common Stock .......................................... 55,250 55,250 -0- -0-
Redeemable Warrants ................................... -0- -0- -0- -0-
John M. Thompson*
Common Stock .......................................... 13,651 13,651 -0- -0-
Class A Redeemable Warrants ........................... 50,000 50,000 -0- -0-
William M. Thompson*
Common Stock .......................................... 13,651 13,651 -0- -0-
Redeemable Warrants ................................... 50,000 50,000 -0- -0-
Tri Ventures*
Common Stock .......................................... 13,651 13,651 -0- -0-
Redeemable Warrants ................................... 50,000 50,000 -0- -0-
James W. Venezia*
Common Stock .......................................... 13,651 13,651 -0- -0-
Redeemable Warrants ................................... 50,000 50,000 -0- -0-
Robert and Christine Vitamante, JTWROS*
Common Stock .......................................... 6,596 6,596 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Samir R. Wahby*
Common Stock .......................................... 6,596 6,596 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Donald R. Waldrip*
Common Stock .......................................... 6,596 6,596 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Amount of Amount of Percent of
Amount of Securities Securities Securities
Securities Being Owned After Owned After
Name Owned Registered Offering(1) Offering(1)
----- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Frederick B. Winston*
Common Stock .......................................... 6,596 6,596 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Yoram Yosifov***
Common Stock .......................................... 30,300 30,300 -0- -0-
Redeemable Warrants ................................... -0- -0- -0- -0-
Joseph and Jacqueline Zambito, Joint Tenants with Right
of Survivorship*
Common Stock .......................................... 6,826 6,826 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
</TABLE>
- ------
* Holder has agreed with the Company not to sell or otherwise transfer
their Common Stock or Redeemable Warrants (or shares of Common Stock
issuable upon exercise of the Redeemable Warrants) for 24 months and 18
months, respectively, from the date of this Prospectus. The amount of
Common Stock owned and registered by the holder gives effect to the
Bridge Financing Restructuring as of October 31, 1996.
** Holder has agreed not to sell or otherwise transfer only a portion of
their Securities for 18 months from the date of this Prospectus without
the consent of the Underwriter.
*** Holder may sell or otherwise transfer all of their Securities from the
date of this Prospectus without the consent of the Underwriter.
**** Holder has agreed not to sell or otherwise transfer any of their
Securities for 18 months from the date of this Prospectus without the
consent of the Underwriter.
***** Holder has agreed with the Company not to sell or otherwise transfer
81,826 shares of Common Stock and 25,000 Redeemable Warrants for 24
months and 18 months, respectively, from the date of this Prospectus
and has agreed not to sell or otherwise transfer 100,000 shares of
Common Stock for 18 months from the date of this Prospectus without the
consent of the Underwriter.
(1) Assumes sale of all securities registered hereby.
36
<PAGE>
CERTAIN TRANSACTIONS
Mr. Neal Factor, a director of the Company and an attorney who has
represented the Company since inception, charged the Company legal fees of
approximately $31,000 in 1995.
The Company entered into the License Agreement as of June 25, 1995 with
Dr. Hanoch Shalit, the Company's President and Chief Executive Officer. The
License Agreement grants the Company the exclusive right to make, use, sell
and sublicense "Patentable Image Technology," which is defined in the License
Agreement as the three United States Patents and certain foreign patent
applications. Under the terms of the License Agreement, Dr. Shalit received
from the Company a one-time $350,000 payment in January 1996 subsequent to
the First Closing of the Bridge Financing. Dr. Shalit is also entitled to
receive a flat royalty fee of $140,000 per annum, payable in monthly
installments of $11,667, for so long as the Company and any successor of the
Company is in existence (the "Annual Royalty"); provided, however, that in
the event that Dr. Shalit is no longer President, Chief Executive Officer and
Chairman of the Company for any reason whatsoever, but the Company or any
successor of the Company continues in existence, the Annual Royalty shall
automatically be increased to $250,000 per annum. Pursuant to the terms of
the License Agreement, the Annual Royalty shall increase by 5% every year as
long as the Company or any successor of the Company is in existence. The
License Agreement also grants to the Company the exclusive right as to
inventions made by Dr. Shalit in the course of his employment under his
employment agreement with the Company. The Company's obligations to pay the
Annual Royalty shall continue until the expiration of the License Agreement.
The term of the License Agreement expires when the last licensed patent
expires, whether in the United States or abroad. Under the License Agreement,
the Company is obligated to use its reasonable best efforts to make, use,
sell and sublicense to others the Patentable Image Technology.
Each of the transactions between the Company and Mr. Neal Factor and
between the Company and Dr. Hanoch Shalit was made on terms no less favorable
to the Company than those that were available from unaffiliated third
parties. All future transactions, including loans, between the Company and
its officers, directors, principal stockholders and their affiliates will be
approved by a majority of the Board of Directors, including a majority of the
independent and disinterested outside directors on the Board of Directors,
and will be on terms no less favorable to the Company than those that could
be obtained from unaffiliated third parties.
DESCRIPTION OF SECURITIES
The authorized capital of the Company consists of (i) 20,000,000 shares of
Common Stock, par value $.0001 per share, 2,761,785 of which are currently
issued and outstanding and (ii) 2,000,000 shares of preferred stock, par
value $.0001 per share ("Preferred Stock"), none of which are currently
issued and outstanding. There will be 3,789,194 shares of Common Stock issued
and outstanding upon the closing date of this Offering after giving effect to
the Bridge Financing Restructuring and the Company's sale of Securities
offered hereby.
COMMON STOCK
Each share of Common Stock is entitled to one vote, either in person or by
proxy, on all matters that may be voted upon by the owners thereof at a
meeting of the stockholders, including the election of directors. The holders
of Common Stock (i) have equal, ratable rights to dividends from funds
legally available therefor, when as and if declared by the Board of Directors
of the Company; (ii) are entitled to share ratably in all of the assets of
the Company available for distribution to holders of Common Stock upon
liquidation, dissolution or winding up of the affairs of the Company; (iii)
do not have pre-emptive or redemption provisions applicable thereto; and (iv)
are entitled to one non-cumulative vote per share on all matters on which
stockholders may vote at all meetings of stockholders.
All shares of Common Stock issued and outstanding are, and those offered
hereby, when issued, will be fully-paid and non-assessable, with no personal
liability attaching to the ownership thereof.
37
<PAGE>
REDEEMABLE WARRANTS
The Redeemable Warrants will be issued pursuant to a Warrant Agreement
(the "Warrant Agreement") between the Company and Continental Stock Transfer
& Trust Company, as Warrant Agent (the "Warrant Agent"). The following
discussion of certain terms and provisions of the Redeemable Warrants is
qualified in its entirety by reference to the detailed provisions of the
Redeemable Warrants and of the Warrant Agreement, the forms of which have
been filed as exhibits to the Registration Statement, of which this
Prospectus forms a part. See "Additional Information."
Each Redeemable Warrant entitles the holder thereof to purchase one share
of Common Stock at an exercise price of $6.50 per share at any time
commencing on the date of this Prospectus until _______, 1999 [36 months
after the date of this Prospectus], subject to adjustment in certain
circumstances. Each Redeemable Warrant is redeemable by the Company at any
time after ___________________, 1997 [9 months after the date of this
Prospectus]. Each Redeemable Warrant is redeemable by the Company with the
consent of the Underwriter, upon 30 days prior written notice, and will be
subject to redemption at a redemption price of $.10 per Redeemable Warrant
provided that the average closing bid price of the Common Stock as reported
by Nasdaq or , if the Common Stock is not quoted on Nasdaq, as reported by
any other recognized quotation system on which the price of the Common Stock
is quoted, equals or exceeds $7.50 per share, for any 20 trading days within
a period of 30 consecutive trading days ending on the fifth trading day prior
to the date of the notice of redemption. The Company, at its sole discretion,
may elect, at any time, to decrease the exercise price of the Redeemable
Warrants or change the consideration payable upon redemption of the
Redeemable Warrants; provided, however, that in no event shall the
consideration payable upon redemption of the Redeemable Warrants be less than
the equivalent of $.10 per Redeemable Warrant.
To exercise a Redeemable Warrant, the holder must send the certificate
evidencing the Redeemable Warrant (the "Warrant Certificate") to the Warrant
Agent, together with an election to exercise, setting forth the number of
shares to be purchased and payment by certified check or money order for the
total exercise price of the shares to be purchased. The Warrant Agent will
return a certificate evidencing the number of shares of Common Stock issued
upon exercise of the Redeemable Warrant.
The Redeemable Warrants contain anti-dilution provisions regarding certain
events, including but not limited to, stock dividends, stock splits, and
reclassifications. The holders of Redeemable Warrants, as such, have no right
to vote on matters submitted to the stockholders of the Company or to receive
dividends and are not entitled to share in the assets of the Company in the
event of liquidation, dissolution or the winding-up of the Company's affairs.
However, upon the exercise of the Redeemable Warrants and issuance of shares
of Common Stock to the holder, such shares of Common Stock shall have rights
identical to all other shares of Common Stock.
The Company is required to have a current Registration Statement on file
with the Commission and to effect appropriate qualifications under the laws
and regulations of the states in which the holders of the Redeemable Warrants
reside in order to comply with applicable laws in connection with such
exercise. The Company has agreed to register and to qualify such issuable
shares of Common Stock. There can be no assurance that the Company will be
able to cause such registration statement to become effective and remain
current or to effect appropriate qualification under applicable state
securities laws, the failure of which may result in the exercise of the
Redeemable Warrants and the resale or other disposition of Common Stock
issued upon such exercise becoming unlawful.
The exercise prices of the Redeemable Warrants bear no relation to any
objective criteria of value and should in no event be regarded as an
indication of any future market price of the securities offered thereby.
PREFERRED STOCK
The Company's Certificate of Incorporation provides for 2,000,000 shares
of Preferred Stock, whereby the Board of Directors of the Company shall have
the authority, without further action by the holders of the out-
38
<PAGE>
standing Common Stock, to issue up to 2,000,000 shares of Preferred Stock
from time to time in one or more classes or series, to fix the number of
shares constituting any class or series and the stated value thereof, if
different from the par value, and to fix the terms of any such series or
class, including dividend rights, dividend rates, conversion or exchange
rights, voting rights, rights and terms of redemption (including sinking fund
provisions), the redemption price and the liquidation preference of such
class or series. Consequently, the issuance of Preferred Stock may be used as
an "anti-takeover" device without further action on the part of the
stockholders. See "Risk Factors -- Anti-Takeover Provisions; Issuance of
Preferred Stock." Issuance of Preferred Stock, which may be accomplished
through a public offering or a private placement to parties favorable to
current management, may dilute the voting power of holders of Common Stock
(such as by issuing Preferred Stock with super voting rights) and may render
more difficult the removal of current management, even if such removal may be
in the stockholders' best interests. Further, the Company's stock option
plans provide for the immediate acceleration of, and removal of restrictions
from, options and other awards under the plans upon a "change of control" (as
defined therein). Such provisions may also have the result of discouraging
acquisitions of the Company. The Company presently has no shares of Preferred
Stock outstanding and has no present intention to issue any Preferred Stock.
The designations, rights and preferences of any Preferred Stock would be set
forth in a Certificate of Designation which would be filed with the Secretary
of State of Delaware.
LIMITATION ON LIABILITY OF DIRECTORS
The Company's Certificate of Incorporation provides that a director of the
Company will not be personally liable to the Company or its stockholders for
monetary damages for breach of the fiduciary duty of care as a director,
including breaches which constitute gross negligence. By its terms and in
accordance with the Delaware General Corporation Law, however, this provision
does not eliminate or limit the liability of a director of the Company (i)
for breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the Delaware General Corporation Law (relating to unlawful payments or
dividends or unlawful stock repurchases or redemptions), (iv) for any
improper benefit or (v) for breaches of a director's responsibilities under
the Federal securities laws. The Company also intends to enter into an
Indemnification Agreement with each of its Directors and any officer,
employee, agent or fiduciary designated by the Board of Directors which
provides that the Company indemnify the Director or other parties thereto to
the fullest extent permitted by applicable law. See "Business --
Indemnification Agreements."
TRANSFER AGENT AND WARRANT AGENT
The transfer agent and registrar for the Common Stock and warrant agent
for the Redeemable Warrants is Continental Stock Transfer & Trust Company,
located at 2 Broadway, New York, New York 10004.
SHARES AVAILABLE FOR FUTURE SALE
Upon the closing date of this Offering, there will be 3,789,194 shares of
Common Stock outstanding after giving effect to the Bridge Financing
Restructuring and the Company's sale of the Securities offered hereby
(3,939,194 shares of Common Stock if the Underwriter's over-allotment option
is exercised in full) all of which will be registered. Except for 150,000
shares of Common Stock being registered on behalf of certain of the Founding
Selling Security Holders (including 72,093 shares for Dr. Hanoch Shalit, the
Chief Executive Officer President and Chairman of the Board of Directors of
the Company) and any open market purchases on or after the effective date of
this Offering, the Founding Selling Security Holders have agreed with the
Underwriter not to directly or indirectly offer, sell, transfer or otherwise
encumber or dispose of their Common Stock or any other securities of the
Company, whether or not beneficially owned, for a period of eighteen (18
months from the date of this Prospectus unless otherwise permitted by the
Underwriter. The Bridge Selling Security Holders have agreed with the Company
not to effect any sales of their Common Stock and Redeemable Warrants (or
shares of Common Stock issuable upon exercise of the Redeemable Warrants)
until 24 months and 18 months, respectively, after the date of this
Prospectus.
Since all of the shares of Common Stock outstanding will be registered
upon completion of this Offering, none of the shares of Common Stock will be
"restricted securities" as that term is defined by Rule 144 of the
39
<PAGE>
Securities Act, as amended. Ordinarily, under Rule 144, a person who is an
affiliate of the Company (as that term is defined in Rule 144) and has
beneficially owned restricted securities for a period of two (2) years may,
every three (3) months, sell in brokerage transactions an amount that does
not exceed the greater of (i) 1% of the outstanding class of such securities
or (ii) the average weekly trading volume of trading in such securities on
all national exchanges and/or reported through the automated quotation system
of a registered securities association during the four weeks prior to the
filing of a notice of sale by a securities holder. A person who is not an
affiliate of the Company who beneficially owns restricted securities is also
subject to the foregoing volume limitations but may, after the expiration of
three (3) years, sell unlimited amounts of such securities under certain
circumstances.
Prior to this Offering, there has been no market for the Securities. The
Underwriter intends to make a market in the shares of Common Stock and
Redeemable Warrants after completion of this Offering. No predictions can be
made as to the effect, if any, that the availability of shares for sale will
have on the market, if any, prevailing from time to time. Sales of
substantial amounts of the Common Stock that are subject to the prior
approval of the Underwriter may adversely affect the market price of the
Common Stock or the Redeemable Warrants offered hereby.
UNDERWRITING
A.S. Goldmen & Co., Inc. (the "Underwriter") has entered into an
Underwriting Agreement with the Company pursuant to which, and subject to the
terms and conditions thereof, it has agreed to purchase all of the shares of
Common Stock and Redeemable Warrants offered by the Company hereby.
The Underwriter has advised the Company that it proposes to offer the
shares of Common Stock and Redeemable Warrants to the public at the public
offering prices set forth on the cover page of this Prospectus and that the
Underwriter may allow to certain dealers who are members of the National
Association of Securities Dealers, Inc (the "NASD") concessions of not in
excess of $ _______ per share of Common Stock and $_____ per Redeemable
Warrant, of which amount a sum not in excess of $ ______ per share of Common
Stock and $_______ per Redeemable Warrant may in turn be reallowed by such
dealers to other dealers. After the commencement of this Offering, the public
offering price, the concessions and the reallowances may be changed. The
Underwriter has informed the Company that it does not expect sales to
discretionary accounts by the Underwriter to exceed 5% of the total number of
securities offered by the Company hereby.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Act. The Company has agreed to
pay to the Underwriter a non-accountable expense allowance equal to 3%
percent of the gross proceeds derived from the sale of the shares of Common
Stock and Redeemable Warrants underwritten, $25,000 of which has been paid to
date.
The Company has also agreed to retain the Underwriter as the Company's
financial consultant for a period of 24 months from the date of this
Prospectus and to pay the Underwriter $2,000 per month in connection
therewith, the total amount of which ($48,000) is due upon consummation of
this Offering. The Company has agreed that, at the request of the
Underwriter, for five years after the date of this Prospectus, that it will
use its best efforts to cause one individual designated by the Underwriter
and acceptable to the Company to be elected to the Company's Board of
Directors, which individual may be a director, officer, employee or affiliate
of the Underwriter. As of the date of this Prospectus, the Underwriter has
not determined if it will designate an individual to the Company's Board of
Directors.
Upon the exercise of any Redeemable Warrants more than one year after the
date of this Prospectus, which exercise was solicited by the Underwriter, and
to the extent not inconsistent with the guidelines of the NASD and the Rules
and Regulations of the Commission, the Company has agreed to pay the
Underwriter a commission of four percent of the aggregate exercise price of
such Redeemable Warrants. However, no compensation will be paid to the
Underwriter in connection with the exercise of the Redeemable Warrants if (a)
the market price of the Common Stock is lower than the exercise price, (b)
the Redeemable Warrants are held in a discretionary account, or (c) the
Redeemable Warrants are exercised in an unsolicited transaction where the
holder of the Redeemable Warrants has not stated in writing that the
transaction was solicited and has not designated in writing the Underwriter
as the soliciting agent. Unless granted an exemption by the Commission from
Rule
40
<PAGE>
10b-6 under the Securities Exchange Act of 1934, as amended, the Underwriter
and any soliciting broker-dealers are prohibited from engaging in any
market-making activities or solicited brokerage activities with regard to the
Company's securities during the periods prescribed by exemption (xi) to Rule
10b-6 before the solicitation of the exercise of any Warrants until the later
of the termination of such solicitation activity or the termination (by
waiver or otherwise) of any right that the Underwriter and any soliciting
broker-dealers may have to receive a fee for the exercise of the Redeemable
Warrants following such solicitation. As a result, the Underwriter and any
soliciting broker-dealers will be required to continue to provide a market
for the Company's Securities during certain periods while the Redeemable
Warrants are exercisable. If the Underwriter has engaged in any of the
activities prohibited by Rule 10b-6 during the periods described above, the
Underwriter undertakes to waive unconditionally its right to receive a
commission on the exercise of such Redeemable Warrants.
Each director and officer of the Company and the Founding Selling Security
Holders (except with respect to 150,000 shares of Common Stock and any open
market purchases on or after the effective date of this Offering), have
agreed with the Underwriter, not to, directly or indirectly, offer, sell,
transfer, pledge, assign, hypothecate or otherwise encumber or dispose of any
of the Company's securities, whether or not beneficially owned, for a period
of eighteen (18) months after the date of this Prospectus without the prior
consent of the Underwriter. An appropriate legend shall be marked on the back
of stock certificates representing all such securities.
The Company has granted to the Underwriter an option exercisable during
the forty-five (45) day period commencing on the date of this Prospectus to
purchase from the Company, at the offering price less underwriting discount
and expense allowance, up to an aggregate of 150,000 additional shares of
Common Stock and/or an additional 600,000 Redeemable Warrants for the sole
purpose of covering over-allotments, if any.
In connection with this Offering, the Company has agreed to sell to the
Underwriter or its designees, for nominal consideration, warrants to purchase
from the Company 100,000 shares of Common Stock and 400,000 Redeemable
Warrants (the "Underwriter's Warrants"). The Underwriter's Warrants are
initially exercisable at a price of $ ______ per share of Common Stock [160%
of the initial offering price per share of Common Stock] and $____ per
Redeemable Warrant [160% of the initial offering price per Redeemable
Warrant] for a period of one (1) year commencing one (1) year from the date
of this Prospectus for a period of four (4) years commencing one (1) year
from the date of this Prospectus. The Underwriter's Warrants provide for
adjustment of the type of securities issuable upon exercise of the
Underwriter's Warrants to reflect certain subdivisions and combinations of
the Common Stock. The Underwriter's Warrants grant to the holders thereof
certain rights of registration for the securities issuable upon exercise of
the Underwriter's Warrants.
In connection with the Bridge Financing, the Company paid the Underwriter,
as placement agent, $400,000 in cash as a commission and a nonaccountable
expense allowance of $120,000. The Company also agreed in connection with the
Bridge Financing to indemnify the Underwriter against certain liabilities,
including liabilities under the Securities Act, or to contribute to related
payments that the Underwriter may be required to make.
Prior to this Offering, there has been no public market for any of the
Company's securities. Accordingly, the offering prices of the Shares and the
Redeemable Warrants and the terms of the Redeemable Warrants were determined
by negotiation between the Company and the Underwriter. Factors considered in
determining such price and terms, in addition to prevailing market
conditions, included the prospects for the industry in which the Company
competes, an assessment of the Company's management, the prospects of the
Company, its capital structure and such other factors which were deemed
relevant.
The foregoing is a summary of certain terms of the Underwriting Agreement,
copies of which were filed with the Commission as an exhibit to the
Registration Statement of which this Prospectus is a part. Reference is
hereby made to such exhibit for a detailed description of the provisions
thereof as summarized above. See "Additional Information."
41
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock and Redeemable Warrants offered
hereby will be passed upon for the Company by Zukerman Gore & Brandeis, LLP,
New York, New York. Certain matters regarding intellectual property rights
shall be passed upon for the Company by Wyatt, Gerber, Burke & Badie, LLP,
New York, New York. Orrick, Herrington & Sutcliffe LLP, New York, New York
has acted as counsel for the Underwriter in connection with this Offering.
EXPERTS
The financial statements of the Company included in this Prospectus and
elsewhere in the Registration Statement, to the extent and for the periods
indicated in their reports, have been examined by Most Horowitz & Company,
LLP, independent certified public accountants, whose reports thereon appear
elsewhere herein and in the Registration Statement. Such financial statements
have been included in reliance upon the reports of Most Horowitz & Company,
LLP, given upon their authority as experts in accounting and auditing.
CHANGE IN ACCOUNTANTS
On March 14, 1996, the Company replaced its independent accountants,
Present, Cohen, Smallowitz & Glassman ("Present, Cohen") with Most Horowitz &
Company, LLP ("Most Horowitz") to act as its independent accountants from and
after March 14, 1996. All of the financial statements of the Company included
in the prospectus and registration statement of which this Prospectus forms a
part were examined by Most Horowitz. None of Present, Cohen's reports for
either of the past two years contained an adverse opinion or disclaimer of
opinion, or was modified as to uncertainity, audit scope, or accounting
principles. Further, during the Company's two most recent fiscal years and
any subsequent interim period preceding the Company replacing Present, Cohen
there were no disagreements with Present, Cohen on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures.
The decision to replace Present, Cohen with Most Horowitz was approved by
the Company's Board of Directors and was made as a result of the Company's
desire to engage an accounting firm more experienced in auditing public
companies.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 under the Securities Act
of 1933, as amended (the "Securities Act") with respect to the Securities
offered hereby. This Prospectus filed as a part of the Registration Statement
does not contain certain information set forth in or annexed as exhibits to
the Registration Statement certain parts of which are omitted in accordance
with the rules and regulations of the Commission. For further information
with respect to the Company and the Securities offered hereby, reference is
made to the Registration Statement and to the exhibits filed as part thereof,
which may be inspected at the office of the Commission without charge, or
copies thereof may be obtained therefrom upon payment of a fee prescribed by
the Commission. Statements contained in this Prospectus as to the contents of
any contract or other document are not necessarily complete, and where the
contract or other document has been filed as an exhibit to the Registration
Statement, each statement is qualified in all respects by reference to the
applicable document filed with the Commission.
The Registration Statement and such exhibits and schedules may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington D.C. 20549, and
at the Regional Offices of the Commission located at 7 World Trade Center,
13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material may
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Room 1025, Washington, D.C. 20549, at prescribed rates. Such
material may also be accessed electronically by means of the Commission's
home page on the Internet at http:/www.sec.gov.
42
<PAGE>
IMATEC, LTD
(A DEVELOPMENT STAGE ENTERPRISE)
FINANCIAL STATEMENTS
INDEX
<TABLE>
<CAPTION>
<S> <C>
INDEPENDENT AUDITORS' REPORT ........................................................... F-2
BALANCE SHEET -- December 31, 1994 and 1995 and August 31, 1996 ........................ F-3
STATEMENT OF OPERATIONS -- November 17, 1988 (Inception) to December 31, 1995
(Cumulative), years ended December 31, 1994 and 1995 and eight months ended August 31,
1995 and 1996 (Unaudited) ............................................................. F-4
STATEMENT OF STOCKHOLDERS' (DEFICIT) -- November 17, 1988 (Inception) to December 31,
1995 and eight months ended August 31, 1996 (Unaudited) ............................... F-5
STATEMENT OF CASH FLOWS -- November 17, 1988 (Inception) to December 31, 1995
(Cumulative), years ended December 31, 1994 and 1995 and eight months ended August 31,
1995 and 1996 (Unaudited) ............................................................. F-6
NOTES TO FINANCIAL STATEMENTS .......................................................... F-7 - F-11
</TABLE>
F-1
<PAGE>
April 29, 1996
INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors
Imatec, Ltd.
New York, New York
We have audited the accompanying balance sheet of Imatec, Ltd. (A
Development Stage Enterprise) as of December 31, 1994 and 1995, and the
related statements of operations, stockholders' (deficit) and cash flows for
the years ended December 31, 1994 and 1995 and November 17, 1988 (Inception)
to December 31, 1995 (Cumulative). These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Imatec, Ltd., as of
December 31, 1994 and 1995, and the results of its operations and its cash
flows for the years ended December 31, 1994 and 1995 and November 17, 1988
(Inception) to December 31, 1995 (Cumulative) in conformity with generally
accepted accounting principles.
/s/ Most Horowitz & Company, LLP
-------------------------------------
Most Horowitz & Company, LLP
New York, New York
F-2
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
December 31
------------------------ August 31,
1994 1995 1996
--------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS
Cash ................................................... $1,897 $ 31,151 $ 71,061
Marketable securities (Note 3) ......................... 1,350,852 1,843,782
Other current assets ................................... 9,715 8,950
--------- ----------- -----------
TOTAL CURRENT ASSETS .............................. 1,897 1,391,718 1,923,793
OFFICE EQUIPMENT (net of accumulated depreciation of
$8,030) ................................................ 101,275
DEFERRED DEBT ISSUANCE COSTS (Note 2) .................... 204,999 222,386
DEFERRED COSTS OF PROPOSED PUBLIC
OFFERING (Note 9) ...................................... 103,087
DEPOSIT .................................................. 18,674
--------- ----------- -----------
TOTAL ASSETS ...................................... $1,897 $1,596,717 $2,369,215
========= =========== ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
December 31
------------------------ August 31,
1994 1995 1996
--------- ----------- -----------
(Unaudited)
CURRENT LIABILITIES
Accrued expenses (Note 7) ............................. $ 4,188 $ 412,735 255,935
BRIDGE NOTES PAYABLE (Note 2) ........................... 1,220,763 3,084,284
OTHER NOTES PAYABLE (Note 4) ............................ 50,000
--------- ----------- -----------
TOTAL LIABILITIES ................................ 4,188 1,683,498 3,340,219
--------- ----------- -----------
COMMITMENTS AND CONTINGENCY (Notes 2, 7, 8 and 9)
STOCKHOLDERS' (DEFICIT) (Notes 2 and 9)
Preferred stock, $.0001 par value; authorized --
2,000,000 shares; issued and outstanding -- none
Common stock, $.0001 par value; authorized --
20,000,000 shares; issued and outstanding --
1,105,000, 2,472,091 and 2,761,785 in 1994, 1995 and
1996, respectively ................................. 111 247 276
Additional paid-in capital ............................ 615,113 1,193,081 1,865,725
Deficit accumulated during the development stage ...... (617,515) (1,280,109) (2,837,005)
--------- ----------- -----------
TOTAL STOCKHOLDERS' (DEFICIT) .................... (2,291) (86,781) (971,004)
--------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS
(DEFICIT) ..................................... $ 1,897 $ 1,596,717 $ 2,369,215
========= =========== ===========
</TABLE>
See notes to financial statements
F-3
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
November 17,
Years Ended 1988 Eight months
December 31, (Inception) Ended August 31,
---------------------------- to ------------------------------
December 31, 1995
1994 1995 (Cumulative) 1995 1996
------------ ------------ --------------- ------------ --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
INCOME -- consulting fees . $ 1,960 $ 133,973
------------ ---------------
EXPENSES
Royalties (Note 7) ...... $ 420,000 420,000 $ 373,334 $ 95,083
Research and development 17,881 11,773 337,389 46,991
General and
administrative ....... 99,243 163,682 598,613 51,631 531,518
------------ ------------ --------------- ------------ --------------
TOTAL EXPENSES ..... 117,124 595,455 1,356,002 424,965 673,592
------------ ------------ --------------- ------------ --------------
LOSS FROM OPERATIONS (115,164) (595,455) (1,222,029) (424,965) (673,592)
INTEREST EXPENSE AND
AMORTIZATION OF DEBT
ISSUANCE COSTS .......... (72,596) (72,596) (930,772)
INTEREST INCOME ........... 5,457 14,516 47,468
------------ ------------ --------------- ------------ --------------
NET LOSS ........... ($ 115,164) ($ 662,594) ($ 1,280,109) ($ 424,965) ($1,556,896)
============ ============ =============== ============ ==============
AVERAGE NUMBER OF SHARES
OUTSTANDING (Note 2) .... 5,741,072 5,749,976 5,742,329 5,738,313 5,893,715
============ ============ =============== ============ ==============
NET LOSS PER COMMON SHARE . ($.02) ($.12) ($.22) ($.07) ($.26)
============ ============ =============== ============ ==============
</TABLE>
See notes to financial statements
F-4
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' (DEFICIT)
NOVEMBER 17, 1988 (INCEPTION) TO AUGUST 31, 1996
(NOTE 2)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock (Note 9) Aditional During the
----------------------- Paid-In Development
Shares Amount Capital Stage Total
----------- -------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Issuance of shares ..................... 1,105,000 $111 $ 889 $ 1,000
Contribution of shares ................. (82,875) (8) 8
Issuance of shares ..................... 55,250 5 499,995 500,000
Issuance of shares ..................... 27,625 3 (3)
Net loss for the period inception to
December 31, 1993 ..................... ($ 502,351) (502,351)
----------- -------- ------------ -------------- -------------
Balance -- December 31, 1993 ......... 1,105,000 111 500,889 (502,351) (1,351)
Contribution of shares ................. (12,615) (1) 1
Issuance of shares ..................... 12,615 1 114,223 114,224
Net loss for the year ended December 31,
1994 .................................. (115,164) (115,164)
----------- -------- ------------ -------------- -------------
Balance -- December 31, 1994 ......... 1,105,000 111 615,113 (617,515) (2,291)
Issuance of shares ..................... 1,105,000 110 110
Issuance of shares and warrants under
private placement ..................... 262,091 26 714,156 714,182
Expenses of private placement .......... (136,188) (136,188)
Net loss for the year ended December 31,
1995 .................................. (662,594) (662,594)
----------- -------- ------------ -------------- -------------
Balance -- December 31, 1995 ......... 2,472,091 247 1,193,081 (1,280,109) (86,781)
Cancellation of shares of private
placement (net of expenses of $1,820) . (6,897) (1) (16,973) (16,974)
Issuance of shares and warrants in
private placement ..................... 296,591 30 808,152 808,182
Expenses of private placement .......... (118,535) (118,535)
Net loss for the eight months ended
August 31, 1996 (Unaudited) ........... (1,556,896) (1,556,896)
----------- -------- ------------ -------------- -------------
Balance -- August 31, 1996
(Unaudited) ..................... 2,761,785 $276 $1,865,725 ($ 2,837,005) ($ 971,004)
========== ======== ============ ============== =============
</TABLE>
See notes to financial statements
F-5
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended November 17, 1988 Eight months ended
December 31, (Inception) to August 31,
----------------------------- December 31, ------------------------
1994 1995 1995 (Cumulative) 1995 1996
------------ ------------- ----------------- ----------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ......................................... ($ 115,164) ($ 662,594) ($ 1,280,109) ($424,965) ($1,556,896)
Adjustments to reconcile net loss to net cash used
in operating activities
Amortization of discount and debt issuance costs 52,147 52,147 724,241
Depreciation and other amortization ......... 857 8,030
Increase (decrease) in cash flows from
Other current assets ..................... (9,715) (9,715) 765
Deposit.................................... (18,674)
Accrued expenses ......................... 1,948 408,547 412,735 375,854 (150,300)
---------- ------------ ------------ ----------- -----------
NET CASH USED IN OPERATING
ACTIVITIES ............................. (113,216) (211,615) (824,085) (49,111) (992,834)
---------- ------------ ------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of marketable securities ...... 50,000 50,000 1,749,098
Investment in marketable securities .............. (1,400,852) (1,400,852) (2,242,028)
Purchases of fixed assets ........................ (612) (109,305)
------------ ------------ ----------- -----------
NET CASH USED IN INVESTING
ACTIVITIES ............................. (1,350,852) (1,351,464) (602,235)
------------ ------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Bridge Financing (net of expenses of
$358,389 and $311,934 and exchanges of notes
payable of $125,000 and $50,000) in 1995 and 1996,
respectively .................................. 1,416,611 1,416,611 1,788,066
Proceeds from issuance of common stock ........... 94,224 110 615,334
Increase in costs of proposed public offering .... (103,087)
Decrease in due to/from stockholder .............. 15,971 21,152
Proceeds from other notes payable ................ 175,000 175,000 75,000
Payment of other notes payable ................... (50,000)
Payments of organization costs ................... (245)
---------- ------------ ------------ ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES . 110,195 1,591,721 2,206,700 96,152 1,634,979
---------- ------------ ------------ ----------- -----------
INCREASE (DECREASE) IN CASH .............. (3,021) 29,254 31,151 47,041 39,910
CASH -- beginning .................................. 4,918 1,897 1,897 31,151
---------- ------------ ------------ ----------- -----------
CASH -- ending ..................................... $ 1,897 $ 31,151 $ 31,151 $ 48,938 $ 71,061
========== ============ ============ =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for income taxes ....................... $ 812 $ 1,000 $ 3,744 -- $ 808
========== ============ ============ =========== ===========
Cash paid for interest ........................... -- $ 3,315 $ 3,315 -- $ 3,534
========== ============ ============ =========== ===========
NONCASH TRANSACTIONS
In 1994, a loan payable was capitalized (Note 2).
