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SCHEDULE 14A
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Imatec, Ltd.
................................................................................
(Name of Registrant as Specified In Its Charter)
Imatec, Ltd.
................................................................................
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2)
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock, par value $.0001 per share
____________________________________________________________________
2) Aggregate number of securities to which transaction applies:
3,735,201
____________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
____________________________________________________________________
4) Proposed maximum aggregate value of transaction:
____________________________________________________________________
Set forth the amount on which the filing fee is calculated and
state how it was determined. Filing Fee Was Previously
Paid
____________________________________________________________________
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
____________________________________________________________________
2) Form, Schedule or Registration Statement No.:
____________________________________________________________________
3) Filing Party:
____________________________________________________________________
4) Date Filed:
____________________________________________________________________
<PAGE>
IMATEC, LTD.
150 East 58th Street
New York, New York 10155
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of Imatec, Ltd:
An Annual Meeting of Stockholders (the "Annual Meeting") of Imatec, Ltd., a
Delaware corporation (the "Company") will be held at the offices of the Company,
150 East 58th Street, New York, New York, at __ a.m., Eastern Daylight Savings
Time, on December ___, 1997, for the following purposes:
1. To approve the sale of the Company's current business to the
Company's current President, Chief Executive Officer,
Chairman of the Board and Secretary and ratify the Board of
Directors actions in connection therewith;
2. To elect the Board of Directors for the ensuing year;
3. To ratify and approve the appointment of Most Horowitz &
Company as independent public accountants for the fiscal
year ending December 31, 1997; and
4. To transact such other business as is properly brought
before the meeting.
All stockholders are invited to attend the meeting. Stockholders of record at
the close of business on November 17, 1997, the record date fixed by the Board
of Directors, are entitled to notice of, and to vote at, the meeting. A complete
list of stockholders entitled to notice of, and to vote at, the meeting will be
open to examination by the stockholders beginning ten days prior to the meeting
for any purpose germane to the meeting during normal business hours at the
office of the Secretary of the Company at 150 East 58th Street, New York, New
York 10155.
Whether or not you intend to be present at the meeting, please sign and date the
enclosed proxy and return it in the enclosed envelope.
By Order of the Board of Directors
Neal Factor
Director
New York, New York
November ___, 1997
YOUR VOTE IS IMPORTANT
PLEASE MARK, DATE, AND SIGN YOUR PROXY AND RETURN
IT PROMPTLY IN THE ENCLOSED ENVELOPE
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TABLE OF CONTENTS
<TABLE>
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<S> <C>
PROXY STATEMENT SUMMARY................................................................................... 1
INTRODUCTION.............................................................................................. 1
Matters for Consideration at the Annual Meeting.................................................. 1
Voting Rights and Proxy Information.................................................... 2
No Appraisal Rights.................................................................... 3
Forward-Looking Statements Regarding the Company....................................... 3
Available Information............................................................................ 4
SUMMARY................................................................................................... 5
PROPOSAL 1: THE SALE............................................................................. 5
Background.............................................................................. 5
Consideration........................................................................... 5
Guarantee of Shalit Shares Purchase Price............................................... 6
Assets to be Contributed to Newco; Assumption of Liabilities............................ 6
Principal Reasons for the Sale.......................................................... 6
Use of Proceeds......................................................................... 6
Determination of the Consideration...................................................... 6
Representations, Warranties and Covenants............................................... 7
Indemnification......................................................................... 7
Conditions to Closing................................................................... 7
Amendment and Termination............................................................... 7
Exclusivity............................................................................. 7
Conflict of Interest.................................................................... 7
Accounting Treatment.................................................................... 8
Federal Income Tax Consequences......................................................... 8
Appraisal Rights........................................................................ 8
Future Direction of the Company......................................................... 8
Risks Associated with the Approval of Proposal 1........................................ 8
Consequences of Failure to Approve Proposal 1........................................... 10
PROPOSAL 2: ELECTION OF DIRECTORS............................................................... 10
PROPOSAL 3: RATIFY SELECTION OF ACCOUNTANTS...................................................... 10
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
PROPOSAL 1: THE SALE...................................................................................... 11
Introduction..................................................................................... 11
Special Factors.................................................................................. 11
The Company................................................................................. 11
Principal Reasons for the Sale ............................................................. 13
History of the Transaction.................................................................. 13
Determination of the Consideration.......................................................... 13
Guarantee of Shalit Shares Purchase Price................................................... 14
Risks Associated with the Approval of the Sale.............................................. 14
Consequences of Failure to Approve the Sale................................................. 15
Recommendation of the Board of Directors.................................................... 16
Fairness Opinion............................................................................ 17
Income Approach....................................................................... 19
Liquidation Approach.................................................................. 20
Impact of the Agreement on the Company and its Stockholders........................... 21
Accounting Treatment........................................................................ 21
U.S. Federal Income Tax Consequences........................................................ 21
Information Concerning the Buyer ........................................................... 22
Name Change ..................................................................................... 22
Business Relationship with Buyer................................................................. 22
Management of Imatec Following the Sale ......................................................... 22
Conflict of Interest............................................................................. 22
Future Direction of the Company.................................................................. 22
Rights of Security Holders....................................................................... 22
Market Activity.................................................................................. 23
The Agreement.................................................................................... 23
The Sale.................................................................................... 23
Employees, Treatment of Options............................................................. 24
Assets to be Contributed to Newco; Assumed Liabilities of Newco............................. 24
Consideration............................................................................... 24
Sale of Shalit Shares.................................................................. 24
Representations and Warranties; Covenants................................................... 26
Indemnification............................................................................. 26
Closing Conditions.......................................................................... 26
Conditions Precedent to Obligations of the Company..................................... 26
Conditions Precedent to Obligations of Dr. Shalit...................................... 27
Amendment and Termination................................................................... 27
Exclusivity................................................................................. 27
Schedule 13e-3................................................................................... 28
Stockholder Vote................................................................................. 28
Dividends and Price Range of Company Common Stock................................................ 29
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Rights to Dissent................................................................................ 29
Fraudulent Transfer Consideration; Legal Dividend Requirements................................... 30
Business of Imatec Prior to the Sale............................................................. 30
Business Strategy........................................................................... 30
Manufacturing, Sales, and Distribution...................................................... 31
Marketing................................................................................... 31
Research and Development.................................................................... 32
Competition................................................................................. 32
License Agreement........................................................................... 32
Intellectual Property....................................................................... 33
FDA Clearance............................................................................... 34
Employees................................................................................... 35
Description of the Company's Capital Stock....................................................... 36
Authorized and Outstanding Stock............................................................ 36
Imatec Common Stock......................................................................... 36
Redeemable Warrants......................................................................... 36
Preferred Stock............................................................................. 37
Limitation of Liability of Directors........................................................ 38
Takeover Provisions......................................................................... 39
PROPOSAL 2: ELECTION OF DIRECTORS......................................................................... 40
Alternative A.................................................................................... 40
Alternative B.................................................................................... 41
Executive Officers............................................................................... 42
Directors Compensation........................................................................... 43
Board Committees................................................................................. 43
Security Ownership of Certain Beneficial Owners.................................................. 43
Report of the Compensation Committee............................................................. 44
General Policies Regarding Compensation of Executive Officers............................... 45
Compensation Committee Interlocks and Insider Participation...................................... 46
Executive Compensation Tables.................................................................... 46
Employment Agreements............................................................................ 46
Benefit Plans.................................................................................... 47
Certain Relationships and Related Transactions................................................... 48
PROPOSAL 3: INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS..................................................... 50
OTHER BUSINESS............................................................................................ 50
COST OF PROXY SOLICITATION................................................................................ 50
STOCKHOLDERS PROPOSALS.................................................................................... 50
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................................................... 51
</TABLE>
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<PAGE>
INTRODUCTION
This Proxy Statement (the "Proxy Statement") is being furnished to stockholders
of Imatec, Ltd., a Delaware corporation (the "Company" or "Imatec"), in
connection with the solicitation of proxies by the Board of Directors of the
Company (the "Board") from holders of record of the Company's outstanding shares
of common stock, par value $.0001 per share (the "Imatec Common Stock"), as of
the close of business on November 17, 1997 (the "Annual Meeting Record Date")
for use at the Annual Meeting of Stockholders of the Company (the "Annual
Meeting") to be held on ____________, December ___, 1997, at _____ a.m.,at the
Company's offices at 150 East 58th Street, New York, New York, and at any
adjournment or postponement thereof. This Proxy Statement is first being mailed
to the Company's stockholders on or about October ___, 1997.
MATTERS FOR CONSIDERATION AT THE ANNUAL MEETING
At this Annual Meeting, holders of shares of Common Stock will be asked to
consider and to vote upon the following proposals:
(i) Proposal 1: Approval of the sale of substantially all of the
operations of the Company (the "Sale") through the sale of
all of the outstanding shares of the common stock of a
newly-formed, wholly-owned subsidiary of the Company to Dr.
Hanoch Shalit, current President, Chief Executive Officer,
Chairman of the Board and Secretary of the Company and
ratification of the Board's actions in connection therewith;
(ii) Proposal 2: Election of Clifford A. Brandeis, William M.
Thompson and John M. Thompson to the Company's Board of
Directors for the ensuing year in the event that Proposal 1
is approved (Alternative A) or election of the current board
of directors in the event that Proposal 1 is not approved
(Alternative B); and
(iii) Proposal 3: Ratification and approval of the appointment of
Most Horowitz & Company, LLP as the Corporation's
independent certified public accountants for the fiscal year
ended December 31, 1997.
THE BOARD OF DIRECTORS OF THE CORPORATION UNANIMOUSLY
RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" EACH OF THE PROPOSALS
The Board has retained discretion, subject to its fiduciary duties under
Delaware law, even if stockholder approval of the Sale is obtained, to abandon,
defer or modify the Sale, provided that following stockholder approval the Board
will not make any changes in the terms of the Sale unless the Board determines
that such changes would not be materially adverse to the Company's stockholders.
In addition, the Board will resolicit stockholder approval in the event that,
following stockholder approval of the Sale, the Sale is materially altered.
The Sale is an important element in the restructuring plan previously approved
by the Board. Other elements of the restructuring plan involve other possible
corporate reorganizations, including the
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acquisition of a new operating business or businesses by the Company
(collectively, the "New Business") as described under "Proposal 1 -- Special
Factors." Such New Business acquisitions and other elements of the restructuring
plan will, in all likelihood, be consummated after the date the Sale is
consummated (the "Sale Date"). Delaware law requires stockholder ratification as
a condition to the Sale because the Sale may be deemed to be the sale of all or
substantially all of the assets of the Company. However, stockholder approval is
not being sought at this time for any elements of the restructuring plan other
than the Sale. The New Board intends to seek stockholder approval of the
acquisition of any New Business.
For a description of the reasons for the Sale, see "The Sale -- Background -
Principal Reasons for the Sale."
VOTING RIGHTS AND PROXY INFORMATION: Only holders of record of shares of Imatec
Common Stock as of the close of business on the Annual Meeting Record Date will
be entitled to notice of and to vote at the Annual Meeting or any adjournment or
postponement thereof. Such holders of shares of Imatec Common Stock are entitled
to one vote per share on any matter which may properly come before the Annual
Meeting. As of November 17, 1997, there were approximately 3,735,201 shares of
Imatec Common Stock outstanding held by approximately 863 stockholders. The
holders of the Company's Redeemable Warrants (as defined) will not be entitled
to vote on any matters that come before the Annual Meeting.
The presence, either in person or by properly executed proxy, of the holders of
a majority of the then outstanding shares of Imatec Common Stock is necessary to
constitute a quorum for the Annual Meeting and to permit action to be taken by
the stockholders at such meeting. The affirmative vote of the holders of not
less than a majority of the outstanding shares of Common Stock is required to
approve the Sale pursuant to Proposal 1. Because Dr. Shalit will abstain from
voting at the Annual Meeting, the approval of the Sale effectively requires the
affirmative vote of a majority of all other holders of Imatec Common Stock. See
"Summary - Proposal 1. The Sale - Conflict of Interest." The election of
directors pursuant to Proposal 2 requires the affirmative vote of a plurality of
the votes cast by shares entitled to vote at the Annual Meeting. The
ratification and approval of the Corporation's independent public accountants
pursuant to Proposal 3 requires the affirmative vote of the majority of the
outstanding shares of Imatec Common Stock present in person or represented by
proxy. Under the Company's bylaws and Delaware law, shares represented by
proxies that reflect abstentions or "broker non-votes" (i.e., shares held by a
broker or nominee which are represented at the Annual Meeting, but with respect
to which such broker or nominee is not empowered to vote on a particular
proposal) will be counted as shares that are present and entitled to vote for
purposes of determining the presence of a quorum. Abstentions as to Proposal 1
regarding the Sale will have the same effect as votes against such proposal.
However, abstentions as to Proposal 2 or Proposal 3 and broker non-votes as to
any proposal will be treated as unvoted for purposes of determining approval of
such proposals and will not be counted as votes cast for or against such
proposals.
All shares of Imatec Common Stock that are represented at the Annual Meeting by
properly executed proxies received prior to or at the Annual Meeting and not
revoked will be voted at the Annual Meeting in accordance with the instructions
indicated in such proxies. If no instructions are indicated, such proxies will
be voted "FOR" each proposal in accordance with the Board's recommendations as
set forth herein.
In the event that a quorum is not present at the time the Annual Meeting is
convened, or if for any other reason the Company believes that additional time
should be allowed for the solicitation of proxies, the Company may adjourn the
Annual Meeting with or without a vote of the stockholders.
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If the Company proposes to adjourn the Annual Meeting by a vote of the
stockholders, the persons named in the enclosed form of proxy will vote all
shares for which they have voting authority in favor of such adjournment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the transfer agent for the Company, Continental Stock Transfer and Trust
Company, 2 Broadway, New York, New York 10004 (the "Transfer Agent"), at or
before the Annual Meeting, a written notice of revocation bearing a later date
than the proxy, (ii) duly executing a subsequent proxy relating to the same
shares and delivering it to the Transfer Agent at or before the Annual Meeting,
or (iii) attending the Annual Meeting and voting in person (although attendance
at the Annual Meeting will not in and of itself constitute a revocation of a
proxy).
The Company will bear the cost of the solicitation. The Company has engaged
Morrow & Co., Inc. to solicit proxies for a fee of approximately $5,500 plus
reasonable out-of-pocket expenses, estimated to be approximately $2,500. In
addition to solicitation by mail, the Company will request banks, brokers and
other custodian nominees and fiduciaries to supply proxy material to the
beneficial owners of shares of Imatec Common Stock of whom they have knowledge,
and will reimburse them for their expenses in so doing; and certain directors,
officers and other employees of the Company, not specially employed for the
purpose, may solicit proxies, without additional remuneration therefor, by
personal interview, mail, telephone or telegraph.