</TABLE>
See notes to financial statements
F-6
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LINE OF BUSINESS
Imatec, Ltd. (Company) was incorporated on November 17, 1988 to develop,
design, market and license image reproduction and enhancement products. The
Company has been in the development stage since its inception.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
MARKETABLE SECURITIES
Marketable securities have been classified as available-for-sale and
recorded at fair value.
FIXED ASSETS
Office equipment was stated at cost and is being depreciated on the
straight-line method over the estimated useful lives of the assets of five to
seven years.
DEBT ISSUANCE COSTS AND DISCOUNTS
Debt issuance costs on the Bridge Notes (Note 2) have been capitalized and
are being amortized on the straight-line method over the term of the notes
payable.
Discounts on the Bridge Notes are being amortized on the interest method
over the term of the notes payable.
PATENTS
Patent costs have been charged to operations as incurred as their
realizability was uncertain and were included in research and development
expenses. Effective January 1, 1996, the Company adopted SFAS No. 121
(Accounting for the Impairment of Long-Lived Assets), without material
effect.
RESEARCH AND DEVELOPMENT COSTS AND ROYALTY EXPENSES
Research and development costs and royalty expenses (Note 7) have been
charged to operations as incurred.
LOSS PER SHARE
Loss per share was computed based on the weighted average number of common
shares and common share equivalents outstanding during the year. All shares
and per share amounts have been retroactively restated to reflect the reverse
stock split on May 2, 1995, and the stock split on October 19, 1995. The
1,105,000 shares issued in May 1995 and the shares and warrants issued in the
Bridge Financing have been treated as outstanding for all periods in
calculating loss per common share because such shares were issued at prices
below the proposed public offering price (Notes 2 and 9).
Fully-dilutive loss per common share has not been presented because it was
anti-dilutive.
2. CAPITALIZATION
ISSUANCE OF COMMON STOCK
On December 1, 1988, the Company issued 1,105,000 shares for $1,000. On
September 20, 1991, a stockholder contributed 82,875 shares to the Company
and the Company reissued 55,250 shares of common stock for $500,000 and
27,625 shares in exchange for assistance with raising equity. Also in 1991,
the stockholder gave 102,300 shares of common stock of the Company for
assistance with raising equity for the Company. The Company valued the 27,625
and 102,300 shares at $25,000 and $92,580, respectively, the values of the
consulting services and charged additional paid-in-capital.
F-7
<PAGE>
During 1994, a stockholder contributed 12,615 shares to the Company and
the Company reissued the shares for $114,224, including the capitalization of
a loan payable.
On May 30, 1995, the Company issued 1,105,000 shares of common stock in
exchange for $110. Had the private placement not been fully sold, the Company
could have reacquired up to the total of these shares for $110.
REVERSE STOCK SPLIT
On May 2, 1995, the Company had a one-for-four reverse stock split. All
shares and per share amounts have been retroactively restated to reflect the
reverse stock split.
REINCORPORATION
On September 20, 1995, the Company reincorporated in Delaware, authorizing
20,000,000 shares of $.0001 par value common stock and 2,000,000 shares of
$.0001 par value preferred stock.
STOCK SPLIT
On October 19, 1995, the Company authorized a 22,100 for 1 stock split and
issued 2,210,000 shares of new common stock in exchange for 100 shares of old
common stock. All shares and per share amounts have been retroactively
restated to reflect the stock split.
BRIDGE FINANCING
On November 30, 1995 and April 12, 1996, the Company had closings under a
private placement. Under the private placement, the Company issued 10%
promissory notes in the aggregate principal amount of $1,900,000 and
$2,100,000 (Bridge Notes), 262,091 and 289,694 shares of common stock and
warrants to purchase 1,900,000 and 2,100,000 shares of common stock (Bridge
Warrants), respectively. The Company has allocated $2, per share, and $.10,
per warrant, of the proceeds of the private placement to the common stock and
warrants, the values of the shares and warrants at the dates of issuance.
In February, 1996, an investor in one unit of the first closing was
refunded $50,000, the notes, shares and warrants were canceled and then all
were resold in the second closing. The cancellation has been included net in
the second closing amounts.
The Company received net proceeds from the private placement of $1,517,834
and $1,811,635, respectively, after disbursements of:
November 30, April 12,
1995 1996
-------------- -----------
Commission ....................... $190,000 $210,000
Non-accountable expense allowance 57,000 63,000
Other expenses of placement agent 10,166 15,365
Exchanges of notes payable ....... 125,000 50,000
-------------- -----------
$382,166 $338,365
============== ===========
In addition, the Company incurred additional expenses of $101,223 under
the first closing and $23,569 under the second closing (Unaudited). Total
expenses of the private placement have been allocated between the Bridge
Notes and common stock.
The Bridge Notes are payable upon the earlier of: (1) a public or other
private financing by the placement agent of $8,000,000, (2) any other public
or private placement of $4,500,000 or (3) 15 months from issuance.
Each Bridge Warrant is exercisable at $1, per warrant, commencing a year
from closing for a period of five years. However, upon the effective date of
the Company's proposed initial public offering (Note 9), each Bridge Warrant
will automatically convert into a Redeemable Warrant (Note 9), subject to all
of the terms and conditions of the Redeemable Warrants.
F-8
<PAGE>
BRIDGE FINANCING RESTRUCTURING (UNAUDITED)
In order to qualify the common stock and Redeemable Warrants to be issued
in the proposed initial public offering (Note 9) for listing on the Nasdaq,
the Company was required by Nasdaq to restructure the Bridge Financing.
Accordingly, all investors in the Bridge Financing were given the choice to
either: (A) convert, on the closing date of the proposed public offering, the
principal amount of their Bridge Note plus all accrued interest into shares
of common stock, at $4, per share, return all the common stock received in
the Bridge Financing and retain their Bridge Warrants or (B) upon the closing
of the proposed public offering receive a one-time cash payment equal to 50%
of the principal amount of their Bridge Notes, not receive any accrued
interest and return all the shares of common stock and Bridge Warrants that
they received in the Bridge Financing. The Bridge Restructuring is contingent
on the closing of the proposed public offering.
As of September 30, 1996, substantially all Bridge Loan investors have
responded, although six of the investors representing $250,000 of the Bridge
Notes, 34,485 of the Bridge shares and 250,000 of the Bridge Warrants, have
not as yet advised the Company whether they will choose option A or option B.
Those investors that fail to choose either option A or option B by October
25, 1996 will be deemed to have chosen option A by the Company. Consequently,
assuming a closing date of the proposed public offering of October 31, 1996,
the Company anticipates converting $2,150,000 principal amount of Bridge
Notes and $166,776 of accrued interest thereon into 579,194 shares of common
stock and repaying $925,000 of principal, all 551,785 shares of common stock
and the balance of 1,850,000 Bridge Warrants issued in the Bridge Financing
will be returned to the Company upon closing of the proposed public offering
and exchanging 2,150,000 of Bridge Warrants for Redeemable Warrants (Note 9).
The Company also anticipates the write-off of unamortized loan discount of
$915,716 and deferred loan costs of $222,386 and the recognition of
forgiveness of indebtedness income of $1,047,511.
Those investors that fail to choose either option A or option B by October
25, 1996 may, thereafter, institute litigation against the Company disputing
the option they were deemed to have chosen and/or seek to enforce the
original terms and condition of their Bridge investment in the Company. The
Company intends to vigorously defend any such litigation.
RESERVED SHARES
As of December 31, 1995 and August 31, 1996 (Unaudited), the Company has
reserved the following shares of common stock:
1995 1996
----------- -----------
Bridge warrants ............. 4,000,000 4,000,000
Stock option plan ............ 500,000
----------- -----------
4,000,000 4,500,000
=========== ===========
Does not include the cancellation of 1,850,000 of Bridge Warrants or the
shares to be reserved for issuance upon the conversion of the Bridge Notes under
the Bridge Financing restructuring.
3. MARKETABLE SECURITIES
As of December 31, 1995 and August 31, 1996 (Unaudited), the fair value of
marketable securities, which approximated unamortized cost, were as follows:
1995 1996
------------ ------------
U.S. Treasury Bill ............... $ 494,800
U.S. Government Money Market Fund.. 856,052 $1,843,782
------------ ------------
$1,350,852 $1,843,782
============ ============
4. OTHER NOTES PAYABLE
During August, September and October 1995, the Company borrowed, with
interest at 10%, per annum, $175,000 from customers of the placement agent,
which were exchanged for units under the closings of the private placement
(Note 2).
F-9
<PAGE>
5. INCOME TAXES
As of December 31, 1995 and 1994, the tax effects of timing differences
between financial statement and income tax reporting were as follows:
<TABLE>
<CAPTION>
December 31, August 31,
-------------------------- ----------------------------
1994 1995 1995 1996
----------- ----------- ----------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Research and development expenses $ 130,000 $ 130,000 $ 130,000 $ 150,000
Net operating loss carryforward .. 120,000 360,000 290,000 960,000
----------- ----------- ----------- -------------
250,000 490,000 420,000 1,110,000
Valuation allowance .............. (250,000) (490,000) (420,000) (1,110,000)
----------- ----------- ----------- -------------
-- -- -- --
=========== =========== =========== =============
</TABLE>
As of December 31, 1995 and August 31, 1996 (Unaudited), the Company has
net operating loss carryforwards available to reduce future taxable income of
approximately $900,000, expiring through 2011 and $2,400,000, expiring
through 2012.
6. RELATED PARTY TRANSACTIONS
During 1995, the Company borrowed $21,152 from a stockholder/officer on
demand, without interest, and it was repaid in December 1995.
During the years ended December 31, 1994 and 1995 and the eight months
ended August 31, 1996 (Unaudited), a director was paid attorney's fees of
$1,000, $31,000 and $49,423, respectively.
7. LICENSE AGREEMENT
On June 25, 1995, the Company was granted a license from a stockholder/
officer (President, Chief Executive Officer and Chairman of the Board) of the
Company to make, use, sell and otherwise exploit certain technologies under
patents, including future technologies. The Company is required to pay the
stockholder/officer a non-refundable advance royalty of $350,000, which was
paid in January 1996, and, commencing July 1, 1995, an annual royalty of
$140,000. If the stockholder/officer ceases to be employed by the Company,
the annual royalty increases to $250,000. The annual royalty shall increase
at the rate of 5%, per annum. The license agreement shall end when the last
patent expires.
8. EMPLOYMENT AGREEMENT
On July 1, 1995, the Company entered into an employment agreement with a
stockholder to be President, Chief Executive Officer and Chairman of the
Board of Directors expiring on the earlier of July 1, 2000, the Company being
no longer involved in the technology business or a bankruptcy, merger or
reorganization of the Company. Compensation under the agreement shall be
$60,000, per year, 5% annual increases and a bonus equal to 1% of annual
sales. In addition, the employee shall receive director's and officer's
insurance, an automobile lease up to $8,400, per year, disability insurance
for 60% of salary through age 65, Company paid disability of 40% of salary
for one year and a life insurance policy of $1,000,000.
9. SUBSEQUENT EVENTS
EMPLOYMENT AGREEMENTS (UNAUDITED)
Effective January 1, 1996, the Company entered into an employment
agreement with a vice president of marketing and sales expiring in one year.
The agreement provides for an annual compensation of $100,000, plus a
commission equal to 4% of revenues, as defined, in excess of $2,500,000.
Effective September 24, 1996, the Company entered into an employment
agreement with a chief financial officer expiring September 23, 2001. The
agreement provides for annual compensation of $95,000.
F-10
<PAGE>
LEASE
Effective February 1996, the Company entered into a noncancellable lease
for office space through January 1999. The lease requires minimum annual rent
ranging from $67,584 to $71,680 and additional rent for increases in real
estate taxes and operating expenses.
As of August 31, 1996 (Unaudited), the future minimum aggregate annual
payments under the lease were as follows:
Years Ending
August 31,
--------------
1997 $ 68,779
1998 70,826
1999 29,867
---------
$169,472
=========
STOCK OPTION PLAN
In February, 1996, the Company adopted a nonqualified stock option plan
under which it may grant up to 500,000 shares of common stock. The Company
may not grant any options with a purchase price of less than fair market
value of the common stock as of the date of the grant. Through April 29, 1996
and August 31, 1996 (Unaudited), the Company had not granted any options
under the Plan.
PROPOSED PUBLIC OFFERING (UNAUDITED)
The Company anticipates a public offering in the fourth quarter of 1996 of
1,000,000 shares of common stock, at $5 per share and 4,000,000 redeemable
warrants, at $.25, per warrant (Redeemable Warrant). Each warrantholder will
be entitled to purchase one share of common stock at $6.50, per share, and
will be exercisable for period of three years from the date of the offering.
The warrants will be redeemable by the Company, under certain circumstances,
at $.10, per warrant, commencing nine months from the date of offering. The
Company will also grant the underwriter an overallotment option for 45 days
from the date of the offering to purchase up to an additional 150,000 shares
of common stock and an additional 600,000 Redeemable Warrants.
The underwriter of the public offering will receive a discount of 10% and
a non-accountable expense allowance equal to 3% of the gross proceeds of the
public offering. The Company will also retain the underwriter as a financial
consultant for a period of two years for $48,000, payable upon closing of the
public offering. In addition, the Company has agreed to sell to the
underwriter, for nominal consideration, warrants to purchase 100,000 shares
of common stock and 400,000 Redeemable Warrants. The shares and Redeemable
Warrants under the Underwriter's Warrants will be exercisable at 160% of the
initial offering price per share of common stock and 160% of the initial
offering price per Redeemable Warrants, respectively, for a period of five
years from the date of the offering.
10. INTERIM FINANCIAL STATEMENT (UNAUDITED)
In the opinion of management, the interim unaudited financial statements
as of August 31, 1995 and 1996, reflect all material adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of
the financial position, the results of operations and cash flows. Interim
results are not necessarily indicative of the results of the entire year.
F-11
<PAGE>
=============================================================================
No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and if given or made, such information or representations must not
be relied upon as having been authorized by the Company or any Underwriter.
Neither the delivery of this Prospectus nor any sale made hereunder shall,
under any circumstances create any implication that there has been no change
in the affairs of the Company since the date hereof or that information
contained herein is correct as of any date subsequent to the date hereof.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any of the securities offered hereby by anyone in any
jurisdiction in which such offer or solicitation is not authorized or in
which the persons making such offer or solicitation are not qualified to do
so or to anyone to whom it is unlawful to make such offer or solicitation.
TABLE OF CONTENTS
Page
--------
Prospectus Summary ............................................. 3
The Offering ................................................... 5
Risk Factors ................................................... 7
Use of Proceeds ................................................ 14
Dividend Policy ................................................ 14
Dilution ....................................................... 15
Capitalization ................................................. 16
Selected Financial Data ........................................ 17
Plan of Operations ............................................. 18
Business ....................................................... 20
Management ..................................................... 25
Principal Stockholders ......................................... 29
Selling Security Holders ....................................... 31
Certain Transactions ........................................... 37
Description of Securities ...................................... 37
Shares Available for Future Sale ............................... 39
Underwriting ................................................... 40
Legal Matters .................................................. 42
Experts ........................................................ 42
Change in Accountants .......................................... 42
Additional Information ......................................... 42
Index to Financial Statements .................................. F-1
Until _____, 1996 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
=============================================================================
<PAGE>
=============================================================================
IMATEC, LTD.
[LOGO]
1,000,000 SHARES OF
COMMON STOCK
AND
4,000,000 REDEEMABLE
WARRANTS
------------
PROSPECTUS
------------
A.S. GOLDMEN & CO., INC.
------, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation provides for indemnification of
personal liability of the Directors of the Corporation to the fullest extent
permitted by paragraph "7" of Subsection (b) of Section 102 of the General
Corporation Law of the State of Delaware.
Article VIII of the By-Laws of the Company ("By-Laws"), which is set forth
below in its entirety, provides for indemnification of officers, directors,
employees and agents substantially to the extent permitted under the Delaware
General Corporation Law.
Article VIII of the By-Laws provides as follows:
"ARTICLE VIII"
INDEMNIFICATION
The corporation shall indemnify, to the extent permitted by the General
Corporation Law of Delaware as amended from time to time, (a) each of its
present and former officers and directors, and (b) each of its present or
former officers, directors, agents or employees who are serving or have
served at the request of the corporation as an officer, director or partner
(or in any similar position) of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred in connection with any threatened, pending or completed
action, suit or proceeding, whether by or in the right of the corporation by
a third party or otherwise, to which such person is made a party or
threatened to be made a party by reason of such office in the corporation or
in another corporation, partnership, joint venture, trust or other
enterprise. Such indemnification shall inure to the benefit of the heirs,
executors and administrators of any indemnified person. To the extent
permitted by the General Corporation Law of Delaware, under general or
specific authority granted by the Board of Directors, (a) the corporation by
specific action of the Board of Directors may furnish such indemnification to
its agents and employees with respect to their activities on behalf of the
corporation; (b) the corporation by specific action of the Board of Directors
may furnish such indemnification to each present or former officer, director,
employee or agent of a constituent corporation absorbed in a consolidation or
merger with the corporation and to each officer, director, agent or employee
who is or was serving at the request of such constituent corporation as an
officer, director, agent or employee of another corporation, partnership,
joint venture, trust or other enterprise; and (c) the corporation may
purchase and maintain indemnification insurance on behalf of any of the
officers, directors, agents or employees whom it is required or permitted to
indemnify as provided in this Article.
ITEMS 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with this Offering are as follows:
SEC filing fee ........................................... $39,472.04
NASD filing fee .......................................... 11,946.89
Accounting fees and expenses* ............................ 75,000.00
Legal fees and expenses* ................................. 175,000.00
Blue Sky fees and expenses* .............................. 60,000.00
Printing and engraving* .................................. 100,000.00
Transfer Agent's and Registrar fees* ...................... 10,000.00
Miscellaneous expenses* .................................. 28,581.07
Total ............................................... $500,000.00
- ------
* Estimated
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In February 1994, the Company issued an aggregate of 12,615 shares of
Common Stock to two investors for aggregate gross proceeds of $114,244.00.
Such sale was made pursuant to Section 4(2) of the Securities Act.
In May 1995, the Company sold an aggregate of 1,105,000 shares of Common
Stock to four investors for aggregate gross proceeds of $110.50. Such sale
was made pursuant to Section 4(2) of the Securities Act.
In October 1995, the Company entered into a placement agent agreement with
the Underwriter, which was subsequently amended, to act as placement agent
with respect to a best efforts private placement for a minimum of $1,000,000
and a maximum of $4,000,000 of the Company's securities. On April 12, 1996,
the Company concluded the private placement pursuant to which it sold an
aggregate of 80 units for aggregate gross proceeds of $4,000,000. Each unit
consisted of (i) a $50,000 unsecured promissory note bearing interest at the
rate of 10% per annum, (ii) 6,897 shares of Common Stock, and (iii) 50,000
Common Stock purchase warrants exercisable at $1.00 per share. The private
placement was made pursuant to Section 4(2) of the Securities Act in
compliance with Rule 506 of Regulation D promulgated thereunder, and all of
the purchasers were accredited investors, and there was no general
solicitation or advertising with respect thereto. In order to qualify the
Common Stock and Redeemable Warrants for listing on the Nasdaq SmallCap
Market, the Bridge Financing has been restructured such that the Company,
upon the closing of this Offering, will repay an aggregate of $925,000 of
principal with respect to the Notes of those Bridge Investors who chose
Option B. The balance of the principal amount of the Notes issued in the
Bridge Financing of those investors who chose Option B, and all accrued
interest thereon, is being forgiven and will not be repaid. In addition, the
Company will issue, upon the closing date of this Offering an aggregate of
579,194 shares of Common Stock (assuming a closing date of October 31, 1996)
and 2,150,000 Bridge Warrants to those Bridge Investors who chose Option A.
The balance of 1,850,000 Bridge Warrants and all 551,785 shares of Common
Stock issued in the Bridge Financing will be returned to the Company for
cancellation upon the closing of this Offering.
<TABLE>
<CAPTION>
Item 27. Exhibits.
------------ ------------------------------------------------------------------------------------------------
<S> <C>
*1.1 Revised Form of Underwriting Agreement by and between the Company and the Underwriter.
*1.2 Revised Form of Underwriter's Warrant Agreement, including form of specimen certificate for Underwriter's
Warrant.
*** 3.1 Certificate of Incorporation of the Company.
*** 3.2 By-Laws of the Company.
****4.1 Form of Specimen certificate for shares of Common Stock.
*4.2 Revised Form of Redeemable Warrant Agreement by and between the Company and Continental Stock Transfer
& Trust Company, including a form of specimen certificate for the Redeemable Warrants.
*5 Revised Opinion of Zukerman Gore & Brandeis, LLP.
****10.1 Form of Financial Advisory and Consulting Agreement by and between the Company and the Underwriter.
***10.2 Employment Agreement by and between the Company and Dr. Hanoch Shalit.
**10.3 Form of Employment Agreement by and between the Company and Lawrence Kollender.
*10.4 Employment Agreement by and between the Company and James A. Smith.
****10.5 License Agreement by and between the Company and Dr. Hanoch Shalit as amended.
****10.6 Form of Indemnification Agreement to be entered into with officers and directors.
***10.7 Lease for the Company's principal offices located at 150 E. 58th Street, New York, NY 10155.
****10.8 Form of Stock Option Plan.
****16.1 Letter from Present, Cohen, Smallowitz & Glassman regarding change in certifying accountants.
*24 Consent of Zukerman Gore & Brandeis, LLP contained in Exhibit 5.
*24.1 Consent of Most Horowitz & Company, LLP.
****24.2 Consent of Wyatt, Gerber, Burke & Badie, L.L.P.
</TABLE>
- ------
* Filed herewith.
** Previously filed as an exhibit to the Company's Registration Statement
on Form SB-2, Registration No. 333-3589, dated May 13, 1996.
*** Previously filed as an exhibit to the Company's Registration Statement
on Form SB-2, Registration No. 333-3589, dated May 13, 1996 and
Amendment No. 1 to the Company's Registration Statement on Form SB-2,
Registration No. 333-3589, dated June 24, 1996.
**** Previously filed as an exhibit to Amendment No. 1 to the Company's
Registration Statement on Form SB-2, Registration No. 333-3589, dated
June 24, 1996.
II-2
<PAGE>
ITEM 28. UNDERTAKINGS.
The undersigned Registrant will provide to the Underwriter at the closing
specified in the underwriting agreement certificates in such denominations
and registered in such names as required by the Underwriter to permit prompt
delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or controlling persons
of the Registrant pursuant to the provisions referred to in Item 24 of this
Registration Statement or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
(c) The undersigned Registrant will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form
of a prospectus filed by the small business issuer under Rule 424(b)(1) or
(4) or 497(h) under the Securities Act as part of this Registration Statement
as of the time the Commission declared it effective.
(2) For any liability under the Securities Act, treat each post-effective
amendment that contains a form of prospectus as a new Registration Statement
for the securities offered in the Registration Statement, and that the
offering of the securities at that time as the initial bona fide offering of
those securities.
Undertakings Required by Regulation S-B, Item 512(a):
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information set forth in the registration statement;
2. That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial
bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe
that it meets all the requirements for filing on Form SB-2 and authorized
this Registration Statement to be signed on its behalf by the undersigned, in
the City of New York, State of New York on October 11, 1996.
IMATEC, LTD.
By: /s/ Hanoch Shalit
-------------------------------
Hanoch Shalit, President,
Chief Executive Officer,
Chairman of the Board of
Directors
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement was signed by the following persons in
the capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
---------------------- -------------------------------------- -------------------
<S> <C> <C>
/s/ Hanoch Shalit President, Chief Executive Officer and October 11, 1996
--------------------- Director.
Hanoch Shalit
/s/ Steven Ai Director October 11, 1996
---------------------
Steven Ai
/s/ Neal Factor Director October 11, 1996
---------------------
Neal Factor
/s/ Simon Cross Director October 11, 1996
---------------------
Simon Cross
/s/ James A. Smith Chief Financial Officer October 11, 1996
---------------------
James A. Smith
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibits
---------
<S> <C>
*1.1 Revised Form of Underwriting Agreement by and between the Company and the Underwriter.
*1.2 Revised Form of Underwriter's Warrant Agreement, including form of specimen certificate for Underwriter's
Warrant.
*** 3.1 Certificate of Incorporation of the Company.
*** 3.2 By-Laws of the Company.
*****4.1 Form of Specimen certificate for shares of Common Stock.
*4.2 Revised Form of Redeemable Warrant Agreement by and between the Company and Continental Stock Transfer
& Trust Company, including a form of specimen certificate for the Redeemable Warrants.
*5 Revised Opinion of Zukerman Gore & Brandeis, LLP.
****10.1 Form of Financial Advisory and Consulting Agreement by and between the Company and the Underwriter.
***10.2 Employment Agreement by and between the Company and Dr. Hanoch Shalit.
**10.3 Form of Employment Agreement by and between the Company and Lawrence Kollender.
*10.4 Employment Agreement by and between the Company and James A. Smith.
****10.5 License Agreement by and between the Company and Dr. Hanoch Shalit as amended.
****10.6 Form of Indemnification Agreement to be entered into with officers and directors.
***10.7 Lease for the Company's principal offices located at 150 E. 58th Street, New York, NY 10155.
****10.8 Form of Stock Option Plan.
****16.1 Letter from Present, Cohen, Smallowitz & Glassman regarding change in certifying accountants.
*24 Consent of Zukerman Gore & Brandeis, LLP contained in Exhibit 5.
*24.1 Consent of Most Horowitz & Company. LLP.
****24.2 Consent of Wyatt, Gerber, Burke & Badie, L.L.P.
</TABLE>
- ------
* Filed herewith.
** Previously filed as an exhibit to the Company's Registration Statement
on Form SB-2, Registration No. 333-3589, dated May 13, 1996.
*** Previously filed as an exhibit to the Company's Registration Statement
on Form SB-2, Registration No. 333-3589, dated May 13, 1996 and
Amendment No. 1 to the Company's Registration Statement on Form SB-2,
Registration No. 333-3589, dated June 24, 1996.
**** Previously filed as an exhibit to Amendment No. 1 to the Company's
Registration Statement on Form SB-2, Registration No. 333-3589, dated
June 24, 1996.
***** Included herewith and previously filed as an exhibit to Amendment No. 1
to the Company's Registration Statement on Form SB-2, Registration No.
333-3589, dated June 24, 1996.
<PAGE>
Exhibit 1.1
1,000,000 Shares of Common Stock
and 4,000,000 Redeemable Warrants
IMATEC, LTD.
UNDERWRITING AGREEMENT
Iselin, New Jersey
, 1996
-----------
A.S. GOLDMEN & CO., INC.
99 Wood Avenue South
Suite 902
Iselin, New Jersey 08830
Ladies and Gentlemen:
Imatec, Ltd., a Delaware corporation (the "Company"), confirms
its agreement with A.S. Goldmen & Co., Inc. (the "Underwriter"), with respect to
the sale by the Company and the purchase by the Underwriter of 1,000,000 shares
(the "Shares") of the Company's common stock, par value $.0001 per share (the
"Common Stock") and 4,000,000 redeemable warrants (the Redeemable Warrants),
each exercisable to purchase one (1) additional share of Common Stock. The
Shares and Redeemable Warrants will be separately tradeable upon issuance and
are hereinafter referred to as the "Firm Securities". Each Redeemable Warrant is
exercisable commencing ________________, 1996 [the effective date of the
Registration Statement] until _____________, 1999 [36 months from the effective
date of the Registration Statement], unless previously redeemed by the Company,
on thirty (30) days written notice, at an initial exercise price equal to $6.50
per share, subject to adjustment. With the consent of the Underwriter, the
Redeemable Warrants may be redeemed by the Company at a redemption price of ten
cents ($.10) per Redeemable Warrant at any time commencing ______________, 1997
[9 months after the effective date of the Registration Statement] provided that
the average closing bid price of the Common Stock equals or exceeds $7.50 per
share for any twenty (20) trading days within a period of thirty (30)
consecutive trading days ending on the fifth (5th) trading day prior to the date
of the notice of redemption. Upon the Underwriter's request, as provided in
Section 2(b) of this Agreement, the Company shall also issue and sell to the
Underwriter up to an additional 150,000 shares of Common Stock and/or up to an
additional 600,000 Redeemable Warrants for the purpose of covering
over-allotments, if any. Such 150,000 Shares and/or 600,000 Redeemable Warrants
are hereinafter collectively referred to as the "Option Securities." The Company
also proposes to issue and sell to the Underwriter or its designees warrants
(the "Underwriter's Warrants"), pursuant to an underwriter's warrant agreement
(the "Underwriter's
<PAGE>
Warrant Agreement"), for the purchase of up to an additional 100,000 shares of
Common Stock and/or up to an additional 400,000 Redeemable Warrants. The shares
of Common Stock and the Redeemable Warrants issuable upon exercise of the
Underwriter's Warrants are hereinafter collectively referred to as the
"Underwriter's Securities." The shares of Common Stock issuable upon exercise of
the Redeemable Warrants (including the Redeemable Warrants issuable upon
exercise of the Underwriter's Warrants) are hereinafter referred to as the
"Warrant Shares." The Firm Securities, the Option Securities, the Underwriter's
Warrants, the Underwriter's Securities, and the Warrant Shares are hereinafter
collectively referred to as the "Securities" and are more fully described in the
Registration Statement and the Prospectus referred to below.
1. Representations and Warranties of the Company. The Company
represents and warrants to, and covenants and agrees with, the Underwriter as of
the date hereof, and as of the Closing Date (hereinafter defined) and the Option
Closing Date (hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and amendments
thereto, on Form SB- 2 (Registration No. ________), including any related
preliminary prospectus or prospectuses (each a "Preliminary Prospectus"), for
the registration of the Securities, under the Securities Act of 1933, as amended
(the "Act"), which registration statement and amendment or amendments have been
prepared by the Company in conformity with the requirements of the Act, and the
rules and regulations of the Commission under the Act. The Company will not file
any other amendment to such registration statement which the Underwriter shall
have objected to in writing after having been furnished with a copy thereof.