The Imatec Common Stock and the Redeemable Warrants have been listed on The
Nasdaq SmallCap Market (the "SmallCap Market") since October 1996 and trade
under the symbols "IMEC" and "IMECW." If Proposal 1 is approved by stockholders,
such securities will continue to be included for quotation on that market so
long as they remain eligible. However, until a New Business is acquired by the
Company, the Imatec Common Stock and Redeemable Warrants will not meet the
SmallCap Market continuing listing requirements. In addition, the Nasdaq Stock
Market, Inc. has informed the Company that, unless a New Business has been
acquired which meets the initial listing requirements of the SmallCap Market
immediately following the Closing (as defined), it will notify the Company of
its intention to delist the Imatec Common Stock and the Redeemable Warrants.
Accordingly, there can be no assurance that any of the Company's securities will
continue to be included for quotation on the SmallCap Market.
NO APPRAISAL RIGHTS: Stockholders of the Company will not be entitled to
appraisal rights under Delaware law in connection with the Sale or any other
proposals set forth in this Proxy Statement.
FORWARD-LOOKING STATEMENTS REGARDING THE COMPANY: This proxy statement includes
certain statements (other than statements of historical fact) that constitute
forward-looking statements. When used herein, the words "budget," "budgeted,"
"anticipates," "expects," "believes," "seeks," "goals," "intends," "plans" or
"projects" and similar expressions are intended to identify forward-looking
statements. It is important to note that Imatec's actual results could differ
materially from those projected by such forward-looking statements, especially
if Proposal 1 is approved by stockholders. Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable and
such forward-looking statements are based upon the best data available at the
time this proxy statement is mailed to the Company's stockholders, no assurance
can be given that such expectations will prove to be correct. Factors that could
cause Imatec's results to differ materially from the results discussed in such
forward-looking statements include, but are not
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limited to, the following: the approval of the Sale, product development
timetable variances from expectations, uncertainties about the market impact of
the Company's products in development, competition, government regulation or
action, litigation, operations performance, and the ability of Imatec to
implement its business strategy. All such forward-looking statements in this
document are expressly qualified in their entirety by the cautionary statements
in this paragraph.
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the Commission's
office at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
regional offices located at 7 World Trade Center, Suite 1300, New York, New York
10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of this material may also be obtained by mail, upon payment of the
Commission's customary fees, from the Commission's principal offices at 450
Fifth Street, N.W., Washington, D.C. 20549. The Commission also maintains a Web
site at http:// www.sec.gov, which contains certain reports, proxy statements
and other information regarding the Company and other registrants that file
electronically with the Commission. The Imatec Common Stock is included for
quotation on the SmallCap Market. Copies of reports, proxy statements and other
information may therefore also be inspected at the library of The Nasdaq Stock
Market, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
Dr. Shalit is not subject to the informational reporting requirements of the
Exchange Act.
The Company and Dr. Shalit have jointly filed with the Commission a Rule 13e-3
Transaction Statement on Schedule 13E-3 (the "Schedule 13E-3") pursuant to the
Exchange Act, furnishing certain information with respect to the Sale, in
addition to the information contained in this Proxy Statement, and they may file
further amendments to the Schedule 13E-3. As permitted by the rules and
regulations of the Commission, this Proxy Statement omits certain information
contained in the Schedule 13E-3. For further information pertaining to the
Related Persons, reference is made to the Schedule 13E-3 and the exhibits and
amendments thereto. Statements contained herein concerning such documents are
not necessarily complete and, in each instance, reference is made to the copy of
such documents filed as an exhibit to the Schedule 13E-3. Each such statement is
qualified in its entirety by such reference.
The Schedule 13E-3 and any such further amendments, including exhibits, may be
inspected and copies may be obtained in the same manner as set forth in the
preceding paragraph, except that they will not be available at the regional
offices of the Commission.
The Fairness Opinion (as defined below) which is attached as an exhibit to the
Schedule 13E-3 will be made available for inspection and copying at the
principal executive offices of the Company during its regular business hours by
any interested holder of record of Imatec Common Stock or his or her
representative who has been so designated in writing. The Fairness Opinion is
also attached to this Proxy Statement as Annex B.
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SUMMARY
PROPOSAL 1. THE SALE
BACKGROUND. On July 16, 1997, the Board of Directors approved the terms of an
Acquisition Agreement (the "Agreement") with Dr. Hanoch Shalit, its current
President, Chief Executive Officer, Chairman of the Board and Secretary ("Dr.
Shalit" or the "Buyer") pursuant to which the Company will agree to contribute
the Company's current business (the "Current Business") to a newly-formed,
wholly-owned subsidiary ("Newco") and Dr. Shalit will agree to purchase all of
the outstanding shares of common stock of Newco (the "Newco Common Stock"). A
copy of the Agreement is attached as Annex A to this Proxy Statement. See "The
Agreement." Pursuant to the Agreement, Newco will be controlled by Dr. Shalit
and hold the assets and certain of the liabilities related to the Current
Business. Accordingly, the Company will have minimal assets following the
consummation of the Sale, which will be limited to cash and marketable
securities which will be no less than $3,875,000, subject to the Closing
Adjustment (defined below). If the Company required the sale of all of the
Shalit Shares (defined below) as of the date of this Proxy Statement, the
Company would be required to pay Dr. Shalit an aggregate of $________, resulting
in the reduction of the Company's assets remaining after the sale. See "--
Amendment and Termination" and "Proposal 1: The Sale -- Future Direction of the
Company."
CONSIDERATION. The consideration to be received by the Company for the sale of
all of the outstanding Newco Common Stock to Dr. Shalit consists of (i) the
termination of Dr. Shalit's Employment Agreement (as defined below) in exchange
for a payment by the Company to Dr. Shalit of $634,619 (pre-tax) in cash, which
is the equivalent of $300,000, After Tax (defined below); and (ii) the
termination of the License Agreement (as defined below). In addition, Dr. Shalit
and the Company have agreed that Dr. Shalit will sell all of his 835,117 shares
of Imatec Common Stock (the "Shalit Shares") in the public market or to the
Company at a minimum price of $3.41 pre-tax (the equivalent of $2.34 per share
After Tax), over a period of 30 months with certain guaranteed minimum payments
backed by a letter of credit of the Company (the "Letter of Credit") (the
"Consideration"). In certain circumstances, the Company has agreed to pay
brokerage commissions on the Shalit Shares. On ________, 1997, the last day
prior to the printing of this Proxy Statement, the closing price of the Imatec
Common Stock was $____ per share. Accordingly, if the Company required Dr.
Shalit to sell the Shalit Shares on such date, $_____ per share (i.e. the
difference between $3.41 per share and the actual sales price of $____ per
share) would be due to him pursuant
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to the terms of the Letter of Credit. The Company cannot predict whether Dr.
Shalit would choose to sell the Shalit Shares in the public market when the
market price is substantially below $3.41 per share. Such a determination is
based on many factors including but not limited to market conditions, whether a
New Business has been acquired and the termination date of the Letter of Credit
(defined below). Pursuant to the terms of a registration rights agreement
between the Company and Dr. Shalit (the "Registration Rights Agreement"), in the
event that Dr. Shalit is considered an affiliate under Rule 144 under the
Securities Act of 1933 (the "Securities Act"), the Company has agreed to
register the Shalit Shares prior to their resale to the public. All payments
made by the Company to Dr. Shalit on the Sale Date or pursuant to the Letter of
Credit are being paid on a before-tax basis. The After Tax amounts refer only to
the consideration to be received by Dr. Shalit and not to any tax benefits
accruing to the Company. See "-- Guarantee of Shalit Shares Purchase Price" and
"The Agreement -- Consideration."
GUARANTEE OF SHALIT SHARES PURCHASE PRICE. Pursuant to the terms of the
Agreement, the Company will guarantee Dr. Shalit a minimum purchase price of
$3.41 per Shalit Share, which guarantee will be secured by a Letter of Credit in
the amount of $2,850,252. The Company has agreed to pay the taxes payable by Dr.
Shalit upon the sale of the Shalit Shares and, in certain circumstances, the
brokerage commission on such sales. See "-- Guarantee of Shalit Shares Purchase
Price" and "The Agreement -- Consideration."
ASSETS TO BE CONTRIBUTED TO NEWCO; ASSUMPTION OF LIABILITIES. The
Company will contribute to Newco all of the assets related to the Current
Business (the "Assets"), except for cash, which will be no less than $3,875,000
(the "Minimum Cash Amount"), subject to the Closing Adjustment. In addition,
Newco will assume liabilities (excluding liabilities related to, arising out of,
or in connection with, the bridge financing of the Company concluded in April
1996, the initial public offering of the Company (the "IPO") and the costs and
expenses related to the Sale) of the Company that are related to the Current
Business (the "Liabilities"). See "The Agreement --Assets to be Acquired by
Newco; Assumed Liabilities of Newco."
PRINCIPAL REASONS FOR THE SALE. Although the Company's activities have proceeded
in all material respects in accordance with the operating plan adopted prior to,
and at the time of, the IPO, after a recent large drop in share price,
management determined to reevaluate its business plan and consider alternatives
designed to optimize stockholder value. The Company believes that stockholder
expectations are at odds with the Company's long term licensing and development
strategy, which, to date, has been unable to produce sufficient developments or
revenues rapidly enough to maintain stockholder confidence. In particular,
management has determined that the commercialization of the Imatec 20/20 System,
a system developed for the medical diagnostic imaging field to manufacturers of
medical imaging products, such as scanners, cameras and image reproduction
systems, will take significantly longer than believed to be acceptable to
stockholders. Accordingly, in order to maximize stockholder value, the Board has
determined that it is in the Company's best interest to seek out alternate
business opportunities. See "Proposal 1 -- Special Factors."
USE OF PROCEEDS. The Company will not realize any proceeds from the Sale other
than the release of its obligations under Dr. Shalit's Employment Agreement and
the License Agreement.
DETERMINATION OF THE CONSIDERATION. The Consideration was determined by
arms-length negotiations. A fairness opinion (the "Spencer Trask Opinion") with
respect to the Sale
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has been rendered by Spencer Trask Securities, Inc. ("Spencer Trask"), an
independent investment banking firm. A copy of the Spencer Trask Opinion is
attached as Annex B to this Proxy Statement. See "Proposal 1 --Fairness
Opinion."
REPRESENTATIONS, WARRANTIES AND COVENANTS. The Company and Dr. Shalit will make
customary representations, warranties and covenants. See "The Agreement
- --Representations and Warranties; Covenants."
INDEMNIFICATION. The Agreement will require the Company and Dr. Shalit, subject
to certain limitations, to indemnify and hold harmless each other from and
against certain damages. See "The Agreement --Indemnification."
CONDITIONS TO CLOSING. The consummation of the transaction (the "Closing") is
subject to the satisfaction of certain conditions on or before the closing date
(the "Closing Date"), including, without limitation, the approval of the
Company's stockholders. See "The Agreement --Closing Conditions."
AMENDMENT AND TERMINATION. The Agreement may be amended by the mutual written
agreement of the Company and Dr. Shalit. In addition, the Minimum Cash Amount
will be reduced by $65,000 (the "Monthly Expense Amount") for each month
following November 1997 that the Closing does not occur by the first day of such
month. The Monthly Expense Amount represents the approximate monthly operating
costs of the Company. The Minimum Cash Amount will also be reduced by any
extraordinary operating expenses incurred by the Company prior to the Closing
including but not limited to insurance premiums and proxy solicitation costs
(the "Extraordinary Expense Amount"). The Monthly Expense Amount and the
Extraordinary Expense Amount are collectively referred to as the "Closing
Adjustment."
The Minimum Cash Amount represents the amount of cash and marketable securities
remaining in the Company as of the Closing, as adjusted each month by the
Closing Adjustment. At the Closing, the minimum amounts due to Dr. Shalit upon
the sale of the Shalit Shares will be reduced proportionally by the positive
difference between the Minimum Cash Amount and the actual cash and marketable
securities remaining as of the Closing. At September 30, 1997, the Company had
$4,158,622 in cash and marketable securities. See "The Agreement -- Amendment
and Termination."
EXCLUSIVITY. The current Board believes that the Sale is the best arrangement
available at this time to maximize stockholder value. Accordingly, pursuant to
the Agreement, neither Dr. Shalit nor the Company will, directly or indirectly
through any agents or representatives, solicit, initiate or encourage any
proposal or offer from a third party to acquire either any capital stock or
other voting securities of the Company or any substantial portion of the Assets,
or participate in any discussions or negotiations regarding such a proposal or
offer. However, this provision does not prevent the Company's Board from taking
any such actions if required by the Board's fiduciary duties under Delaware law.
See "The Agreement --Representations and Warranties; Covenants."
CONFLICT OF INTEREST. Dr. Hanoch Shalit, the Company's current President, Chief
Executive Officer, Chairman of the Board and Secretary is the sole purchaser of
the Newco Common Stock. Pursuant to the Agreement, Dr. Shalit will release the
Company from its obligations under his
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Employment Agreement and the License Agreement, will pay no cash consideration
for the Current Business, will receive $634,619 (pre-tax) at the Closing in
exchange for the termination of his Employment Agreement and a guarantee by the
Company of a minimum purchase price of $3.41, which is the equivalent of $2.34
per Shalit Share, After Tax, secured by the Letter of Credit. In addition, Dr.
Shalit has recused himself from all deliberation and voting of the Board in
connection with the Sale and has agreed to abstain from voting, as a
stockholder, in connection with the Sale.
ACCOUNTING TREATMENT: The proposed Sale of the Current Business is anticipated
to be treated by the Company as a charge to operations in an amount equal to the
actual payment of the (i) $634,619 (pre-tax); (ii) the net book value of Newco;
and (iii) the expenses of the Sale, consisting primarily of professional fees
and severance pay.
FEDERAL INCOME TAX CONSEQUENCES. The proposed Sale of the Current Business will
not result in any federal income tax consequences to the Company's stockholders
in their capacity as stockholders. The Company estimates that it will report a
loss for tax purposes on the Sale in an amount to be determined. The benefit of
this tax loss, if any, is dependent on the Company's generation of future
earnings as well as other factors. See "The Agreement --U.S. Federal Income Tax
Consequences."
APPRAISAL RIGHTS. Under the Delaware General Corporation Law (the "DGCL"),
dissenting stockholders are not entitled to Appraisal Rights. See "Rights to
Dissent."
THE BOARD OF DIRECTORS BELIEVES THAT THE TERMS AND CONDITIONS OF THE PROPOSED
SALE AS SET FORTH IN THE AGREEMENT ARE FAIR TO, AND IN THE BEST INTERESTS OF,
THE COMPANY'S STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS
APPROVE THE SALE.
FUTURE DIRECTION OF THE COMPANY: The Board and management of the Company are
currently evaluating alternatives for the future direction of the Company. The
Company has been exploring the acquisition of a New Business, but to date there
are no plans, proposals, arrangements or understandings with respect to any
acquisition and the Company has not reached any agreement with prospective
sellers. The Board has made no decision with respect to the purchase of a New
Business, including the type of business to acquire. The New Board, if elected,
intends to further examine the alternatives with the goal of maximizing
stockholder value. Until such time, if ever, as the Company identifies an
appropriate business to acquire, the only assets of the Company will be the
assets remaining after the Sale of the Current Business, which is limited to
cash and marketable securities in the amount of $3,875,000, subject to the
Closing Adjustment. There can be no assurance that the Company can purchase a
New Business at prices that the New Board, if elected, believes reasonable, or
that the Company will operate a New Business profitably, or that, if profitable,
the New Business will be sufficiently profitable to maximize stockholder value.