Except as the context may otherwise require, such registration statement, as
amended, on file with the Commission at the time it becomes effective (including
the prospectus, financial statements, schedules, exhibits and all other
documents filed as a part thereof or incorporated therein (including, but not
limited to, those documents or that information incorporated by reference
therein) and all information deemed to be a part thereof as of such time
pursuant to paragraph (b) of Rule 430A of the rules and regulations under the
Act), is hereinafter called the "Registration Statement," and the form of
prospectus in the form first filed with the Commission pursuant to Rule 424(b)
of the rules and regulations under the Act is hereinafter called the
"Prospectus." For purposes hereof, "Rules and Regulations" mean the rules and
regulations adopted by the Commission under either the Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority
has issued any order preventing or suspending the use of any Preliminary
Prospectus, the Registration Statement or the Prospectus or any part of any
thereof and no proceedings for a stop order suspending the effectiveness of the
Registration Statement or any of the Company's securities have been instituted
or are pending or threatened. Each Preliminary Prospectus and the Registration
Statement, at the time of filing thereof, conformed with the requirements of the
Act and the Rules and Regulations, and none of the Preliminary Prospectus nor
the Registration Statement, at the time of filing thereof, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; provided, however, that
this representation and warranty does not apply to statements made or statements
omitted in reliance
2
<PAGE>
upon and in conformity with written information furnished to the Company with
respect to the Underwriter by or on behalf of the Underwriter expressly for use
in the Preliminary Prospectus or the Registration Statement.
(c) When the Registration Statement becomes effective and at
all times subsequent thereto up to the Closing Date and each Option Closing
Date, if any, and during such longer period as the Prospectus may be required to
be delivered in connection with sales by the Underwriter or a dealer, the
Registration Statement and the Prospectus will contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and will conform to the requirements of the Act and the Rules and
Regulations; and, at and through such dates, neither the Registration Statement
nor the Prospectus, nor any amendment or supplement thereto, will contain any
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, in light of
the circumstances in which they were made, not misleading; provided, however,
that this representation and warranty does not apply to statements made or
statements omitted in reliance upon and in conformity with written information
furnished to the Company with respect to the Underwriter by or on behalf of the
Underwriter expressly for use in the Registration Statement or the Prospectus or
any amendment thereof or supplement thereto.
(d) The Company does not own an interest in any corporation,
partnership, trust, joint venture or other business entity. The Company has been
duly organized and is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation. The Company is duly qualified
and licensed and in good standing as a foreign corporation in each jurisdiction
in which its ownership or leasing of any properties or the character of its
operations require such qualification or licensing. The Company has all
requisite power and authority (corporate and other), and has obtained any and
all necessary authorizations, approvals, orders, licenses, certificates,
franchises and permits of and from all governmental or regulatory officials and
bodies (including, without limitation, those having jurisdiction over
environmental or similar matters), to own or lease its properties and conduct
its business as described in the Prospectus; the Company is and has been doing
business in compliance with all such authorizations, approvals, orders,
licenses, certificates, franchises and permits and with all federal, state,
local and foreign laws, rules and regulations to which it is subject; and the
Company has not received any notice of proceedings relating to the revocation or
modification of any such authorization, approval, order, license, certificate,
franchise or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would materially and adversely affect
the condition, financial or otherwise, or the earnings, business affairs,
prospects, stockholders' equity, value, operations, properties, business or
results of operations of the Company. The disclosure in the Registration
Statement concerning the effects of federal, state, local and foreign laws,
rules and regulations on the Company's business as currently conducted and as
contemplated are correct in all respects and do not omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Securities" and will have the adjusted capitalization set forth
therein on the Closing Date and the Option Closing
3
<PAGE>
Date, if any, based upon the assumptions set forth therein, and the Company is
not a party to or bound by any instrument, agreement or other arrangement
providing for it to issue any capital stock, rights, warrants, options or other
securities, except for this Agreement, the Underwriter's Warrant Agreement and
the Warrant Agreement (as defined in Section 1(gg) of this Agreement) and as
described in the Prospectus. The Securities and all other securities issued or
issuable by the Company on or prior to the Closing Date and each Option Closing
Date, if any, conform or, when issued and paid for, will conform, in all
respects to the descriptions thereof contained in the Registration Statement and
the Prospectus. All issued and outstanding securities of the Company have been
duly authorized and validly issued and are fully paid and non-assessable; the
holders thereof have no rights of rescission with respect thereto and are not
subject to personal liability by reason of being such holders; and none of such
securities were issued in violation of the preemptive rights of any holder of
any security of the Company or any similar contractual right granted by the
Company. The Securities to be sold by the Company hereunder and pursuant to the
Underwriter's Warrant Agreement and the Warrant Agreement are not and will not
be subject to any preemptive or other similar rights of any stockholder, have
been duly authorized and, when issued, paid for and delivered in accordance with
the terms hereof and thereof, will be validly issued, fully paid and
non-assessable and conform to the descriptions thereof contained in the
Prospectus; the holders thereof will not be subject to any liability solely as
such holders; all corporate action required to be taken for the authorization,
issue and sale of the Securities has been duly and validly taken; and the
certificates representing the Securities, when delivered by the Company, will be
in due and proper form. Upon the issuance and delivery pursuant to the terms
hereof and the Underwriter's Warrant Agreement of the Securities to be sold by
the Company hereunder and thereunder to the Underwriter, the Underwriter will
acquire good and marketable title to such Securities, free and clear of any
lien, charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever asserted against the Company or any
affiliate (within the meaning of the Rules and Regulations) of the Company.
(f) The financial statements of the Company and the notes
thereto included in the Registration Statement, each Preliminary Prospectus and
the Prospectus fairly present the financial position, income, changes in
stockholders' equity and the results of operations of the Company at the
respective dates and for the respective periods to which they apply and the pro
forma financial information included in the Registration Statement and the
Prospectus presents fairly on a basis consistent with that of the audited
financial statements included therein, what the Company's pro forma
capitalization would have been for the respective dates to which they apply
after giving effect to the adjustments described therein. Such financial
statements have been prepared in conformity with generally accepted accounting
principles and the Rules and Regulations, consistently applied throughout the
periods involved. There has been no adverse change or development involving a
material prospective change in the condition, financial or otherwise, or in the
earnings, business affairs, prospects, stockholders' equity, value, operations,
properties, business or results of operations of the Company, whether or not
arising in the ordinary course of business, since the date of the financial
statements included in the Registration Statement and the Prospectus; and the
outstanding debt, the property, both tangible and intangible, and the business
of the Company conform in all respects to the descriptions thereof contained in
the Registration Statement and the Prospectus. The financial information set
forth in the Prospectus under the headings "Capitalization," "Selected Financial
Data" and "Plan of
4
<PAGE>
Operations" fairly presents, on the basis stated in the Prospectus, the
information set forth therein and such financial information has been derived
from or compiled on a basis consistent with that of the audited financial
statements included in the Prospectus.
(g) The Company (i) has paid all federal, state, local and
foreign taxes for which it is liable, including, but not limited to, withholding
taxes and amounts payable under Chapters 21 through 24 of the Internal Revenue
Code of 1986, as amended (the "Code"), and has furnished all information returns
it is required to furnish pursuant to the Code, (ii) has established adequate
reserves for such taxes which are not due and payable, and (iii) does not have
any tax deficiency or claims outstanding, proposed or assessed against it.
(h) No transfer tax, stamp duty or other similar tax is
payable by or on behalf of the Underwriter in connection with (i) the issuance
by the Company of the Securities, (ii) the purchase by the Underwriter of the
Securities from the Company, (iii) the consummation by the Company of any of its
obligations under this Agreement or the Underwriter's Warrant Agreement, or (iv)
resales of the Securities in connection with the distribution contemplated
hereby.
(i) The Company maintains insurance policies, including, but
not limited to, general liability, property, personal and product liability
insurance, and surety bonds which insure the Company and its employees against
such losses and risks generally insured against by comparable businesses. The
Company (i) has not failed to give notice or present any insurance claim with
respect to any insurable matter under the appropriate insurance policy or surety
bond in a due and timely manner, (ii) does not have any disputes or claims
against any underwriter of such insurance policies or surety bonds, nor has the
Company failed to pay any premiums due and payable thereunder, or (iii) has not
failed to comply with all conditions contained in such insurance policies and
surety bonds. There are no facts or circumstances under any such insurance
policy or surety bond which would relieve any insurer of its obligation to
satisfy in full any valid claim of the Company.
(j) There is no action, suit, proceeding, inquiry,
arbitration, investigation, litigation or governmental proceeding (including,
without limitation, those pertaining to environmental or similar matters),
domestic or foreign, pending or threatened against (or circumstances that may
give rise to the same), or involving the properties or business of, the Company
which (i) questions the validity of the capital stock of the Company, this
Agreement, the Underwriter's Warrant Agreement, the Warrant Agreement or the
Consulting Agreement (as defined in Section 1(ee) of this Agreement) or of any
action taken or to be taken by the Company pursuant to or in connection with
this Agreement, the Underwriter's Warrant Agreement, the Warrant Agreement or
the Consulting Agreement, (ii) is required to be disclosed in the Registration
Statement which is not so disclosed (and such proceedings as are summarized in
the Registration Statement are accurately summarized in all respects), or (iii)
might materially and adversely affect the condition, financial or otherwise, or
the earnings, business affairs, prospects, stockholders' equity, value,
operations, properties, business or results of operations of the Company.
5
<PAGE>
(k) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities, to enter into this Agreement,
the Underwriter's Warrant Agreement, the Warrant Agreement and the Consulting
Agreement and to consummate the transactions provided for in such agreements;
and each of this Agreement, the Underwriter's Warrant Agreement, the Warrant
Agreement and the Consulting Agreement have each been duty and properly
authorized, executed and delivered by the Company. Each of this Agreement, the
Underwriter's Warrant Agreement, the Warrant Agreement and the Consulting
Agreement constitutes a legal, valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting the enforcement of creditors' rights and the application of equitable
principles in any motion, legal or equitable, and except as obligations to
indemnify or contribute to losses may be limited by applicable law). None of the
Company's issue and sale of the Securities, execution or delivery of this
Agreement, the Underwriter's Warrant Agreement, the Warrant Agreement or the
Consulting Agreement, its performance hereunder and thereunder, its consummation
of the transactions contemplated herein and therein, or the conduct of its
business as described in the Registration Statement and the Prospectus and any
amendments or supplements thereto, conflicts with or will conflict with or
results or will result in any breach or violation of any of the terms or
provisions of, or constitutes or will constitute a default under, or result in
the creation or imposition of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of any kind whatsoever
upon, any property or assets (tangible or intangible) of the Company pursuant to
the terms of (i) the certificate of incorporation or by-laws of the Company,
(ii) any license, contract, indenture, mortgage, lease, deed of trust, voting
trust agreement, stockholders' agreement, note, loan or credit agreement or
other agreement or instrument evidencing an obligation for borrowed money, or
any other agreement or instrument to which the Company is a party or by which it
is or may be bound or to which its properties or assets (tangible or intangible)
are or may be subject, or (iii) any statute, judgment, decree, order, rule or
regulation applicable to the Company of any arbitrator, court, regulatory body
or administrative agency or other governmental agency or body (including,
without limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, having jurisdiction over the Company or any of
its activities or properties.
(l) No consent, approval, authorization or order of, and no
filing with, any arbitrator, court, regulatory body, administrative agency,
government agency or other body, domestic or foreign, is required for the
issuance of the Securities pursuant to the Prospectus and the Registration
Statement, this Agreement, the Underwriter's Warrant Agreement and the Warrant
Agreement, the performance of this Agreement, the Underwriter's Warrant
Agreement, the Warrant Agreement and the Consulting Agreement and the
transactions contemplated hereby and thereby, except such as have been obtained
under the Act, state securities laws and the rules of the National Association
of Securities Dealers, Inc. (the "NASD") in connection with the Underwriter's
purchase and distribution of the Securities.
(m) All executed agreements, contracts or other documents or
copies of executed agreements, contracts or other documents filed as exhibits to
the Registration Statement to which the Company is a party or by which it may be
bound or to which its assets, properties or business may be subject have been
duly and validly authorized, executed and delivered by the
6
<PAGE>
Company, and constitute legal, valid and binding agreements of the Company,
enforceable against the Company in accordance with their respective terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting the enforcement of creditors' rights and the
application of equitable principles in any motion, legal or equitable, and
except as obligations to indemnify or contribute to losses may be limited by
applicable law). The descriptions in the Registration Statement of agreements,
contracts and other documents are accurate and fairly present the information
required to be shown with respect thereto by Form SB-2; and there are no
agreements, contracts or other documents which are required by the Act to be
described in the Registration Statement or filed as exhibits to the Registration
Statement which are not described or filed as required; and the exhibits which
have been filed are complete and correct copies of the documents of which they
purport to be copies.
(n) Subsequent to the respective dates as of which information
is set forth in the Registration Statement and the Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company has not
(i) issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money, (ii) entered into any transaction other than in
the ordinary course of business, or (iii) declared or paid any dividend or made
any other distribution on or in respect of any class of its capital stock; and,
subsequent to such dates, and except as may otherwise be disclosed in the
Prospectus, there has not been any change in the capital stock, debt (long or
short term) or liabilities of the Company or any material change in the
condition, financial or otherwise, or the earnings, business affairs, prospects,
stockholders' equity, value, operations, properties, business or results of
operations of the Company.
(o) No default exists in the due performance and observance of
any term, covenant or condition of any license, contract, indenture, mortgage,
lease, deed of trust, voting trust agreement, shareholders' agreement, note,
loan or credit agreement or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to which the
Company is a party or by which the Company is or may be bound or to which the
property or assets (tangible or intangible) of the Company is or may be subject.
(p) The Company has generally enjoyed a satisfactory
employer-employee relationship with its employees and the Company is in
compliance with all federal, state, local and foreign laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours. There are no pending investigations involving
the Company by the United States Department of Labor or any other governmental
agency responsible for the enforcement of any federal, state, local or foreign
laws, rules and regulations relating to employment. There is no unfair labor
practice charge or complaint against the Company pending before the National
Labor Relations Board or any strike, picketing, boycott, dispute, slowdown or
stoppage pending or threatened against or involving the Company, or any
predecessor entity, and none has ever occurred. No representation question
exists respecting the employees of the Company, and no collective bargaining
agreement or modification thereof is currently being negotiated by the Company.
No grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company. No labor dispute with the
employees of the Company exists or is imminent.
7
<PAGE>
(q) The Company does not maintain, sponsor or contribute to
any program or arrangement that is an "employee pension benefit plan," an
"employee welfare benefit plan" or a "multiemployer plan," as such terms are
defined in Sections 3(2), 3(l) and 3(37), respectively, of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") ("FMSA Plans"). The
Company does not maintain or contribute, now or at any time previously, to a
defined benefit plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or
any trust created thereunder) has engaged in a "prohibited transaction" within
the meaning of Section 406 of ERISA or Section 4975 of the Code which could
subject the Company to any tax penalty on prohibited transactions and which has
not adequately been corrected. Each ERISA Plan is in compliance with all
material reporting, disclosure and other requirements of the Code and ERISA as
they relate to any such ERISA Plan. Determination letters have been received
from the Internal Revenue Service with respect to each ERISA Plan which is
intended to comply with Code Section 401(a), stating that such ERISA Plan and
the attendant trust are qualified thereunder. The Company has never completely
or partially withdrawn from a "multiemployer plan."
(r) Neither the Company, nor any of its employees, directors,
stockholders or affiliates (within the meaning of the Rules and Regulations),
has taken or will take, directly or indirectly, any action designed to or which
has constituted or which might be expected to cause or result in, under the
Exchange Act or otherwise, the stabilization or manipulation of the price of any
security of the Company, whether to facilitate the sale or resale of the
Securities or otherwise.
(s) None of the trademarks, trade names, service marks,
service names, copyrights, patents and patent applications, and none of the
licenses and rights to the foregoing, presently owned or held by the Company are
in dispute or are in conflict with the right of any other person or entity. The
Company (i) owns or has the right to use, free and clear of all liens, charges,
claims, encumbrances, pledges, security interests, defects or other restrictions
or equities of any kind whatsoever, all trademarks, trade names, service marks,
service names, copyrights, patents and patent applications, and licenses and
rights with respect to the foregoing and all technology, used in the conduct of
its business as now conducted or proposed to be conducted without infringing
upon or otherwise acting adversely to the right or claimed right of any person,
corporation or other entity under or with respect to any of the foregoing and
(ii) is not obligated or under any liability whatsoever to make any payments by
way of royalties, fees or otherwise to any owner or licensee of, or other
claimant to, any trademark, trade name, service mark, service name, copyright,
patent or patent application. There is no action, suit, proceeding, inquiry,
arbitration, investigation, litigation or governmental or other proceeding,
domestic or foreign, pending or threatened (or circumstances that may give rise
to the same) against the Company which challenges the exclusive rights of the
Company with respect to any trademarks, trade names, service marks, service
names, copyrights, patents, patent applications or licenses or rights to the
foregoing used in the conduct of its business, or which challenge the right of
the Company to use any technology presently used or contemplated to be used in
the conduct of its business.
(t) The Company owns and has the unrestricted right to use all
trade secrets, know-how (including all unpatented and/or unpatentable
proprietary or confidential information,
8
<PAGE>
systems or procedures), inventions, technology, designs, processes, works of
authorship, computer programs and technical data and information that are
material to the development, manufacture, operation and sale of all products and
services sold or proposed to be sold by the Company, free and clear of and
without violating any right, lien, or claim of others, including, without
limitation, former employers of its employees; provided, however, that the
possibility exists that other persons or entities, completely independent of the
Company or its employees or agents, could have developed trade secrets or items
of technical information similar or identical to those of the Company. The
Company is not aware of any such development of similar or identical trade
secrets or technical information by others.
(u) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property stated
in the Prospectus to be owned or leased by it, free and clear of all liens,
charges, claims, encumbrances, pledges, security interests, defects or other
restrictions or equities of any kind whatsoever, other than liens for taxes not
yet due and payable.
(v) Most Horowitz & Company, LLP, whose report is filed with
the Commission as a part of the Registration Statement, are independent
certified public accountants as required by the Act and the Rules and
Regulations.
(w) Each holder of securities of the Company and each director
and officer of the Company has executed an agreement pursuant to which he, she
or it has agreed, for a period of eighteen (18) months following the effective
date of the Registration Statement, not to, directly or indirectly, offer, offer
to sell, sell, grant an option for the purchase or sale of, transfer, assign,
pledge, hypothecate or otherwise encumber (whether pursuant to Rule 144 of the
Rules and Regulations or otherwise) any securities issued or issuable by the
Company, whether or not owned by or registered in the name of such persons, or
dispose of any interest therein, without the prior written consent of the
Company and the Underwriter (collectively, the "Lock-Up Agreements"); provided,
however, that the foregoing restriction does not apply to certain of the holders
set forth on Schedule 1(w) attached hereto, as indicated on such Schedule. The
Company will cause its transfer agent to mark an appropriate legend on the face
of stock certificates representing all of such securities and to place "stop
transfer" orders on the Company's stock ledgers. A list of those persons and
entities who have signed Lock-Up Agreements is also set forth in Schedule 1(w).
(x) There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or issuances
that may affect the Underwriter's compensation, as determined by the NASD,
(y) The Securities have been approved for quotation on The
Nasdaq SmallCap Market ("Nasdaq").
(z) Neither the Company nor any of its directors, officers,
stockholders, employees, agents or any other person acting on behalf of the
Company has, directly or
9
<PAGE>
indirectly, given or agreed to give any money, gift or similar benefit (other
than legal price concessions to customers in the ordinary course of business) to
any customer, supplier, employee or agent of a customer or supplier, or any
official or employee of any governmental agency or instrumentality of any
government (domestic or foreign) or instrumentality of any government (domestic
or foreign) or any political party or candidate for office (domestic or foreign)
or any other person who was, is or may be in a position to help or hinder the
business of the Company (or assist the Company in connection with any actual or
proposed transaction) which (i) might subject the Company or any other such
person to any damage or penalty in any civil, criminal or governmental
litigation or proceeding (domestic or foreign), (ii) if not given in the past,
might have had a material and adverse effect on the condition, financial or
otherwise, or the earnings, business affairs, prospects, stockholders' equity,
value, operations, properties, business or results of operations of the Company,
or (iii) if not continued in the future, might materially and adversely affect
the condition, financial or otherwise, or the earnings, business affairs,
prospects, stockholders' equity, value, operations, properties, business or
results of operations of the Company. The Company's internal accounting controls
are sufficient to cause the Company to comply with the Foreign Corrupt Practices
Act of 1977, as amended.
(aa) Except as set forth in the Prospectus, no officer,
director or stockholder of the Company, and no affiliate or associate (as these
terms are defined in the Rules and Regulations) of any of the foregoing persons
or entities, has or has had, either directly or indirectly, (i) an interest in
any person or entity which (A) furnishes or sells services or products which are
furnished or sold or are proposed to be furnished or sold by the Company, or (B)
purchases from or sells or furnishes to the Company any goods or services, or
(ii) a beneficial interest in any contract or agreement to which the Company is
a party or by which the Company may be bound. Except as set forth in the
Prospectus under "Certain Transactions," there are no existing agreements,
arrangements, understandings or transactions, or proposed agreements,
arrangements, understandings or transactions, between or among the Company and
any officer, director or any person listed in the "Principal Stockholders"
section of the Prospectus. or any affiliate or associate of any of the foregoing
persons or entities.
(bb) The minute books of the Company have been made available
to the Underwriter, contain a complete summary of all meetings and actions of
the directors and stockholders of the Company since the time of its
incorporation, and reflect all transactions referred to in such minutes
accurately in all material respects.
(cc) Except and to the extent described in the Prospectus, no
holder of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company has the right to include
any securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company or to require the Company to
file a registration statement. No person or entity holds any anti-dilution
rights with respect to any securities of the Company.
(dd) The Company has (i) entered into an employment agreement
with Dr. Hanoch Shalit in the form filed as Exhibit 10.2 to the Registration
Statement, and (ii) purchased key-man life insurance on the life of Dr. Hanoch
Shalit in the amount of $1,000,000, which policy names the Company as the sole
beneficiary thereof.
10
<PAGE>
(ee) The Company has entered into a financial advisory and
consulting agreement, substantially in the form filed as Exhibit 10.1 to the
Registration Statement (the "Consulting Agreement") with the Underwriter. The
Consulting Agreement has been duly and validly authorized by the Company and,
assuming due execution by the parties thereto other than the Company,
constitutes a valid and legally binding agreement of the Company, enforceable
against the Company in accordance with its terms (except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application relating to or affecting the enforcement of
creditors' rights and the application of equitable principles in any action,
legal or equitable, and except as obligations to indemnify or contribute to
losses may be limited by applicable law).
(ff) Any certificate signed by any officer of the Company and
delivered to the Underwriter or to Underwriter's Counsel (as defined in Section
4(d) herein), shall be deemed a representation and warranty by the Company to
the Underwriter as to the matters covered thereby.
(gg) The Company has entered into a warrant agreement,
substantially in the form filed as Exhibit 4.2 to the Registration Statement
(the "Warrant Agreement"), with Continental Stock Transfer & Trust Company, in
form and substance satisfactory to the Underwriter, with respect to the
Redeemable Warrants which provides, among other things, for the payment of
commissions contemplated by Section 4(y) hereof. The Warrant Agreement has been
duly and validly authorized by the Company and, assuming due execution by the
parties thereto other than the Company, constitutes a valid and legally binding
agreement of the Company, enforceable against the Company in accordance with its
terms (except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting the enforcement of creditors' rights and the
application of equitable principles in any action, legal or equitable, and
except as obligations to indemnify or contribute to losses may be limited by
applicable law).
(hh) The Company has filed a Form 8-A with the Commission
providing for the registration under the Exchange Act of the Securities and such
Form 8-A has been declared effective by the Commission.
2. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to the Underwriter, and the Underwriter
agrees to purchase from the Company, the Firm Securities at a price equal to
$____ per share of Common Stock [90% of the initial public offering price], and
$____ per Redeemable Warrant [90% of the initial public offering price].
(b) In addition, on the basis of the representations,
warranties, covenants and agreement, herein contained, but subject to the terms
and conditions herein set forth, the Company hereby grants an option to the
Underwriter to purchase all or any part of the Option Securities at a price
equal $______ per share of Common Stock [90% of the initial offering price] and
$________ per Redeemable Warrant [90% of the initial public offering price]. The
11
<PAGE>
option granted hereby will expire forty five (45) days after (i) the date the
Registration Statement becomes effective, if the Company has elected not to rely
on Rule 430A under the Rules and Regulations, or (ii) the date of this Agreement
if the Company has elected to rely upon Rule 430A under the Rules and
Regulations, and may be exercised in whole or in part from time to time only for
the purpose of covering over-allotments which may be made in connection with the
offering and distribution of the Firm Securities upon notice by the Underwriter
to the Company setting forth the number of Option Securities as to which the
Underwriter is then exercising the option and the time and date of payment and
delivery for any such Option Securities. Any such time and date of delivery (an
"Option Closing Date") shall be determined by the Underwriter, but shall not be
later than seven (7) full business days after the exercise of said option, nor
in any event prior to the Closing Date, unless otherwise agreed upon by the
Underwriter and the Company. Nothing herein contained shall obligate the
Underwriter to exercise the option granted hereby. No Option Securities shall be
delivered unless the Firm Securities shall be simultaneously delivered or shall
theretofore have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of
certificates for, the Firm Securities shall be made at the offices of the
Underwriter at 99 Wood Avenue South, Suite 902, Iselin, New Jersey 08830, or at
such other place as shall be agreed upon by the Underwriter and the Company.
Such delivery and payment shall be made at 10:00 a.m. (New York City time) on
______, 1996 or at such other time and date as shall be agreed upon by the
Underwriter and the Company but not less than three (3) nor more than seven (7)
full business days after the effective date of the Registration Statement (such
time and date of payment and delivery being herein called the "Closing Date").
In addition, in the event that any or all of the Option Securities are purchased
by the Underwriter, payment of the purchase price for, and delivery of
certificates for, such Option Securities shall be made at the above mentioned
office of the Underwriter or at such other place as shall be agreed upon by the
Underwriter and the Company. Delivery of the certificates for the Firm
Securities and the Option Securities, if any, shall be made to the Underwriter
against payment by the Underwriter of the purchase price for the Firm Securities
and the Option Securities, if any, to the order of the Company by New York
Clearing House funds. Certificates for the Firm Securities and the Option
Securities, if any, shall be in definitive, fully registered form, shall bear no
restrictive legends and shall be in such denominations and registered in such
names as the Underwriter may request in writing at least two (2) business days
prior to the Closing Date or the relevant Option Closing Date, as the case may
be. The certificates for the Firm Securities and the Option Securities, if any,
shall be made available to the Underwriter at such offices or such other place
as the Underwriter may designate for inspection, checking and packaging no later
than 9:30 a.m. on the last business day prior to the Closing Date or the
relevant Option Closing Date, as the case may be.
(d) On the Closing Date, the Company shall issue and sell to
the Underwriter or its designees the Underwriter's Warrants for an aggregate
purchase price of twenty dollars ($20.00), which warrants shall entitle the
holders thereof to purchase an aggregate of an additional 100,000 shares of
Common Stock and/or an additional 400,000 Redeemable Warrants. The Underwriter's
Warrants shall be exercisable for a period of four (4) years commencing one (1)
year from the effective date of the Registration Statement at a price equaling
one hundred and sixty percent (160%) of the initial public offering price of the
shares of Common Stock and
12
<PAGE>
the Redeemable Warrants. The Underwriter's Warrant Agreement and the form of the
certificates for the Underwriter's Warrant shall be substantially in the form
filed as Exhibit 1.2 to the Registration Statement. Payment for the
Underwriter's Warrants shall be made on the Closing Date.
3. Public Offering of the shares of Common Stock and the
Redeemable Warrants. As soon after the Registration Statement becomes effective
as the Underwriter deems advisable, the Underwriter shall make a public offering
of the Firm Securities and such of the Option Securities as the Underwriter may
determine (other than to residents of or in any jurisdiction in which
qualification of the shares of Common Stock and the Redeemable Warrants is
required and has not become effective) at the price and upon the other terms set
forth in the Prospectus. The Underwriter may from time to time increase or
decrease the public offering price after distribution of the shares of Common
Stock and the Redeemable Warrants has been completed to such extent as the
Underwriter, in its sole discretion, deems advisable. The Underwriter may enter
into one or more agreements as the Underwriter, in its sole discretion, deems
advisable with one or more broker-dealers who shall act as dealers in connection
with such public offering.
4. Covenants and Agreements of the Company. The Company
covenants and agrees with the Underwriter as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable and will not at any time, whether before or after the
effective date of the Registration Statement, file any amendment to the
Registration Statement or supplement to the Prospectus or file any document
under the Act or the Exchange Act before termination of the offering of the
Securities to the public by the Underwriter of which the Underwriter shall not
previously have been advised and furnished with a copy, or to which the
Underwriter shall have objected or which is not in compliance with the Act, the
Exchange Act and the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Underwriter and confirm the same in
writing, (i) when the Registration Statement, as amended, becomes effective,
when any post-effective amendment to the Registration Statement becomes
effective and, if the provisions of Rule 430A promulgated under the Act will be
relied upon, when the Prospectus has been filed in accordance with said Rule
430A, (ii) of the issuance by the Commission of any stop order or of the
initiation, or the threatening, of any proceeding the outcome of which may
result in the suspension of the effectiveness of the Registration Statement or
any order preventing or suspending the use of the Preliminary Prospectus or the
Prospectus, or any amendment or supplement thereto, or the institution of any
proceedings for that purpose, (iii) of the issuance by the Commission or by any
state securities commission of any proceedings for the suspension of the
qualification of any of the Securities for offering or sale in any jurisdiction
or of the initiation, or the threatening, of any proceeding for that purpose,
(iv) of the receipt of any comments from the Commission, and (v) of any request
by the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for additional information. If the
Commission
13
<PAGE>
or any state securities regulatory authority shall enter a stop order or suspend
such qualification at any time, the Company will make every effort to obtain
promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and
substance satisfactory to the Underwriter) with the Commission, or transmit the
Prospectus by a means reasonably calculated to result in filing the same with
the Commission, pursuant to Rule 424(b)(1) of the Rules and Regulations (or, if
applicable and if consented to by the Underwriter, pursuant to Rule 424(b)(4) of
the Rules and Regulations) within the time period specified in Rule 424(b)(1)
(or, if applicable and if consented to by the Underwriter, Rule 424(b)(4)).
(d) The Company will give the Underwriter notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
in connection with the offering of any of the Securities which differs from the
corresponding prospectus on file at the Commission at the time the Registration
Statement becomes effective, whether or not such revised prospectus is required
to be filed pursuant to Rule 424(b) of the Rules and Regulations), and will
furnish the Underwriter with copies of any such amendment or supplement a
reasonable amount of time prior to such proposed filing or use, as the case may
be, and will not file any such amendment or supplement to which the Underwriter
or Orrick, Herrington & Sutcliffe LLP, its counsel ("Underwriter's Counsel"),
shall object.
(e) The Company shall endeavor in good faith, in cooperation
with the Underwriter, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as the Underwriter may designate to permit the
continuance of sales and dealings therein for as long as may be necessary to
complete the distribution contemplated hereby, and shall make such applications,
file such documents and furnish such information as may be required for such
purpose; provided, however, the Company shall not be required to qualify as a
foreign corporation or file a general or limited consent to service of process
in any such jurisdiction. In each jurisdiction where such qualification shall be
effected, the Company will, unless the Underwriter agrees that such action is
not at the time necessary or advisable, use all reasonable efforts to file and
make such statements or reports at such times as are or may reasonably be
required by the laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be
delivered under the Act, the Company shall use all reasonable efforts to comply
with all requirements imposed upon it by the Act, the Exchange Act and the Rules
and Regulations so far as necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof and the
Prospectus, or any amendments or supplements thereto. If, at any time when a
prospectus relating to the Securities is required to be delivered under the Act,
any event shall have occurred as a result of which, in the opinion of counsel
for the Company or Underwriter's Counsel, the Prospectus, as then amended or
supplemented, includes an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances in which they were made,
not misleading, or if it is necessary at any time to amend or supplement the
prospectus to comply with the Act, the
14
<PAGE>
Company will notify the Underwriter promptly and prepare and file with the
Commission an appropriate amendment or supplement in accordance with Section 10
of the Act, each such amendment or supplement to be satisfactory to
Underwriter's Counsel, and the Company will furnish to the Underwriter copies of
such amendment or supplement as soon as available and in such quantities as the
Underwriter may request.