The New Board intends to seek stockholder approval of the acquisition of any New
Business.
RISKS ASSOCIATED WITH THE APPROVAL OF PROPOSAL 1: If Proposal 1 is approved by
stockholders, the only assets of the Company will be the Minimum Cash Amount,
subject to the Closing Adjustment. Unless a New Business is identified and
purchased, the Company will have no operations. If the Stockholders approve
Proposal 1, the following will likely occur:
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- Until a New Business is identified and purchased, the Company
will continue to deplete its limited assets;
- Until a New Business is identified and purchased, the Imatec
Common Stock and the Redeemable Warrants may continue to have
limited market value and liquidity;
- The market price of the Imatec Common Stock may remain below the
exercise price of the Redeemable Warrants giving the holder
thereof no practical opportunity to exercise such Redeemable
Warrants; and
- If the market price of the Imatec Common Stock remains below the
price guaranteed to Dr. Shalit for the sale of the Shalit Shares,
Dr. Shalit will have the right to draw on the Letter of Credit,
further depleting any value remaining in the Company.
- The Nasdaq Stock Market, Inc. has informed the Company that,
unless a New Business has been acquired which meets the initial
listing requirements of the SmallCap Market immediately following
the Closing, it will notify the Company of its intention to
delist the Imatec Common Stock and the Redeemable Warrants.
To the extent the Company purchases a financially unstable business or a
business in the early stage of growth or without earnings, the Company will
become subject to all of the risks inherent in the operation of such a business.
In addition, the New Board will have virtually unrestricted flexibility in
identifying and selecting a prospective acquisition candidate. There will be no
restrictions on whether the New Business acquired by the Company must meet the
continued listing criteria of the SmallCap Market or the standards for inclusion
on any nationally recognized stock exchange. Furthermore, the structure of the
acquisition of a New Business, which may take the form of a merger, exchange of
capital stock or stock or asset acquisition, presently cannot be determined
since the Company has not had any preliminary contacts, discussion or
understandings with representatives of any prospective New Business regarding
the possibility of an acquisition.
The Company's ability to successfully effect the acquisition of a New Business
will be dependent upon the New Board. However, the future role of the individual
members of the New Board in the New Business cannot presently be ascertained.
Although it is possible that some or all of the Company's New Board will remain
associated in some capacities with the New Business, such persons will not
devote their full efforts to the affairs of the New Business. It is expected
that an integral part of identifying and acquiring a New Business will be the
hiring of full time executive management to manage the operations of the New
Business. Moreover, there can be no assurance that the New Board will have
sufficient experience or knowledge relating to the management or operations of
the particular New Business. Furthermore, although the Company intends to
closely scrutinize the management of a prospective New Business in connection
with evaluating the desirability of acquiring such a New Business, there can be
no assurance that the Company's assessment of management will prove to be
correct. The Company may also seek to recruit additional managers to supplement
the incumbent management of the New Business. There can be no assurance that the
Company will have the ability to recruit additional managers with the skills
necessary to enhance the management of the New Business.
In the event that a New Business is not identified and acquired within a
reasonable period of time, the New Board may determine to liquidate and wind
down the Company, paying to its stockholders a cash dividend of remaining cash
(if any), after satisfying liabilities and other prior obligations. It is likely
that, in the event of any such liquidation, the per-share liquidation
distribution will be less than the current per-share market price as a
consequence of the expenses of the Annual Meeting and
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this proxy solicitation and the cost anticipated to be incurred by the Company
in seeking a New Business.
EACH STOCKHOLDER SHOULD EVALUATE THESE RISKS AND THE RISKS DISCUSSED UNDER
"CONSEQUENCES OF FAILURE TO APPROVE PROPOSAL 1" AND "PROPOSAL 1: THE SALE." IN
DETERMINING WHETHER TO VOTE FOR THE SALE OF THE CURRENT BUSINESS AND ALSO IN
DETERMINING WHETHER TO REMAIN A STOCKHOLDER IF THE SALE IS APPROVED AND
CONSUMMATED, IN COMPARISON WITH THE RISKS TO STOCKHOLDER VALUE IF THE SALE OF
THE CURRENT BUSINESS IS NOT APPROVED.
CONSEQUENCES OF FAILURE TO APPROVE PROPOSAL 1: The Board does not believe
there are any viable alternatives to the Sale of the Current Business and the
acquisition of a New Business that would allow the Company to operate profitably
in a reasonable time period. If the stockholders do not approve the Sale, the
following will likely occur:
- The market prices of the Imatec Common Stock and the Redeemable
Warrants are expected to remain at their current levels or lower
for the foreseeable future which may result in the Company's
inability to maintain its listing on the SmallCap Market for
either or both of the Imatec Common Stock and the Redeemable
Warrants;
- The market price of the Imatec Common Stock will most likely
remain below the exercise price of the Redeemable Warrants giving
the holders thereof no practical opportunity to exercise such
Redeemable Warrants;
- The Board could determine that it is in the best interest of the
Company and its stockholders to liquidate the Company and pay out
its remaining assets (after accounting for its liabilities) to
stockholders;
- The remaining cash reserves of the Company will continue to be
depleted; and
- The Board may determine to continue the development of the Imatec
20/20 System and/or continue to seek a New Business.
PROPOSAL 2. ELECTION OF DIRECTORS
In the event that Proposal 1 is approved, (i) the Board has nominated for
election to the Board for a one year term the following persons: Clifford A.
Brandeis, William M. Thompson and John M. Thompson (collectively, the "New
Board") and, (ii) upon the Closing of the Sale, the current Board will resign
their offices and have no present intention of serving in any capacity with
Newco (defined below) or Dr. Shalit or any of their affiliates. The current
Board has determined that, in light of the fact that the Company will no longer
be engaged in the medical imaging business, a New Board should be elected to
more appropriately represent stockholder interests. In addition, if elected as a
director, Mr. Brandeis will serve as the Company's President, Chairman of the
Board, Chief Executive Officer and Secretary. In the event that Proposal 1 is
not approved, the Board has nominated for election to the Board for a one year
term the following persons: Dr. Hanoch Shalit, Neal Factor, Steven Ai, Simon
Cross and Josef Weiss, each a current member of the Board. In addition, if
elected as a director, Dr. Shalit will continue to serve in his capacity as the
Company's President, Chairman of the Board, Chief Executive Officer and
Secretary.
PROPOSAL 3. RATIFY SELECTION OF ACCOUNTANTS
The Board is seeking the stockholders' ratification of the Board's determination
to select Most Horowitz & Company, LLP as independent certified public
accountants for the fiscal year 1997.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
EACH OF PROPOSALS 1, 2 AND 3.
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PROPOSAL 1: THE SALE
INTRODUCTION
The following discussion outlines the material terms of the proposed Sale by the
Company of the Current Business. Pursuant to the terms of the Agreement, the
Current Business will be contributed to Newco, a wholly-owned subsidiary of the
Company. Dr. Shalit will immediately thereafter acquire the Current Business
through his acquisition of all of the outstanding shares of Newco Common Stock.
This discussion is not intended to be complete and is subject to, and qualified
in its entirety by reference to, the Acquisition Agreement attached hereto as
Annex A. Capitalized terms used and not otherwise defined in this discussion
will have the respective definitions assigned thereto in the Agreement.
SPECIAL FACTORS
THE COMPANY. The Company was organized in 1988 to market 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 and to
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
television/video.
PRINCIPAL REASONS FOR THE SALE. The Company's operating plan adopted prior to,
and at the time of, the IPO has consisted of the development and
commercialization of the Imatec 20/20 System and the continuation of research
and development in related fields and the Company believes its activities have
proceeded in all material respects in accordance with the operating plan,
including significant efforts to license the Imatec 20/20 System. See "-Fairness
Opinion - Income Approach" and "-Business of the Company Prior to the Sale."
However, after a recent large drop in share price from a high of $6.50 in
January 1997 to a current price of $ __ as of November __, 1997, management
determined to reevaluate its business plan and consider alternatives designed to
optimize stockholder value. The drop in market price indicated to management a
significant deterioration of stockholder confidence in its current business
plan. The Company believes that stockholder expectations are at odds with the
Company's long term licensing and development strategy, which, to date, has been
unable to produce sufficient developments or revenues rapidly enough to maintain
stockholder confidence. In particular, management has determined that the
commercialization of the Imatec 20/20 System will take significantly longer than
believed to be acceptable to stockholders. Accordingly, the Board determined
that it was in the best interest of the Company and its unaffiliated
stockholders to sell the Current Business and seek out a New Business which
would be acceptable to stockholder expectations. The Sale to Dr. Shalit is the
first step in this restructuring process. The Board entered into the Agreement
with Dr. Shalit in July 1997 in order to effectuate as expeditiously as possible
its overall restructuring plan and to sell the Current Business to Dr. Shalit.
Because commercialization of the Imatec 20/20 System will take a significant
amount of time and until then, the Company will have no operations, the Board
believes it necessary to effect the Sale immediately to preserve corporate
assets.
The Board has concluded that the Consideration for Newco represents an optimal
value for the Current Business, especially in light of the terms of the
Employment Agreement and the License Agreement. In particular, the Employment
Agreement may only be terminated for cause or in the event of Dr. Shalit's 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. The License Agreement provides for the payment
to Dr. Shalit of the Annual Royalty of $140,000 per annum for so long as the
Company and any successor of the Company is in existence, which increases by 5%
every year with total payments expected to exceed $4,000,000 by the year 2010.
In addition, if Dr. Shalit is no longer President, Chief Executive Officer,
Chairman of the Board and Secretary of the Company for any reason whatsoever,
but the Company or any successor of the Company continues in existence, the
Annual Royalty will automatically be
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increased to $250,000 per annum. See "Proposal 2: Election of Directors --
Employment Agreements" and "Proposal 2: Election of Directors -- "Certain
Relationships and Related Transactions." The Board made this determination based
upon its experience in operating the Current Business and its familiarity with
the medical imaging industry generally. In addition, the Board believes that the
number of potential buyers is limited as accurate tone reproduction is not
presently considered to be a critical issue in most medical imaging applications
and manufacturers currently resist any new feature which adds to the price of
their current medical imaging devices. The Board also believes that the
Consideration is attractive to the Company considering the time pressures in
completing a transaction. The Board believes the sale is in the best interest of
the stockholders because it will allow the Company to seek viable business
opportunities that will allow it to maximize stockholder value. Also, the Board
believes that, in the absence of the sale of the Current Business, the Company
will not be able to operate profitably for at least three years.
The current Board is of the view that because the commercialization of the
Imatec 20/20 System will not occur for an extended period of time for the
reasons discussed above, other buyers will not be interested in purchasing the
Current Business, especially in light of the Company's obligations under the
Employment Agreement and the License Agreement. Specifically, the Board decided
not to conduct an auction for the sale of the Current Business since the Board
believed that protracted publicity would significantly diminish the value of the
business by diverting employee attention and prolonging the expenses of
developing the Current Business. Accordingly, while the Company has not sought
out other opportunities for the sale of the Current Business, management
believes that the Sale of the Current Business to Dr. Shalit is in the best
interest of the Company and its stockholders, allowing the Company to pursue an
alternate business strategy.
As of November __, 1997, the price per share of the Imatec Common Stock was $ __
compared to the Company's liquidation value as of September 30, 1997 of
approximately $4,057,953 or $1.09 per share. The Company cannot predict what
additional value, if any, may be attributable to the Imatec Common Stock if the
Sale is consummated. See "-- Recommendation of the Board of Directors."
The Company did not engage an outside financial advisor for purposes of
assisting the Company in selling the Business. Spencer Trask has been engaged
solely for the purpose of rendering the Spencer Trask Opinion.
The current Board and management of the Company are currently evaluating
alternatives for the future direction of the Company. The Company has been
exploring the acquisition of a New Business, but to date has not reached any
agreement or understanding with prospective sellers. Until such time, if ever,
as the Company identifies an appropriate business to acquire, the only assets of
the Company will be the assets remaining after the Sale of the Current Business,
which is limited to cash and marketable securities and which will be no less
than $3,875,000, subject to the Closing Adjustment. Even if the Company
identifies and acquires a New Business, there can be no assurance that the
Company can operate any New Business profitably in future periods. See "The
Agreement Amendment and Termination."
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<PAGE>
HISTORY OF THE TRANSACTION. Following the large drop in the share price of the
Imatec Common Stock and during the months prior to the formation of the
Committee, Dr. Shalit and members of the Board met to discuss the proposed
restructuring of the Company. The discussions included the specific terms of the
proposed Sale to Dr. Shalit as well as other possible operating and acquisition
strategies relating to the proposed restructuring of the Company. Also during
this period, Dr. Shalit communicated with the underwriter of the Company's IPO
regarding the type and terms of a transaction which would be acceptable to
stockholders.
The Board, at a meeting held on June 9, 1997, was presented with a proposed
transaction by Dr. Shalit and authorized a special committee of disinterested
directors comprised of Messrs. Factor and Weiss (the "Committee") to evaluate
the Sale and the proposed terms presented by Dr. Shalit at such meeting and to
make a recommendation with respect thereto to the Board. The Committee was
expressly authorized to retain counsel and investment bankers to assist it in
discharging its duties.
The Committee met on June 12, 1997 to discuss the terms of the Sale and the
retention of an independent investment banking firm to render a fairness opinion
on the Sale. The Committee directed Mr. Factor to retain an investment banker to
analyze the Sale and, if appropriate, render a fairness opinion with respect
thereto.
On July 4, 1997, the Committee ratified and approved the engagement of Spencer
Trask by Mr. Factor, on behalf of the Committee, to analyze the Sale and render
the Spencer Trask Opinion with respect to the proposed Sale of the Current
Business.
On July 10, 1997, the Committee agreed to recommend the terms of the Sale, as
originally proposed by Dr. Shalit, to the full Board.
On July 14, 1997, the Board held a meeting to review, with the advice and
assistance of the Company's financial and legal advisors, the final proposed
terms and conditions of the Agreement. At such meeting, Spencer Trask provided
its opinion that, as of the date of the Agreement, the Sale of the Current
Business to Dr. Shalit through his acquisition of all of the outstanding shares
of Newco Common Stock and the Agreement were fair, from a financial point of
view, to the stockholders of the Company. Spencer Trask also indicated that it
was not likely that other buyers would be interested in the Company at this
time. See "-Fairness Opinion."
On July 16, 1997, the Board held a meeting to approve the final proposed terms
and conditions of the Agreement. At the meeting, the Company and Dr. Shalit
approved the final terms of the Agreement. Other than changes relating to the
Monthly Expense Amount and the Minimum Cash Amount made in September 1997, the
Agreement was approved substantially as originally proposed on June 9, 1997 by
Dr. Shalit.
On September 10, 1997, the Special Committee held a meeting to consider and
approve the adjustment of the Monthly Expense Amount from $30,000 to $65,000 per
month for each month beginning after November 1997 and the adjustment in the
Minimum Cash Amount to reflect the Company's current monthly operating and
extraordinary expenses. The Special Committee also approved a clarification of
the obligations of the Company to register the Shalit Shares for resale. See
"The Agreement - Consideration - Sale of the Shalit Shares."
During the period commenceing June 9, 1997 the Sale and related matters were
discussed and negotiated at various meetings (including telephonic meetings)
between the Committee and Dr. Shalit. Additionally, the Sale and the obligations
of the New Board were discussed between counsel to the Company and counsel to
the New Board. The Sale was publicly announced concurrently with the filing of
the Schedule 13E-3 on November 6, 1997.
As of the date of this Proxy Statement, other than the offer from Dr. Shalit,
the Company has received no other offers for the Current Business or any
substantial part thereof.
During the period of June 12, 1997 to July 14, 1997, Spencer Trask conducted
discussions with members of the Company's senior management with respect to the
business, operating results and financial prospects of the Company, reviewed
various corporate documents, internal management-prepared financial projections
and technology assessments, reviewed the historical trading price and trading
volume of the Imatec Common Stock as well as conducted other inquiries and
reviewed other documents it deemed necessary.
DETERMINATION OF THE CONSIDERATION. The Consideration was determined by
arms-length negotiations between the parties. The negotiations with Dr. Shalit
were based on the Company's analysis of the cost of developing the Imatec 20/20
System, the current market price of the Imatec Common Stock and the potential
value of the Company following the acquisition of a
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New Business. Specifically, the Board believes the cost of commercializing the
Imatec 20/20 System too great in relation to the Company's available assets and
believes that the Company did not have sufficient capital to successfully
commercialize the Imatec 20/20 System, especially in light of the limited
interest in licensing the Company's Technology and management's limited
expectation of revenues. In addition, the Board believes that greater
opportunities exist to maximize stockholder value by acquiring an operating
company able to meet the initial listing requirements of the New Business. In
particular, the Board appointed the Committee comprised of disinterested
directors to evaluate the Sale and the proposed terms thereof and to make a
recommendation with respect thereto to the Board. Dr. Shalit also recused
himself from all deliberation and voting of the Board in connection with the
Sale. After reaching agreement on the Consideration with Dr. Shalit, the Board
decided not to conduct an auction for the sale of the Current Business since the
Board believed that protracted publicity would significantly diminish the value
of the business by diverting employee attention and prolonging the expenses of
developing the Current Business. The Board believed that with the limited
viability of the Imatec 20/20 System, there would be no other interested parties
in the Current Business. The Board at its meeting on July 16, 1997 approved the
terms of the Sale and authorized the officers to finalize certain details and to
execute the Agreement. The Board reached a subjective judgment that the Company
was unlikely to receive a superior offer to the Dr. Shalit offer. The Agreement
provides, nonetheless, that the Board could consider another offer if required
by its fiduciary duties under Delaware law.
GUARANTEE OF SHALIT SHARES PURCHASE PRICE. Pursuant to the terms of the
Agreement, the Company will guarantee Dr. Shalit a minimum purchase price of
$3.41, the equivalent of $2.34 per Shalit Share, After Tax, which guarantee will
be secured by a Letter of Credit (defined below) in the amount of $2,850,252.
The Company has also agreed to pay, in certain circumstances, the brokerage
commission on such sales.
RISKS ASSOCIATED WITH THE APPROVAL OF THE SALE. If the Sale is approved by
stockholders, the only assets of the Company will be the Minimum Cash Amount,
subject to the Closing Adjustment. Unless a New Business is identified and
purchased, the Company will have no operations. If the Stockholders approve
Proposal 1, the following will likely occur:
- Until a New Business is identified and purchased, the Company
will continue to deplete its limited assets;
- Until a New Business is identified and purchased, the Imatec
Common Stock and the Redeemable Warrants may continue to have
limited market value and liquidity;
- The market price of the Imatec Common Stock may remain below the
exercise price of the Redeemable Warrants giving the holders
thereof no practical opportunity to exercise such Redeemable
Warrants; and
- If the market price of the Imatec Common Stock remains below the
price guaranteed to Dr. Shalit for the sale of the Shalit Shares,
Dr. Shalit will have the right to draw on the Letter of Credit,
further depleting any value remaining in the Company.
- The Nasdaq Stock Market, Inc. has informed the Company that,
unless a New Business has been acquired which meets the initial
listing requirements of the SmallCap Market immediately following
the Closing, it will notify the Company of its intention to
delist the Imatec Common Stock and the Redeemable Warrants.
To the extent the Company purchases a financially unstable business or a
business in the early stage of growth or without earnings, the Company will
become subject to all of the risks inherent in the
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operation of such a business. In addition, the New Board will have virtually
unrestricted flexibility in identifying and selecting a prospective acquisition
candidate. There will be no restrictions on whether the New Business acquired by
the Company must meet the continued listing criteria of the SmallCap Market or
the standards for inclusion on any nationally recognized stock exchange and
there can be no guarantee that the liquidity of the Imatec Common Stock will
improve in any meaningful manner. Furthermore, the structure of the acquisition
of a New Business, which may take the form of a merger, exchange of capital
stock or stock or asset acquisition, presently cannot be determined since the
Company has not had any preliminary contacts, discussion or understandings with
representatives of any prospective New Business regarding the possibility of an
acquisition.
The Company's ability to successfully effect the acquisition of a New Business
will be dependent upon the New Board. However, the future role of the individual
members of the New Board in the New Business cannot presently be ascertained.
Although it is possible that some or all of the Company's New Board will remain
associated in some capacities with the New Business, such persons will not
devote their full efforts to the affairs of the New Business. It is expected
that an integral part of identifying and acquiring a New Business will be the
hiring of full time executive management to manage the operations of the New
Business. Moreover, there can be no assurance that the New Board will have
sufficient experience or knowledge relating to the management or operations of
the particular New Business. Furthermore, although the Company intends to
closely scrutinize the management of a prospective New Business in connection
with evaluating the desirability of acquiring such a New Business, there can be
no assurance that the Company's assessment of management will prove to be
correct. The Company may also seek to recruit additional managers to supplement
the incumbent management of the New Business. There can be no assurance that the
Company will have the ability to recruit additional managers with the skills
necessary to enhance the management of the New Business.
EACH STOCKHOLDER SHOULD EVALUATE THESE RISKS AND THE RISKS GENERALLY DISCUSSED
UNDER "PROPOSAL 1: THE SALE" IN DETERMINING WHETHER TO VOTE FOR THE SALE OF THE
CURRENT BUSINESS AND ALSO IN DETERMINING WHETHER TO REMAIN A STOCKHOLDER IF THE
SALE IS APPROVED AND CONSUMMATED, IN COMPARISON WITH THE RISKS TO STOCKHOLDER
VALUE IF THE SALE OF THE CURRENT BUSINESS IS NOT APPROVED.
CONSEQUENCES OF FAILURE TO APPROVE THE SALE. The Board does not believe there
are any viable alternatives to the Sale of the Current Business and the
acquisition of a New Business that would allow the Company to operate profitably
in a reasonable time period. See "-- Principal Reasons For the Sale." If the
stockholders do not approve the Sale, the following will likely occur:
- The market price of the Imatec Common Stock and the Redeemable
Warrants is expected to remain at its current levels or lower for
the foreseeable future which may
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<PAGE>
result in the Company's inability to maintain its listing on
the SmallCap Market for either or both of the Imatec Common
Stock and the Redeemable Warrants;
- The market price of the Imatec Common Stock will most likely
remain below the exercise price of the Redeemable Warrants giving
the holders thereof no practical opportunity to exercise such
Redeemable Warrants;
- The Board could determine that it is in the best interest of the
Company and its stockholders to liquidate the Company and pay out
its remaining assets (after accounting for its liabilities) to
stockholders;
- The remaining cash reserves of the Company will continue to be
depleted; and
- The Board may determine to continue the development of the Imatec
20/20 System and/or continue to seek a New Business.
RECOMMENDATION OF THE BOARD OF DIRECTORS. On July 16, 1997, the Board
unanimously confirmed the actions of the Committee in negotiating the Sale of
the Current Business and, conditioned upon finalization of the Agreement in form
and substance satisfactory to the Committee and the Company's officers,
unanimously recommended the proposed transaction to the Company's stockholders
for their approval as required under the DGCL.
As previously discussed, the Board's conclusion to approve the Sale of the
Current Business was based on the fairness opinion of Spencer Trask and the
collective business judgment of its individual
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members. All members of the Board concurred in this judgment. The factors
considered at various meetings included, without limitation, the following:
The Dr. Shalit offer being consistent with the Company's valuation of the
Current Business; the liquidation value of the Company as of September 30, 1997
of approximately $4,057,953 or $1.09 per share. The Board considered the various
projections prepared by management in considering the relative value of the Dr.
Shalit offer. Taking into consideration the fact that the Company anticipates no
revenue for the forseeable future, had a liquidation value of only $1.09 per
share at September 30, 1997 (based on the book value of the Imatec Common
Stock), which is expected to further decline and the excess cost to the Company
of its obligations under the Employment Agreement and the License Agreement, the
Board believed Dr. Shalit's offer to be consistent with the valuations prepared
by management.
The Dr. Shalit offer being the best opportunity under the circumstances to
maximize stockholder value. The Board considered the various opportunities
available for maximizing stockholder value, including the following: (i) the
Company does not anticipate revenues for the forseeable future, thereby
depleting its limited assets; (ii) while a liquidation of the Company at
September 30, 1997 would have provided stockholders with approximately $1.09 per
share, the acquisition of a New Business provides an opportunity to maximize
value (iii) the guaranteed $3.41 per share sale price for the Shalit Shares
represents a better opportunity to conserve corporate assets over the Company's
obligations under the Employment Agreement and the License Agreement; (iv) the
potential for a New Business to result in a more favorably market price for the
Imatec Common Stock, limiting the Company's obligations under the Letter of
Credit; (iv) there have been no other offers made to acquire the Current
Business; and (v) the acquisition of an operating business could provide
stockholders with the opportunity to maximize the value of their Imatec Common
Stock.
The current and historical market price of the Common Stock; indications from
stockholders of their interest in adopting a new business strategy for the
Company. After the market price of the Imatec Common Stock began to fall
dramatically in January 1997, the Company received communications from
stockholders indicating a desire to discontinue the commercialization and
development of the Technology.
The desire to conserve Company resources and enter into a transaction to
maximize stockholder value. During the development and commercialization of the
Technology, Company resources continue to be depleted. Since revenues are not
expected until after August 2000 and there does not appear to be significant
market interest in the Technology, the Board considered carefully the Company's
going concern status without revenue opportunities in the near future.
The presentation to the Board by and the Spencer Trask Opinion. At its meeting
on July 14, 1997, the Board was presented with the Fairness Opinion indicating
that the Sale was fair from a financial point of view to the stockholders of the
Company. At the meeting, the Board was given the opportunity to question Spencer
Trask and deliberate on the substance and terms of the Dr. Shalit offer in light
of the Fairness Opinion.
<PAGE>
Risk Factors. In addition, the Board considered the various risks of the Sale,
including the possible delisting from the SmallCap Market, the uncertainty of
the identification of a New Business and the successful acquisition thereof, the
continued limited market value of the Imatec Common Stock and the Redeemable
Warrants pending the successful acquisition of a New Business and the potential
obligations under the Letter of Credit. Immediately following the Sale, the
Company's assets will be reduced and it will have no employees, other than Mr.
Brandeis, which could limit the opportunity for the Company to acquire a New
Business and generate acceptable, if any, operating income in the future.
Further, if the Company acquires a New Business, there can be no assurance that
the Company will operate profitably, if at all. These risks were considered
relative to the benefits of the Dr. Shalit Offer.
The Board did not find it practicable to, and did not, quantify or otherwise
attempt to assign relative weights to the specific factors considered in making
its determination; although each of the factors considered, other than the risks
discussed above, supported the Boards decision. The Sale of the Current Business
will affect all stockholders, with the exception of Dr. Shalit, in the same way.
The Board concluded that the transaction is fair to and in the best interests of
all of the unaffiliated stockholders of the Company since in its judgment the
negotiated consideration represents optimal value for the Current Business. See
"-- Principal Reasons for the Sale."
The Board believes that the manner in which the Sale was considered by the
Company was procedurally fair to the unaffiliated stockholders of the Company
based on the following factors: (i) the Committee was formed to promote and
protect the interests of the unaffiliated stockholders; (ii) the Committee was
comprised solely of members of the Board who are neither affiliated with Dr.
Shalit nor officers of the Company; (iii) the Committee retained an independent
financial advisor, Spencer Trask, and independent legal counsel; and (iv) the
negotiations between Dr. Shalit and the Committee of the terms of the Agreement
were conducted on an arm's-length basis.
The Board considered these various factors and, following the recommendation of
the Committee, concluded that in its best judgment the Sale of the Current
Business was, given the alternatives, in the best interest of the unaffiliated
stockholders of the Company. Dr. Shalit recused himself from all deliberation of
the Board regarding the Sale.
FAIRNESS OPINION. Pursuant to the terms of a letter agreement, dated as of June
25, 1997 (the "Spencer Trask Letter Agreement"), the Company retained Spencer
Trask to assist the Company for purposes of rendering the Spencer Trask Opinion
relating to the Sale. Spencer Trask was selected by the Committee after its
evaluation of various investment banking firms engaged in the valuation of
companies. Pursuant to such engagement, Spencer Trask has delivered to the Board
of the Company its written opinion, dated as of July 8, 1997, to the effect
that, as of such date, the Sale of the Current Business to Dr. Shalit was fair,
from a financial point of view, to the stockholders of the Company. See page 2
of the Spencer Trask Opinion. No restrictions were imposed by the Company's
Board upon Spencer Trask with respect to any investigations made or procedures
followed by Spencer Trask in rendering its opinion.
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The Spencer Trask Opinion addresses only the fairness of the Sale of the Current
Business to Dr. Shalit from a financial point of view, to the stockholders of
the Company and does not constitute a recommendation to any stockholder of the
Company to vote in favor of the Sale and should not be relied upon by any
stockholder as such. The summary of the material provisions of the Spencer Trask
Opinion set forth in this Proxy Statement is qualified in its entirety by
reference to the full text of such opinion, a copy of which is attached hereto
as Annex B. The Spencer Trask Opinion was rendered prior to the recent
reductions in the federal capital gains tax rates.
THE FULL TEXT OF THE SPENCER TRASK OPINION IS ATTACHED AS ANNEX B TO THIS PROXY
STATEMENT. STOCKHOLDERS ARE URGED TO READ THE SPENCER TRASK OPINION CAREFULLY IN
ITS ENTIRETY FOR ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF THE REVIEW
BY SPENCER TRASK.
Although Spencer Trask evaluated the financial terms of the Sale, Spencer Trask
did not recommend the specific consideration to be paid in the Sale nor did it
participate in discussions regarding the consideration to be paid. The
consideration to be paid by Dr. Shalit for the Newco Common Stock was determined
by negotiations between the Company and Dr. Shalit. In connection with the
rendering of its opinion, Spencer Trask, among other things: (i) reviewed the
draft letter of intent between the Company and Dr. Shalit; (ii) reviewed the
Company's Form 10-KSB for the fiscal year ended December 31, 1996, its Form
10-QSB for the period ended March 31, 1997, the prospectus and registration
statement in connection with the IPO and the Company's private placement
memorandum dated October 20, 1995; (iii) reviewed the Employment Agreement and
the License Agreement; (iv) reviewed certain internal management-prepared
financial projections and technology assessments including a marketing summary
with three year projected revenues and financial statement projections; (v) met
with the Company's management to discuss the current status of, and outlook for,
the Company's results, assets and liabilities, industry conditions and outlook
and other matters it considered relevant to its inquiry; (vi) reviewed the
historical prices and trading volume of the Imatec Common Stock; and (vii)
conducted other inquiries, financial studies and analyses as it deemed
appropriate for purposes of its opinion.