(g) As soon as practicable, but in any event not later than
forty five (45) days after the end of the 12-month period beginning on the day
after the end of the fiscal quarter of the Company during which the effective
date of the Registration Statement occurs (ninety (90) days in the event that
the end of such fiscal quarter is the end of the Company's fiscal year), the
Company shall make generally available to its security holders, in the manner
specified in Rule 158(b) of the Rules and Regulations, and to the Underwriter,
an earnings statement which will be in the detail required by, and will
otherwise comply with, the provisions of Section 11(a) of the Act and Rule
158(a) of the Rules and Regulations, which statement need not be audited unless
required by the Act, covering a period of at least twelve (12) consecutive
months after the effective date of the Registration Statement.
(h) During a period of seven years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable, annual reports
(including financial statements audited by independent public accountants) and
unaudited quarterly reports of earnings and will deliver to the Underwriter:
i) concurrently with furnishing such quarterly
reports to its stockholders statements of income of the
Company for such quarter in the form furnished to the
Company's stockholder and certified by the Company's principal
financial or accounting officer;
ii) concurrently with furnishing such annual reports
to its stockholders, a balance sheet of the Company as at the
end of the preceding fiscal year, together with statements of
operations, stockholders' equity and cash flows of the Company
for such fiscal year, accompanied by a copy of the report
thereon of the Company's independent certified public
accountants;
iii) as soon as they are available, copies of all
reports (financial or other) mailed to stockholders;
iv) as soon as they are available, copies of all
reports and financial statements furnished to or filed with
the Commission, the NASD or any securities exchange;
v) every press release and every material news item
or article of interest to the financial community in respect
of the Company or its affairs which was released or prepared
by or on behalf of the Company; and
15
<PAGE>
vi) any additional information of a public nature
concerning the Company (and any future subsidiaries) or its
business which the Underwriter may request.
During such seven-year period, if the Company has active subsidiaries,
the foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
(i) The Company will maintain a transfer and warrant agent
and, if necessary under the jurisdiction of incorporation of the Company, a
registrar (which may be the same entity as the transfer agent) for the Common
Stock and the Redeemable Warrants.
(j) The Company will furnish to the Underwriter, without
charge and at such place as the Underwriter may designate, copies of each
Preliminary Prospectus, the Registration Statement and any pre-effective or
post-effective amendments thereto (one of which will be signed and will include
all financial statements and exhibits), the Prospectus, and all amendments and
supplements thereto, including any prospectus prepared after the effective date
of the Registration Statement, in each case as soon as available and in such
quantities as the Underwriter may request.
(k) On or before the effective date of the Registration
Statement, the Company shall provide the Underwriter with originally-executed
copies of duly executed, legally binding and enforceable Lock-Up Agreements
which are in form and substance satisfactory to the Underwriter. On or before
the Closing Date, the Company shall deliver instructions to its transfer agent
authorizing such transfer agent to place appropriate legends on the certificates
representing the securities of the Company subject to the Lock-Up Agreements and
to place appropriate stop transfer orders on the Company's ledgers.
(l) The Company agrees that, for a period of thirty six (36)
months commencing with the effective date of the Registration Statement, and
except as contemplated by this Agreement, it will not, without the prior written
consent of the Underwriter, issue, sell, contract or offer to sell, grant an
option for the purchase or sale of, assign, transfer, pledge, distribute or
otherwise dispose of, directly or indirectly, any shares of Common Stock or any
option, right or warrant with respect to any shares of Common Stock or any type
of capital stock having voting or dividend rights on a parity with or superior
to the Common Stock, except for options to purchase up to an aggregate of
500,000 shares of Common Stock which have been or may be granted pursuant to the
Company's stock option plan.
(m) Neither the Company nor any of its officers, directors,
stockholders or affiliates (within the meaning of the Rules and Regulations)
will take, directly or indirectly, any action designed to stabilize or
manipulate the price of any securities of the Company, or which might in the
future reasonably be expected to cause or result in the stabilization or
manipulation of the price of any such securities.
16
<PAGE>
(n) The Company shall apply the net proceeds from the sale of
the Securities offered to the public in the manner set forth under "Use of
Proceeds" in the Prospectus. No portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by the Company.
(o) The Company shall timely file all such reports, forms or
other documents as may be required (including, but not limited to, any Form SR
required by Rule 463 under the Act) from time to time under the Act, the
Exchange Act, and the Rules and Regulations, and all such reports, forms and
documents will comply as to form and substance with the applicable requirements
under the Act, the Exchange Act and the Rules and Regulations.
(p) The Company shall furnish to the Underwriter as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
days prior to the date hereof, the Closing Date or the relevant Option Closing
Date, as the case may be) which have been read by the Company's independent
public accountants, as stated in their letters to be furnished pursuant to
Section 6(i) hereof.
(q) The Company shall cause the Securities to be quoted on
Nasdaq and, for a period of seven (7) years from the date hereof, use its best
efforts to maintain the Nasdaq quotation of the Securities to the extent
outstanding.
(r) For a period of five (5) years from the Closing Date, the
Company shall furnish or cause to be furnished to the Underwriter and at the
Company's sole expense, (i) daily consolidated transfer sheets relating to the
Common Stock and the Redeemable Warrants and (ii) a list of holders of all of
the Company's securities.
(s) For a period of five (5) years from the Closing Date, the
Company shall, at the Company's sole expense, (i) promptly provide the
Underwriter, upon any and all requests of the Underwriter, with a "blue sky
trading survey" for secondary sales of the Company's securities, prepared by
counsel to the Company, and (ii) take all necessary and appropriate actions to
further qualify the Company's securities in all jurisdictions of the United
States in order to permit secondary sales of such securities pursuant to the
"blue sky" laws of those jurisdictions, provided that such jurisdictions do not
require the Company to qualify as a foreign corporation.
(t) As soon as practicable, but in no event more than five (5)
business days before the effective date of the Registration Statement, the
Company agrees to file a Form 8-A with the Commission providing for the
registration under the Exchange Act of the Securities. As soon as practicable,
but in no event more than thirty (30) days after the effective date of the
Registration Statement, the Company agrees to take all necessary and appropriate
actions to be included in Standard and Poor's Corporation Descriptions and
Moody's OTC Manual and to continue such inclusion for a period of not less than
seven (7) years.
17
<PAGE>
(u) Without the prior written consent of the Underwriter, the
Company hereby agrees that it will not, for a period of thirty six (36) months
from the effective date of the Registration Statement, (i) adopt, propose to
adopt or otherwise permit to exist any employee, officer, director, consultant
or compensation plan or arrangement permitting the grant, issue, sale or entry
into any agreement to grant, issue or sell any option, warrant or other contract
right (x) at an exercise price that is less than the greater of the initial
public offering price of the shares of Common Stock set forth herein and the
fair market value per share of Common Stock on the date of grant or sale or (y)
to any of its executive officers or directors or to any holder of five percent
(5%) or more of the Common Stock or any holder of five percent (5%) or more of
the Common Stock as the result of the exercise or conversion of equivalent
securities, including, but not limited to options, warrants or other contract
rights and securities convertible, directly or indirectly, into shares of Common
Stock (it being acknowledged that clause (y) does not apply to options to
purchase up to an aggregate of five hundred thousand (500,000) shares of Common
Stock which have been or may be granted pursuant to the Company's stock option
plan); (ii) permit the maximum number of shares of Common Stock or other
securities of the Company purchasable at any time pursuant to options, warrants
or other contract rights to exceed five hundred thousand (500,000) shares of
Common Stock; (iii) permit the payment for such securities with any form of
consideration other than cash; or (iv) permit the existence of stock
appreciation rights, phantom options or similar arrangements.
(v) Until the completion of the distribution of the Firm
Securities and, if applicable, the Option Securities to the public, the Company
shall not, without the prior written consent of the Underwriter, issue, directly
or indirectly, any press release or other communication or hold any press
conference with respect to the Company or its activities or the offering
contemplated hereby, other than trade releases issued in the ordinary course of
the Company's business consistent with past practices with respect to the
Company's operations.
(w) For a period equal to the lesser of (i) seven (7) years
from the date hereof, and (ii) the sale to the public of the Underwriter's
Securities, the Company will not take any action or actions which may prevent or
disqualify the Company's use of Form S-1 (or other appropriate form) for the
registration under the Act of the Underwriter's Securities.
(x) For a period of five (5) years after the effective date of
the Registration Statement, the Company shall cause one (1) individual selected
by the Underwriter to be elected to the board of directors of the Company, if
requested by the Underwriter. In the event that the Underwriter shall not have
designated such individual at the time of any meeting of the Company's board of
directors or in the event that such individual has not been elected or is
unavailable to serve, the Company shall notify the Underwriter of each meeting
of its board of directors and, in such event, an individual selected by the
Underwriter shall be permitted to attend all meetings of the Company's board of
directors as a non-voting advisor and to receive all notices and other
correspondence and communications sent by the Company to the members of its
board of directors. Such board member or non-voting advisor shall receive no
more or less compensation than is paid to other non-officer directors of the
Company for attendance at meetings of the Company's board of directors and such
board member or non-voting advisor shall be entitled to receive reimbursement
for all reasonable costs incurred in attending such meetings, including, but not
limited to, food, lodging and transportation. The Company hereby
18
<PAGE>
agrees to indemnify and hold such director or non-voting advisor harmless, to
the maximum extent permitted by law, against any and all actions, suits,
proceedings, inquiries, arbitrations, investigations, litigation, governmental
or other proceedings, domestic or foreign, and awards and judgments arising out
of such individual's service as a director or non-voting advisor and, in the
event that the Company maintains a liability insurance policy affording coverage
for the acts of its officers and directors, and/or in the event that the Company
has entered into an indemnification agreement with any of its officers or
directors, the Company agrees to include such director or non-voting advisor as
an insured under such insurance policy and/or to enter into an indemnification
agreement with such director or non-voting advisor which is at least as
favorable to such individual as any indemnification agreement that the Company
has entered into with any of its officers or directors. The rights and benefits
of such indemnification and the benefits of such insurance shall, to the maximum
extent possible, extend to the Underwriter insofar as it may be or may be
alleged to be responsible for such director or non-voting advisor. The Company
agrees to provide its outside directors with compensation as deemed appropriate
and customary for similar companies.
(y) Commencing one (1) year from the date hereof, the Company
shall pay the Underwriter a commission equal to four percent (4%) of the
exercise price of the Redeemable Warrants, payable upon exercise thereof on the
terms set forth in the Warrant Agreement. The Company agrees not to solicit the
exercise of the Redeemable Warrants other than through the Underwriter.
(z) For a period of twenty four (24) months after the
effective date of the Registration Statement, the Company shall not restate,
amend or alter any term of any written employment, consulting or similar
agreement entered into between the Company and any officer, director or key
employee as of the effective date of the Registration Statement in a manner
which is more favorable to such officer, director or key employee, without the
prior written consent of the Underwriter. For a period of twenty four (24)
months from the effective date of the Registration Statement, neither the
Company nor any future subsidiary shall enter into an employment, consulting or
similar agreement with any individual with whom the Company has entered into an
employment, consulting or similar agreement as of the effective date of the
Registration Statement, without the prior written consent of the Underwriter.
(aa) For a period of five (5) years from the effective date of
the Registration Statement, the Company shall obtain and maintain such insurance
policies, including, but not limited to, general liability and property
insurance, and surety bonds which will insure or protect the Company and its
employees against such losses and risks generally insured or protected against
by comparable businesses.
(bb) For a period of five (5) years from the date hereof, the
Company will retain Most Horowitz & Company, LLP (or another accounting firm
acceptable to the Underwriter) as its independent certified public accountants
and, during such period, the Company will promptly submit to the Underwriter
copies of all accountant's management reports and similar correspondence between
the Company's accountants and the Company.
5. Payment of Expenses.
19
<PAGE>
(a) The Company hereby agrees to pay (such payment to be made,
at the discretion of the Underwriter, on the Closing Date and any Option Closing
Date (to the extent not paid on the Closing Date or a previous Option Closing
Date)) all expenses and fees (other than fees of Underwriter's Counsel) incident
to the performance of the obligations of the Company under this Agreement, the
Underwriter's Warrant Agreement, the Warrant Agreement and the Consulting
Agreement, including, without limitation, (i) the fees and expenses of
accountants and counsel for the Company, (ii) all costs and expenses incurred in
connection with the preparation, duplication, printing, (including mailing and
handling charges) filing, delivery and mailing (including the payment of
postage, overnight delivery or courier charges with respect thereto) of the
Registration Statement and the Prospectus and any amendments and supplements
thereto and the printing, mailing (including the payment of postage, overnight
delivery or courier charges with respect thereto) and delivery of this
Agreement, the Underwriter's Warrant Agreement, the Warrant Agreement, the
Consulting Agreement and agreements with selected dealers, and related
documents, including the cost of all copies thereof and of each Preliminary
Prospectus and of the Prospectus and any amendments thereof or supplements
thereto supplied to the Underwriter and such dealers as the Underwriter may
request, in such quantities as the Underwriter may request, (iii) the printing,
engraving, issuance and delivery of the Securities, (iv) the qualification of
the Securities under state or foreign securities or "blue sky" laws and
determination of the status of such securities under legal investment laws,
including the costs of printing and mailing the "Preliminary Blue Sky
Memorandum," the "Supplemental Blue Sky Memorandum" and "Legal Investments
Survey," if any, and disbursements and fees of counsel in connection therewith,
(v) advertising costs and expenses, including, but not limited to costs and
expenses in connection with bound volumes and prospectus memorabilia and
"tombstone" advertisement expenses, (vi) fees and expenses of a transfer and
warrant agent and registrar for the Securities, (vii) applications for
assignments of a rating of the Securities by qualified rating agencies, (viii)
the fees payable to the Commission and the NASD, and (ix) the fees and expenses
incurred in connection with the listing of the Securities on Nasdaq and any
other exchange.
(b) If this Agreement is terminated by the Underwriter in
accordance with the provisions of Section 6, Section 10(a) or Section 11 hereof,
the Company shall reimburse and indemnify the Underwriter for all of its actual
out-of-pocket expenses, including the fees and disbursements of Underwriter's
Counsel, less any amounts already paid pursuant to Section 5(c) hereof.
(c) The Company further agrees that, in addition to the
expenses payable pursuant to Section 5(a) hereof, it will pay to the Underwriter
on the Closing Date by certified or bank cashier's check, or, at the election of
the Underwriter, by deduction from the proceeds of the offering of the Firm
Securities, a non-accountable expense allowance equal to three percent (3%) of
the gross proceeds received by the Company from the sale of the Firm Securities,
twenty five thousand dollars ($25,000) of which has been paid to date by the
Company. In the event the Underwriter elects to exercise the overallotment
option described in Section 2(b) hereof, the Company further agrees to pay to
the Underwriter on each Option Closing Date, by certified or bank cashier's
check, or, at the Underwriter's election, by deduction from the proceeds of the
Option Securities purchased on such Option Closing Date,
20
<PAGE>
a non-accountable expense allowance equal to three percent (3%) of the gross
proceeds received by the Company from the sale of such Option Securities.
6. Conditions of the Underwriter's Obligations. The
obligations of the Underwriter hereunder shall be subject to the continuing
accuracy of the representations and warranties of the Company herein as of the
date hereof and as of the Closing Date and each Option Closing Date, if any, as
if they had been made on and as of the Closing Date and each Option Closing
Date, as the case may be; the accuracy on and as of the Closing Date and each
Option Closing Date, if any, of the statements of officers of the Company made
pursuant to the provisions hereof; the performance by the Company on and as of
the Closing Date and each Option Closing Date, if any, of its covenants and
obligations hereunder; and to the following further conditions:
(a) The Registration Statement shall have become effective not
later than 12:00 p.m., New York time, on the date of this Agreement or such
later date and time as shall be consented to in writing by the Underwriter, and,
at the Closing Date and each Option Closing Date, if any, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or shall
be pending or contemplated by the Commission and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of Underwriter's Counsel. If the Company has elected to
rely upon Rule 430A of the Rules and Regulations, the price of the shares of
Common Stock and any price-related information previously omitted from the
effective Registration Statement pursuant to such Rule 430A shall have been
transmitted to the Commission for filing pursuant to Rule 424(b) of the Rules
and Regulations within the prescribed time period, and prior to the Closing Date
the Company shall have provided evidence satisfactory to the Underwriter of such
timely filing, or a post-effective amendment providing such information shall
have been promptly filed and declared effective in accordance with the
requirements of Rule 430A of the Rules and Regulations.
(b) The Underwriter shall not have advised the Company that
the Registration Statement, or any amendment thereto, contains an untrue
statement of fact which, in the Underwriter's reasonable opinion, is material,
or omits to state a fact which, in the Underwriter's reasonable opinion, is
material and is required to be stated therein or is necessary to make the
statements therein, in light of the circumstances in which they were made not
misleading, or that the Prospectus, or any supplement thereto, contains an
untrue statement of fact which, in the Underwriter's reasonable opinion, is
material, or omits to state a fact which, in the Underwriter's reasonable
opinion, is material and is required to be stated therein or is necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading.
(c) On or prior to the Closing Date, the Underwriter shall
have received from Underwriter's Counsel such opinion or opinions with respect
to the organization of the Company, the validity of the Securities, the
Registration Statement, the Prospectus and such other related matters as the
Underwriter may request and Underwriter's Counsel shall have received such
papers and information as they may request in order to enable them to pass upon
such matters.
21
<PAGE>
(d) At the time this Agreement is executed, the Underwriter
shall have received the favorable opinion of Zukerman, Gore & Brandeis, LLP,
counsel to the Company, dated the Closing Date, addressed to the Underwriter, in
form and substance satisfactory to Underwriter's Counsel, to the effect that:
i) the Company (A) has been duly organized and is
validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation, (B) is duly
qualified and licensed and in good standing as a foreign
corporation in each jurisdiction in which its ownership or
leasing of any properties or the character of its operations
requires such qualification or licensing, and (C) has all
requisite power and authority (corporate and other) and has
obtained any and all necessary authorizations, approvals,
orders, licenses, certificates, franchises and permits of and
from all governmental or regulatory officials and bodies
(including, without limitation, those having jurisdiction over
environmental or similar matters), to own or lease its
properties and conduct its business as described in the
Prospectus; to such counsel's knowledge, the Company is and
has been doing business in compliance with all such
authorizations, approvals, orders, licenses, certificates,
franchises and permits obtained by it from governmental or
regulatory officials and agencies and all federal, state,
local and foreign laws, rules and regulations to which it is
subject; and, to such counsel's knowledge, the Company has not
received any notice of proceedings relating to the revocation
or modification of any such authorization, approval, order,
license, certificate, franchise or permit which, singly or in
the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the
condition, financial or otherwise, or the earnings, business
affairs, prospects, stockholders' equity, value, operations,
properties, business or results of operations of the Company.
The disclosure in the Registration Statement concerning the
effects of federal, state, local and foreign laws, rules and
regulations on the Company's business as currently conducted
and as contemplated are correct in all material respects and
do not omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light
of the circumstances in which they were made, not misleading;
ii) the Company does not own an interest in any
corporation, partnership, trust, joint venture, or other
business entity;
iii) the Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus
under "Capitalization" and the Company is not a party to or
bound by any instrument, agreement or other arrangement
providing for it to issue any capital stock, rights, warrants,
options or other securities, except for this Agreement, the
Underwriter's Warrant Agreement and the Warrant Agreement and
as described in the Prospectus. The Securities and all other
securities issued or issuable by the Company conform, or when
issued and paid for, will conform, in all respects to the
descriptions thereof contained in the Registration Statement
and the Prospectus. All issued and
22
<PAGE>
outstanding securities of the Company have been duly
authorized and validly issued and are fully paid and
non-assessable; the holders thereof have no rights of
rescission with respect thereto and are not subject to
personal liability by reason of being such holders; and none
of such securities were issued in violation, of the preemptive
rights of any holders of any security of the Company or any
similar contractual right granted by the Company. The
Securities to be sold by the Company hereunder and under the
Underwriter's Warrant Agreement and the Warrant Agreement are
not and will not be subject to any preemptive or other similar
rights of any stockholder, have been duly authorized and, when
issued, paid for and delivered in accordance with the terms
hereof and thereof, will be validly issued, fully paid and
non-assessable and conform to the descriptions thereof
contained in the Prospectus; the holders thereof will not be
subject to any liability solely as such holders; all corporate
action required to be taken for the authorization, issue and
sale of the Securities has been duly and validly taken; and
the certificates representing the Securities are in due and
proper form. The Underwriter's Warrants constitute valid and
binding obligations of the Company to issue and sell, upon
exercise thereof and payment therefor, the number and type of
securities of the Company called for thereby. Upon the
issuance and delivery pursuant to this Agreement, the
Underwriter's Warrant Agreement and the Warrant Agreement of
the Securities to be sold by the Company hereunder and
thereunder, the Underwriter will acquire good and marketable
title to such Securities, free and clear of any lien, charge,
claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever asserted against
the Company or any affiliate (within the meaning of the Rules
and Regulations) of the Company. No transfer tax is payable by
or on behalf of the Underwriter in connection with (A) the
issuance by the Company of the Securities, (B) the purchase by
the Underwriter of the Securities from the Company, (C) the
consummation by the Company of any of its obligations under
this Agreement, the Underwriter's Warrant Agreement or the
Warrant Agreement, or (D) resales of the Securities in
connection with the distribution contemplated hereby;
iv) the Registration Statement is effective under the
Act, and, if applicable, filing of all pricing information has
been timely made in the appropriate form under Rule 430A, and
no stop order suspending the use of the Preliminary
Prospectus, the Registration Statement or the Prospectus or
any part of any thereof or suspending the effectiveness of the
Registration Statement has been issued and no proceedings for
that purpose have been instituted or are pending, threatened
or contemplated under the Act;
v) each of the Preliminary Prospectus, the
Registration Statement, and the Prospectus and any amendments
or supplements thereto (other than the financial statements
and schedules and other financial and statistical data
included therein, as to which no opinion need be rendered)
comply as to form in all material respects with the
requirements of the Act and the Rules and Regulations;
23
<PAGE>
vi) to such counsel's knowledge, (A) there are no
agreements, contracts or other documents required by the Act
to be described in the Registration Statement and the
Prospectus and filed as exhibits to the Registration Statement
(or required to be filed under the Exchange Act if upon such
filing they would be incorporated, in whole or in part, by
reference therein) other than those described in the
Registration Statement and the Prospectus and filed as
exhibits thereto, and the exhibits which have been filed are
correct copies of the documents of which they purport to be
copies; (B) the descriptions in the Registration Statement and
the Prospectus and any supplement or amendment thereto of
agreements, contracts and other documents to which the Company
is a party or by which it is bound are accurate and fairly
represent the information required to be shown by Form SB-2;
(C) there is no action, suit, proceeding, inquiry,
arbitration, investigation, litigation or governmental
proceeding (including, without limitation, those pertaining to
environmental or similar matters), domestic or foreign,
pending or threatened against (or circumstances that may give
rise to the same), or involving the properties or business of,
the Company which (I) is required to be disclosed in the
Registration Statement which is not so disclosed (and such
proceedings as are summarized in the Registration Statement
are accurately summarized in all respects), or (II) questions
the validity of the capital stock of the Company or of this
Agreement, the Underwriter's Warrant Agreement, the Warrant
Agreement or the Consulting Agreement or of any action taken
or to be taken by the Company pursuant to or in connection
with any of the foregoing; (D) no statute or regulation or
legal or governmental proceeding required to be described in
the Prospectus is not described as required; and (E) there is
no action, suit or proceeding pending or threatened against or
affecting the Company before any court, arbitrator or
governmental body, agency or official (or any basis thereof
known to such counsel) in which there is a reasonable
possibility of an adverse decision which may result in a
material adverse change in the condition, financial or
otherwise, or the earnings, business affairs, prospects,
stockholders' equity, value, operation, properties, business
or results of operations of the Company, which could adversely
affect the present or prospective ability of the Company to
perform its obligations under this Agreement, the
Underwriter's Warrant Agreement, the Warrant Agreement or the
Consulting Agreement or which in any manner draws into
question the validity or enforceability of this Agreement, the
Underwriter's Warrant Agreement, the Warrant Agreement or the
Consulting Agreement;
vii) the Company has full legal right, power and
authority to enter into each of this Agreement, the
Underwriter's Warrant Agreement, the Warrant Agreement and the
Consulting Agreement and to consummate the transactions
provided for herein and therein; and each of this Agreement,
the Underwriter's Warrant Agreement, the Warrant Agreement and
the Consulting Agreement has been duly authorized, executed
and delivered by the Company. Each of this Agreement, the
Underwriter's Warrant Agreement, the Warrant Agreement and the
Consulting Agreement, assuming due authorization, execution
and delivery
24
<PAGE>
by each other party thereto, constitutes a legal, valid and
binding agreement of the Company, enforceable against the
Company in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of
general application relating to or affecting the enforcement
of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as
obligations to indemnify or contribute to losses may be
limited by applicable law). None of the Company's execution or
delivery of this Agreement, the Underwriter's Warrant
Agreement, the Warrant Agreement and the Consulting Agreement,
its performance hereunder and thereunder, its consummation of
the transactions contemplated herein and therein, or the
conduct of its business as described in the Registration
Statement and the Prospectus and any amendments or supplements
thereto, conflicts with or will conflict with or results or
will result in any breach or violation of any of the terms or
provisions of, or constitutes or will constitute a default
under, or result in the creation or imposition of any lien,
charge, claim, encumbrance, pledge, security interest, defect
or other restriction or equity of any kind whatsoever upon,
any property or assets (tangible or intangible) of the Company
pursuant to the terms of (A) the certificate of incorporation
or bylaws of the Company, (B) any license, contract,
indenture, mortgage, lease, deed of trust, voting trust
agreement, stockholders' agreement, note, loan or credit
agreement or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or
instrument to which the Company is a party or by which it is
or may be bound or to which its properties or assets (tangible
or intangible) are or may be subject, (C) any statute
applicable to the Company or (D) any judgment, decree, order,
rule or regulation applicable to the Company of any
arbitrator, court, regulatory body or administrative agency or
other governmental agency or body (including, without
limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, having jurisdiction
over the Company or any of its activities or properties;
viii) no consent, approval, authorization or order
of, and no filing with, any arbitrator, court, regulatory
body, administrative agency, government agency or other body,
domestic or foreign (other than such as may be required under
"blue sky" laws and the rules of the NASD, as to which no
opinion need be rendered), is required in connection with the
issuance of the Securities pursuant to the Prospectus, the
Registration Statement, this Agreement, the Underwriter's
Warrant Agreement and the Warrant Agreement, or the
performance of this Agreement, the Underwriter's Warrant
Agreement, the Warrant Agreement and the Consulting Agreement
and the transactions contemplated hereby and thereby;
ix) the properties and business of the Company
conform to the description thereof contained in the
Registration Statement and the Prospectus; and the Company has
good and marketable title to, or valid and enforceable
leasehold estates in, all items of real and personal property
stated in the Prospectus to be owned or leased by it, in each
case free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects or other
25
<PAGE>
restrictions or equities of any kind whatsoever, other than
those referred to in the Prospectus and liens for taxes not
yet due and payable;
x) the Company is not in breach of, or in default
under, any term or provision of any license, contract,
indenture, mortgage, lease, deed of trust, voting trust
agreement, stockholders' agreement, note, loan or credit
agreement or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or
instrument to which the Company is a party or by which it is
or may be bound or to which its property or assets (tangible
or intangible) are or may be subject; and the Company is not
in violation of any term or provision of (A) its certificate
of incorporation or by-laws, (B) any authorization, approval,
order, license, certificate, franchise or permit of any
governmental or regulatory official or body, or (C) any
judgement, decree, order, statute, rule or regulation to which
it is subject;
xi) the statements in the Prospectus under
"Prospectus Summary," "Business," "Management," "Principal
Stockholders," "Certain Transactions," "Shares Eligible For
Future Sale," and "Description of Securities" have been
reviewed by such counsel, and insofar as they refer to
statements of law, descriptions of statutes, licenses, rules
or regulations or legal conclusions, are correct in all
material respects;
xii) the Securities have been accepted for quotation
on Nasdaq;
xiii) the Company owns or has the right to use, free
and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects or other restrictions or
equities of any kind whatsoever, all trademarks, trade names,
service marks, service names, trade names, copyrights, patents
and patent applications, and licenses and rights with respect
to the foregoing, used in the conduct of its business as now
conducted or proposed to be conducted without infringing upon
or otherwise acting adversely to the right or claimed right of
any person, corporation or other entity under or with respect
to the foregoing; and there is no action, suit, proceeding,
inquiry, arbitration, investigation, litigation or
governmental or other proceeding, domestic or foreign, pending
or threatened (or circumstances that may give rise to the
same) against the Company which challenges the exclusive
rights of the Company with respect to any trademarks, trade
names, service marks, service names, copyrights, patents or
patent applications, or licenses or rights to the foregoing,
used in the conduct of the its business;
xiv) the persons listed under the captions "Principal
Stockholders" in the Prospectus are the respective "beneficial
owners" (as such phrase is defined in Rule 13d-3 under the
Exchange Act) of the securities set forth opposite their
respective names thereunder as and to the extent set forth
therein;
26
<PAGE>
xv) to such counsel's knowledge, neither the Company
nor any of its directors, officers, stockholders, employees,
agents or any other person acting on behalf of the Company
has, directly or indirectly, given or agreed to give any
money, gift or similar benefit (other than legal price
concessions to customers in the ordinary course of business)
to any customer, supplier, employee or agent of a customer or
supplier, or any official or employee of any governmental
agency or instrumentality of any government (domestic or
foreign) or any political party or candidate for office
(domestic or foreign) or other person who was, is or may be in
a position to help or hinder the business of the Company (or
assist it in connection with any actual or proposed
transaction) which (A) might subject the Company or any such
person to any damage or penalty in any civil, criminal or
governmental litigation or proceeding (domestic or foreign),
(B) if not given in the past, might have had a material and
adverse effect on the condition, financial or otherwise, or
the earnings, business affairs, prospects, stockholders'
equity, value, operations, properties, business or results of
operations of the Company, or (C) if not continued in the
future, might materially and adversely affect the condition,
financial or otherwise, or the earnings, business affairs,
prospects, stockholders' equity, value, operations,
properties, business or results of operations of the Company;
xvi) except as disclosed in the Prospectus, no
person, corporation, trust, partnership, association or other
entity has the right to include and/or register any securities
of the Company in the Registration Statement, require the
Company to file any registration statement or, if filed, to
include any security in such registration statement;
xvii) there are no claims, payments, issuances,
arrangements or understandings, whether oral or written, for
services in the nature of a finder's or origination fee with
respect to the sale of the Securities hereunder or financial
consulting arrangement or any other arrangements, agreements,
understandings, payments or issuances that may affect the
Underwriter's compensation, as determined by the NASD;
xviii) the minute books of the Company contain a
complete summary of all meetings and actions of the directors
and stockholders of the Company since the time of its
incorporation and reflect all transactions referred to in such
minutes accurately in all material respects;
xix) assuming due execution by the parties thereto,
the Lock-Up Agreements are legal, valid and binding
obligations of the parties thereto, enforceable against such
parties and any subsequent holder of the securities subject
thereto in accordance with their terms; and
xx) the Company (A) does not maintain, sponsor or
contribute to any ERISA Plans, (B) does not maintain or
contribute, now or at any time previously, to a defined
benefit plan, as defined in Section 3(35) of ERISA, and (C)
has
27
<PAGE>
never completely or partially withdrawn from a "multiemployer
plan," as defined in Section 3(37) of ERISA.
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company and
representatives of the independent public accountants for the Company, at which
conferences such counsel made inquiries of such officers, representatives and
accountants and discussed the contents of the Preliminary Prospectus, the
Registration Statement, the Prospectus and related matters and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Preliminary Prospectus, the Registration Statement or the Prospectus, on the
basis of the foregoing, no facts have come to the attention of such counsel
which lead them to believe that either the Registration Statement or any
amendment thereto, at the time such Registration Statement or amendment became
effective, or the Preliminary Prospectus or the Prospectus, or any amendment or
supplement thereto, as of the date of the Preliminary Prospectus and the
Prospectus, and as of the date of such opinion, 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 therein, in light of the
circumstances in which they were made, not misleading (it being understood that
such counsel need express no opinion with respect to the financial statements
and schedules and other financial and statistical data included in the
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
supplements or amendments thereto).