In the course of its review and in arriving at its opinion, Spencer Trask did
not independently verify any of the foregoing information and has relied upon it
being complete and accurate in all material respects. Spencer Trask also did not
make an independent appraisal of specific properties or other assets of the
Company.
The following is a brief summary of certain of the valuation methodologies used
by Spencer Trask in connection with the rendering of the Spencer Trask Opinion.
Spencer Trask did not analyze comparable companies' assets and operations in its
approach to this valuation. It is believed by Spencer Trask that the Company's
Technology and business operations are unique and management is not aware of any
comparable public companies or transactions.
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<PAGE>
Income Approach
Spencer Trask utilized the income approach to compare the net present values
("NPV") of estimated future cash flows associated with two different scenarios:
"status quo" and the Sale of the Current Business pursuant to the Agreement.
Spencer Trask reviewed monthly expense projections through August 2000, based on
the assumption of no revenues earned by the Company during that time period and
continuation of the Company's current business strategy without the initiation
and prosecution of formal legal claims against alleged patent infringers. Future
cash flows beyond August 2000, without Dr. Shalit's salary and benefits and with
a higher level of guaranteed royalty payments to Dr. Shalit from the technology
licensed pursuant to the License Agreement (the "Technology") were also
estimated. The future cash flows were discounted by Spencer Trask to arrive at
their NPV. Spencer Trask also conducted a liquidity analysis which indicates
that without revenue, the Company would have no cash remaining by the end of the
year 2000.
The NPVs derived are as follows:
"STATUS QUO" NET CASH OUTFLOWS
Scenario A, No Revenue, NPV - Most Likely $3,827,954
Scenario B, Revenue, NPV - Less Likely 2,801,717
PROPOSED TRANSACTION - COMPANY CASH OUTFLOWS
Scenario A, $0.50 market price per share, 35%
capital gains tax, NPV $3,318,491
Scenario B, $1.00 market price per share, 35%
capital gains tax, NPV 3,012,885
Scenario C, $0.50 market price per share, 27%
capital gains tax, NPV 3,027,737
Scenario D, $1.00 market price per share, 27%
capital gains tax, NPV 2,886,346
Maximun Co. payments irrespective of market price, 35%
capital gains tax, NPV 3,318,491
Maximun Co. payments irrespective of market price, 27%
capital gains tax, NPV 3,027,737
Spencer Trask paid considerable attention to the assumption of no revenue during
the period under evaluation. Correspondence and internal records of
conversations and contacts with prospective licensees of the Technology was
reviewed and discussed with management of the Company. Also considered was the
fact that to date, the Company has not succeeded in securing any licensees. In
addition, Spencer Trask considered that there is only one serious licensee
prospect at this time, a large, well-known medical imaging equipment company,
and if an agreement is to be struck, there remains additional Technology
evaluation and feasibility analysis by the prospect, negotiation of terms of
additional research and development for product customization, negotiation of
license fee terms and U.S. Food and Drug Administration approval by the
licensee. Late 1998 is considered to be the earliest possible date for initial
installation by a licensee if a license agreement is reached. While the Company
and such medical imaging equipment company entered into a non-disclosure
agreement in June 1997, no other formal agreements or understandings are in
place as of the date of this Proxy Statement. If the prospective licensee's
customers were to be satisfied with the improved quality of their image
reproductions, management of the Company has opined that it is possible that
other medical equipment companies would want to license the Technology. In the
event that the negotiations with the well-known medical imaging equipment
company come to fruition, management believes that the value of the Technology
will be somewhat enhanced, although because of the speculative nature of any
such licensing arrangement, no specific value can be assigned thereto. However,
management has acknowledged that tone reproduction of black and white medical
images is not accepted as a critical issue in the industry as there is no
absolute reference and choice of contrast and brightness/density is often a
matter of personal preference. Based on the foregoing, Spencer Trask considered
there to be a low probability of achieving meaningful licensing revenue in the
next several years, if ever.
The other revenue possibility considered by Spencer Trask was from patent
infringers involved with color adjustment methods and systems. Management of the
Company believes that a number of software products and related systems utilized
in the graphic arts industry may be infringing upon one or more patents
underlying the Technology. Patent lawyers, on behalf of the Company have begun
to send letters to companies believed to be infringing on such patents,
suggesting that a license agreement be negotiated in lieu of formal legal
action. As of the date of the Spencer Trask Opinion, no actual litigation has
yet begun and some of the companies contacted by the Company's
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<PAGE>
patent lawyers have flatly denied any infringement. Because of the early stage
of the patent infringement litigation considerations, and the extended period of
time and cost that any such litigation may incur, the adjustment of the "status
quo" cash flows to include assumed future patent infringement income was not
made by Spencer Trask.
In addition, the cash payments made by the Company to Dr. Shalit pursuant to the
Agreement were estimated by Spencer Trask, based on various scenarios involving
applicable tax rates and share prices. These cash outflows were discounted at
the same rate as the "status quo" outflows to arrive at the NPV.
Liquidation Approach
Liquidation of the Company has not been proposed as an alternative to the
"status quo" or the Sale of the Current Business. However, Spencer Trask was of
the view that valuation consideration should be given to this alternative. The
estimated cash and cash equivalents of the Company at June 30, 1997 was $4.4
million. Approval of a liquidation would require a stockholder vote. Given Dr.
Shalit's economic interest in maintaining the Company as a going concern in
order to continue receiving his salary, benefits, royalties and assurance of
legal costs and expenses to protect the Technology or to institute lawsuits
against patent infringers, Spencer Trask believes that it is likely that he,
with approximately 24% of the outstanding shares of Imatec Common Stock, would
vigorously oppose such an action. Accordingly, Spencer Trask believes it
reasonable to assume several months continuation of the Company and its current
level of expenses, plus legal and other costs of a proxy battle, prior to a
liquidation being approved, if at all. Total Company cash expenses through
October 1997 were estimated by management of the Company at $740,000 plus an
estimated $250,000 legal and proxy related expenses relating to a proposed
liquidation for a total of approximately $1,000,000. Resultant estimated cash
and equivalents at the end of October would be approximately $3,400,000 less
liabilities estimated at $100,000 or a net amount of $3,300,000 for distribution
to stockholders. On a per share basis, this would amount to approximately $0.98
per share based on 3,735,000 shares of Imatec Common Stock outstanding. This
does not take into account, however, the possibility that additional legal
expenses relating to patent infringement claims mights be incurred prior to any
liquidation approval.
Spencer Trask's analysis indicated that the NPV of maximum Company payments to
Dr. Shalit pursuant to the Agreement is approximately $3,300,000, implying that
this amount will need to be pledged to secure the Letter of Credit. Resultant
"free cash" would be approximately $1,000,000 at June 30, 1997 plus net
operating losses of $1,200,000 plus estimated "shell value" of $250,000. Implied
Company value would be approximately $1,700,000 or $0.46 per share. This does
not take into account additional value per share which might result from future
per share market prices above $0.66 per share which would reduce the Company's
obligations pursuant to the Letter of Credit and make available more free cash
to the Company, nor does it take into account the possibility of Company asset
deployment in such a way as to increase stockholder value.
Overall, Spencer Trask did not consider the liquidation approach to be a viable
consideration in their valuation analysis because of uncertainties as to whether
it would be of direct benefit to the
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<PAGE>
stockholders and whether it would be approved by the stockholders in view of
likely vigorous opposition by a large stockholder.
Impact of the Agreement on the Company and its Stockholders
As of June 30, 1997, the Company had approximately 3,735,000 shares outstanding.
Losses from operations in 1996 was $1,202,000, up from $595,000 in 1995, with
continuing losses from operations in the first quarter of 1997 of $353,000 and
anticipated ongoing losses for the next several years. The Imatec Common Stock
market price has declined from a high of $6.13 in January 1997 to a current
level of approximately $0.50 per share, indicating stockholder dissatisfaction
with the Company's current and anticipated performance. Spencer Trask believes
that the comparative NPV's of the "status quo" vs. the Sale of the Current
Business and the opportunity to redeploy the Company's post-Sale assets in the
form of free cash estimated at approximately $1,000,000, net operating loss
carryforward of approximately $1,200,000 and estimated $250,0000 "shell value,"
indicate that the stockholders of the Company have reasonable grounds to expect,
assuming rational use of the Company's assets by new management, that the terms
of the Sale are adequate from a financial perspective.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analysis as a whole, could create an incomplete view of the processes
underlying the Spencer Trask Opinion. In arriving at the Spencer Trask Opinion,
Spencer Trask considered the results of all such analyses. The analyses were
prepared solely for purposes of providing its opinion as to the fairness of the
Sale, from a financial point of view, to the stockholders of the Company and do
not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold. Analyses based upon forecasts of
future results are not necessarily indicative of actual future results, which
may be significantly more or less favorable than suggested by such analyses. As
described above, the Spencer Trask Opinion and presentation to the Board was one
of many factors taken into consideration by the Board in making its
determination to approve the Sale. The foregoing summary does not purport to be
a complete description of the analyses performed by Spencer Trask.
Spencer Trask has not provided financing services to the Company in the past.
Spencer Trask is a member of the National Association of Securities Dealers and
is engaged in securities brokerage, market-making, private equity placements,
securities research, and equity underwriting. The firm regularly values public
and private businesses, as well as securities, for acquisition, merger, estate,
and tax purposes. In the ordinary course of its business, Spencer Trask may
actively trade the equity securities of the Company for its own accounts and for
the accounts of customers and, accordingly, may, at any time, hold a long or
short position in such securities.
Pursuant to the terms of the Spencer Trask Letter Agreement, the Company agreed
to pay Spencer Trask a fee of $50,000 upon the rendering of its fairness opinion
relating to the Sale. The Company has also agreed to reimburse Spencer Trask for
its reasonable out-of-pocket expenses and to indemnify Spencer Trask and certain
related persons against certain liabilities in connection with the engagement of
Spencer Trask, including certain liabilities under federal securities laws.
ACCOUNTING TREATMENT. The proposed Sale of the Current Business is anticipated
to be treated by the Company as a charge to operations in an amount equal to the
actual payment of the (i) $634,619 (pre-tax); (ii) the net book value of Newco;
and (iii) the expenses of the Sale, consisting primarily of professional fees
and severance pay.
U.S. FEDERAL INCOME TAX CONSEQUENCES. The proposed Sale will not result in any
federal income tax consequences to the Company's stockholders as stockholders.
The Company estimates that it will report a loss for tax purposes on the Sale as
the consideration received by the Company will be entirely attributable to the
cancellation of the Employment Agreement and the License Agreement, which are
future commitments of the Company, in exchange for the $634,619 (pre-tax) in
cash and all the outstanding shares of Newco Common Stock. Newco has a carrying
value of approximately $290,000 (if the Sale had occurred on June 30, 1997).
Therefore, the loss would be approximately $925,000, plus expenses. The benefit
of this tax loss, if any, is dependent on the Company's generation of future
earnings. See "-- Assets to be Contributed to Newco; Assumed Liabilities of
Newco" and "-- Consideration."
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<PAGE>
INFORMATION CONCERNING THE BUYER. Dr. Shalit is the current President, Chief
Executive Officer, Chairman of the Board and Secretary of the Company. He will
continue to develop the Imatec 20/20 System for his own account following the
consummation of the Sale of the Current Business. Dr. Shalit has determined to
enter into the Sale for the purpose of proceeding on his own in developing and
commercializing the Technology. Dr. Shalit holds the rights to the Technology to
the Company and entered into the Licensing Agreement with the Company in
relation thereto in June 1995. Because the Board has indicated their desire to
discontinue the commercialization efforts with regard to the Technology, Dr.
Shalit believes he will be able to continue such efforts alone. The
Consideration was determined to ensure Dr. Shalit received certain After-Tax
minimal amounts. See "The Agreement -- Consideration." Dr. Shalit has recused
himself from all deliberation and voting of the Board in connection with the
Sale and has agreed to abstain from voting, as a stockholder, in connection with
the Sale. See "Proposal 1 --Current Business Relationship with the Buyer."
In reaching his determination regarding the fairness of the Sale, Dr. Shalit
considered the same factors considered by the Board discussed above under "--
Recommendation of the Board of Directors."
Dr. Shalit did not find it practicable to, and did not, quantify or otherwise
attempt to assign relative weights to the specific factors considered in making
his determination; although each of the factors considered, other than the risks
cited, supported his decision. Dr. Shalit did not retain a financial advisor to
render a fairness opinion in connection with the Sale. Dr. Shalit concluded that
the Sale is fair to the unaffiliated stockholders of the Company.
Dr. Shalit believes that the manner in which the Sale was considered by the
Company was procedurally fair to the unaffiliated stockholders of the Company
based on the following factors: (i) the Committee was formed to promote and
protect the interests of the unaffiliated stockholders; (ii) the Committee was
comprised solely of independent members of the Board; (iii) the Committee
retained an independent financial advisor, Spencer Trask, and independent legal
counsel; and (iv) the negotiations between Dr. Shalit and the Committee of the
terms of the Agreement were conducted on an arms-length basis.
The foregoing should not, however, be construed as a recommendation by Dr.
Shalit to the unaffiliated stockholders to vote to approve the Sale. Because of
potential conflicts of interest, Dr. Shalit does not make a recommendation with
respect to approval of the Sale.
NAME CHANGE
Effective on the Closing Date, the Company will change its name from Imatec,
Ltd. to a yet to be determined name and Newco will change its name to Imatec,
Ltd.
BUSINESS RELATIONSHIP WITH BUYER
Dr. Shalit will not, following consummation of the Sale of the Current Business,
have any further interest in the Company, other than his ownership of the Shalit
Shares and will resign his positions as President, Chief Executive Officer,
Chairman of the Board and Secretary effective upon Closing.
MANAGEMENT OF IMATEC FOLLOWING THE SALE
Concurrently with the Closing Date, Dr. Shalit, the current Board, Mr. Cross and
Mr. Smith will resign all positions with the Company and, if elected pursuant to
Proposal 2, Messrs. Clifford A. Brandeis, William M. Thompson and John M.
Thompson will serve as the Company's directors. In addition, Mr. Brandeis will
serve as the Company's President, Chairman of the Board, Chief Executive Officer
and Secretary. See "Proposal 2."
CONFLICT OF INTEREST
Dr. Shalit, the Company's current Chief Executive Officer, President, Chairman
of the Board and Secretary is the sole purchaser of the Newco Common Stock.