In rendering such opinion, such counsel may rely (a) as to
matters involving the application of laws other than the laws of the United
States and jurisdictions in which they are admitted, to the extent such counsel
deems proper and to the extent specified in such opinion, if at all, upon an
opinion or opinions (in form and substance satisfactory to Underwriter's
Counsel) of other counsel acceptable to Underwriter's Counsel, familiar with the
applicable laws; and (b) as to matters of fact, to the extent they deem proper,
on certificates and written statements of responsible officers of the Company
and certificates or other written statements of officers of departments of
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company, provided that copies of any such statements or
certificates shall be delivered to Underwriter's Counsel, if requested. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991) or any comparable state accord. The opinion
of such counsel for the Company shall state that the opinion of any such other
counsel is in form satisfactory to such counsel and that the Underwriter and
they are justified in relying thereon.
(e) At the Closing Date, the Underwriter shall have received
the favorable opinion of Wyatt, Gerber, Burke & Badie, L.L.P., patent counsel to
the Company, dated the Closing Date, addressed to the Underwriter, in form and
substance satisfactory to Underwriter's Counsel, to the effect that:
28
<PAGE>
i) To the best of our knowledge, after due inquiry, except as
described in the Prospectus, the Company owns or has the right
to use, free and clear of all liens, encumbrances, pledges,
security interests, defects or other restrictions or equities
of any kind whatsoever,
(a) all patents and patent applications (including,
without limitation, the Patents),
(b) all trademarks and service marks (including,
without limitation, the Trademarks),
(c) all copyrights (including, without limitation,
the Copyrighted Material),
(d) all service and trade names, and
(e) all intellectual property licenses (including,
without limitation, the Licenses),
(f) all technology,
used in, contemplated to be use in or required for, the
conduct of the Company's business.
ii) To the best of our knowledge, after due inquiry, none of
the prior employers of Dr. Hanoch Shalit have any rights, by
ownership, license, shop right or otherwise, in any of Dr.
Shalit's patents, patent applications, trade secrets, know-how
or technology used or contemplated to be used by the Company.
iii) To the best of our knowledge, after due inquiry, each of
the Company and the Subsidiary possesses all material
intellectual property licenses or rights used in, or required
for, the conduct of its respective business (including, the
Licenses and without limitation, any such licenses or rights
described in the Prospectus as being owned, possessed or
licensed by the Company or any Subsidiary, as the case may
be), such licenses and rights are in full force and effect,
and the Company's and the Subsidiary's products, methods and
services do not infringe any unlicensed intellectual property
of any third parties.
iv) To the best of our knowledge, after due inquiry, there is
no claim, action, or opposition pending, threatened or
potential, which affects or could affect the rights of any of
the Company or the Subsidiary with respect to any trademarks,
service marks, copyrights, service names, trade names,
patents, patent applications or licenses used in, or required
for, the conduct of the Company's or the Subsidiary's
business, and all trademarks, service marks, copyrights,
service names, tradenames and patents, owned or licensed to
the Company or the Subsidiary, are valid.
29
<PAGE>
v) To the best of our knowledge, after due inquiry, there is
no intellectual property based claim or action, pending,
threatened or potential, which affects or could affect the
rights of any of the Company or the Subsidiary with respect to
any products, services, processes or licenses, including,
without limitation, the Licenses used in the conduct of the
Company's or the Subsidiary's business.
vi) To the best of our knowledge, after due inquiry, except as
described in the Prospectus, none of the Company nor the
Subsidiary is under any obligation to pay royalties or fees to
any third party with respect to any material, technology or
intellectual properties developed, employed, licensed or used
by the Company or the Subsidiary.
vii) To the best of our knowledge, after due inquiry, the
statements in the Prospectus under the headings, "Risk Factors
- Intellectual Property Rights" and "Business - Intellectual
Property," are accurate in all material respects, fairly
represent the information disclosed therein and do not omit to
state any fact necessary to make the statements made therein
complete and accurate.
viii) To the best of our knowledge, after due inquiry, the
statements in the Registration Statement and Prospectus do not
contain any untrue statement of a material fact with respect
to the intellectual property position of any of the Company or
the Subsidiary, or omit to state any material fact relating to
the intellectual property position of any of the Company or
the Subsidiary which is required to be stated in the
Registration Statement and the Prospectus or is necessary to
make the statements therein not misleading.
At the Closing Date and each Option Closing Date, if any, the
Underwriter shall have received the favorable opinion of each of Zukerman, Gore
& Brandeis, LLP and Wyatt, Gerber, Burke & Badie, L.L.P., counsel to the
Company, dated the Closing Date or the relevant Option Closing Date, addressed
to the Underwriter and in form and substance satisfactory to Underwriter's
Counsel confirming, as of the Option Closing Date, the statements made by each
of Zukerman, Gore & Brandeis, LLP and Wyatt, Gerber, Burke & Badie, L.L.P., in
their opinions delivered at the time this Agreement is executed.
(f) On or prior to each of the Closing Date and each Option
Closing Date, if any, Underwriter's Counsel shall have been furnished with such
documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
Section 6(c) hereof, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company herein contained.
(g) Prior to each of the Closing Date and each Option Closing
Date, if any, (i) there shall have been no material adverse change or
development involving a prospective adverse change in the condition, financial
or otherwise, or the earnings, business affairs, stockholders' equity, value,
operations, properties, business or results of operations of the Company,
whether or not in the ordinary course of business, from the latest dates as of
which
30
<PAGE>
such matters are set forth in the Registration Statement and the Prospectus;
(ii) there shall have been no transaction, not in the ordinary course of
business, entered into by the Company from the latest date as of which the
financial condition of the Company is set forth in the Registration Statement
and the Prospectus; (iii) the Company shall not be in default under any
provision of any instrument relating to any outstanding indebtedness; (iv) the
Company shall not have issued any securities (other than the Securities) or
declared or paid any dividend or made any distribution in respect of its capital
stock of any class and there shall not have been any change in the capital
stock, debt (long or short term) or liabilities or obligations of the Company
(contingent or otherwise) from the latest dates as of which such matters are set
forth in the Registration Statement and the Prospectus; (v) no material amount
of the assets of the Company shall have been pledged or mortgaged, except as set
forth in the Registration Statement and the Prospectus; (vi) no action, suit,
proceeding, inquiry, arbitration, investigation, litigation or governmental or
other proceeding, domestic or foreign, shall be pending or threatened (or
circumstances giving rise to same) against the Company or affecting any of its
properties or business before or by any court or federal, state or foreign
commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding may materially and adversely affect the condition,
financial or otherwise, or the earnings, business affairs, stockholders' equity,
value, operations, properties, business or results of operations of the Company,
except as set forth in the Registration Statement and Prospectus; and (vii) no
stop order shall have been issued under the Act with respect to the Registration
Statement and no proceedings therefor shall have been initiated, threatened or
contemplated by the Commission.
(h) At each of the Closing Date and each Option Closing Date,
if any, the Underwriter shall have received a certificate of the Company signed
by the principal executive officer and by the chief financial or chief
accounting officer of the Company, dated the Closing Date or the relevant Option
Closing Date, as the case may be, to the effect that each of such persons has
carefully examined the Registration Statement, the Prospectus and this
Agreement, and that:
i) The representations and warranties regarding the
Company in this Agreement are true and correct, as if made on
and as of the Closing Date or the Option Closing Date, as the
case may be, and the Company has complied with all agreements
and covenants and satisfied all conditions contained in this
Agreement on its part to be performed or satisfied at or prior
to such Closing Date or Option Closing Date, as the case may
be;
ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued,
and no proceedings for that purpose have been instituted or
are pending or, to the best of each of such person's
knowledge, are contemplated or threatened under the Act;
iii) The Registration Statement and the Prospectus
and, if any, each amendment and each supplement thereto
contain all statements and information required to be included
therein, and none of the Registration Statement, the
Prospectus or any amendment or supplement thereto includes any
untrue statement of a material fact or omits to state any
material fact required to be stated therein
31
<PAGE>
or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading and
neither the Preliminary Prospectus nor any supplement thereto
included any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; and
iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, (A) the Company has not incurred any material
liabilities or obligations, direct or contingent; (B) the
Company has not paid or declared any dividends or other
distributions on its capital stock; (C) the Company has not
entered into any transactions not in the ordinary course of
business; (D) there has not been any change in the capital
stock or long-term debt or any increase in the short-term
borrowings (other than any increase in short-term borrowings
in the ordinary course of business) of the Company; (E) the
Company has not sustained any material loss or damage to its
property or assets, whether or not insured; (F) there is no
litigation which is pending or threatened (or circumstances
giving rise to same) against the Company or any affiliate
(within the meaning of the Rules and Regulations) of the
Company which is required to be set forth in an amended or
supplemented Prospectus which has not been set forth; and (G)
there has occurred no event required to be set forth in an
amended or supplemented Prospectus which has not been set
forth.
References to the Registration Statement and the Prospectus in this Section 6(g)
are to such documents as amended and supplemented at the date of such
certificate.
(i) By the Closing Date, the Underwriter will have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Underwriter, as described in the Registration Statement.
(j) At the time this Agreement is executed, the Underwriter
shall have received a letter, dated such date, addressed to the Underwriter and
in form and substance satisfactory in all respects (including the non-material
nature of the changes or decreases, if any, referred to in clause (iii) below)
to the Underwriter and Underwriter's Counsel, from Most Horowitz & Company, LLP:
i) confirming that they are independent certified
public accountants with respect to the Company within the
meaning of the Act and the Rules and Regulations;
ii) stating that it is their opinion that the
financial statements of the Company included in the
Registration Statement comply as to form in all material
respects with the applicable accounting requirements of the
Act and the Rules and Regulations and that the Underwriter may
rely upon the opinion of Most Horowitz & Company, LLP with
respect to such financial statements and supporting schedules
included in the Registration Statement;
32
<PAGE>
iii) stating that, on the basis of a limited review
which included a reading of the latest unaudited interim
financial statements of the Company, a reading of the latest
available minutes of the stockholders and board of directors
and the various committees of the board of directors of the
Company, consultations with officers and other employees of
the Company responsible for financial and accounting matters
and other specified procedures and inquiries, nothing has come
to their attention which would lead them to believe that (A)
the pro forma financial information contained in the
Registration Statement and Prospectus does not comply as to
form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations or is
not fairly presented in conformity with generally accepted
accounting principles applied on a basis consistent with that
of the audited financial statements of the Company or the
unaudited pro forma financial information included in the
Registration Statement, (B) the unaudited financial statements
and supporting schedules of the Company included in the
Registration Statement do not comply as to form in all
material respects with the applicable accounting requirements
of the Act and the Rules and Regulations or are not fairly
presented in conformity with generally accepted accounting
principles applied on a basis substantially consistent with
that of the audited financial statements of the Company
included in the Registration Statement, or (C) at a specified
date nor more than five (5) days prior to the effective date
of the Registration Statement, there has been any change in
the capital stock or long-term debt of the Company, or any
decrease in the stockholders' equity or net current assets or
net assets of the Company as compared with amounts shown in
the September 30, 1995 balance sheet included in the
Registration Statement, other than as set forth in or
contemplated by the Registration Statement, or, if there was
any change or decrease, setting forth the amount of such
change or decrease, and (D) during the period from September
30, 1995 to a specified date not more than five (5) days prior
to the effective date of the Registration Statement, there was
any decrease in net revenues, net earnings or net earnings per
share of Common Stock, in each case as compared with the
corresponding period beginning September 30, 1994, other than
as set forth in or contemplated by the Registration Statement,
or, if there was any such decrease, setting forth the amount
of such decrease;
iv) setting forth, at a date not later than five (5)
days prior to the effective date of the Registration
Statement, the amount of liabilities of the Company (including
a break-down of commercial paper and notes payable to banks);
v) stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and
earnings, statements and other financial information
pertaining to the Company set forth in the Prospectus, in each
case to the extent that such amounts, numbers, percentages,
statements and information may be derived from the general
accounting records, including work sheets, of the Company and
excluding any questions requiring an interpretation by legal
counsel, with the results obtained from the application of
specified readings,
33
<PAGE>
inquiries and other appropriate procedures (which procedures
do not constitute an audit in accordance with generally
accepted auditing standards) set forth in the letter and found
them to be in agreement,
vi) statements as to such other matters incident to
the transaction contemplated hereby as the Underwriter may
request.
(k) At the Closing Date and each Option Closing Date, if any,
the Underwriter shall have received from Zukerman, Gore & Brandeis, LLP a
letter, dated as of the Closing Date or the relevant Option Closing Date, as the
case may be, to the effect that (i) they reaffirm the statements made in the
letter furnished pursuant to Section 6(i) hereof, (ii) if the Company has
elected to rely on Rule 430A of the Rules and Regulations, to the further effect
that they have carried out procedures as specified in clause (v) of Section 6(i)
hereof with respect to certain amounts, percentages and financial information as
specified by the Underwriter and deemed to be a part of the Registration
Statement pursuant to Rule 430A(b) and have found such amounts, percentages and
financial information to be in agreement with the records specified in such
clause (v).
(l) On each of Closing Date and Option Closing Date, if any,
there shall have been duly tendered to the Underwriter the appropriate number of
Securities.
(m) No order suspending the sale of the Securities in any
jurisdiction designated by the Underwriter pursuant to Section 4(e) hereof shall
have been issued on either the Closing Date or the Option Closing Date, if any,
and no proceedings for that purpose shall have been instituted or shall be
contemplated.
(n) On or before the effective date of the Registration
Statement, the Company shall have executed and delivered to the Underwriter the
Underwriter's Warrant Agreement, substantially in the form filed as Exhibit 1.2
to the Registration Statement. On or before the Closing Date, the Company shall
have executed and delivered to the Underwriter the Underwriter's Warrants in
such denominations and to such designees as shall have been provided to the
Company.
(o) On or before Closing Date, the Securities shall have been
duly approved for quotation on Nasdaq, subject to official notice of issuance.
(p) On or before Closing Date, there shall have been delivered
to the Underwriter all of the Lock-Up Agreements, in form and substance
satisfactory to Underwriter's Counsel.
(q) On or before the effective date of the Registration
Statement, the Company shall have executed and delivered to the Underwriter the
Consulting Agreement in substantially the form filed as Exhibit 10.1 to the
Registration Statement and the indemnification letter attached to the Consulting
Agreement. On or before the Closing Date, the Company shall have paid the
Underwriter $48,000, representing payment in full of all amounts due pursuant to
Section 7 of such Consulting Agreement.
34
<PAGE>
(r) On or before the effective date of the Registration
Statement, the Company and American Stock Transfer and Trust Company shall have
executed and delivered to the Underwriter the Warrant Agreement, substantially
in the form filed as Exhibit 4.2 to the Registration Statement.
(s) At least two (2) full business days prior to the date
hereof, the Closing Date and each Option Closing Date, if any, the Company shall
have delivered to the Underwriter the unaudited interim financial statements
required to be so delivered pursuant to Section 4(p) of this Agreement.
If any condition to the Underwriter's obligations hereunder to
be fulfilled prior to or at the Closing Date or at any Option Closing Date, as
the case may be, is not so fulfilled, the Underwriter may terminate this
Agreement or, if the Underwriter so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
7. Indemnification
(a) The Company agrees to indemnify and hold harmless the
Underwriter (for purposes of this Section 7, "Underwriter" shall include the
officers, directors, partners, employees, agents and counsel of the
Underwriter), and each person, if any, who controls the Underwriter
("controlling person") within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, from and against any and all losses, claims, damages,
expenses or liabilities, joint or several (and actions in respect thereof),
whatsoever (including but not limited to any and all expenses whatsoever
reasonably incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever), as such are
incurred, to which the Underwriter or such controlling person may become subject
under the Act, the Exchange Act or any other statute or at common law or
otherwise or under the laws of foreign countries, arising out of or based upon
(A) any untrue statement or alleged untrue statement of a material fact
contained (i) in any Preliminary Prospectus, the Registration Statement or the
Prospectus (as from time to time amended and supplemented); (ii) in any
post-effective amendment or amendments or any new registration statement and
prospectus in which is included securities of the Company issued or issuable
upon exercise of the Securities; or (iii) in any application or other document
or written communication (in this Section 7, collectively referred to as
"applications") executed by the Company or based upon written information
furnished by the Company in any jurisdiction in order to qualify the Securities
under the securities laws thereof or filed with the Commission, any state
securities commission or agency, the NASD, Nasdaq or any securities exchange;
(B) the omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not misleading (in
the case of the Prospectus, in light of the circumstances in which they were
made); or (C) any breach of any representation, warranty, covenant or agreement
of the Company contained herein or in any certificate by or on behalf of the
Company or any of its officers delivered pursuant hereto, unless, in the case of
clause (A) or (B) above, such statement or omission was made in reliance upon
and in conformity with written information furnished to the Company with respect
to the Underwriter by or on behalf of the Underwriter expressly for use in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment thereof or supplement thereto, or in any application, as the case may
be. The
35
<PAGE>
indemnity agreement in this Section 7(a) shall be in addition to any liability
which the Company may have at common law or otherwise.
(b) The Underwriter agrees to indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of the Act, to the same extent as the foregoing indemnity from the Company to
the Underwriter but only with respect to statements or omissions, if any, made
in any Preliminary Prospectus, the Registration Statement or the Prospectus or
any amendment thereof or supplement thereto or in any application made in
reliance upon, and in strict conformity with, written information furnished to
the Company with respect to the Underwriter by the Underwriter expressly for use
in such Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment thereof or supplement thereto or in any such application, provided
that such written information or omissions only pertain to disclosures in the
Preliminary Prospectus, the Registration Statement or the Prospectus directly
relating to the transactions effected by the Underwriter in connection with the
offering contemplated hereby. The Company acknowledges that the statements with
respect to the Underwriter and the public offering of the Securities set forth
under the heading "Underwriting" and the stabilization legend in the Prospectus
have been furnished by the Underwriter expressly for use therein and constitute
the only information furnished in writing by or on behalf of the Underwriter for
inclusion in any Preliminary Prospectus, the Registration Statement or the
Prospectus. The indemnity agreement in this Section 7(b) shall be in addition to
any liability which the Underwriter may have at common law or otherwise.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against one or more
indemnifying parties under this Section 7, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure to so notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7 (except to the extent that it
has been prejudiced in any material respect by such failure) or from any
liability which it may have otherwise). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party or parties
of the commencement thereof, the indemnifying party or parties will be entitled
to participate therein, and to the extent it or they may elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid notice
from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party. Notwithstanding the
foregoing, an indemnified party shall have the right to employ its own counsel
in any such case but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the employment of such counsel
shall have been authorized in writing by the indemnifying parties in connection
with the defense of such action at the expense of the indemnifying party, (ii)
the indemnifying parties shall not have employed counsel reasonably satisfactory
to such indemnified party to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party shall have reasonably concluded that there may be defenses
available to it which are different from or additional to those available to one
or all of the indemnifying parties (in which event the indemnifying parties
shall not have the right to direct the defense of such action on behalf of the
indemnified party or parties), in any of which events such fees and expenses of
one additional
36
<PAGE>
counsel shall be borne by the indemnifying parties. In no event shall the
indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances. An indemnifying party will not, without the prior
written consent of the indemnified parties, settle, compromise or consent to the
entry of any judgment with respect to any pending or threatened claim, action,
suit or proceeding in respect of which indemnification or contribution may be
sought hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action), unless such settlement, compromise or consent
(i) includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party. Anything in this Section 7 to
the contrary notwithstanding, an indemnifying party shall not be liable for any
settlement of any claim or action effected without its written consent;
provided, however, that such consent may not be unreasonably withheld.
(d) In order to provide for just and equitable contribution in
any case in which (i) an indemnified party makes a claim for indemnification
pursuant to this Section 7, but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified, on the other hand, from the offering of
the Securities or (B) if the allocation provided by clause (A) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (A) above but also the relative
fault of each of the contributing parties, on the one hand, and the party to be
indemnified, on the other hand, in connection with the statements or omissions
that resulted in such losses, claims, damages, expenses or liabilities, as well
as any other relevant equitable considerations. In any case where the Company is
a contributing party and the Underwriter is the indemnified party, the relative
benefits received by the Company, on the one hand, and the Underwriter, on the
other, shall be deemed to be in the same proportion as the total net proceeds
from the offering of the Securities (before deducting expenses) bear to the
total underwriting discounts received by the Underwriter hereunder, in each case
as set forth in the table on the cover page of the Prospectus. Relative fault
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 or by
the Underwriter, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The amount paid by an indemnified party as a result of the losses,
claims, damages, expenses or liabilities (or actions in respect thereof)
referred to in the first (1st) sentence of this Section 7(d) shall be deemed to
include 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
37
<PAGE>
Section 7(d), the Underwriter shall not be required to contribute any amount in
excess of the underwriting discount applicable to the Securities purchased by
the Underwriter hereunder. No person guilty of fraudulent misrepresentation
(within the meaning of Section 12(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 7(d), each person, if any, who
controls the Company or the Underwriter within the meaning of the Act, each
officer of the Company who has signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company or the Underwriter, as the case may be, subject in each case to this
Section 7(d). Any party entitled to contribution will, promptly after receipt of
notice of commencement of any action against such party in respect to which a
claim for contribution may be made against another party or parties under this
Section 7(d), notify such party or parties from whom contribution may be sought,
but the omission to so notify such party or parties shall not relieve the party
or parties from whom contribution may be sought from any obligation it or they
may have hereunder or otherwise than under this Section 7(d), or to the extent
that such party or parties were not adversely affected by such omission.
Notwithstanding anything in this Section 7 to the contrary, no party will be
liable for contribution with respect to the settlement of any action or claim
effected without its written consent. The contribution agreement set forth above
shall be in addition to any liabilities which any indemnifying party may have at
common law or otherwise.
8. Representations, Warranties, Covenants and Agreements to
Survive Delivery. All representations, warranties, covenants and agreements of
the Company contained in this Agreement, or contained in certificates of
officers of the Company submitted pursuant hereto, shall be deemed to be
representations, warranties, covenants and agreements at the Closing Date and
each Option Closing Date, if any, and such representations, warranties,
covenants and agreements of the Company, and the respective indemnity and
contribution agreements contained in Section 7 hereof, shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of the Underwriter, the Company or any of their agents, and shall survive
the termination of this Agreement or the issuance and delivery of the Securities
to the Underwriter.
9. Effective Date. This Agreement shall become effective at
10:00 a.m., New York City time, on the next full business day following the date
hereof, or at such earlier time after the Registration Statement becomes
effective as the Underwriter, in its discretion, shall release the Securities
for sale to the public; provided, however, that the provisions of Sections 5, 7
and 10 of this Agreement shall at all times be effective. For purposes of this
Section 9, the Securities to be purchased hereunder shall be deemed to have been
so released upon the earlier of dispatch by the Underwriter of telegrams to
securities dealers releasing such shares for offering or the release by the
Underwriter for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
10. Termination.
(a) Subject to Section 10(b) hereof, the Underwriter shall
have the right to terminate this Agreement: (i) if any domestic or international
event or act or occurrence has materially adversely disrupted, or in the
Underwriter's opinion will in the immediate future
38
<PAGE>
materially adversely disrupt, the financial markets; or (ii) if any material
adverse change in the financial markets shall have occurred; or (iii) if trading
generally shall have been suspended or materially limited on or by, as the case
may be, any of the New York Stock Exchange, the American Stock Exchange, the
NASD, the Boston Stock Exchange, the Commission or any governmental authority
having jurisdiction over such matters; or (iv) if trading of any of the
securities of the Company shall have been suspended, or if any of the securities
of the Company shall have been delisted, on any exchange or in any
over-the-counter market; or (v) if the United States shall have become involved
in a war or major hostilities, or if there shall have been an escalation in an
existing war or major hostilities, or a national emergency shall have been
declared in the United States; or (vi) if a banking moratorium shall have been
declared by any state or federal authority; or (vii) if a moratorium in foreign
exchange trading shall have been declared; or (viii) if the Company shall have
sustained a material or substantial loss by fire, flood, accident, hurricane,
earthquake, theft, sabotage or other calamity or malicious act which, whether or
not such loss shall have been insured, will, in the Underwriter's opinion, make
it inadvisable to proceed with the delivery of the Securities; or (ix) if there
shall have been such a material adverse change in the conditions or prospects of
the Company, or if there shall have been such a material adverse change in the
general market, political or economic conditions, in the United States or
elsewhere, as in the Underwriter's judgment would make it inadvisable to proceed
with the offering, sale and/or delivery of the Securities; or (x) if Catherine
Winchester shall no longer serve the Company in her present capacities.
(b) If this Agreement is terminated by the Underwriter in
accordance with the provisions of Section 6, 10(a) or 11 hereof or if this
Agreement shall not be carried out within the time specified herein, or within
any extension thereof granted by the Underwriter, by reason of any failure on
the part of the Company to perform any undertaking or satisfy any condition of
this Agreement to be performed or satisfied by it (including, without
limitation, pursuant to Section 6, Section 10(a) or Section 11 hereof), then the
Company shall promptly reimburse and indemnify the Underwriter for all of its
actual out-of-pocket expenses, including the fees and disbursements of
Underwriter's Counsel, less amounts previously paid pursuant to Section 5(c)
hereof. In addition, in any of such events the Company shall remain liable for
all "blue sky" counsel fees and expenses and "blue sky" filing fees.
Notwithstanding any contrary provision contained in this Agreement, any election
hereunder or any termination of this Agreement (including, without limitation,
pursuant to Sections 6, 10 and 11 hereof), and whether or not this Agreement is
otherwise carried out, the provisions of Section 5 and Section 7 shall not be in
any way be affected by such election or termination or failure to carry out the
terms of this Agreement or any part hereof.
11. Default by the Company. If the Company shall fail at the
Closing Date or any Option Closing Date, as applicable, to sell and deliver the
number of Securities which it is obligated to sell hereunder on such date, then
this Agreement shall terminate (or, if such default shall occur with respect to
any Option Securities to be purchased on an Option Closing Date, the Underwriter
may, at its option, by notice from the Underwriter to the Company, terminate the
Underwriter's obligation to purchase Option Securities from the Company on such
date) without any liability on the part of any non-defaulting party other than
pursuant to Section 5. Section 7 and Section 10 hereof. No action taken pursuant
to this Section 11 shall relieve the Company from liability, if any, in respect
of such default.
39
<PAGE>
12. Notices. All notices and communications hereunder, except
as herein otherwise specifically provided, shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriter shall be directed to the
Underwriter at A.S. Goldmen & Co., Inc., 99 Wood Avenue South, Suite 902,
Iselin, New Jersey 08830, Attention: Mr. Stuart Winkler, with a copy to Orrick,
Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York, New York 10103,
Attention: Lawrence B. Fisher, Esq. Notices to the Company shall be directed to
the Company at Imatec, Ltd., 150 E. 58th Street, New York, New York, 10155,
Attention: Dr. Hanoch Shalit, with a copy to Zukerman, Gore & Brandeis, LLP, 900
Third Avenue, 8th Floor, New York, New York, 10022, Attention: Clifford A.
Brandeis, Esq.
13. Parties. This Agreement shall inure solely to the benefit
of, and shall be binding upon, the Underwriter, the Company and the controlling
persons, directors and officers referred to in Section 7 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained. No purchaser of Securities from the Underwriter shall be deemed to be
a successor by reason merely of such purchase.
14. Construction. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York,
without giving effect to choice of law or conflict of laws principles.
15. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, and all of
which taken together shall be deemed to be one and the same instrument.
16. Entire Agreement; Amendments. This Agreement, the
Underwriter's Warrant Agreement and the Consulting Agreement constitute the
entire agreement of the parties hereto and supersede all prior written or oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may not be amended except in a writing signed by the
Underwriter and the Company.
40
<PAGE>
If the foregoing correctly sets forth the understanding
between the Underwriter and the Company, please so indicate in the space
provided below for that purpose, whereupon this letter shall constitute a
binding agreement between us.
Very truly yours,
IMATEC, LTD.
By: _________________________
Name: Dr. Hanoch Shalit
Title: President
Confirmed and accepted as of
the date first above written.
A.S. GOLDMEN & CO., INC.
By:______________________________
Name: Stuart Winkler
Title: Vice President
<PAGE>
SCHEDULE 1(w)
(See Section 1(w) of the Underwriting Agreement)
Number of Shares Number of Shares
Name of Securityholder: Subject to Lockup Agreement: Beneficially Owned:
- ----------------------- ---------------------------- -------------------
Hanoch Shalit 979,210
David Ai 55,250
Ivan Feng 22,100
Joel Brownstein 5,525
Yoram Yosifov 30,300
Richard Carey 2,818
Jim Jaeger 9,797
Carmello Cotrino 663,000
Louis Raneri 171,000
Thomas Dunn 171,000
Angela LoPresto 100,000
---------
TOTAL 2,210,000
<PAGE>
Exhibit 1.2
- -------------------------------------------------------------------------------
IMATEC, LTD.
AND
A.S. GOLDMEN & CO., INC.
-----------------
UNDERWRITER'S
WARRANT AGREEMENT
Dated as of ____________, 1996
- -------------------------------------------------------------------------------
<PAGE>
UNDERWRITER'S WARRANT AGREEMENT, dated as of ___________, 1996
[the effective date of the Registration Statement], by and between IMATEC,
LTD.,a Delaware corporation (the "Company"), and A.S. GOLDMEN & CO., INC. (the
"Underwriter").
W I T N E S S T H:
WHEREAS, the Company proposes to issue to the Underwriter
and/or its designees (the "Holder(s)") warrants (the "Warrants") to purchase up
to an aggregate 100,000 shares of common stock, par value $.0001 per share, of
the Company (the "Common Stock") and/or up to an aggregate 400,000 redeemable
warrants (the "Redeemable Warrants"), each entitling the holder thereof to
purchase one share of Common Stock; (the shares of Common Stock and the
Redeemable Warrants purchasable pursuant to this Agreement are hereinafter
collectively referred to as the "Securities");
WHEREAS, the Underwriter has agreed pursuant to the
underwriting agreement (the "Underwriting Agreement"), of even date herewith,
between the Underwriter and the Company, to act as the underwriter in connection
with the Company's proposed initial public offering of up to 1,000,000 shares of
Common Stock, and up to 4,000,000 Redeemable Warrants at an initial public
offering price of $____ per share of Common Stock and $____ per Redeemable
Warrant (the "Initial Public Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement
will be issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Underwriter and/or its designees in
consideration for, and as part of the
2
<PAGE>
Underwriter's compensation in connection with, the Underwriter acting as the
underwriter pursuant to the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the payment
by the Underwriter to the Company of fifty dollars ($50.00), the agreements
herein set forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Grant. The Holder(s) is hereby granted the right to
purchase, at any time from ______________, 1997 [the 1st anniversary of the
effective date of the Registration Statement] until 5:30 p.m., New York time, on
______________, 2001 [the day before the 5th anniversary of the effective date
of the Registration Statement], up to an aggregate 100,000 shares of Common
Stock and/or up to an aggregate 400,000 Redeemable Warrants at an initial
exercise price (subject to adjustment as provided in Section 8 hereof) of $____
per share of Common Stock [160% of the initial public offering price per share
of Common Stock] and $___ per Redeemable Warrant [160% of the initial public
offering price per Redeemable Warrant], subject to the terms and conditions of
this Agreement. Each Redeemable Warrant is initially exercisable to purchase one
additional share of Common Stock at an initial exercise price of $6.50 per share
from the date hereof until 5:30 p.m., New York time, on ___________, 1999 [36
months from the effective date of the Registration Statement], at which time the
Redeemable Warrants, unless the exercise period of the then outstanding
Redeemable Warrants has been extended, shall expire. Except as set forth in
Section 1 and Section 6.1 hereof, the Redeemable Warrants issuable upon exercise
of the Warrants are in all respects identical to the Redeemable Warrants being
purchased by the
3
<PAGE>
Underwriter for resale to the public pursuant to the terms and provisions of the
Underwriting Agreement.
2. Warrant Certificates. The warrant certificates (the
"Warrant Certificates") representing the right to purchase Warrants delivered
and to be delivered pursuant to this Agreement shall be in the form set forth in
Exhibit A attached hereto and made a part hereof, with such appropriate
insertions, omissions, substitutions and other variations as required or
permitted by this Agreement.