Pursuant to the Agreement, Dr. Shalit will release the Company from its
obligations under his Employment Agreement and the License Agreement, will pay
no cash consideration for the Current Business, will receive $634,619 (pre-tax)
at the Closing and a guarantee by the Company of a minimum purchase price of
$3.41 (the equivalent of $2.34 per Shalit Share, After Tax) secured by the
Letter of Credit. In addition, Dr. Shalit has recused himself from all
deliberation and voting of the Board in connection with the Sale and has agreed
to abstain from voting, as a stockholder, in connection with the Sale. See
"--Business Relationship with Buyer."
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FUTURE DIRECTION OF THE COMPANY
The current Board and management of the Company are currently evaluating
alternatives for the future direction of the Company. The Company has been
exploring the acquisition of a New Business, but to date has not reached any
agreement or understanding with prospective sellers. The Board has made no
decision on the purchase of a New Business, including the type of business to
acquire. It is the intent of the Board to further examine the alternatives with
the goal of maximizing stockholder value. Until such time, if ever, as the
Company identifies an appropriate business to acquire, the Company will have no
liabilities and its only assets will be the assets remaining after the Sale,
which is limited to cash and marketable securities which will be no less than
$3,875,000, subject to the Closing Adjustment. There can be no assurance that
the Company can purchase a New Business at prices that the New Board, if
elected, believes reasonable, or that the Company will operate a New Business
profitably, or that, if profitable, the New Business will be sufficiently
profitable to maximize stockholder value. The New Board intends to seek
stockholder approval for the acquisition of any New Business. See "-- The
Agreement -- Amendment and Termination."
In the event that a New Business is not identified and acquired within a
reasonable period of time, the Board may determine to liquidate and wind down
the Company, paying to its stockholders a dividend of remaining cash (if any)
after satisfying liabilities and other prior obligations. It is likely that, in
the event of any such liquidation, the per-share liquidation distribution will
be less than the current per-share market price as a consequence of the expenses
of the Annual Meeting and this proxy solicitation and the cost anticipated to be
incurred by the Company in seeking a New Business.
RIGHTS OF SECURITY HOLDERS
The DGCL requires that a sale of "all or substantially all" of a corporation's
property be approved by the corporation's stockholders. The Board has determined
to treat Proposal 1 as covered by such provisions of the DGCL. Accordingly,
stockholders who oppose the Sale of the Current Business do not have dissenters
rights of appraisal under the DGCL. See "Rights to Dissent."
The rights of the holders of Imatec Common Stock will not change as a result of
the Sale of the Current Business. The Company has never declared or paid any
cash dividends on its Common Stock.
Holders of the Company's Redeemable Warrants have no voting rights with respect
to any matter that comes before the Annual Meeting.
MARKET ACTIVITY
The closing price of the Imatec Common Stock as reported on the SmallCap Market
on October __, 1997, the last business day preceding the public announcement of
the proposed Sale of the Current Business, was $_______. On November , 1997,
the last day prior to the printing of this Proxy Statement, the closing price of
the Imatec Common Stock was $___ per share. See "Market Prices and Per Share
Data."
Following the Sale, other than the Minimum Cash Amount, substantially all of the
Company's assets will no longer belong to the Company and the Company will be
minimally capitalized. Accordingly, as a result of the Sale, until a New
Business is identified and purchased, the trading price range of the Imatec
Common Stock immediately after the Sale is expected to remain at its current
levels or be lower than the trading price range of the Imatec Common Stock prior
to the Sale. The prices at which the Imatec Common Stock trades after the Sale
will be determined by the marketplace and may be influenced by the depth and
liquidity of the market for the Imatec Common Stock, investor perception of the
Company and the industry in which the Company may participate, whether the
Company finds a suitable acquisition candidate, the Company's operating results,
the Company's dividend policy and general economic and market conditions. For a
description of recent trading prices of the Imatec Common Stock, see "--
Dividends and Price Range of Imatec Common Stock."
It is expected that the Imatec Common Stock will continue to be quoted on the
SmallCap Market after the Sale. However, until a New Business is acquired by the
Company, the Imatec Common Stock and the Redeemable Warrants will not meet the
SmallCap Market continuing listing requirements. In addition, the Nasdaq Stock
Market, Inc. has informed the Company that, unless a New Business has been
acquired which meets the initial listing requirements of the SmallCap Market,
immediately following the Closing it will notify the Company of its intention
to delist the Imatec Common Stock and the Redeemable Warrants. There is no
assurance, however, that the Company will be able to maintain its listing on the
SmallCap Market and that there will not be substantial limitations on the
liquidity of the Imatec Common Stock, even if the Company acquires a New
Business.
THE AGREEMENT
Set forth below is a description of the principal terms of the Agreement, which
are of continuing applicability. This description is qualified in its entirety
by reference to the Agreement, which is attached as Annex A hereto and is
incorporated herein by this reference.
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THE SALE. The Agreement provides that, subject to the terms and conditions
thereof, the Company will contribute (the "Contribution") the Assets and
Liabilities to Newco, a newly formed wholly-owned subsidiary of the Company.
Immediately following the Contribution, Dr. Shalit will purchase all of the
outstanding shares of Newco Common Stock for the Consideration. The Agreement
also provides that (i) the nominees for director listed under Alternate A in
Proposal 2 will be the initial directors of the Company immediately following
the Closing Date, (ii) the Articles of Incorporation of the Company (the
"Articles of Incorporation") will continue to be the Articles of Incorporation
of the Company following the Sale; and (iii) the By-laws of the Company (the
"ByLaws") will continue to be the By-laws of the Company following the Sale.
EMPLOYEES, TREATMENT OF OPTIONS. The Agreement provides that, effective as of
the Closing Date, all employees of the Company will be terminated and all
employee benefits, including any unexercised options granted pursuant to the
Stock Option Plan will be terminated. To date, no options have been granted
pursuant the Stock Option Plan.
ASSETS TO BE CONTRIBUTED TO NEWCO; ASSUMED LIABILITIES OF NEWCO. The
Assets to be contributed to Newco pursuant to the Agreement include all accounts
receivable, fixed assets, deposits, leases, permits, proprietary rights and
software, customer lists, books and records, prepaid items, and the trademarks
"IMATEC" and "IMATEC 20/20" that are currently used in connection with or relate
to the operation of any of the Current Business, as well as the name Imatec,
Ltd., except as specifically excluded. The specifically excluded assets consist
only of cash which will be no less than $3,875,000 (the "Minimum Cash Amount"),
subject to the Closing Adjustment. See "-- The Amendment and Termination."
Certain liabilities relating to the Current Business will be assumed by Newco.
The Liabilities are the current liabilities of the Company related to the
operation of the Current Business including but not limited to trade payables
and accrued expenses, including existing covenants and leases, subject to
certain exceptions, but do not include liabilities relating to, arising out of,
or in connection with, the bridge financing of the Company concluded in April
1996, the IPO, and the costs and expenses related to the Sale.
CONSIDERATION. The Consideration consists of (i) the termination of the
Employment Agreement in exchange for a payment of $634,619 (pre-tax), which is
the equivalent of $300,000, After Tax; and (ii) the termination of the License
Agreement. In addition, Dr. Shalit and the Company have agreed that Dr. Shalit
will sell all of the Shalit Shares in the public market or to the Company at
market price over a period of 30 months according to the schedule set forth
below, either as directed by the Company or at his own direction. All payments
made by the Company to Dr. Shalit on the Sale Date or pursuant to the Letter of
Credit are being paid on a before-tax basis. The After Tax amounts refer only to
the consideration to be received by Dr. Shalit and not to any tax benefits
accruing to the Company. For purposes of the Agreement, "After Tax" means the
amount remaining after deducting individual federal (including capital gains
tax), state and local income taxes calculated at the highest tax rate applicable
to Dr. Shalit in effect at the time of each payment.
Sale of the Shalit Shares
From and after the Closing Date, the Company will have the option of (i) causing
Dr. Shalit to sell the Shalit Shares in the public market or (ii) purchasing the
Shalit Shares at market price or (iii) Dr. Shalit will have the option of
selling the Shalit Shares in the public market so long as Dr. Shalit receives
the Minimum Sales Amount (as herein defined) on each Payment Date (as defined)
or sooner, subject to the Minimum Cash Amount adjustment provisions. The Minimum
Sales Amounts will be secured by the Letter of Credit in the aggregate amount of
$2,850,252 in favor of Dr. Shalit obtained by the Company. The Letter of Credit
will be delivered at Closing. In the event that Dr. Shalit receives an amount
from the sale of the Shalit Shares, net of any brokerage commissions (the "Sale
Proceeds") in excess of the Minimum Sales Amount for any given Payment Date,
such excess
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<PAGE>
amount will be deducted, on a pro rata basis, from the aggregate Minimum Sales
Amounts due to Dr. Shalit set forth in the table below. In the event that Dr.
Shalit receives Sale Proceeds which are less than the Minimum Sales Amount for
any given Payment Date, Dr. Shalit may draw on the Letter of Credit in an amount
equal to the Minimum Sales Amount minus the Sale Proceeds. In the event that the
number of Shalit Shares sold at any given Payment Date exceeds the number of
shares set forth below for such Payment Date (the "Excess Shares"), Dr. Shalit
will receive the Sale Proceeds from the sale of the Excess Shares with a minimum
price per share equal to $3.41, the equivalent of $2.34, After Tax. Any Excess
Shares sold for any given Payment Date will be deducted, on a pro rata basis,
from the remaining Shalit Shares to be sold. The following table sets forth the
minimum amounts, After Tax (individually, a "Minimum Sales Amount") to be
received by Dr. Shalit on the dates (individually, a "Payment Date") set forth
below from the sale of the Shalit Shares, from the Company and/or pursuant to
the Letter of Credit, as applicable:
<TABLE>
<CAPTION>
Aggregate
Dollar
Amount Dollar
Aggregate Aggregate Due as of Dollar Amount
Dollar Dollar Date of Amount Per Share
Number of Amount Amount Proxy Per Share After
Date Shares Pre Tax After Tax Statement* Pre Tax** Tax***
---- ------ ------- --------- ---------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
6 months 128,480 $438,502 $ 300,000 $3.41 $2.34
from Closing
12 months 256,959 877,000 600,000 3.41 2.34
from Closing
18 months 171,306 584,667 400,000 3.41 2.34
from Closing
24 months 171,306 584,667 400,000 3.41 2.34
from Closing
30 months 107,066 365,416 250,000 3.41 2.34
from Closing ------- ------- -------
TOTAL 835,117 $2,850,252 $1,950,000
</TABLE>
- ---------------------
* Amounts due to Dr. Shalit under the Letter of Credit in the Event that
the Company required the sale of all of the Shalit Shares as of the
date of this Proxy Statement.
** Actual figure is $3.413 per share.
*** Actual figure is $2.335 per share.
For example, in the event that within 6 months from Closing, the Company has
required Dr. Shalit to sell 128,480 Shalit Shares at an average price per share
of $1.50 for an aggregate of $192,720,
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<PAGE>
then Dr. Shalit is entitled to draw from the Letter of Credit in an amount equal
to $245,782 (the $438,502 guaranteed price minus the actual $192,720 sales
price). However, in the event that Dr. Shalit receives more than $438,502 from
the sale of 128,480 Shalit Shares during such period, the entire amount received
would be deducted from the $2,850,252 guaranteed by the Letter of Credit. In the
event that the Company does not require Dr. Shalit to sell any Shalit Shares
over such 30 month period or Dr. Shalit otherwise does not sell the Shalit
Shares and the current market price of the Imatec Common Stock is zero, Dr.
Shalit will be entitled to draw on the Letter of Credit in the full amount of
$2,850,252. Any amount due to Dr. Shalit under the Letter of Credit is subject
to the adjustments described under "-- Amendment and Termination."
The Shalit Shares are not "restricted securities" as such term is defined in
Rule 144 promulgated under the Securities Act. Accordingly, as long as Dr.
Shalit is not an "affiliate," as such term is defined under Rule 144, Shalit
Shares will be freely tradeable. Pursuant to the terms of the Registration
Rights Agreement, in the event that Dr. Shalit is considered an affiliate under
Rule 144, the Company has agreed to register the Shalit Shares prior to their
resale to the public at the insistence of either party pursuant to the
provisions of the Agreement. The Company cannot predict whether Dr. Shalit would
choose to sell the Shalit Shares in the public market when the market price is
substantially below $3.41 per share or at all. Such a determination is based on
many factors including but not limited to market conditions, whether a New
Business has been acquired and the termination date of the Letter of Credit.
The Company has no current intention to require Dr. Shalit to sell the Shalit
Shares other than as set forth in the above schedule.
REPRESENTATIONS AND WARRANTIES; COVENANTS. The Agreement contains
representations and warranties of one or both of the parties with respect to,
among other things (i) organization, good standing, corporate power and
enforceability, (ii) ownership of subsidiaries, (iii) capitalization, (iv) no
conflicts, (v) required consents or approvals, (vi) no material misstatements in
filings with the Commission, financial statements and regulatory statements,
(vii) no undisclosed liabilities, (viii) absence of material adverse changes,
(ix) no litigation, (x) compliance with law, (xi) no disclosed liabilities under
ERISA, (xii) tax returns filed and taxes paid, (xiii) receipt of the fairness
opinion from Spencer Trask, and (xiv) sufficiency of funds to consummate the
Sale of the Current Business. In addition, the Agreement contains the customary
covenants of each party.
INDEMNIFICATION. The Agreement provides that all representations, warranties,
covenants, and agreements of the parties survive the Closing, and the parties
agreed to indemnify one another as follows: the Company has agreed to indemnify
Dr. Shalit against all claims, losses, costs, and expenses, including attorneys
fees, arising out of (i) any breach of any covenant, agreement, representation,
or warranty or (ii) any liability relating to the Current Business or Company
that is not an assumed Liability; and Dr. Shalit agreed to indemnify the Company
against all claims, losses, costs, and expenses, including attorneys fees,
arising out of any breach of any covenant, agreement, representation or
warranty. Both Dr. Shalit and the Company agreed to notify the other of damages
resulting from the claims of a third party and agreed that each may undertake
the defense of such claims that it would be required to indemnify, under certain
conditions, and that each may participate in the defense of claims as to which
it would be indemnified, under certain conditions.
CLOSING CONDITIONS
Conditions Precedent to Obligations of the Company
The Company's obligations under the Agreement are subject to the satisfaction or
waiver, at or prior to the Closing Date, of certain conditions, including each
of the following: (i) the accuracy of Dr.
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<PAGE>
Shalit's representations and warranties as of the Closing Date; (ii) the
performance by Dr. Shalit of all of his obligations, covenants and conditions
contained in the Agreement; (iii) the Company's having secured Board authority
and stockholder consent with respect to the Sale; and (iv) receipt of each of
the canceled Employment Agreement and License Agreement, as described above (see
"The Agreement --Consideration").
Conditions Precedent to Obligations of Dr. Shalit
The obligations of Dr. Shalit are subject to the satisfaction or waiver, at or
prior to Closing, of certain conditions, including each of the following: (i)
the accuracy of the Company's representations and warranties as of the Closing;
(ii) the material performance by the Company of all of its obligations,
covenants and conditions contained in the Agreement to be performed at or prior
to Closing; (iii) the Company's having received requisite Board and stockholder
authority to consummate the Agreement; and (iv) receipt of a bill of sale and
assignment agreement in connection with the conveyance of the Assets.
AMENDMENT AND TERMINATION. The Agreement may be amended by the mutual written
agreement of the Company and Dr. Shalit. The Company is not presently aware of
any reason to amend the Agreement. In addition, the Minimum Cash Amount will be
reduced by the Closing Adjustment. At the Closing, the Minimum Sales Amounts due
to Dr. Shalit will be reduced proportionally by the positive difference between
the Minimum Cash Amount and the actual cash and marketable securities remaining
in the Company as of the Closing. The Minimum Cash Amount represents the amount
of cash and marketable securities remaining in the Company as of the Closing, as
adjusted by the Closing Adjustment.
For example, if the Closing occurs after December 1, 1997 but before December
31, 1997, the aggregate Monthly Expense Amount will be $65,000. If the
Extraordinary Expense Amount during such period equals $100,000, the aggregate
Closing Adjustment would be $165,000, resulting in the adjustment of the Minimum
Cash Amount to $3,710,000 ($3,875,000 minus the Closing Adjustment of $165,000).
Assuming the actual cash and marketable securities remaining in the Company as
of the Closing equals $3,700,000, the total Minimum Sales Amounts due to Dr.
Shalit will be reduced by $10,000, the difference between $3,710,000 and
$3,700,000. At September 30, 1997, the Company had $4,158,622 in cash and
marketable securities.
The Board has retained discretion, even if stockholder approval of the Sale is
obtained and the other conditions to the Sale are satisfied, to abandon, defer
or modify the Sale or any matter contemplated by the Sale. The terms of the Sale
thus may be modified or conditions thereto may be waived by the Company's Board.
However, if the Company's Board takes any such action, it will be on the basis
that such action is in the best interests of the Company and its stockholders in
accordance with its fiduciary obligations under Delaware law.
EXCLUSIVITY. The current Board believes that the Sale is the best arrangement
available at this time to maximize stockholder value. Accordingly, pursuant to
the Agreement, neither the Company nor Dr. Shalit will, directly or indirectly
through any agents or representatives, solicit, initiate or encourage any
proposal or offer from a third party to acquire either any capital stock or
other voting
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<PAGE>
securities of the Company or any substantial portion of the Assets, or
participate in any discussions or negotiations regarding such a proposal or
offer. However, this provision does not prevent the Company's Board from taking
any such actions if required by the Board's fiduciary duties under Delaware law.
SCHEDULE 13E-3
The Company and Dr. Shalit have filed with the Commission a Schedule 13E-3
pursuant to the Exchange Act, furnishing certain information with respect to the
Sale in addition to the information contained in this Proxy Statement, and they
may file amendments to the Schedule 13E-3. As permitted by the rules and
regulations of the Commission, this Proxy Statement omits certain information
contained in the Schedule 13E-3. For further information pertaining to the
Company, reference is made to the Schedule 13E-3 and the exhibits and amendments
thereto. See "Available Information."
STOCKHOLDER VOTE
The DGCL requires that a sale of "all or substantially all" of a corporation's
property be approved by the corporation's stockholders. The Board has determined
to treat Proposal 1 as covered by such provisions of the DGCL. Accordingly, an
affirmative vote of a majority of the outstanding shares of the Company entitled
to vote is required to approve Proposal 1. The Board unanimously recommends a
vote to approve the proposed Sale described in Proposal 1. Unless the proxy is
marked to indicate that such authority is expressly withheld, the persons named
in the enclosed proxy intend to vote the shares represented thereby "FOR"
approval of Proposal 1.
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<PAGE>
DIVIDENDS AND PRICE RANGE OF COMPANY COMMON STOCK
The Common Stock and the redeemable warrants of the Company (the "Redeemable
Warrants") have been included for quotation on the SmallCap Market since October
1996 and trade under the symbols "IMEC" and "IMECW." The following table sets
forth information as to the last sales price per share of Common Stock and the
Redeemable Warrants as quoted on the Consolidated Reporting System from October
1996 and for 1997 (through November 17).
<TABLE>
<CAPTION>
Common Stock Redeemable Warrants
LOW HIGH LOW HIGH
<S> <C> <C> <C> <C>
1997
4th Quarter (through November 17, 1997) $0.3125 $0.75 $0.0625 $0.125
3rd Quarter $0.250 $0.875 $0.0938 $0.2031
2nd Quarter $0.4375 $3.375 $0.0938 $1.625
1st Quarter $3.00 $6.50 $0.7031 $3.25
1996
4th Quarter (from October 29, 1996) $4.25 $6.75 $1.00 $3.125
</TABLE>
The Company has never declared or paid cash dividends on its capital stock and
does not anticipate declaring or paying cash dividends in the foreseeable
future.
At November 17, 1997 the Company had approximately 863 stockholders.
RIGHTS TO DISSENT
Under the DGCL, stockholders of a corporation are entitled to appraisal rights
only with respect to certain statutory mergers or consolidations. Unless
otherwise provided in the certificate of incorporation, the DGCL does not grant
appraisal rights to (i) stockholders with respect to a merger or consolidation
of a corporation, the shares of which are either listed on a national securities
exchange or are held of record by more than 2,000 holders, if such stockholders
receive only shares of the surviving corporation or shares of any other
corporation which are either listed on a national securities exchange or held of
record by more than 2,000 holders, (ii) stockholders of a corporation surviving
a merger if no vote of the stockholders of such corporation is required to
approve the merger, or (iii) stockholders of a corporation upon the disposition
of all or substantially all of that corporation's assets.
The Board of Directors has classified the proposed transaction as a sale of
assets and not a merger. Accordingly, no Appraisal or Dissenters' Rights are
available in connection with the Sale.
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<PAGE>
FRAUDULENT TRANSFER CONSIDERATION; LEGAL DIVIDEND REQUIREMENTS
If a court in a lawsuit by an unpaid creditor or representative of creditors,
such as a trustee in bankruptcy, were to find that, at the time the Company
effected the Sale, the Company (i) was insolvent, (ii) was rendered insolvent by
reason of the Sale, (iii) was engaged in a business or transaction for which the
Company's remaining assets, as the case may be, constituted unreasonably small
capital or (iv) intended to incur, or believed it would incur, debts beyond its
ability to pay as such debts matured, such court may be asked to void the Sale
(in whole or in part) as a fraudulent conveyance for the benefit of creditors.
The measure of insolvency for purposes of the foregoing will vary depending upon
the jurisdiction whose law is being applied. Generally, however, the Company
would be considered insolvent if the fair value of its respective assets were
less than the amount of its respective liabilities or if it incurred debt beyond
its ability to repay such debt as it matures.
The Company's Board and management believe that even if a New Business is not
identified and purchased, the Company will be solvent at the time of the Sale
(in accordance with the foregoing definitions), will be able to repay its debts
as they mature following the Sale and will have sufficient capital to carry on
its business from a financial point of view. The Company has engaged Spencer
Trask to assist the Company in its analysis of the fairness of the Sale from a
financial point of view.
See "-- Fairness Opinion."
BUSINESS OF THE COMPANY PRIOR TO THE SALE
Business Strategy
The Company's strategy is (i) to 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) to engage in marketing activities to facilitate the licensing of
the Company's technology and its Imatec 20/20 Systems, and (iii) to 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 television/video. The
precise scope and length of any license granted by the Company is anticipated to
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 as a
component of new MRI, CT, and ultrasound scanners. The Company does not
presently intend to engage in any manufacturing, sales, 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 eventually need to engage in
manufacturing of products incorporating its technology or the Imatec 20/20
System. The Company is presently engaged in preliminary discussions with a
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<PAGE>
potential licensee. However, a license agreement may not be consummated and,
even if consummated, the timing and amount of income to the Company is
speculative.
The Company has sent letters alleging that its patents have been infringed to
three companies. They have denied such infringement. The Company has been
advised that patent infringement litigation may be expensive, its results
uncertain due to the uncertainty of litigation and that a final judgement may
not be expected before three years.
Manufacturing, Sales, and Distribution
The Company has no present intention to engage in the manufacturing or sales
process. In the event that, due to an 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
retail 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, because 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 by a
variety of means, each of which is intended to facilitate the licensing of its
technology and Imatec 20/20 Systems. The Company intends to attend industry
trade shows in the United States in order to gain additional exposure to
potential licensees for its technology and Imatec 20/20 Systems. The Company
also intends to publicize the existence of Imatec 20/20 Systems through the
publishing of articles by Dr. Shalit, the first of which were a series of
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"), a 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, which is responsible for creating standards in the image
communication business. 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 if required.
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<PAGE>
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 time to time to conduct
research and development activities. The Company, in certain 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 research and development itself.
Presently, the Company does not have any current arrangements or understandings
to acquire any such technologies.
The Company incurred $17,881, $11,773 and $137,970 in research and development
expenses during the year ended December 31, 1994, 1995, and 1996, respectively.
Competition
The image enhancement field is subject to rapid and significant technological
change that may render an Imatec 20/20 System, 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 on a timely basis, or at
all.
While the Company is not aware of any entities that build image enhancement
devices which directly compete with the Company's technology or the Imatec 20/20
System in the medical field, 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 competing technologies or products. 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, highly capitalized 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.
License Agreement
The Company entered into a license agreement as of June 25, 1995 with Dr. Shalit
(the "License Agreement"). The License Agreement grants the Company the
exclusive right to make, use, sell, and sublicense "Patentable Image
Technology," defined in the License Agreement as the Company's 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. Dr. Shalit is also entitled to receive a flat royalty
fee of $140,000 per annum, payable in monthly
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<PAGE>
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 Board for any reason whatsoever, but the Company or any
successor of the Company continues in existence, the Annual Royalty will
automatically be increased to $250,000 per annum. Pursuant to the terms of the
License Agreement, the Annual Royalty will 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 will
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, and all other
intellectual property rights, if any, relating to the Company, although there
can be no assurance 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 pursuant to
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
Company's 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. Shalit to make, use, sell and sublicense to others the Patentable Image
Technology.
The Company intends to 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.
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<PAGE>
FDA Clearance
The United States Food and Drug Administration (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, and filing a pre-market notification under
Section 510(k) ("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 utilizing 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) procedure. 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.
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 Institutional Review Board (the "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.
While the Company's licensees will be more likely to experience the FDA review
and clearance processes than the Company directly, it may be more difficult to
sell or license the Company's technology in light of such rigorous FDA license
requirements. The Company has never sought FDA approval for its Technology.
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<PAGE>
Employees
As of August 31, 1997, the Company had four full-time employees, Dr. Hanoch
Shalit, who serves as the Company's President, Chief Executive Officer, Chairman
of the Board and Secretary, James A. Smith, who serves as the Company's Chief
Financial Officer, Simon A. Cross, who serves as Vice President - Marketing and
Sales and one administrative assistant. The Company also employs two part-time
consultants, consisting of one computer programmer and one electronic engineer.
The Company believes that its relations with its employees are good.
Legal Matters
The Company was named as a defendant in an action commenced in the Supreme Court
of the State of New York, Suffolk County on November 7, 1997. The plaintiff is
seeking an aggregate of $3,000,000 from the Company, alleging that the Company
breached its obligations to the plaintiff in connection with three separate
agreements relating to the raising of funds for the Company executed in 1993,
1994 and 1995. The Company intends to vigorously defend against such claims.
- 35 -
<PAGE>
DESCRIPTION OF THE COMPANY'S CAPITAL STOCK
Authorized and Outstanding Capital Stock
At the date hereof, the authorized capital stock of the Company consists of (i)
20,000,000 shares, consisting of 20,000,000 shares of Imatec Common Stock, par
value $.0001 per share, 3,735,201 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. The
following summary of the capital stock is qualified in its entirety by reference
to the Company's Certificate of Incorporation and Bylaws, copies of which are
available upon request from the Company.
Imatec Common Stock
Holders of Imatec Common Stock are entitled to one vote per share, 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. There are
no cumulative voting rights, meaning that the holders of a majority of the
shares voting for the election of directors can elect all the directors if they
choose to do so.
The holders of Imatec 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 Imatec Common
Stock after payment of any liquidation preferences to holders of any preferred
stock then outstanding, 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 dividends in such amounts and at
such times as may be declared by the Company's Board out of funds legally
available therefor. All outstanding shares of Imatec Common Stock are duly
authorized, validly issued, fully paid and nonassessable, with no personal
liability attaching to the ownership thereof.
Redeemable Warrants
The Redeemable Warrants have been 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 previously filed with the
Commission.
Each Redeemable Warrant entitles the holder thereof to purchase one share of
Imatec Common Stock at an exercise price of $6.50 per share at any time until
October 28, 1999, subject to adjustment in certain circumstances. Each
Redeemable Warrant is redeemable by the Company at any time commencing July 29,
1997. Each Redeemable Warrant is redeemable by the Company with the consent of
the underwriter of its IPO, 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
- 36 -
<PAGE>
closing bid price of the Imatec Common Stock as reported by Nasdaq, or if not
quoted on Nasdaq, the average closing bid price of the Imatec Common Stock as
reported by any other recognized quotation system on which the price of the
Imatec Common Stock is quoted, or if not quoted on Nasdaq or any other
recognized quotation system, the average closing sales price of the Imatec
Common Stock on the primary exchange on which the Imatec Common Stock is traded
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.
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
Imatec Common Stock to the holder, such shares of Imatec Common Stock shall have
rights identical to all other shares of Imatec 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 the exercise of the
Redeemable Warrants. The Company has registered and qualified such issuable
shares of Imatec Common Stock. There can be no assurance that the Company will
be able to cause such registration statement to remain current or to continue
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 Imatec 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 the Company shall have the authority,
without further action by the holders of the outstanding Imatec 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.
- 37 -
<PAGE>
Issuance of Preferred Stock, which may be accomplished through a public offering
or a private placement to parties favorable to current or future management, may
dilute the voting power of holders of Imatec 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 Plan provides for the
immediate acceleration of, and removal of restrictions from, options and other
awards under the plan 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 DGCL, 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 DGCL (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 may enter into an Indemnification Agreement
with each of its Directors and any officer, employee, agent or fiduciary
designated by the Board which provides that the Company indemnify the Director
or other parties thereto to the fullest extent permitted by applicable law.
In addition, pursuant to the Agreement, the Company has agreed that it will
cause its directors' and officers' liability insurance policies in effect on the
date of the Agreement to be continued in full force and effect for a "run-off"
period of six years after the date of the Closing (the "Run-Off Policy") if the
original directors' and officers' liability insurance policies are in full force
and effect at the time of the Closing. The Company may replace the Run-Off
Policy with a new officers' and directors' liability policy or policies (the
"New Policy") as long as the New Policy's limits of liability are no less than
the aggregate amount of the limits of liability in the Run-Off Policy and the
New Policy (i) is not more limited in scope than the Run-Off Policy, (ii) does
not increase the amount of the retention or the amount of insurance for which
the Company or any director or officer is responsible as specified in the
Run-Off Policy, (iii) continues to cover all persons presently covered or to be
covered prior to the date of the Agreement under the Run-Off Policy, and (iv)
does not otherwise adversely change (with reference to any of the persons now or
in the future covered thereby) any of the terms, conditions, or Coverage of the
Run-Off Policy. As used herein, the term "Coverage" includes any or all of (a)
the types of claims, (b) specific claims, or (c) the time period of claims
covered in any policy. The Company has agreed that it will cause any New Policy
obtained to be continued in full force and effect for up to six years after the
date of the Closing.