3. Exercise of Warrant.
Section 3.1 Method of Exercise. The Warrants initially are
exercisable at an initial exercise price per share of Common Stock and per
Redeemable Warrant set forth in Section 6 hereof, payable by certified or
official bank check in New York Clearing House funds, subject to adjustment as
provided in Section 8 hereof. Upon surrender of a Warrant Certificate with the
annexed Form of Election to Purchase duly executed, together with payment of the
Exercise Price (as defined in Section 6.2 hereof) for the shares of Common Stock
and/or Redeemable Warrants purchased at the Company's principal offices
(presently located at 150 East 58th Street, New York, New York 10155) the
registered Holder of a Warrant Certificate shall be entitled to receive a
certificate or certificates for the shares of Common Stock so purchased and/or a
certificate or certificates for the Redeemable Warrants so purchased. The
purchase rights represented by each Warrant Certificate are exercisable at the
option of the Holder(s) thereof, in whole or in part (but not as to fractional
shares of the Common Stock and the Redeemable Warrants underlying the warrants).
Warrants may be exercised to purchase all or a part of the shares of Common
Stock represented by a Warrant Certificate, all or a part of the Redeemable
Warrants represented by a Warrant Certificate, or
4
<PAGE>
all or a part of the shares of Common Stock, together with an equal or unequal
number of the Redeemable Warrants, represented by a Warrant Certificate. In the
case of the purchase of less than all the Securities purchasable under any
Warrant Certificate, the Company shall cancel said Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Warrant Certificate of
like tenor for the balance of the Securities purchasable thereunder.
Section 3.2 Exercise by Surrender of Warrant. In addition to
the method of payment set forth in Section 3.1 and in lieu of any cash payment
required thereunder, the Holder(s) of the Warrants shall have the right at any
time and from time to time to exercise the Warrants in full or in part by
surrendering the Warrant Certificate in the manner specified in Section 3.1
hereof. The number of shares of Common Stock to be issued pursuant to this
Section 3.2 shall be equal to the difference between (a) the number of shares of
Common Stock in respect of which the Warrants are exercised and (b) a fraction,
the numerator of which shall be number of shares of Common Stock in respect of
which the Warrants are exercised multiplied by the Exercise Price and the
denominator of which shall be the Market Price (as defined in Section 3.3
hereof) of the Common Stock. The number of Redeemable Warrants to be issued
pursuant to this Section 3.2 shall be equal to the difference between (a) the
number of Redeemable Warrants in respect of which the Warrants are exercised and
(b) a fraction, the numerator of which shall be the number of Redeemable
Warrants in respect of which the Warrants are exercised multiplied by the
Exercise Price and the denominator of which shall be the Market Price (as
defined in Section 3.3 hereof) of the Redeemable Warrants. Solely for the
purposes of this paragraph, Market Price shall be calculated either (i) on the
date which the form of election attached hereto is deemed to have
5
<PAGE>
been sent to the Company pursuant to Section 14 hereof ("Notice Date") or (ii)
as the average of the Market Prices for each of the five trading days preceding
the Notice Date, whichever of (i) or (ii) is greater.
Section 3.3 Definition of Market Price. As used herein, the
phrase "Market Price" at any date shall be deemed to be (i) when referring to
the Common Stock, the last reported sale price, or, in case no such reported
sale takes place on such day, the average of the last reported sale prices for
the last three (3) trading days, in either case as officially reported by the
principal securities exchange on which the Common Stock is listed or admitted to
trading or by the Nasdaq Small Cap Market ("Nasdaq Small Cap"), or, if the
Common Stock is not listed or admitted to trading on any securities exchange or
quoted by Nasdaq Small Cap, the closing bid price as furnished by the National
Association of Securities Dealers, Inc. (the "NASD") through Nasdaq or a similar
organization if Nasdaq is no longer reporting such information, or if the Common
Stock is not quoted on Nasdaq or a similar organization, as determined in good
faith by a resolution of the Board of Directors of the Company, based on the
best information available to it, or (ii) when referring to a Redeemable
Warrant, the last reported sale price, or, in case no such reported sale takes
place on such day, the average of the last reported sale prices for the last
three (3) trading days, in either case as officially reported by the principal
securities exchange on which the Redeemable Warrants are listed or admitted to
trading or by Nasdaq Small Cap, or, if the Redeemable Warrants are not listed or
admitted to trading on any national securities exchange or quoted by Nasdaq
Small Cap, the closing bid price as furnished by the NASD through Nasdaq or a
similar organization if Nasdaq is no longer reporting such information, or if
the Redeemable Warrants are not quoted on Nasdaq or a similar organization, or
if the Redeemable Warrants held by the
6
<PAGE>
public are no longer outstanding, the Market Price of a Redeemable Warrant shall
equal the difference between the Market Price of the Common Stock and the
Exercise Price of a Redeemable Warrant.
4. Issuance of Certificates. Upon the exercise of the Warrants
and payment of the Exercise Price therefor, the issuance of certificates for
shares of Common Stock and/or Redeemable Warrants or other securities underlying
such Warrants, and upon the exercise of the Redeemable Warrants, the issuance of
certificates for shares of Common Stock or other securities underlying such
Redeemable Warrants shall be made forthwith (and in any event such issuance
shall be made within five (5) business days thereafter), without any other
charge to the Holder(s) thereof including, without limitation, any tax which may
be payable in respect of the issuance thereof, and such certificates shall
(subject to the provisions of Sections 5 and 7 hereof) be issued in the name of,
or in such names as may be directed by, the Holder(s) thereof; provided,
however, that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificates in a name other than that of the Holder requesting such a
transfer and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting such a transfer
shall have paid to the Company the amount of such tax or shall have established
to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the
shares of Common Stock, the Redeemable Warrants and the other securities for
which such Warrant Certificates are exercisable, and the shares of Common Stock
or other securities underlying the Redeemable Warrants, shall be executed on
behalf of the Company by the manual or
7
<PAGE>
facsimile signature of the then Chairman or Vice Chairman of the Board of
Directors or the Chief Executive Officer, President or Vice President of the
Company, under its corporate seal, and attested to by the manual or facsimile
signature of the then Secretary or Assistant Secretary of the Company. Warrant
Certificates shall be dated the date of execution by the Company upon initial
issuance, division, exchange, substitution or transfer.
5. Restriction on Transfer of Warrants. Each Holder of a
Warrant Certificate, by his, her or its acceptance thereof, covenants and agrees
that the Warrants are being acquired as an investment and not with a view to the
distribution thereof and that the Warrants may not be sold, transferred,
assigned, pledged or hypothecated for a period of one (1) year from the date
hereof, except to officers of the Underwriter.
6. Exercise Price.
Section 6.1 Initial and Adjusted Exercise Price. Except as
otherwise provided in Section 8 hereof, the initial exercise price of each
Warrant shall be $__________ per share of Common Stock [160% of the initial
public offering price per share of Common Stock] and $__________ per Redeemable
Warrant [160% of the initial public offering price per Redeemable Warrant]. The
adjusted exercise price shall be the price which shall result from time to time
from any and all adjustments of the initial exercise price in accordance with
the provisions of Section 8 hereof
Section 6.2 Exercise Price. The term "Exercise Price" herein
shall mean the initial exercise price or the adjusted exercise price, depending
upon the context.
7. Registration Rights.
Section 7.1 Registration Under the Securities Act of 1933. (a)
The Warrants, the shares of Common Stock and Redeemable Warrants or other
securities issuable upon exercise
8
<PAGE>
of the Warrants and the shares of Common Stock or other securities issuable upon
exercise of the Redeemable Warrants have not been registered under the
Securities Act of 1933, as amended (the "Act"). The Warrants, and, upon exercise
in part or in whole of the Warrants, certificates representing the shares of
Common Stock and the Redeemable Warrants or other securities underlying the
Warrants, and, upon exercise in whole or in part of the Redeemable Warrants,
certificates representing the shares of Common Stock or other securities
underlying the Redeemable Warrants (all of the foregoing hereinafter
collectively referred to as the "Warrant Securities") shall bear a legend
substantially similar to the following:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), and may not be offered or sold except pursuant to (i)
an effective registration statement under the Act, (ii) to the
extent applicable, Rule 144 under the Act (or any similar rule
under the Act relating to the disposition of securities), or
(iii) an opinion of counsel, if such opinion shall be
reasonably satisfactory to counsel to the issuer, that an
exemption from registration under the Act is available.
Section 7.2 Piggyback Registration. If, at any time commencing
after the date hereof and expiring on _____________, 2003 [the day before the
7th anniversary of the date of the closing of the subject public offering], the
Company proposes to register any of its securities under the Act (other than in
connection with a merger or pursuant to Form S-8, S-4 or comparable registration
statement) it will give written notice by registered mail, at least thirty (30)
business days prior to the filing of each such registration statement, to the
Underwriter and to all Holder(s) of the Warrants and/or the Warrant Securities
of its intention to do so. If the Underwriter or other Holder(s) of the Warrants
and/or the Warrant Securities notify the Company within twenty (20) business
days after receipt of any such notice of its or their desire to include any of
such securities in such proposed registration
9
<PAGE>
statement, the Company shall afford the Underwriter and such Holder(s) of the
Warrants and/or Warrant Securities the opportunity to have any such Warrants
and/or Warrant Securities registered under such registration statement.
Notwithstanding the provisions of this Section 7.2, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 7.2 (irrespective of whether a written request
for inclusion of any securities shall have been made) to elect not to file any
such proposed registration statement, or to withdraw the same after the filing
but prior to the effective date thereof.
Section 7.3 Demand Registration.
(a) At any time commencing after the date hereof and expiring
__________, 2001 [the day before the 5th anniversary of the closing of the
subject public offering], the Holder(s) of the Warrants and/or any Warrant
Securities representing a "Majority" (calculated in accordance with Section
7.4(m) hereof) of such securities shall have the right (which right is in
addition to the registration rights under Section 7.2 hereof), exercisable by
written notice to the Company, to have the Company prepare and file with the
Securities and Exchange Commission (the "Commission"), on one occasion, a
registration statement and such other documents, including a prospectus, as may
be necessary in the opinion of both counsel for the Company and counsel for the
Underwriter and Holder(s), in order to comply with the provisions of the Act, so
as to permit a public offering and sale of their respective Warrants and Warrant
Securities for nine (9) consecutive months by such Holder(s) and any other
Holder(s) of the Warrants and/or Warrant Securities who notify the Company
within ten (10) days after receiving notice from the Company of such request.
10
<PAGE>
(b) The Company covenants and agrees to give written notice of
any registration request under this Section 7.3 (whether such request is made
pursuant to Section 7.3(a) or Section 7.3(c) hereof) by any Holder(s) to all
other registered Holder(s) of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request.
(c) In addition to the registration rights under Section 7.2
and Section 7.3(a), at any time commencing after the date hereof and expiring
____________, 2001 [the day before the 5th anniversary of the closing of the
subject public offering], any Holder(s) of Warrants and/or Warrant Securities
shall have the right, exercisable by written request to the Company, to have the
Company prepare and file with the Commission, on one occasion, a registration
statement so as to permit a public offering and sale for nine (9) consecutive
months by any such Holder(s) of its or their Warrants and/or Warrant Securities;
provided, however, that the provisions of Section 7.4(b) hereof shall not apply
to any such registration request and all costs incident thereto shall be at the
expense of the Holder(s) making such request.
(d) Notwithstanding anything to the contrary contained herein,
if the Company shall not have filed a registration statement for the Warrants
and the Warrant Securities within the time period specified in Section 7.4(a)
hereof pursuant to the written notice specified in Section 7.3(a) hereof of the
Holder(s) of a Majority of the Warrants and/or the Warrant Securities, the
Company, at its option (and with written notice of the election to such effect
of all Holder(s) of the Warrants and/or the Warrant Securities), may repurchase
(i) any and all Securities at the higher of the Market Price per share of Common
Stock and per Redeemable Warrant, determined as of (x) the date of the notice
sent pursuant to Section
11
<PAGE>
7.3(a) hereof or (y) the expiration of the period specified in Section 7.4(a)
hereof and (ii) the other securities, if any, issuable upon exercise of the
Warrants and the Redeemable Warrants at a price agreed upon by the Company and a
Majority of the Holder(s) of the Warrants and all such other securities. If the
Company elects the repurchase option, the repurchase shall be in immediately
available funds and shall close within two (2) days after the later of (i) the
expiration of the period specified in Section 7.4(a) hereof or (ii) the delivery
of the written notice of election specified in this Section 7.3(d).
Section 7.4 Covenants of the Company With Respect to
Registration. In connection with any registration under Section 7.2 or Section
7.3 hereof, the Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement within thirty (30) days of receipt of any demand there
or, shall use its best efforts to have any registration statements declared
effective at the earliest possible time, and shall furnish each Holder(s)
desiring to sell Warrants and/or Warrant Securities such number of prospectuses
as shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees and
expenses of Holder(s)' counsel and any underwriting or selling commissions or
other charges of any broker-dealer acting on behalf of Holder(s)), fees and
expenses in connection with all registration statements filed pursuant to
Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses. If the
Company shall fail to comply with the provisions of Section 7.4(a), the Company
shall, in addition to any other equitable or other relief available to the
Holder(s),
12
<PAGE>
be liable for any and all incidental or special damages sustained by the
Holder(s) requesting registration of its or their Warrants and/or Warrant
Securities.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrants and the Warrant Securities
included in a registration statement for offering and sale under the securities
or blue sky laws of such states as reasonably are requested by the Holder(s),
provided that the Company shall not be obligated to qualify as a foreign
corporation to do business under the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrants
and the Warrant Securities to be sold pursuant to any registration statement and
each person, if any, who controls such Holder(s) within the meaning of Section
15 of the Act or Section 20(a) of the Securities Exchange Act of 1934, as
amended ("Exchange Act"), against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become subject
under the Act, the Exchange Act or otherwise arising from such registration
statement but only to the same extent and with the same effect as the provisions
contained in Section 7 of the Underwriting Agreement pursuant to which the
Company has agreed to indemnify the Underwriter.
(e) The Holder(s) of the Warrants and Warrant Securities to be
sold pursuant to a registration statement, and their successors and assigns,
shall severally, and not jointly, indemnify the Company, its officers and
directors and each person, if any, who controls the Company within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act against all loss,
claim, damage or expense or liability (including all expenses reasonably
incurred in investigating, preparing or defending against any claim whatsoever)
to which any
13
<PAGE>
of them may become subject under the Act, the Exchange Act or otherwise arising
from information furnished by or on behalf of such Holder(s), or their
successors or assigns, for specific inclusion in such registration statement to
the same extent and with the same effect as the provisions contained in Section
7 of the Underwriting Agreement pursuant to which the Underwriter has agreed to
indemnify the Company.
(f) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise its or their Warrants or Redeemable Warrants
prior to the initial filing of any registration statement or the effectiveness
thereof.
(g) The Company shall not permit the inclusion of any
securities other than the Warrants and the Warrant Securities to be included in
any registration statement filed pursuant to Section 7.3 hereof, or permit any
other registration statement to be or remain effective during the effectiveness
of a registration statement filed pursuant to Section 7.3 hereof, without the
prior written consent of the Holder(s) of the Warrants and the Warrant
Securities representing a Majority of such securities.
(h) The Company shall furnish to each Holder participating in
the offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder(s) and underwriter(s), of (i) an opinion of counsel to the Company,
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, an opinion dated the date
of the closing under the underwriting agreement), and (ii) a "cold comfort"
letter dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated the date
of the closing under the underwriting agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement,
14
<PAGE>
in each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the case of
such accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(i) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within fifteen
(15) months thereafter, make "generally available to its security holders"
(within the meaning of Rule 158 under the Act) an earnings statement (which need
not be audited) complying with Section 11(a) of the Act and covering a period of
at least twelve (12) consecutive months beginning after the effective date of
the registration statement.
(j) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and memoranda
described below and the managing underwriters copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission with respect to the
registration statement and permit each Holder and underwriter to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or the rules of the NASD.
Such investigation shall include access to books, records and properties and
opportunities to discuss the business of the Company with its officers and
independent auditors, all to such reasonable extent and at such reasonable times
and as often as any such Holder(s) shall reasonably request.
15
<PAGE>
(k) The Company shall enter into an underwriting agreement
with the managing underwriters selected for such underwriting by Holder(s) of a
Majority of the Warrants and the Warrant Securities requested to be included in
such underwriting. Such agreement shall be satisfactory in form and substance to
the Company, a Majority of such Holder(s) and such managing underwriters, and
shall contain such representations, warranties and covenants by the Company and
such other terms as are customarily contained in agreements of that type used by
the managing underwriters. The Holder(s) shall be parties to any underwriting
agreement relating to an underwritten sale of their Warrants and/or Warrant
Securities and may, at their option, require that any or all the
representations, warranties and covenants of the Company to or for the benefit
of such underwriters shall also be made to and for the benefit of such
Holder(s). Such Holder(s) shall not be required to make any representations or
warranties to or agreements with the Company or the underwriters except as they
may relate to such Holder(s) and their intended methods of distribution.
(l) In addition to the Warrants and the Warrant Securities,
upon the written request therefor by Holder(s) of the Warrants and the Warrant
Securities representing a Majority of such securities, the Company shall include
in the registration statement any other securities of the Company held by such
Holder(s) as of the date of filing of such registration statement, including,
without limitation, restricted shares of Common Stock, options, warrants or any
other securities convertible into shares of Common Stock.
(m) For purposes of this Agreement, the term "Majority" in
reference to the Holder(s) of Warrants or Warrant Securities shall mean in
excess of fifty percent (50%) of the then outstanding Warrants or Warrant
Securities (assuming the exercise of all the
16
<PAGE>
Warrants) that (i) are not held by the Company, an affiliate, officer, creditor,
employee or agent thereof or any of their respective affiliates, members of
their family or persons acting as nominees or in conjunction therewith or (ii)
have not been resold to the public pursuant to a registration statement filed
with the Commission under the Act.
8. Adjustments to Exercise Price and Number of Shares.
Section 8.1 Subdivision and Combination. In case the Company
shall at any time subdivide or combine the outstanding shares of Common Stock,
the Exercise Price for the Common Stock shall forthwith be proportionately
decreased in the case of subdivision or increased in the case of combination.
The provisions of this Section 8.1 shall be applicable to successive
subdivisions and combinations.
Section 8.2 Stock Dividends and Distributions. In case the
Company shall pay a dividend in, or make a contribution of, shares of Common
Stock or of any capital stock of the Company convertible into Common Stock, the
Exercise Price for the Common Stock shall forthwith be proportionately
decreased. An adjustment made pursuant to this Section 8.2 shall be made as of
the record date for the subject stock dividend or distribution.
Section 8.3 Adjustment in Number of Shares. Upon each
adjustment of the Exercise Price for the Common Stock pursuant to the provisions
of Section 8.1 or Section 8.2 hereof, the number of shares of Common Stock
issuable upon the exercise of the Warrants at the adjusted exercise price for
the Common Stock shall be adjusted to the nearest full amount by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of shares of Common Stock issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
17
<PAGE>
Section 8.4 Definition of Common Stock. For the purpose of
this Agreement, the term "Common Stock" shall mean (a) the class of stock
designated as Common Stock in the charter of the Company, as in effect on the
date hereof, or (b) any other class of stock resulting from any change or
reclassification of such Common Stock consisting solely of a change or changes
in par value, or from par value to no par value, or from no par value to par
value.
Section 8.5 Merger or Consolidation. In case of any
consolidation of the Company with, or merger of the Company with, or merger of
the Company into, another corporation other than a consolidation or merger which
does not result in any reclassification or change of the outstanding shares of
Common Stock or other securities issuable upon exercise of the Warrants), or in
the case of any sale or conveyance to another person or entity of the property
of the Company as an entirety or substantially as an entirety, then, as a
condition of such consolidation, merger, sale or conveyance, the Company, or
such successor or purchasing entity, as the case may be, shall execute and
deliver to the Holder(s) a supplemental warrant agreement providing that the
Holder of each Warrant then outstanding or to be outstanding shall have the
right thereafter (until the expiration of such Warrant) to receive, upon
exercise of such Warrant, the kind and amount of shares of stock and other
securities and property receivable upon such consolidation or merger by a holder
of the number of shares of Common Stock of the Company for which such Warrant
might have been exercised immediately prior to such consolidation, merger, sale
or conveyance. Such supplemental warrant agreement shall provide for adjustments
which shall be identical to the adjustments provided in this Section 8. The
above provision of this Section 8.5 shall similarly apply to successive
consolidations, mergers, sales or conveyances.
18
<PAGE>
Section 8.6 No Adjustment of Exercise Price in Certain Cases.
No adjustment of the Exercise Price shall be made if the amount of said
adjustment shall be less than two cents ($.02) per share of Common Stock;
provided, however, that in such case any adjustment that would otherwise be
required then to be made shall be carried forward and shall be made at the time
of and together with the next subsequent adjustment which, together with any
adjustment so carried forward, shall amount to at least two cents ($.02) per
share of Common Stock.
9. Exchange and Replacement of Warrant Certificates. Each
Warrant Certificate is exchangeable without expense, upon the surrender thereof
by the registered Holder(s) at the principal executive office of the Company,
for a new Warrant Certificate of like tenor and date representing in the
aggregate the right to purchase the same number of Securities in such
denominations as shall be designated by the Holder(s) thereof at the time of
such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not
be required to issue certificates representing fractions of shares of Common
Stock, Redeemable Warrants or other securities underlying the Warrants upon the
exercise of the Warrants, nor shall it be required to issue scrip or pay cash in
lieu of fractional interests, it being the intent of the
19
<PAGE>
parties that all fractional interests shall be eliminated by rounding any
fraction up to the nearest whole number of shares of Common Stock, Redeemable
Warrants or other securities underlying the Warrants.
11. Reservation and Listing of Securities. The Company shall
at all times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of the Warrants and
the Redeemable Warrants, such number of shares of Common Stock as shall be
issuable upon the exercise thereof. The Company shall at all times reserve and
keep available, solely for the purpose of issuance Upon the exercise of the
Warrants and the Redeemable Warrants, any other securities underlying the
Warrants and the Redeemable Warrants. The Company covenants and agrees that,
upon exercise of the Warrants and payment of the Exercise Price for the shares
of Common Stock or other securities underlying the Warrants, all shares of
Common Stock and other securities issuable upon such exercise shall be duly and
validly issued, fully paid, non-assessable, not subject to the preemptive or
similar rights of any shareholder and free from all taxes, liens and charges
with respect to the issuance thereof. The Company further covenants and agrees
that, upon exercise of the Redeemable Warrants underlying the Warrants and
payment of the exercise price for the shares of Common Stock or other securities
underlying the Redeemable Warrants, all shares of Common Stock and other
securities issuable upon such exercise shall be duly and validly issued, fully
paid, non-assessable, not subject to the preemptive or similar rights of any
shareholder and free from all taxes, liens and charges with respect to the
issuance thereof. As long as the Warrants shall be outstanding, the Company
shall use its best efforts to cause all shares of Common Stock issuable upon the
exercise of the Warrants and the Redeemable Warrants and
20
<PAGE>
all Redeemable Warrants underlying the Warrants to be listed (subject to
official notice of issuance) on all securities exchanges on which the Common
Stock or the Redeemable Warrants issued in the Initial Public Offering may then
be listed and/or quoted on the Nasdaq Stock Market.
12. Notices to Warrant Holder(s). Nothing contained in this
Agreement shall be construed as conferring upon the Holder(s) the right to vote
or to consent or to receive notice as a shareholder in respect of any meetings
of shareholders for the election of Directors or any other matter, or as having
any rights whatsoever as a shareholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the following
events shall occur:
(a) the Company shall take a record of the holders of
its shares of Common Stock for the purpose of entitling them
to receive a dividend or distribution payable otherwise than
in cash, or a cash dividend or distribution payable otherwise
than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the
books of the Company; or
(b) the Company shall offer to all the holders of its
Common Stock any additional shares of capital stock of the
Company or securities convertible into or exchangeable for
shares of capital stock of the Company, or any option, right
or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or
merger) or a sale of all or substantially all of its property,
assets and business as an entirety shall be proposed;
21
<PAGE>
then, in any one or more of said events, the Company shall give written notice
of such event to the Holder(s) at least fifteen (15) days prior to the date
fixed as a record date or the date of closing the transfer books for the
determination of the shareholders entitled to receive such dividend,
distribution, additional shares, convertible or exchangeable securities,
options, rights, warrants or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any additional shares or any convertible or
exchangeable securities, options, rights, warrants or subscription rights, or
any proposed dissolution, liquidation, winding up or sale.
13. Redeemable Warrants.
The form of the certificate representing Redeemable Warrants
(and the form of election to purchase shares of Common Stock upon the exercise
of Redeemable Warrants and the form of assignment printed on the reverse
thereof) shall be as set forth in Exhibit A to that certain Warrant Agreement,
of even date herewith, between the Company and Continental Stock Transfer &
Trust Company, as warrant agent (the "Redeemable Warrant Agreement"). Each
Redeemable Warrant issuable upon exercise of the Warrants shall evidence the
right to initially purchase one fully paid and non-assessable share of Common
Stock at an initial purchase price of $6.50 per share from the date of issuance
of such Redeemable Warrant until 5:30 p.m. New York time on ______________ __,
1999 [36 months from the effective date of the Registration Statement], at which
time the Redeemable Warrants, unless the exercise period has been extended,
shall expire. The exercise price of
22
<PAGE>
the Redeemable Warrants and the number of shares of Common Stock issuable upon
the exercise of the Redeemable Warrants are subject to adjustment, whether or
not the Warrants have been exercised and the Redeemable Warrants have been
issued, in the manner and upon the occurrence of the events set forth in Section
8 of the Redeemable Warrant Agreement, which is hereby incorporated herein by
reference and made a part hereof as if set forth in its entirety herein. Subject
to the provisions of this Agreement and upon issuance of the Redeemable Warrants
underlying he Warrants, each registered holder of a Redeemable Warrant shall
have the right to purchase from the Company (and the Company shall issue to such
registered holders) up to the number of fully paid and non-assessable shares of
Common Stock underlying a Redeemable Warrant (subject to adjustment as provided
herein and in the Redeemable Warrant Agreement), free and clear of all
preemptive rights of shareholders, provided that such registered holder complies
with the terms governing the exercise of the Redeemable Warrants, as set forth
in the Redeemable Warrant Agreement, and pays the applicable exercise price,
determined in accordance with the terms of the Redeemable Warrant Agreement.
Upon exercise of the Redeemable Warrants, the Company shall forthwith issue to
the registered holder of any such Redeemable Warrant, in his name or in such
name as may be directed by him, certificates for the number of shares of Common
Stock so purchased. Except as otherwise provided in Section 1 and Section 6.1
hereof, the Redeemable Warrants underlying the Warrants shall be governed in all
respects by the terms of the Redeemable Warrant Agreement. The Redeemable
Warrants shall be transferable in the manner provided in the Redeemable Warrant
Agreement, and upon any such transfer, a new Redeemable Warrant Certificate
shall be issued promptly to the transferee. The Company covenants to, and agrees
with, the Underwriter and the Holder(s) that, without the
23
<PAGE>
prior written consent of the Underwriter and the Holder(s) of a Majority of the
Warrants and the Warrant Securities, the Redeemable Warrant Agreement will not
be modified amended, cancelled, altered or superseded, and that the Company will
send to the Underwriter and each Holder(s), irrespective of whether or not the
Warrants have been exercised, any and all notices required by the Redeemable
Warrant Agreement to be sent to holders of the Redeemable Warrants.
14. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder(s) of the Warrants,
to the address of such Holder(s) as shown on the books of the
Company; or
(b) If to the Company, to the address set forth in
Section 3.1 hereof or to such other address as the Company may
designate by notice to the Holder(s).
15. Supplements and Amendments. The Company and the
Underwriter may from time to time supplement or amend this Agreement without the
approval of any Holder of a Warrant Certificate (other than the Underwriter) in
order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any provisions herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and the Underwriter may deem necessary or desirable and which
the Company and the Underwriter deem shall not adversely affect the interests of
the Holder(s) of Warrant Certificates.
24
<PAGE>
16. Successors. All the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of the Company, the
Holder(s) and their respective successors, assigns and representatives.
17. Termination. This Agreement shall terminate at the close
of business on ____________, 2003 [the day before the 7th anniversary hereof].
Notwithstanding the foregoing, the indemnification provisions of Section 7 shall
survive such termination until the close of business on _______________, 2009
[the day before the 13th anniversary hereof].
18. Governing Law; Submission to Jurisdiction. This Agreement
and each Warrant Certificate issued hereunder shall be deemed to be a contract
made under the laws of the State of New York and for all purposes shall be
construed in accordance with the laws of the State of New York without giving
effect to the rules of such State governing the conflicts of laws.
The Company, the Underwriter and the Holder(s) hereby agree
that any action, proceeding or claim arising out of, or relating in any way to,
this Agreement shall be brought and enforced in the courts of the State of New
York or of the United States of America for the Southern District of New York,
and irrevocably submit to such jurisdiction, which jurisdiction shall be
exclusive. The Company, the Underwriter and the Holder(s) hereby irrevocably
waive any objection to such exclusive jurisdiction or inconvenient forum. Any
process or summons to be served upon any of the Company, the Underwriter and the
Holder(s) (at the option of the party bringing such action, proceeding or claim)
may be served by transmitting a copy thereof, by registered or certified mail,
return receipt requested, postage prepaid, addressed to the address set forth in
Section 14 hereof. Such mailing shall be deemed personal service and shall be
legal and binding upon the party so
25
<PAGE>
served in any action, proceeding or claim. The Company, the Underwriter and the
Holder(s) agree that the prevailing party(ies) in any such action or proceeding
shall be entitled to recover from the other party(ies) all of its/their
reasonable legal costs and expenses relating to such action or proceeding and/or
incurred in connection with the preparation therefor.
19. Entire Agreement; Modification. This Agreement (including
the Underwriting Agreement to the extent portions thereof are referred to
herein) and the Redeemable Warrant Agreement contain the entire understanding
between the parties hereto with respect to the subject matter hereof and may not
be modified or amended except by a writing duly signed by the party against whom
enforcement of the modification or amendment is sought.
20. Severability. If any provision of this Agreement shall be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision of this Agreement.
21. Captions. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not intended to be, nor
should they be construed as, a part of this Agreement and shall be given no
substantive effect.
22. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or entity other than the Company and
the Underwriter and any other registered Holder(s) of the Warrant Certificates
or Warrant Securities any legal or equitable right, remedy or claim under this
Agreement. This Agreement shall be for the sole and exclusive benefit of the
Company and the Underwriter and any other Holder(s) of the Warrant Certificates
or Warrant Securities.
26
<PAGE>
23. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall together constitute but one and
the same instrument.
27
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
[SEAL] IMATEC, LTD.
By:_____________________________
Name: Dr. Hanoch Shalit
Title: Chief Executive Officer
Attest:
- ---------------------------
A.S. GOLDMEN & CO., INC.
By:____________________________
Name: Stuart Winkler
Title: Vice President
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO
(i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT
APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH
OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL TO THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT
AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, __________________, 2001
No. W-__
WARRANT CERTIFICATE
This Warrant Certificate certifies that ______________, or
registered assigns, is the registered holder of Warrants to purchase initially,
at any time from ______________, 1997 [the 1st anniversary of the effective date
of the Registration Statement] until 5:30 p.m. New York time on
_________________, 2001 [the day before the 5th anniversary of the effective
date of the Registration Statement] ("Expiration Date"), up to 100,000
fully-paid and non-assessable shares of common stock, par value $.0001 per share
(the "Common Stock"), of IMATEC, LTD., a Delaware corporation (the "Company"),
and/or up to an aggregate 400,000 redeemable warrants (the "Redeemable
Warrants"), the shares of Common Stock and the Redeemable Warrants are referred
to herein individually as a "Security" and collectively as the "Securities")
(each Redeemable Warrant initially entitling the holder thereof to purchase one
fully-paid and non-assessable share of Common Stock), at the initial exercise
price, subject to adjustment in certain events (the "Exercise Price"), of $____
per share of Common Stock [160% of the initial public offering price per share
of Common Stock] and $____ per Redeemable Warrant [160% of the initial public
offering price per Redeemable Warrant], upon surrender of this Warrant
Certificate and payment of the Exercise Price at an office or agency of the
Company, or by surrender of this Warrant Certificate in lieu of cash payment,
but subject to the conditions set forth herein and in the warrant agreement
dated as of _____________, 1996 [the effective date of the Registration
Statement], by and between the Company and A.S. Goldmen & Co., Inc. (the
"Warrant
A-1
<PAGE>
Agreement"). Payment of the Exercise Price shall be made by certified or
official bank check in New York Clearing House Funds payable to the order of the
Company.
No Warrant may be exercised after 5:30 p.m., New York time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon shall, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
warrant certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate the right to purchase a like number of Securities shall be issued to
the transferee(s) in exchange for this Warrant Certificate, subject to the
limitations provided herein and in the Warrant Agreement, without any charge
except for any tax or other governmental charge imposed in connection with such
transfer.
Upon the purchase of less than all of the Securities
purchasable pursuant to this Warrant Certificate, the Company shall forthwith
issue to the holder hereof a new Warrant Certificate representing the right to
purchase the remaining Securities.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
A-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of _______________________, 1996
IMATEC, LTD.
[SEAL] By:______________________________
Name: Dr. Hanoch Shalit
Title: Chief Executive Officer
Attest:
- -----------------------------
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase:
[ ] _______________________ shares of Common Stock;
[ ] _______________________ Redeemable Warrants; or
[ ] _______________________ shares of Common Stock together with an equal
number of Redeemable Warrants.
CHECK APPROPRIATE BOX
_____________ and herewith tenders in payment for such
Securities a certified or official bank check payable in New York Clearing House
Funds to the order of Imatec, Ltd. in the amount of $_____, all in accordance
with the terms hereof. The undersigned requests that certificates for such
securities be registered in the name of
- ------------------------------------------------------------------------------
whose address is
- ------------------------------------------------------------------------------
and that such certificates be delivered to
- ------------------------------------------------------------------------------
whose address is
- ------------------------------------------------------------------------------
Dated: Signature
-------------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
----------------------------------------------------
(Insert Social Security or Other Identifying Number
of Holder(s))
A-4
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase:
[ ] _______________________ shares of Common Stock;
[ ] _______________________ Redeemable Warrants; or
[ ] _______________________ shares of Common Stock together with an equal
number of Redeemable Warrants.
CHECK APPROPRIATE BOX
in accordance with the terms of Section 3.2 of the
Underwriter's Warrant Agreement, dated as of _____________, 1996, by and between
Imatec, Ltd. and A.S. Goldmen & Co., Inc. The undersigned requests that
certificates for such securities be registered in the name of
- ------------------------------------------------------------------------------
whose address is
- ------------------------------------------------------------------------------
and that such certificates be delivered to
- ------------------------------------------------------------------------------
whose address is
- ------------------------------------------------------------------------------
Dated: Signature
------------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
---------------------------------------------------
(Insert Social Security or Other Identifying Number
of Holder(s))
A-5
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ____________ here sells, assigns and transfers unto
- ------------------------------------------------------------------------------
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _____________ Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: Signature
----------------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
-------------------------------------------------------
(Insert Social Security or Other Identifying Number of
Holder(s))
A-6
<PAGE>
Exhibit 4.2
===============================================================================
IMATEC, LTD.
AND
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
----------------
WARRANT AGREEMENT
Dated as of ______________, 1996
===============================================================================
<PAGE>
WARRANT AGREEMENT, dated this ___ day of ________ 1996 [the effective
date of the Registration Statement], by and between IMATEC, LTD., a Delaware
corporation (the "Company"), and CONTINENTAL STOCK TRANSFER & TRUST COMPANY, a
New York corporation.
WITNESSETH:
WHEREAS, in connection with (i) the offering to the public of up to
1,000,000 shares (the "Shares") of the Company's common stock, par value $.0001
per share, and up to 4,000,000 redeemable warrants (the "Warrants"), each
Warrant entitling the holder thereof to purchase one additional Share, (i) the
sale by certain selling security holders of the Company (the "Selling Security
Holders") of 4,000,000 Redeemable Warrants (and the 4,000,000 Shares underlying
such Warrants), (ii) the over-allotment option granted to A.S. Goldmen & Co.,
Inc., the underwriter (the "Underwriter") in the public offering referred to
above, to purchase up to an additional 150,000 Shares and/or an additional
600,000 Warrants (the "Over-Allotment Option"), and (iii) the sale to the
Underwriter or its designees of warrants (the "Underwriter's Warrants") to
purchase up to 100,000 Shares and/or 400,000 Warrants, the Company will issue up
to 9,000,000 Warrants (subject to increase as provided herein and in the
Underwriter's Warrant Agreement (as such term is defined in Section 1(u)
hereof));
WHEREAS, the Company desires to provide for the issuance of
certificates representing the Warrants; and
WHEREAS, the Company desires the Warrant Agent (as defined in Section
1(x) hereof) to act on behalf of the Company, and the Warrant Agent is willing
to so act, in
<PAGE>
connection with the issuance, registration, transfer and exchange of
certificates representing the Warrants and the exercise of the Warrants.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the
Underwriter, the holders of certificates representing the Warrants and the
Warrant Agent, the parties hereto agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall have
the following meanings, unless the context shall otherwise require:
(a) "Act" shall mean the Securities Act of 1933, as amended.
(b) "Change of Shares" shall have the meaning assigned to such
term in Section 8(a)(i) of this Agreement.
(c) "Commission" shall mean the Securities and Exchange
Commission.
(d) "Common Stock" shall mean stock of the Company of any
class, whether now or hereafter authorized, which has the right to participate
in the voting and in the distribution of earnings and assets of the Company
without limit as to amount or percentage.
(e) "Company" shall have the meaning assigned to such term in
the first (1st) paragraph of this Agreement.
(f) "Corporate Office" shall mean the office of the Warrant
Agent at which at any particular time its principal business in New York, New
York, shall be administered, which office is located on the date hereof at 2
Broadway, New York, New York 10004.
2
<PAGE>
(g) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(h) "Exercise Date" shall mean, subject to the provisions of
Section 5(b) hereof, as to any Warrant, the date on which the Warrant Agent
shall have received both (i) the Warrant Certificate representing such Warrant,
with the exercise form thereon duly executed by the Registered Holder (as
defined in Section 1(o) hereof) thereof or his attorney duly authorized in
writing, and (ii) payment in cash or by check made payable to the Warrant Agent
for the account of the Company of an amount in lawful money of the United States
of America equal to the applicable Purchase Price (as defined in Section 1(l)
hereof).
(i) "Initial Warrant Exercise Date" shall mean __________,
1996 [the effective date of the Registration Statement].
(j) "Initial Warrant Redemption Date" shall mean __________,
1997 [the date nine (9) months after the effective date of the Registration
Statement] for the Warrants.
(k) "NASD" shall mean the National Association of Securities
Dealers, Inc.
(l) "Purchase Price" shall mean, subject to modification and
adjustment as provided in Section 8 hereof, six dollars and fifty cents ($6.50)
per Share for the Warrants.
(m) "Over-Allotment Option" shall have the meaning assigned to
such term in the first (1st) WHEREAS clause of this Agreement.
(n) "Redemption Date" shall mean the date (which may not occur
before the Initial Warrant Redemption Date) fixed for the redemption of the
Warrants in accordance with the terms hereof.
3
<PAGE>
(o) "Registered Holder" shall mean the person in whose name
any certificate representing the Warrants shall be registered on the books
maintained by the Warrant Agent pursuant to Section 6(b) hereof.
(p) "Selling Security Holders" shall have the meaning assigned
to such term in the first (1st) WHEREAS clause of this Agreement.
(q) "Shares" shall have the meaning assigned to such term in
the first (1st) WHEREAS clause of this Agreement,
(r) "Subsidiary" or "Subsidiaries" shall mean any corporation
or corporations, as the case may be, of which stock having ordinary power to
elect a majority of the board of directors of such corporation or corporations
(regardless of whether or not at the time the stock of any other class or
classes of such corporation shall have or may have voting power by reason of the
happening of any contingency) is at the time directly or indirectly owned by the
Company or by one or more Subsidiaries, or by the Company and one or more
Subsidiaries.
(s) "Transfer Agent" shall mean Continental Stock Transfer &
Trust Company, New York, New York, or its authorized successor.
(t) "Underwriter" shall have the meaning assigned to such term
in the first (1st) WHEREAS clause of this Agreement.
(u) "Underwriter's Warrant Agreement" shall mean the agreement
dated as of _______________, 1996 [the effective date of the Registration
Statement] between the Company and the Underwriter relating to and governing the
terms and provisions of the Underwriter's Warrants.
4
<PAGE>
(v) "Underwriter's Warrants" shall have the meaning assigned
to such term in the first (1st) WHEREAS clause of this Agreement.
(w) "Underwriting Agreement" shall mean the underwriting
agreement dated _______________, 1996 [the effective date of the Registration
Statement] between the Company and the Underwriter relating to the purchase for
resale to the public of 1,000,000 Shares and 4,000,000 Warrants (without giving
effect to the Over-Allotment Option).
(x) "Warrant Agent" shall mean Continental Stock Transfer &
Trust Company, New York, New York or its authorized successor.
(y) "Warrant Certificate" shall mean a certificate
representing the Warrants substantially in the form annexed hereto as Exhibit A
and shall mean a certificate representing the Warrants substantially in the form
annexed hereto as Exhibit B.
(z) "Warrant Expiration Date" shall mean, unless the Warrants
are redeemed as provided in Section 9 hereof prior to such date, 5:00 p.m. (New
York time) on _____________, 1999 [36 months from the effective date of the
Registration Statement] for the Warrants, or, if such date shall in the State of
New York be a holiday or a day on which banks are authorized to close, then 5:00
p.m. (New York time) on the next following day which in the State of New York is
not a holiday or a day on which banks are authorized to close, subject to the
Company's right, prior to the Warrant Expiration Date, with the consent of the
Underwriter, to extend such Warrant Expiration Date on five (5) business days
prior written notice to the Registered Holders.
(aa) "Warrants" shall have the meaning assigned to such term
in the first (1st) WHEREAS clause of this Agreement.
5
<PAGE>
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) Each Warrant shall initially entitle the Registered Holder
of the Warrant Certificate representing such Warrant to purchase at the Purchase
Price therefor from the Initial Warrant Exercise Date until the Warrant
Expiration Date one (1) share of Common Stock upon the exercise thereof, subject
to modification and adjustment as provided in Section 8 hereof.
(b) Upon execution of this Agreement, Warrant Certificates
representing 8,000,000 Warrants to purchase up to an aggregate of 8,000,000
shares of Common Stock (subject to modification and adjustment as provided in
Section 8 hereof), including 4,000,000 Warrants in the names of the Selling
Security Holders, shall be executed by the Company and delivered to the Warrant
Agent.
(c) Upon exercise of the Over-Allotment Option, in whole or in
part, Warrant Certificates representing up to 600,000 Warrants to purchase up to
an aggregate of 600,000 shares of Common Stock (subject to modification and
adjustment as provided in Section 8 hereof) shall be executed by the Company and
delivered to the Warrant Agent.
(d) Upon exercise of the Underwriter's Warrants, Warrant
Certificates representing up to 400,000 Warrants to purchase up to an aggregate
of 400,000 shares of Common Stock (subject to modification and adjustment as
provided in Section 8 hereof and in the Underwriter's Warrant Agreement), shall
be countersigned, issued and delivered by the Warrant Agent upon written order
of the Company signed by its Chairman of the Board, President or a Vice
President and by its Treasurer or an Assistant Treasurer or its Secretary or an
Assistant Secretary.
6
<PAGE>
(e) From time to time, up to each of the Warrant Expiration
Dates, the Warrant Agent shall countersign and deliver Warrant Certificates in
required denominations of one or whole number multiples thereof to the person
entitled thereto in connection with any transfer or exchange permitted under
this Agreement. No Warrant Certificates shall be issued except (i) Warrant
Certificates initially issued hereunder, (ii) Warrant Certificates issued upon
any transfer or exchange of Warrants, (iii) Warrant Certificates issued in
replacement of lost, stolen, destroyed or mutilated Warrant Certificates
pursuant to Section 7 hereof, (iv) Warrant Certificates issued pursuant to the
Underwriter's Warrant Agreement (including Warrants in excess of the 400,000
Warrants issued as a result of the antidilution provisions contained in the
Underwriter's Warrant Agreement), and (v) at the option of the Company, Warrant
Certificates in such form as may be approved by its Board of Directors, to
reflect any adjustment or change in the Purchase Price, the number of shares of
Common Stock purchasable upon the exercise of a Warrant or the redemption price
therefor.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the
form annexed hereto as Exhibit A and Exhibit B (the provisions of which are
hereby incorporated herein) and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the
Warrants may be listed, or to conform to usage. The Warrant Certificates shall
be dated the
7
<PAGE>
date of issuance thereof (whether upon initial issuance, transfer, exchange or
in lieu of mutilated, lost, stolen or destroyed Warrant Certificates).
(b) Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, President or any Vice President and by its
Treasurer or an Assistant Treasurer or its Secretary or an Assistant Secretary,
by manual signatures or by facsimile signatures printed thereon, and shall have
imprinted thereon a facsimile of the Company's seal. Warrant Certificates shall
be manually countersigned by the Warrant Agent and shall not be valid for any
purpose unless so countersigned. In case any officer of the Company who shall
have signed any of the Warrant Certificates shall cease to be such officer of
the Company before the date of issuance of the Warrant Certificates or before
countersignature by the Warrant Agent and issue and delivery thereof, such
Warrant Certificates, nevertheless, may be countersigned by the Warrant Agent
and issued and delivered with the same force and effect as though the officer of
the Company who signed such Warrant Certificates had not ceased to hold such
office.
SECTION 4. Exercise.
(a) Warrants in denominations of one or whole number multiples
thereof may be exercised commencing at any time on or after the Initial Warrant
Exercise Date, but not after the Warrant Expiration Date, upon the terms and
subject to the conditions set forth herein (including the provisions set forth
in Sections 5 and 9 hereof) and in the applicable Warrant Certificate. A Warrant
shall be deemed to have been exercised immediately prior to the close of
business on the Exercise Date, provided that the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder thereof or his attorney duly authorized in writing, together
with payment in cash or by check made
8
<PAGE>
payable to the Warrant Agent for the account of the Company of an amount in
lawful money of the United States of America equal to the applicable Purchase
Price, have been received by the Warrant Agent. The person entitled to receive
the securities deliverable upon such exercise shall be treated for all purposes
as the holder of such securities as of the close of business on the Exercise
Date. As soon as practicable on or after the Exercise Date and in any event
within five (5) business days after such date, the Warrant Agent, on behalf of
the Company, shall cause to be issued to the person or persons entitled to
receive the same a Common Stock certificate or certificates for the shares of
Common Stock deliverable upon such exercise, and the Warrant Agent shall deliver
the same to the person or persons entitled thereto. Upon the exercise of any
Warrants, the Warrant Agent shall promptly notify the Company in writing of such
fact and of the number of securities delivered upon such exercise and, subject
to Section 4(b) hereof, shall cause all payments in cash or by check made
payable to the order of the Company in respect of the Purchase Price to be
deposited promptly in the Company's bank account or delivered to the Company.
(b) At any time upon the exercise of any Warrants after
__________, 1997 [the 1st anniversary of the effective date of the Registration
Statement], the Warrant Agent shall, on a daily basis, within two (2) business
days after any such exercise, notify the Underwriter or its successors or
assigns of the exercise of any such Warrants and shall, on a weekly basis
(subject to collection of funds constituting the tendered Purchase Price, but in
no event later than five (5) business days after the last day of the calendar
week in which such funds were tendered), remit to the Underwriter or its
successors or assigns an amount equal to four percent (4%) of the Purchase Price
of such Warrants being then exercised unless the Underwriter or its successors
or assigns shall have notified the Warrant Agent that
9
<PAGE>
the payment of such amount with respect to any such Warrant is violative of the
rules and regulations promulgated under the Exchange Act, the rules and
regulations of the NASD or applicable state securities or "blue sky" laws, or
the Warrants are those underlying the Underwriter's Warrants, in any of which
events the Warrant Agent shall have to pay such amount to the Company; provided,
however, that the Warrant Agent shall not be obligated to pay any amounts
pursuant to this Section 4(b) during any week that such amounts payable are less
than one thousand dollars ($1,000) and the Warrant Agent's obligation to make
such payments shall be suspended until the amount payable aggregates one
thousand dollars ($1,000), and provided further, that, in any event, any such
payment (regardless of amount) shall be made not less frequently than monthly.
(c) The Company shall not be obligated to issue any fractional
share interests or fractional warrant interests upon the exercise of any Warrant
or Warrants, nor shall it be obligated to issue scrip or pay cash in lieu of
fractional interests. Any fraction equal to or greater than one-half (1/2) shall
be rounded up to the next full share or Warrant, as the case may be. Any
fraction less than one-half shall be eliminated.
SECTION 5. Reservation of Shares, Listing, Payment of Taxes, etc.
(a) The Company covenants that it will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose of
issuance upon the exercise of Warrants, such number of shares of Common Stock as
shall then be issuable upon the exercise of all outstanding Warrants. The
Company covenants that, upon exercise of the Warrants and payment of the
Purchase Price for the shares of Common Stock underlying the Warrants, all
shares of Common Stock which shall be issuable upon such exercise shall be duly
and validly issued, fully paid, non-assessable, free from all preemptive
10
<PAGE>
or similar rights, and free from all taxes, liens and charges with respect to
the issuance thereof, and that upon issuance such shares shall be listed or
quoted on each securities exchange, if any, on which the other shares of
outstanding Common Stock are then listed or quoted, or if not then so listed or
quoted on each place (whether the Nasdaq Stock Market, Inc., the NASD
Over-the-Counter Bulletin Board, the National Quotation Bulletin Board "Pink
Sheets" or otherwise) on which the other shares of outstanding Common Stock are
listed or quoted.
(b) The Company covenants that if any securities reserved for
the purpose of exercise of Warrants hereunder require registration with, or
approval of, any governmental authority under any federal securities law before
such securities may be validly issued or delivered upon such exercise, then the
Company will file a registration statement under the federal securities laws or
a post-effective amendment to a registration statement, use its best efforts to
cause the same to become effective, keep such registration statement current
while any of the Warrants are outstanding and deliver a prospectus which
complies with Section 10(a)(3) of the Act, to the Registered Holder exercising
the Warrant (except, if in the opinion of counsel to the Company, such
registration is not required under the federal securities law or if the Company
receives a letter from the staff of the Commission stating that it would not
take any enforcement action if such registration is not effected). The Company
will use its best efforts to obtain appropriate approvals or registrations under
the state "blue sky" securities laws of all states in which Registered Holders
reside. Warrants may not be exercised by, nor may shares of Common Stock be
issued to, any Registered Holder in any state in which such exercise would be
unlawful.
11
<PAGE>
(c) The Company shall pay all documentary, stamp or similar
taxes and other governmental charges that may be imposed with respect to the
issuance of Warrants, or the issuance or delivery of any shares of Common Stock
upon exercise of the Warrants; provided, however, that if shares of Common Stock
are to be delivered in a name other than the name of the Registered Holder of
the Warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requesting the same has paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized as the
Transfer Agent to requisition from time to time certificates representing shares
of Common Stock or other securities required upon exercise of the Warrants, and
the Company will comply with all such requisitions.
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants or may be
transferred in whole or in part. Warrant Certificates to be so exchanged shall
be surrendered to the Warrant Agent at its Corporate Office, and the Company
shall execute and the Warrant's Agent shall countersign, issue and deliver in
exchange therefor the Warrant Certificate or Certificates which the Registered
Holder making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep, at such office, books in
which, subject to such reasonable regulations as it may prescribe, it shall
register Warrant Certificates and the transfer thereof. Upon due presentment for
registration of transfer of any Warrant Certificate at such office, the Company
shall execute and the Warrant Agent shall issue and
12
<PAGE>
deliver to the transferee or transferees a new Warrant Certificate or
Certificates representing an equal aggregate number of Warrants.
(c) With respect to any Warrant Certificates presented for
registration of transfer, or for exchange or exercise, the subscription or
assignment form, as the case may be, on the reverse thereof shall be duly
endorsed or be accompanied by a written instrument or instruments of
subscription or assignment, in form satisfactory to the Company and the Warrant
Agent, duly executed by the Registered Holder thereof or his attorney duly
authorized in writing.
(d) No service charge shall be made for any exchange or
registration of transfer of Warrant Certificates. However, the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange shall be promptly cancelled by the Warrant Agent.
(f) Prior to due presentment for registration or transfer
thereof, the Company and the Warrant Agent may deem and treat the Registered
Holder of any Warrant Certificate as the absolute owner thereof of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than the Company or the Warrant Agent) for all
purposes and shall not be affected by any notice to the contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of and the loss,
theft, destruction or mutilation of any Warrant Certificate and (in the case of
loss, theft or destruction) of
13
<PAGE>
indemnity satisfactory to them, and (in case of mutilation) upon surrender and
cancellation thereof, the Company shall execute and the Warrant Agent shall
countersign and deliver in lieu thereof a new Warrant Certificate representing
an equal number of Warrants. Applicants for a substitute Warrant Certificate
shall also comply with such other reasonable regulations and pay such other
reasonable charges as the Warrant Agent may prescribe.
SECTION 8. Adjustment of Purchase Price and Number of Shares of Common
Stock Deliverable.
(a) (i) Except as hereinafter provided, in the event the
Company shall, at any time or from time to time after the date hereof, sell any
shares of Common Stock for a consideration per share less than the Purchase
Price or issue any shares of Common Stock as a stock dividend to the holders of
Common Stock, or subdivide or combine the outstanding shares of Common Stock
into a greater or lesser number of shares (any such sale, issuance, subdivision
or combination being herein called a "Change of Shares"), then, and thereafter
upon each further Change of Shares, the Purchase Price for the Warrants (whether
or not the same shall be issued and outstanding) in effect immediately prior to
such Change of Shares shall be changed to a price (including any applicable
fraction of a cent to the nearest cent) determined by dividing (A) the sum of
(x) the total number of shares of Common Stock outstanding immediately prior to
such Change of Shares, multiplied by the Purchase Price in effect immediately
prior to such Change of Shares, and (y) the consideration, if any, received by
the Company upon such sale, issuance, subdivision or combination by (B) the
total number of shares of Common Stock outstanding immediately after such Change
of Shares; provided, however, that in no event shall the Purchase Price be
adjusted pursuant to this
14
<PAGE>
computation to an amount in excess of the Purchase Price in effect immediately
prior to such computation, except in the case of a combination of outstanding
shares of Common Stock.
For the purposes of any adjustment to be made in accordance with this
Section 8(a)(i) the following provisions shall be applicable:
(A) In case of the issuance or sale of shares of Common Stock
(or of other securities deemed hereunder to involve the issuance or sale of
shares of Common Stock) for a consideration part or all of which shall be cash,
the amount of the cash portion of the consideration therefor deemed to have been
received by the Company shall be (i) the subscription price, if shares of Common
Stock are offered by the Company for subscription, or (ii) the public offering
price (before deducting therefrom any compensation paid or discount allowed in
the sale, underwriting or purchase thereof by underwriters or dealers or others
performing similar services, or any expenses incurred in connection therewith),
if such securities are sold to underwriters or dealers for public offering
without a subscription offering, or (iii) the gross amount of cash actually
received by the Company for such securities, in any other case.
(B) In case of the issuance or sale (otherwise than as a
dividend or other distribution on any stock of the Company, and otherwise than
on the exercise of options, rights or warrants or the conversion or exchange of
convertible or exchangeable securities) of shares of Common Stock (or of other
securities deemed hereunder to involve the issuance or sale of shares of Common
Stock) for a consideration part or all of which shall be other than cash, the
amount of the consideration therefor other than cash deemed to have been
received by the Company shall be the value of such consideration as determined
in
15
<PAGE>
good faith by the Board of Directors of the Company on the basis of a record of
values of similar property or services.
(C) Shares of Common Stock issuable by way of dividend or
other distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following the record
date for the determination of shareholders entitled to receive such dividend or
other distribution and shall be deemed to have been issued without
consideration.
(D) The reclassification of securities of the Company other
than shares of Common Stock into securities including shares of Common Stock
shall be deemed to involve the issuance of such shares of Common Stock for a
consideration other than cash immediately prior to the close of business on the
date fixed for the determination of security holders entitled to receive such
shares, and the value of the consideration allocable to such shares of Common
Stock shall be determined as provided in subsection (B) of this Section 8(a)(i).
(E) The number of shares of Common Stock at any one time
outstanding shall be deemed to include the aggregate maximum number of shares
issuable (subject to readjustment upon the actual issuance thereof) upon the
exercise of options, rights or warrants and upon the conversion or exchange of
convertible or exchangeable securities.
(ii) Upon each adjustment of the Purchase Price pursuant to
this Section 8, the number of shares of Common Stock purchasable upon the
exercise of each Warrant shall be the number derived by multiplying the number
of shares of Common Stock purchasable immediately prior to such adjustment by
the Purchase Price in effect prior to such adjustment and dividing the product
so obtained by the applicable adjusted Purchase Price.
16
<PAGE>
(b) In case the Company shall at any time after the date
hereof issue options, rights or warrants to subscribe for shares of Common
Stock, or issue any securities convertible into or exchangeable for shares of
Common Stock, for a consideration per share (determined as provided in Section
8(a)(i) hereof and as provided below) less than the Purchase Price in effect
immediately prior to the issuance of such options, rights or warrants, or such
convertible or exchangeable securities, or without consideration (including the
issuance of any such securities by way of dividend or other distribution), the
Purchase Price for the Warrants (whether or not the same shall be issued and
outstanding) in effect immediately prior to the issuance of such options, rights
or warrants, or such convertible or exchangeable securities, as the case may be,
shall be reduced to a price determined by making the computation in accordance
with the provisions of Section 8(a)(i) hereof, provided that:
(A) The aggregate maximum number of shares of Common Stock, as
the case may be, issuable or that may become issuable under such options, rights
or warrants (assuming exercise in full even if not then currently exercisable or
currently exercisable in full) shall be deemed to be issued and outstanding at
the time such options, rights or warrants were issued, for a consideration equal
to the minimum purchase price per share provided for in such options, rights or
warrants at the time of issuance, plus the consideration, if any, received by
the Company for such options, rights or warrants; provided, however, that upon
the expiration or other termination of such options, rights or warrants, if any
thereof shall not have been exercised, the number of shares of Common Stock
deemed to be issued and outstanding pursuant to this subsection (A) (and for the
purposes of subsection (E) of Section 8(a)(i) hereof) shall be reduced by the
number of
17
<PAGE>
shares as to which options, warrants and/or rights shall have expired, and such
number of shares shall no longer be deemed to be issued and outstanding, and the
Purchase Price then in effect shall forthwith be readjusted and thereafter be
the price that it would have been had adjustment been made on the basis of the
issuance only of the shares actually issued plus the shares remaining issuable
upon the exercise of those options, rights or warrants as to which the exercise
rights shall not have expired or terminated unexercised.
(B) The aggregate maximum number of shares of Common Stock
issuable or that may become issuable upon conversion or exchange of any
convertible or exchangeable securities (assuming conversion or exchange in full
even if not then currently convertible or exchangeable in full) shall be deemed
to be issued and outstanding at the time of issuance of such securities, for a
consideration equal to the consideration received by the Company for such
securities, plus the minimum consideration, if any, receivable by the Company
upon the conversion or exchange thereof; provided, however, that upon the
termination of the right to convert or exchange such convertible or exchangeable
securities (whether by reason of redemption or otherwise), the number of shares
of Common Stock deemed to be issued and outstanding pursuant to this subsection
(B) (and for the purposes of subsection (E) of Section 8(a)(i) hereof) shall be
reduced by the number of shares as to which the conversion or exchange rights
shall have expired or terminated unexercised, and such number of shares shall no
longer be deemed to be issued and outstanding, and the Purchase Price then in
effect shall forthwith be readjusted and thereafter be the price that it would
have been had adjustment been made on the basis of the issuance only of the
shares actually issued plus the shares remaining issuable upon conversion or
exchange of those
18
<PAGE>
convertible or exchangeable securities as to which the conversion or exchange
rights shall not have expired or terminated unexercised.
(C) If any change shall occur in the price per share provided
for in any of the options, rights or warrants referred to in subsection (A) of
this Section 8(b), or in the price per share or ratio at which the securities
referred to in subsection (B) of this Section 8(b) are convertible or
exchangeable, such options, rights or warrants or conversion or exchange rights,
as the case may be, to the extent not theretofore exercised, shall be deemed to
have expired or terminated on the date when such price change became effective
in respect of shares not theretofore issued pursuant to the exercise or
conversion or exchange thereof, and the Company shall be deemed to have issued
upon such date new options, rights or warrants or convertible or exchangeable
securities.
(c) In case of any reclassification or change of outstanding
shares of Common Stock issuable upon exercise of the Warrants (other than a
change in par value, or from par value to no par value, or from no par value to
par value or as a result of a subdivision or combination), or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with a Subsidiary in which merger the Company is the continuing
corporation and which does not result in any reclassification or change of the
then outstanding shares of Common Stock or other capital stock issuable upon
exercise of the Warrants), or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, then, as a condition of such reclassification, change, consolidation,
merger, sale or conveyance, the Company, or such successor or purchasing
corporation, as the case may be, shall make lawful and adequate provision
whereby the Registered Holder of each Warrant then outstanding shall
19
<PAGE>
have the right thereafter to receive on exercise of such Warrant the kind and
amount of securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of
securities issuable upon exercise of such Warrant immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance and shall
forthwith file at the Corporate Office of the Warrant Agent a statement signed
by its Chairman of the Board, President or a Vice President and by its Treasurer
or an Assistant Treasurer or its Secretary or an Assistant Secretary evidencing
such provision. Such provisions shall include provision for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in Sections 8(a) and 8(b) hereof. The above provisions of this Section 8(c)
shall similarly apply to successive reclassifications and changes of shares of
Common Stock and to successive consolidations, mergers, sales or conveyances.
(d) Irrespective of any adjustments or changes in the Purchase
Price or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Section 2(e) hereof, continue to express the Purchase Price per
share and the number of shares purchasable thereunder as the Purchase Price per
share and the number of shares purchasable thereunder were expressed in the
Warrant Certificates when the same were originally issued.
(e) After each adjustment of the Purchase Price pursuant to
this Section 8, the Company will promptly prepare a certificate signed by the
Chairman of the Board, President, or a Vice President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the Company
setting forth: (i) the Purchase Price as so
20
<PAGE>
adjusted, (ii) the number of shares of Common Stock purchasable upon exercise of
each Warrant, after such adjustment, and (iii) a brief statement of the facts
accounting for such adjustment. The Company will promptly file such certificate
with the Warrant Agent and cause a brief summary thereof to be sent by ordinary
first class mail to each Registered Holder at his last address as it shall
appear on the registry books of the Warrant Agent. No failure to mail such
notice nor any defect therein or in the mailing thereof shall affect the
validity thereof except as to the holder to whom the Company failed to mail such
notice, or except as to the holder whose notice was defective. The affidavit of
an officer of the Warrant Agent or the Secretary or an Assistant Secretary of
the Company that such notice has been mailed shall, in the absence of fraud, be
prima facie evidence of the facts stated therein.
(f) No adjustment of the Purchase Price shall be made as a
result of or in connection with (A) the issuance or sale of shares of Common
Stock pursuant to options, warrants, stock purchase agreements and convertible
or exchangeable securities outstanding or in effect on the date hereof, (B) the
issuance or sale of shares of Common Stock upon the exercise of any "incentive
stock options" (as such term is defined in the Internal Revenue Code of 1986, as
amended), whether or not such options were outstanding on the date hereof, or
(C) the issuance or sale of shares of Common Stock if the amount of said
adjustment shall be less than ten cents ($.10); provided, however, that in such
case, any adjustment that would otherwise be required then to be made shall be
carried forward and shall be made at the time of and together with the next
subsequent adjustment that shall amount, together with any adjustment so carried
forward, to at least ten cents ($.10). In
21
<PAGE>
addition, Registered Holders shall not be entitled to cash dividends paid by the
Company prior to the exercise of any Warrant or Warrants held by them.
SECTION 9. Redemption.
(a) Commencing on the Initial Warrant Redemption Date for the
Warrants, the Company may (but only with the prior written consent of the
Underwriter), on thirty (30) days' prior written notice, redeem all of the
Warrants, at a redemption price of ten cents ($.10) per Warrant; provided,
however, that before any such call for redemption of Warrants can take place,
the (i) closing bid price for the Common Stock, as reported by the National
Association of Securities Dealers Automated Quotation System, or (ii) if not so
quoted, as reported by any other recognized quotation system on which the Common
Stock is quoted, shall have for any twenty (20) trading days within a period of
thirty (30) consecutive trading days ending on the fifth (5th) trading day prior
to the date on which the notice contemplated by Sections 9(b) and 9(c) hereof is
given, equalled or exceeded seven dollars and fifty cents ($7.50) per share of
Common Stock with respect to the Warrants (each subject to adjustment in the
event of any stock splits or other similar events as provided in Section 8
hereof).
(b) In case the Company shall exercise its right to redeem all
of the Warrants, it shall give or cause to be given notice to the Registered
Holders of the Warrants, by mailing to such Registered Holders a notice of
redemption, first class, postage prepaid, at their last address as shall appear
on the records of the Warrant Agent. Any notice mailed in the manner provided
herein shall be conclusively presumed to have been duly given whether or not the
Registered Holder receives such notice. Not less than five (5) business days
prior to the mailing to the Registered Holders of the Warrants of the notice of
redemption, the Company shall deliver or cause to be delivered to the
Underwriter or its successors or
22
<PAGE>
assigns a similar notice telephonically and confirmed in writing, together with
a list of the Registered Holders (including their respective addresses and
number of Warrants beneficially owned by them) to whom such notice of redemption
has been or will be given.
(c) The notice of redemption shall specify (i) the redemption
price, (ii) the date fixed for redemption, which shall in no event be less than
thirty (30) days after the date of mailing of such notice, (iii) the place where
the Warrant Certificates shall be delivered and the redemption price shall be
paid, (iv) that the Underwriter or its successors or assigns is the Company's
exclusive warrant solicitation agent and shall receive the commission
contemplated by Section 4(b) hereof, and (v) that the right to exercise the
Warrant shall terminate at 5:00 p.m. (New York time) on the business day
immediately preceding the date fixed for redemption. The date fixed for the
redemption of the Warrants shall be the "Redemption Date" for purposes of this
Agreement. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity of the proceedings for such redemption
except as to a holder (A) to whom notice was not mailed or (B) whose notice was
defective. An affidavit of the Warrant Agent or the Secretary or Assistant
Secretary of the Company that notice of redemption has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00
p.m. (New York time) on the business day immediately preceding the Redemption
Date. The redemption price payable to the Registered Holders shall be mailed to
such persons at their addresses of record.
(e) The Company shall indemnify the Underwriter and each
person, if any, who controls the Underwriter within the meaning of Section 15 of
the Act or Section 20(a) of
23
<PAGE>
the Exchange Act against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become subject
under the Act, the Exchange Act or otherwise arising out of the registration
statement or prospectus referred to in Section 5(b) hereof to the same extent
and with the same effect (including the provisions regarding contribution) as
the provisions pursuant to which the Company has agreed to indemnify the
Underwriter contained in Section 7 of the Underwriting Agreement.
(f) Five (5) business days prior to the Redemption Date, the
Company shall furnish to the Underwriter (i) an opinion of counsel to the
Company, dated such date and addressed to the Underwriter, and (ii) a "cold
comfort" letter dated such date addressed to the Underwriter, signed by the
independent public accountants who have issued a report on the Company's
financial statements included in the registration statement referred to in
Section 5(b) hereof, in each case covering substantially the same matters with
respect to such registration statement (and the prospectus included therein)
and, in the case of such accountants' letter, with respect to events subsequent
to the date of such financial statements, as are customarily covered in opinions
of issuer's counsel and in accountants' letters delivered to underwriters in
underwritten public offerings of securities, including, without limitation,
those matters covered in Sections 6(d) and (i) of the Underwriting Agreement.
(g) The Company shall as soon as practicable after the
Redemption Date, and in any event within fifteen (15) months thereafter, make
"generally available to its security holders" (within the meaning of Rule 158
under the Act) an earnings statement (which need not be audited) complying with
Section 11(a) of the Act and covering a period of at least twelve (12)
consecutive months beginning after the Redemption Date.
24
<PAGE>
(h) The Company shall deliver within five (5) business days
prior to the Redemption Date copies of all correspondence between the Commission
and the Company, its counsel or auditors and all memoranda relating to
discussions with the Commission or its staff with respect to the registration
statement referred to in Section 5(b) hereof and permit the Underwriter to do
such investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or the rules of the NASD.
Such investigation shall include access to books, records and properties and
opportunities to discuss the business of the Company with its officers and
independent auditors, all to such reasonable extent and at such reasonable times
and as often as the Underwriter shall reasonably request.
SECTION 10. Concerning the Warrant Agent.
(a) The Warrant Agent acts hereunder as agent and in a
ministerial capacity for the Company and the Underwriter, and its duties shall
be determined solely by the provisions hereof. The Warrant Agent shall not, by
issuing and delivering Warrant Certificates or by any other act hereunder, be
deemed to make any representations as to the validity or value or authorization
of the Warrant Certificates or the Warrants represented thereby or of any
securities or other property delivered upon exercise of any Warrant or whether
any stock issued upon exercise of any Warrant is fully paid and non-assessable.
(b) The Warrant Agent shall not at any time be under any duty
or responsibility to any holder of Warrant Certificates to make or cause to be
made any adjustment of the Purchase Price provided in this Agreement, or to
determine whether any fact exists which may require any such adjustment, or with
respect to the nature or extent of
25
<PAGE>
any such adjustment, when made, or with respect to the method employed in making
the same. It shall not (i) be liable for any recital or statement of fact
contained herein or for any action taken, suffered or omitted by it in reliance
on any Warrant Certificate or other document or instrument believed by it in
good faith to be genuine and to have been signed or presented by the proper
party or parties, (ii) be responsible for any failure on the part of the Company
to comply with any of its covenants and obligations contained in this Agreement
or in any Warrant Certificate, or (iii) be liable for any act or omission in
connection with this Agreement except for its own gross negligence or willful
misconduct.
(c) The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company or the Underwriter) and
shall incur no liability or responsibility for any action taken, suffered or
omitted by it in good faith in accordance with the opinion or advice of such
counsel.
(d) Any notice, statement, instruction, request, direction,
order or demand of the Company shall be sufficiently evidenced by an instrument
signed by the Chairman of the Board of Directors, President or any Vice
President (unless other evidence in respect thereof is herein specifically
prescribed). The Warrant Agent shall not be liable for any action taken,
suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand.
(e) The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its reasonable
expenses hereunder; the Company further agrees to indemnify the Warrant Agent
and hold it harmless against any and all losses, expenses and liabilities,
including judgments, costs and counsel fees, for anything done or omitted by the
Warrant Agent in the execution of its duties and
26
<PAGE>
powers hereunder except losses, expenses and liabilities arising as a result of
the Warrant Agent's gross negligence or willful misconduct.
(f) The Warrant Agent may resign its duties and be discharged
from all further duties and liabilities hereunder (except liabilities arising as
a result of the Warrant Agent's own gross negligence or willful misconduct),
after giving thirty (30) days' prior written notice to the Company. At least
fifteen (15) days prior to the date such resignation is to become effective, the
Warrant Agent shall cause a copy of such notice of resignation to be mailed to
the Registered Holder of each Warrant Certificate at the Company's expense. Upon
such resignation the Company shall appoint in writing a new warrant agent. If
the Company shall fail to make such appointment within a period of thirty (30)
days after it has been notified in writing of such resignation by the resigning
Warrant Agent, then the Registered Holder of any Warrant Certificate may apply
to any court of competent jurisdiction for the appointment of a new warrant
agent. Any new warrant agent, whether appointed by the Company or by such a
court, shall be a bank or trust company having a capital and surplus, as shown
by its last published report to its stockholders, of not less than ten million
dollars ($10,000,000) or a stock transfer company doing business in New York,
New York. After acceptance in writing of such appointment by the new warrant
agent is received by the Company, such new warrant agent shall be vested with
the same powers, rights, duties and responsibilities as if it had been
originally named herein as the warrant agent, without any further assurance,
conveyance, act or deed; but if for any reason it shall be necessary or
expedient to execute and deliver any further assurance, conveyance, act or deed,
the same shall be done at the expense of the Company and shall be legally and
validly executed and delivered by the resigning Warrant Agent. Not later than
the effective date of
27
<PAGE>
any such appointment, the Company shall file notice thereof with the resigning
Warrant Agent and shall forthwith cause a copy of such notice to be mailed to
the Registered Holder of each Warrant Certificate.
(g) Any corporation into which the Warrant Agent or any new
warrant agent may be converted or merged, any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party, or any corporation succeeding to the corporate trust business of the
Warrant Agent or any new warrant agent shall be a successor warrant agent under
this Agreement without any further act, provided that such corporation is
eligible for appointment as successor to the Warrant Agent under the provisions
of the preceding paragraph. Any such successor warrant agent shall promptly
cause notice of its succession as warrant agent to be mailed to the Company and
to the Registered Holders of each Warrant Certificate.
(h) The Warrant Agent, its subsidiaries and affiliates, and
any of its or their officers or directors, may buy and hold or sell Warrants or
other securities of the Company and otherwise deal with the Company in the same
manner and to the same extent and with like effect as though it were not Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
(i) The Warrant Agent shall retain for a period of two (2)
years from the date of exercise any Warrant Certificate received by it upon such
exercise.
SECTION 11. Modification of Agreement.
The Warrant Agent and the Company may by supplemental agreement make
any changes or corrections in this Agreement (a) that they shall deem
appropriate to cure any
28
<PAGE>
ambiguity or to correct any defective or inconsistent provision or manifest
mistake or error herein contained, or (b) that they may deem necessary or
desirable and which shall not adversely affect the interests of the holders of
Warrant Certificates; provided, however, that this Agreement shall not otherwise
be modified, supplemented or altered in any respect except with the consent in
writing of the Registered Holders holding not less than sixty-six and two-thirds
percent (66-2/3%) of the Warrants then outstanding; provided, further, that no
change in the number or nature of the securities purchasable upon the exercise
of any Warrant, and no change that increases the Purchase Price of any Warrant,
other than such changes as are specifically set forth in this Agreement as
originally executed, shall be made without the consent in writing of each
Registered Holders affected by such change. In addition, this Agreement may not
be modified, amended or supplemented without the prior written consent of the
Underwriter or its successors or assigns, other than to cure any ambiguity or to
correct any defective or inconsistent provision or manifest mistake or error
herein contained or to make any such change that the Warrant Agent and the
Company deem necessary or desirable and which shall not adversely affect the
interests of the Underwriter or its successors or assigns.
SECTION 12. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been made when delivered or
mailed first-class postage prepaid or delivered to a telegraph office for
transmission, if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the Warrant
Agent; if to the Company at Imatec, Ltd., 150 East 58th Street, New York, New
York 10155, Attention: Dr. Hanoch Shalit, President, or at such other address as
may
29
<PAGE>
have been furnished to the Warrant Agent in writing by the Company; and if to
the Warrant Agent, at its Corporate Office. Copies of any notice delivered
pursuant to this Agreement shall be delivered to A.S. Goldmen & Co., Inc., 99
Wood Avenue South, Suite 902, Iselin, New Jersey 08830, Attention: Stuart
Winkler, Vice President, or at such other address as may have been furnished to
the Company and the Warrant Agent in writing.
SECTION 13. Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without giving effect to conflicts of laws
rules or principals.
SECTION 14. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
Company, the Warrant Agent and their respective successors and assigns and the
holders from time to time of Warrant Certificates or any of them. Except as
hereinafter stated, nothing in this Agreement is intended or shall be construed
to confer upon any other person any right, remedy or claim or to impose upon any
other person any duty, liability or obligation. The Underwriter is, and shall at
all times irrevocably be deemed to be, a third-party beneficiary of this
Agreement, with full power, authority and standing to enforce the rights granted
to it hereunder.
SECTION 15. Counterparts.
This Agreement may be executed in several counterparts, which taken
together shall constitute a single document.
30
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
IMATEC, LTD. CONTINENTAL STOCK TRANSFER
& TRUST COMPANY
As Warrant Agent
By: ______________________ By:___________________________
Name: Dr. Hanoch Shalit Name:
Title: President Title:
<PAGE>
EXHIBIT A
No. W ___________ VOID AFTER ____________________, 2001
_________ WARRANTS
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE SHARES OF COMMON STOCK
IMATEC, LTD.
CUSIP____
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Warrants (the "Warrants") specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and non-assessable share of Common Stock, $.0001 par
value per share, of Imatec, Ltd., a Delaware corporation (the "Company"), at any
time from _____________, 1996 [the effective date of the Registration Statement]
and prior to the Expiration Date (as hereinafter defined) upon the presentation
and surrender of this Warrant Certificate with the Subscription Form on the
reverse hereof duly executed, at the corporate office of Continental Stock
Transfer & Trust Company, 2 Broadway, New York, New York 10004, as Warrant
Agent, or its successor (the "Warrant Agent"), accompanied by payment of $6.50,
subject to adjustment (the "Purchase Price"), in lawful money of the United
States of America in cash or by check made payable to the Warrant Agent for the
account of the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated __________, 1996
[the effective date of the Registration Statement], by and between the Company
and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all the Warrants represented hereby, the Company shall
cancel this Warrant Certificate upon the surrender hereof and shall execute and
deliver a new Warrant Certificate or Warrant Certificates of like tenor, which
the Warrant Agent shall countersign, for the balance of such Warrants.
A-1
<PAGE>
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
__________, 1999 [36 months from the effective date of the Registration
Statement]. If such date shall in the State of New York be a holiday or a day on
which banks are authorized to close, then the Expiration Date shall mean 5:00
p.m. (New York time) the next following day which in the State of New York is
not a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended (the "Act"), with respect to such securities
is effective or an exemption thereunder is available. The Company has covenanted
and agreed that it will file a registration statement under the Federal
securities laws, use its best efforts to cause the same to become effective, to
keep such registration statement current, if required under the Act, while any
of the Warrants are outstanding, and deliver a prospectus which complies with
Section 10(a)(3) of the Act to the Registered Holder exercising this Warrant.
This Warrant shall not be exercisable by a Registered Holder in any state where
such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may be
redeemed at the option of the Company, at a redemption price of $.10 per
Warrant, at any time commencing __________, 1997 [nine months from the effective
date of the Registration Statement], provided that the closing bid price for the
Company's Common Stock, as reported by the National Association of Securities
Dealers Automated Quotation System (or, if not so quoted, as reported by any
other recognized quotation system on which the price of the Common Stock is
quoted), shall have, for any twenty (20) trading days within a period of thirty
(30) consecutive trading days ending on the fifth (5th) trading day prior to the
date on which the Notice of Redemption (as defined below) is given, equalled or
exceeded $7.50 per share (subject to adjustment in the event of any stock splits
or other similar events). Notice of redemption (the "Notice of Redemption")
shall be given not later than the thirtieth (30th) day before the date fixed for
redemption, all as provided in the Warrant Agreement. On and
A-2
<PAGE>
after the date fixed for redemption, the Registered Holder shall have no rights
with respect to this Warrant except to receive the $.10 per Warrant upon
surrender of this Certificate.
Under certain circumstances, A.S. Goldmen & Co., Inc. shall be entitled
to receive an aggregate of four percent of the Purchase Price of the Warrants
represented hereby.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to
conflicts of laws.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: ___________, 1996
IMATEC, LTD.
[SEAL]
By:________________________________
Name: Dr. Hanoch Shalit
Title: President
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER &
TRUST COMPANY, as Warrant Agent
By:_________________________
Authorized Officer
A-3
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrant
The undersigned Registered Holder hereby irrevocably elects to exercise
_____ Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
---------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
(please print or type name and address)
and be delivered to
---------------------------------------
---------------------------------------
---------------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
1. The exercise of this Warrant was
solicited by A.S. Goldmen & Co., Inc.
unless the following box is
checked [ ]
2. The exercise of this Warrant was
solicited by
--------------------------- [ ]
A-4
<PAGE>
3. If the exercise of this Warrant was
not solicited, please check the
following box [ ]
Dated: X
------------------------- --------------------------------
--------------------------------
--------------------------------
Address
--------------------------------
Social Security or Taxpayer
Identification Number
--------------------------------
Signature Guaranteed
--------------------------------
A-5
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, __________________________, hereby sells, assigns
and transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER
----------------------------------
----------------------------------
----------------------------------
(please print or type name and address)
________________________ of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints
____________________ Attorney to transfer this Warrant Certificate on the books
of the Company, with full power of substitution in the premises.
Dated: X
--------------------------- -------------------------------
-------------------------------
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE,
MIDWEST STOCK EXCHANGE OR BOSTON STOCK EXCHANGE.
A-6
<PAGE>
EXHIBIT 5
ZUKERMAN GORE & BRANDEIS, LLP
900 THIRD AVENUE
NEW YORK, NY 10022
(212) 223-6700
October 11, 1996
Board of Directors
Imatec, Ltd.
150 E. 58th Street
New York, NY 10155
Re: Imatec, Ltd.;
Registration Statement on Form SB-2
------------------------------------
Gentlemen:
We have acted as counsel for Imatec, Ltd., a Delaware corporation (the
"Company"), in connection with the preparation and filing by the Company of a
registration statement on Form SB-2, File No. 333-3589, and the prospectus that
forms a part thereof (the "Registration Statement" and "Prospectus,"
respectively) under the Securities Act of 1933, as amended, relating to the
public offering (this "Offering") of (i) 1,000,000 shares of common stock, par
value $.0001 per share (the "Common Stock"), (ii) 6,150,000 redeemable common
stock purchase warrants (the "Redeemable Warrants"), including 2,150,000
Redeemable Warrants being registered for offer and sale on behalf of certain
selling stockholders of the Company (the "Selling Stockholders"), and (iii)
2,789,194 shares of Common Stock on behalf of certain Selling Stockholders. The
Registration Statement and Prospectus also (i) relates to the registration of
the shares of the Company's Common Stock issuable upon the exercise of the
Redeemable Warrants (including the shares of Common Stock issuable upon the
exercise of the Redeemable Warrants contained in the Underwriter's Warrants
referred to in the last sentence of this paragraph), and (ii) involves the grant
to A.S. Goldmen & Co., Inc., the underwriter of this Offering (the
"Underwriter"), of an option to purchase up to an aggregate of an additional
150,000 shares of Common Stock and/or 600,000 Redeemable Warrants for the sole
purpose of covering over-allotments, if any. Further, this Prospectus involves
the sale of warrants to the Underwriter, for nominal consideration (the
"Underwriter's Warrants"), to purchase from the Company 100,000 shares of
Common Stock and 400,000 Redeemable Warrants.
<PAGE>
Board of Directors
Imatec, Ltd.
October 11, 1996
Page 2
We have examined the Certificate of Incorporation and the ByLaws of the
Company, the minutes of the various meetings and consents of the Board of
Directors of the Company, drafts of the Underwriting Agreement relating to the
offering of the Company's Common Stock, (as that agreement is defined in the
Registration Statement), draft forms of certificates representing the Common
Stock and the Representative's Warrant, originals or copies of such records of
the Company and where applicable, its predecessor-in-interest, agreements,
certificates of public officials, certificates of officers and representatives
of the Company and its predecessor-in-interest, and others, and such other
documents, certificates, records, authorizations, proceedings, statutes and
judicial decisions as we have deemed necessary to form the basis of the opinion
expressed below. In such examination, we have assumed the genuiness of all
signatures, the authenticity of all documents submitted to us as originals and
the conformity to originals of all documents submitted to us as copies thereof.
As to various questions of fact material to such opinion, we have relied upon
statements and certificates of officers and representatives of the Company and
its predecessor-in-interest and others.
Based on the foregoing, we are of the opinion that:
1. All shares of Common Stock, including shares of Common Stock for the
purpose of covering over-allotments, if any, have been duly authorized and, when
issued and sold in accordance with the Prospectus, will be validly issued, fully
paid and nonassessable.
2. The Redeemable Warrants, including Redeemable Warrants for the
purpose of covering over-allotments, if any, and the Underwriter's Warrants have
been duly authorized and, when issued and sold in accordance with the
Prospectus, will be validly issued, fully paid and nonassessable.
3. All shares of Common Stock issuable upon the exercise of the
Redeemable Warrants have been duly authorized and, when issued upon the exercise
of the Redeemable Warrants in accordance their respective terms, will be validly
issued, fully paid and nonassessable.
4. The shares of Common Stock and the Redeemable Warrants issuable upon
exercise of the Underwriter's Warrants, (and the shares of Common Stock issuable
upon the exercise of the Redeemable Warrants issuable upon the exercise of the
Underwriter's Warrants) have been duly authorized, and when issued in accordance
with its terms, will be validly issued, fully paid and nonassessable.
<PAGE>
Board of Directors
Imatec, Ltd.
October 11, 1996
Page 3
We hereby consent to be named in the Prospectus as attorneys who have
passed upon the validity of the shares of Common Stock for the Company under the
caption "Legal Matters."
We further consent to your filing a copy of this opinion as an exhibit
to the Prospectus.
Very truly yours,
/s/ Zukerman Gore & Brandeis, LLP
-----------------------------------
ZUKERMAN GORE & BRANDEIS, LLP
ZG&B/mi
<PAGE>
Exhibit 10.4
AGREEMENT
THIS AGREEMENT made as of this 24th day of September, 1996, by and
between IMATEC Limited, a corporation of Delaware, (hereinafter called
"Employer" or "IMATEC") and JAMES A. SMITH (hereinafter called "Employee").
W I T N E S E T H
WHEREAS, the Employee possesses the knowledge, skills and experience
necessary to serve and advance the operations and business of the Employer in
the capacity designated in this Agreement; and
WHEREAS, Employer desires to employ the Employee to serve in the
capacity designated in this Agreement, and Employee is willing to accept
employment as such; and
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the parties intending to be legally bound agree as follows,
1. EMPLOYMENT:
The Employer hereby employs the Employee and the Employee
hereby accepts employment in the position of Chief Financial Officer, under and
subject to the terms and conditions contained in this Agreement.
<PAGE>
2. TERM OF EMPLOYMENT:
Subject to the provisions for termination of employment as
hereinafter provided, Employee's term of employment by Employer under this
Agreement shall commence on September 24th, 1996 and terminate September 25th,
2001.
3. EXTENT OF SERVICES:
Employee shall be a full-time employee, in the above named
position and shall devote that amount of his ability, working time and energy to
serve and advance the operations and business of the Employer and to perform his
duties in a faithful and diligent manner hereunder. The duties of Employee in
the capacity of employment designated in this Agreement shall be those set forth
by the Employer consistent with duties and responsibilities considered typical
of the above designated position. The employee will report directly to the
President of the Employer during the term of his employment.
4. COMPENSATION:
For all services performed by Employee in the described
capacity hereunder, Employee shall receive remuneration as designated in
Schedule 1.
The compensation to Employee for services provided according
to paragraph 1 above, may only be terminated following the termination procedure
as outlined in paragraph 5. Upon termination, the compensation and benefits for
the above services will terminate as well.
2
<PAGE>
5. TERMINATION:
Notwithstanding any other provision hereof, Employee's
employment, hereunder may be ended at any time for any cause or no cause upon
written notice of thirty (30) days. Employee must provide Employer at least
thirty (30) days written notice prior to resignation.
6. BENEFITS:
Employee shall be entitled to receive all benefits set forth
in Schedule 2.
7. WORKING FACILITIES:
The employee shall be furnished with an office, administrative
and stenographic help, and such other facilities, services, and expense
reimbursement suitable to his position and adequate for the performance of his
duties. The Employee will work at the corporate headquarters with the exception
of travel for business.
8. DISCLOSURE OF INFORMATION:
A. Employee recognizes that by reason of employment with
Employer, he has engaged in and will engage in and has gained and will gain
knowledge of information, developments, research projects, manufacturing and
trade secrets, know-how and business confidences relating to, and concerned
with, the past, present and future business operations, products and policies of
the Employer, its affiliates, suppliers, customers and other persons. Employee
hereby agrees to hold as secret and confidential any and all proprietary trade
secret information that has been or will be
3
<PAGE>
disclosed to him by Employer, or which he has learned or will learn of by virtue
of employment with Employer, excluding information which Employee can establish
was already known to him or which becomes public through no fault of Employee or
which is obtained from another lawful source.
B. Employee hereby agrees not to use such information for his own
benefit or to disclose or to use such information for the benefit of others,
during the term of his employment, and for a period of three years after
termination of employment, without the written consent of Employer, until such
information shall become public knowledge.
Employee acknowledges that all lists, books, records,
literature, products and any other materials owned by Employer or its affiliates
or used by them in connection with the conduct of their business, shall at all
times remain the property of Employer and its affiliates and that upon
termination of Employee hereby agrees to surrender to Employer and its
affiliates all such lists, books, records, literature, products and other
materials immediately thereupon.
C. Employee hereby agrees, for a period of three (3) years
following termination for any reason, not to solicit or endeavor in any manner
to entice away, any other person, who was an employee of the employer during his
period of service with Employer.
4
<PAGE>
D. Employee agrees to communicate to Employer promptly, in
writing, all inventions, discoveries and improvements, whether or not
patentable, which Employee may conceive or make, either solely or jointly with
others, in the Employer's stated business fields and related product areas,
during the term of this employment.
E. Employee hereby agrees to take whatever reasonable steps are
requested by Employer to secure patent or other legal protection on such
inventions, discoveries and improvements in any and all countries. The Employer
will own the patents. It is understood by and between the parties that all
necessary costs of making and securing such patents shall be paid for solely by
Employer.
9. COVENANT NOT TO COMPETE:
A. Employee hereby agrees that he will not, during the term of
his full time employment by Employer, and for a period of three years after
Termination of employment, engage in any business or perform any service,
directly or indirectly, in competition with the business of Employer or any of
its affiliates within the United States and Canada, or have any interest,
whether as proprietor, partner, major stockholder (greater than 50%), principal,
agent, director or officer in any enterprise which shall so engage.
5
<PAGE>
B. In furtherance of the foregoing, and not in limitation
thereof, Employee hereby agrees, during the period of non-competition referred
to in subparagraph A above, not to directly or indirectly solicit or service in
any way, on behalf of himself or on behalf of or in conjunction with others, for
any image technology product or service, any client or customer, or prospective
client or customer, who has been solicited or serviced by Employer or any
affiliate of Employer as long as Employer, its affiliates and/or successors, are
in existence.
C. If any Court shall determine that the duration or geographical
limits or any restriction contained in this paragraph is unenforceable, it is
the intention of the parties that the restrictive covenant set forth herein
shall not thereby be terminated, and shall be amended as determined by the Court
to the extent required to render it valid and enforceable.
D. Employee acknowledges that he is being paid additional
consideration in the form of fifteen thousand (15,000.00) dollars by IMATEC.
10. REMEDIES OF EMPLOYER:
Employee acknowledges that the restrictions contained in
paragraphs 8 and 9 of this Agreement are a reasonable and necessary protection
of the legitimate interests of Employer, that any violation of them would cause
substantial injury to Employer, and that Employer would not have entered into
this Agreement with Employee without receiving the additional consideration of
Employee binding himself to said restrictions. In the event of any violation of
the said restrictions, Employer shall be entitled, in addition to any other
remedy, to preliminary and permanent injunctive relief.
6
<PAGE>
11. IMPEDIMENT:
A. Employee hereby represents, warrants and agrees that his
execution and delivery of this Agreement and performance of his duties and
obligations hereunder will not violate the provisions of any employment, trade
secret, patent, non-competition or other agreements, oral or written, court
order or instrument to which Employee is a party or is bound, or result in a
breach of or constitute a default under any of the same.
B. Employee hereby agrees to comply promptly with any reasonable
requests made from time to time by the Board of Directors or President of
Employer for full disclosure of any agreements, court orders or instruments
described in subparagraph A above and any other business activities engaged in
by Employee during the term of his employment hereunder, involving any
agreements made by Employee concerning any agreements made from the date of this
agreement until its expiration. Employee affirms that he is not aware of any
previous agreements which would contradict the terms of this contract.
12. SEVERABILITY:
If any provision of this Agreement shall be determined, by a
court of law or equity having jurisdiction, to be unenforceable, void, or
unreasonable, all other provisions of this Agreement shall be complied with as
if such unenforceable or void provision did not exist.
7
<PAGE>
13. CONSENT TO JURISDICTION:
Each party irrevocably submits to the jurisdiction of any
court in the county of New York. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
14. MISCELLANEOUS:
A. The Corporation shall indemnify the Employee in his capacity
as an Officer to the broadest extent allowable pursuant to Federal, State and
local law.
B. In the event any suit or other action is commenced with
respect to the interpretation or enforcement of any provision of this Agreement,
the prevailing party shall be entitled, in addition to any other sums to which
such party may be entitled, to recover from the other party the reasonable fees
and disbursements of counsel retained to investigate and pursue such matter.
15. NOTICE:
All notices required to be given under the terms of this
Agreement shall be in writing, shall be effective upon receipt, and shall be
delivered to the addressee in person or mailed by certified mail, return receipt
requested.
If to Employer, addressed to:
IMATEC, LTD.
150 East 58th Street
21st Floor
New York, NY 10155
If to Employee, addressed to:
James E. Smith, addressed to:
18 Kenwood Lane
Matawan, NJ 07747
or to such other address as a party shall have designated for
notices to be given to him or it by notice given in accordance with this
paragraph.
8
<PAGE>
16. BENEFIT:
This Agreement shall inure to and be binding upon the parties
hereto, the successors and assigns of Employer and the heirs and personal
representatives of Employee.
17. WAIVER:
The waiver by either party of any breach or violation of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach or violation hereof.
18. GOVERNING LAW:
This Agreement has been negotiated and executed in the State
of New York and the law of that state shall govern its construction and
validity.
19. ENTIRE AGREEMENT:
This Agreement contains the entire Agreement between the
parties hereto. No change, addition or amendment shall be made except by written
agreement signed by the parties hereto.
IN WITNESS WHEREOF, the parties have hereunto executed this
Agreement on the day and year first above written.
!!!!! INTENTIONALLY LEFT BLANK !!!!!
9
<PAGE>
!!!!! INTENTIONALLY LEFT BLANK !!!!!
By IMATEC, Ltd.
/s/ Dr. Hanoch Shalit
- -------------------
Dr. Hanoch Shalit
President
Witnessed by /s/ Caron Charnet Date: 9/24/96
----------------------------- -------------
Witnessed by Date:
----------------------------- -------------
/s/ James A. Smith
- -------------------
By: James A. Smith
Witnessed by /s/ Caron Charnet Date: 9/24/96
----------------------------- -------------
Witnessed by Date:
----------------------------- -------------
10
<PAGE>
SCHEDULE 1.
COMPENSATION
Employee shall receive the following as long as Employee is an
employee of Employer in the positions described in paragraph 1 above,
I. An annual salary of $95,000, paid monthly, on the last day of each
month. Eighty thousand ($80,000.00) dollars of which is attributable to
standard salary and fifteen thousand ($15,000.00) dollars of which is payment
for the covenant not to compete.
II. Benefits as described in Schedule 2 below.
!!!!! INTENTIONALLY LEFT BLANK !!!!!
11
<PAGE>
SCHEDULE 2.
BENEFITS
Employee shall receive from the Employer the following
benefits, as long as the Employee is a full time employee of Employer:
o Paid health insurance premiums for Employee and family.
o Paid Director and Officer liability insurance.
o Paid fifteen (15) days, vacation and personal days per
full year, and the customary holidays in New York City.
Only in case of Termination, Unused vacation time,
proportional to the duration of employment, will be
compensated for.
!!!!! INTENTIONALLY LEFT BLANK !!!!!
12
<PAGE>
MOST HOROWITZ & COMPANY, LLP
Certified Public Accountants
1133 Avenue of the Americas
New York, NY 10036
Tel (212) 764-4910
Fax (212) 575-2017
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent the use in this Registration Statement on Form SB-2 of our
report dated April 29, 1996, relating to the financial statements of Imatec,
Ltd. and the reference to our Firm under the caption "Experts" in the
prospectus.
/s/ Most Horowitz & Company, LLP
--------------------------------
Most Horowitz & Company, LLP
New York, New York
October 11, 1996