- 38 -
<PAGE>
Takeover Provisions
Section 203 of the DGCL ("Section 203") restricts certain transactions between a
corporation organized under Delaware law (or its majority-owned subsidiaries)
and any person holding 15% or more of the Company's outstanding voting stock,
together with the affiliates or associates of such person (an "Interested
Stockholder"). Section 203 prevents, for a period of three years following the
date that a person becomes an Interested Stockholder, the following types of
transactions between the Company and the Interested Stockholder (unless certain
conditions, described below, are met): (a) mergers or consolidations, (b) sales,
leases, exchanges, mortgages, pledges or other transfers of 10% or more of the
aggregate assets of the Company, (c) issuances or transfers by the Company of
any stock of the Company which would have the effect of increasing the
Interested Stockholder's proportionate share of the stock of any class or series
of the Company, (d) any other transaction which has the effect of increasing the
proportionate share of the stock of any class or series of the Company which is
owned by the Interested Stockholder, and (e) receipt by the Interested
Stockholder of the benefit (except proportionately as a stockholder) of loans,
advances, guarantees, pledges or other financial benefits provided by the
Company.
The three-year ban does not apply if either the proposed transaction or the
transaction by which the Interested Stockholder became an Interested Stockholder
is approved by the Board prior to the date such stockholder becomes an
Interested Stockholder. Additionally, an Interested Stockholder may avoid the
statutory restriction if, upon the consummation of the transaction whereby such
stockholder became an Interested Stockholder, the stockholder owned at least 85%
of the outstanding voting stock of the Company without regard to those shares
owned by the Company's officers and directors or certain employee stock plans.
Business combinations with Interested Stockholders are also permitted within the
three-year period if approved by the Board and authorized at an annual or
special meeting of stockholders, by the holders of at least 66 2/3% of the
outstanding voting stock not owned by the Interested Stockholder. In addition,
any transaction is exempt from the statutory ban if it is proposed at a time
when the Company has proposed, and a majority of certain continuing directors of
the Company have approved, a transaction with a party who is not an Interested
Stockholder of the Company (or who becomes such with board approval) if the
proposed transaction involves (a) certain mergers or consolidations involving
the Company, (b) a sale or other transfer of over 50% of the aggregate assets of
the Company, or (c) a tender or exchange offer for 50% or more of the
outstanding voting stock of the Company.
Prior to October 1, 1995, a corporation, by action of its board of directors,
had the option of electing to exclude itself from the coverage of Section 203.
Since October 1, 1995, a corporation may, at its option, exclude itself from the
coverage of Section 203 by amending its certificate of incorporation or bylaws
by action of its stockholders to exempt itself from coverage, provided that such
bylaw or charter amendment will not become effective until 12 months after the
date it is adopted. The Company has not adopted such a charter or bylaw
amendment.
The foregoing provisions in the Certificate of Incorporation, the existence of
authorized but unissued capital stock and the application of Section 203 to
stockholders of the Company may tend to deter unfriendly offers or other efforts
to obtain control of the Company that are not approved by the Company's Board
and thereby deprive the Company's stockholders of opportunities to sell their
shares of Imatec Common Stock at prices higher than prevailing market prices.
- 39 -
<PAGE>
PROPOSAL 2: ELECTION OF DIRECTORS
In the event that stockholders approve Proposal 1, the current Board will resign
their offices effective upon the Closing of the Sale. In the event that Proposal
1 is not approved by stockholders, the current Board, if elected at the Annual
Meeting, will continue to serve in their current positions as further described
below.
The number of directors of the Company, as determined by the Board under Article
Two of the Company's By-Laws, is currently five. Directors hold office until the
next annual meeting of stockholders and until their successors are elected and
qualified. It is not contemplated that the nominees under either alternative
discussed below will be unavailable for election, but if such a situation should
arise, the proxy will be voted in accordance with the best judgment of the
persons acting pursuant thereto.
ALTERNATIVE A:
In the event that Proposal 1 is approved by the stockholders, all of the current
directors will resign their offices effective on the Closing Date and the
following nominees, if elected, will hold office until the next annual meeting
of stockholders and until their successors are elected and qualified. In
addition, if Proposal 1 is approved by stockholders, other than Dr. Shalit, the
current Board does not intend to serve in any capacity with Newco. Except for
Mr. Brandeis, who was formerly the legal counsel to the Company, none of the
nominees listed below has had a prior relationship with the Company. Unless
otherwise indicated, each director listed below has served in his or her present
occupation for at least five years. Ages are as of July 15, 1997.
Name of Nominee Age Position with the Company
- --------------- --- -------------------------
Clifford A. Brandeis 41 President, Chief Executive Officer,
Chairman of the Board and
Secretary
John M. Thompson 35 Director
William M. Thompson 38 Director
The following is a brief summary of the background of each director and
executive officer nominee:
Clifford A. Brandeis has been principal of the law firm of Zukerman, Gore &
Brandeis, LLP since August 1993. Prior thereto, Mr. Brandeis was a principal of
the law firm of Brandeis, Bernstein & Wasserman.
John M. Thompson has served as the President, Chief Executive Officer and a
Director of Innovative Tech Systems, Inc., a publicly-traded management software
company ("Innovative") since January 1990.
- 40 -
<PAGE>
William M. Thompson has served as the Secretary, Treasurer and a Director of
Innovative since January 1990 and as its Chief Operating Officer since June
1994. Mr. Thompson also served as Innovative's Chief Financial Officer from
January 1990 to June 1994.
Following the consummation of the Sale, each of the nominees for director will
devote as much time as necessary to the business and affairs of the Company in
connection with identifying and acquiring a New Business and the initial hiring
of full time executive management of the Company.
ALTERNATIVE B:
In the event that Proposal 1 is not approved by the stockholders, all of the
current directors listed below will continue in their offices and are nominated
to continue to serve in their current capacities. If elected, the nominees will
hold office until the next annual meeting and until their successors are elected
and qualified. Unless otherwise indicated, each director listed below has served
in his or her present occupation for at least five years. Ages are as of July
15, 1997.
Name of Nominee Age Position with the Company
- --------------- --- -------------------------
Dr. Hanoch Shalit 44 President, Chief Executive Officer,
Chairman of the Board and
Secretary
Steven Ai 43 Director
Neal Factor 45 Director
Simon Cross 46 Director and Vice President -
Marketing and Sales
Josef Weiss 43 Director
Dr. Hanoch Shalit founded the Company in November 1988 and has been its
President, Chief Executive Officer, Chairman of the Board and Secretary since
inception. 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. From September
1982 until June 1987, Dr. Shalit was employed as a senior chemist with Chemco
Photo Products, a private imaging company. 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.
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.
Neal Factor has been a director of the Company since November 30, 1995. He has
maintained a private law practice in New York City principally in the areas of
corporate and commercial law since
- 41 -
<PAGE>
1979. Mr. Factor has represented the Company since inception and receives
compensation from the Company for his legal services. See "Certain
Transactions."
Simon Cross has been a director of the Company since July 15, 1996 and Vice
President - Marketing and Sales of the Company since January 1997. From February
1993 to December 1996, 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.
Josef Weiss has been a director of the Company since May 1997. In 1992 Mr. Weiss
founded, and became the managing partner of Individual & Institutional
Investments, a Swiss company located in Zurich which provides profit oriented
asset management in financial markets. During his studies, Mr. Weiss was
professionally active as a business advisor to industrial corporations in both
the financial and marketing fields. After completing his education he joined the
securities department of Bank Leumi, which he left in 1982 to become an
independent portfolio manager, active in the Israeli securities markets.
EXECUTIVE OFFICERS
The executive officers of the Company, their positions held with the Company and
their ages are as follows:
Name of Officer Age Position with the Company
- --------------- --- -------------------------
Dr. Hanoch Shalit 44 President, Chief Executive Officer,
Chairman of the Board and
Secretary
Simon Cross 46 Director and Vice President -
Marketing and Sales
James A. Smith 45 Chief Financial Officer
The biographies of Dr. Shalit and Mr. Cross are provided above.
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 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.
- 42 -
<PAGE>
DIRECTORS COMPENSATION
Directors are reimbursed for out-of-pocket expenses incurred in connection with
their services and receive no directors fees. Directors who are also executive
officers of the Company receive no additional compensation from the Company for
services rendered in their capacity as directors. It has not been determined
whether such compensation arrangements will remain in effect if the New Board is
elected pursuant to Alternative A above.
BOARD COMMITTEES
On December 17, 1996, the Company established two committees of the Board, an
Audit Committee and a Compensation Committee.
The Audit Committee reviews the engagement of the independent accountants,
reviews and approves the scope of the annual audit undertaken by the independent
accountants, and reviews the independence of the accounting firm. The Audit
Committee also reviews the audit and non-audit fees of the independent
accountants and the adequacy of the Company's internal control procedures. The
members of the Audit Committee are Messrs. Ai and Factor. The Audit Committee
did not meet during the year ended December 31, 1996.
The Compensation Committee reviews executive compensation issues. The members of
the Compensation Committee are Messrs. Factor and Weiss, who joined the Board in
May 1997. The Compensation Committee did not meet during the year ended December
31, 1996.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following tables sets forth information as of July 1, 1997, concerning the
beneficial ownership of the Imatec Common Stock by (i) the only persons known by
the Company's management to own beneficially more than 5% of the outstanding
shares of Common Stock, (ii) each of the Company's directors and executive
officers and (iii) all executive officers and directors of the Company as a
group. Other than Dr. Shalit's agreement to sell certain shares pursuant to the
Agreement, none of the following persons has agreed to or has a present
intention to, sell the shares of Imatec Common Stock held by or attributed to
him. See "Proposal 1 - The Agreement - Consideration:"
- 43 -
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned (1)
-----------------------------
Name and Address of Beneficial Owner Number Percentage
- ------------------------------------ ------ ----------
<S> <C> <C> <C>
Dr. Hanoch Shalit(2)....................... 835,117 22.36%
James A. Smith(2).......................... 0 0
Carmello Cotrino
8 Homsted Circle
Marlboro, NJ 07746....................... 663,000 17.8
Steven Ai
c/o City Mill Co., Ltd.
600 Nimitz Highway
Honolulu, Hawaii 96817.................. 41,833 (3) 1.12
Neal Factor
36 W. 44th Street,
Suite 1111
New York, New York 10036................. 0 0
Simon Cross
c/o Imatec, Ltd.
150 E. 58th Street
New York, New York 10155................. 0 0
Josef Weiss
c/o Imatec, Ltd.
150 E. 58th Street
New York, New York 10155 0 0
Officers and directors as a group 876,950 23.48
(6 persons)..............................
</TABLE>
- -----------
(1) As used herein, the term beneficial ownership with respect to a security is
defined by Rule 13d-3 under the Exchange Act, as consisting of sole or
shared voting power (including the power to vote or direct the vote) and/or
sole or shared investment power (including the power to dispose or direct
the disposition) with respect to the security through any contract,
arrangement, understanding, relationship, or otherwise, including a right
to acquire such power(s) during the next 60 days. Unless otherwise noted,
beneficial ownership consists of sole ownership, voting, and investment
power with respect to all shares of Imatec Common Stock shown as
beneficially owned by them.
(2) The address of each of the referenced individuals is c/o the Company, 150
East 58th Street, New York, New York 10155.
(3) Includes 36,833 shares of Imatec beneficially owned by Steven Ai and 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. Also includes 5,000 shares of Imatec Common Stock owned by
Steven Ai individually.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board is responsible for determining the
compensation of executive officers of the Company. The Compensation Committee is
currently comprised of Messrs. Factor and Weiss.
- 44 -
<PAGE>
General Policies Regarding Compensation of Executive Officers
The Company's executive compensation policies are intended (i) to attract and
retain high quality managerial and executive talent and to motivate these
individuals to maximize stockholder returns, (ii) to afford appropriate
incentives for executives to produce sustained superior performance and (iii) to
reward executives for superior individual contributions to the achievement of
the Company's business objectives. The Company's compensation structure consists
of base salary, annual cash bonuses and stock options. Together these components
link each executive's compensation directly to individual and Company
performance.
Salary. Base salary levels reflect individual positions, responsibilities,
experience, leadership, and potential contribution to the success of the
Company. Actual salaries vary based on the Compensation Committee's subjective
assessment of the individual executive's performance and the Company's
performance.
Bonuses. Executive officers are eligible to receive cash bonuses based on the
Compensation Committee's subjective assessment of the respective executive's
individual performance and the performance of the Company. In its evaluation of
executive officers and the determination of incentive bonuses, the Compensation
Committee does not assign quantitative relative weights to different factors and
follow mathematical formula. Rather, the Compensation Committee makes its
determination in each case after considering the factors it deems relevant,
which may include consequences for performance that is below expectations.
Stock Options. Stock options, which are granted at the fair market value of the
Imatec Common Stock on the date of grant, are currently the Company's sole long
term compensation vehicle. The stock options are intended to provide employees
with sufficient incentive to manage from the perspective of an owner with an
equity stake in the business.
In determining the size of individual options grants, the Compensation Committee
considers the aggregate number of shares available for grant, the number of
individuals to be considered for an award of stock options, and the range of
potential compensation levels that the option awards may yield. The number and
timing of stock option grants to executive officers are determined by the
Compensation Committee based on its subjective assessment of the performance of
each grantee. In determining the size and timing of option grants, the
Compensation Committee weighs any factors it considers relevant and gives such
factors the relative weight it considers appropriate under the circumstances
then prevailing. While an ancillary goal of the Compensation Committee in
awarding stock options is to increase the stock ownership of the Company's
management, the Compensation Committee does not, when determining the amount of
stock options to award, consider the amount of stock already owned by an
officer. The Compensation Committee believes that to do so could have the effect
of inappropriately or inequitably penalizing or rewarding executives based upon
their personal decisions as to stock ownership and option exercises.
In 1993, the Internal Revenue Code of 1986, as amended, was amended to limit the
deductibility of compensation paid to certain executives in excess of $1
million. Compensation not subject to the limitation includes certain
compensation payable solely because an executive attains performance goals
("performance-based compensation"). Stock options granted under the 1996 Stock
Option Plan described below will not qualify as a performance-based
compensation. The Company's compensation deduction for a particular executive's
total compensation, including compensation realized from the exercise of stock
options, will be limited to $1 million. The Compensation
- 45 -
<PAGE>
Committee believes that the compensation paid by the Company in fiscal 1996 will
not result in any material loss of tax deductions for the Company.
Compensation Committee
Neal Factor (Chairman)
Josef Weiss
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee or Audit Committee was an officer or
employee of the Company in 1994, 1995 or 1996.
EXECUTIVE COMPENSATION TABLES
The following table sets forth the cash compensation paid by the Company to its
chief executive officer for the fiscal years ended December 31, 1994, 1995, and
1996.
SUMMARY COMPENSATION TABLE
Annual Compensation
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------------------------- ----------------------------------------------------
Long Term
Other Restricted Option Incentive
Name and Annual Stock s Plan All Other
Principal Position Year Salary Bonus Compensation Award(s) SARs Payouts Compensation
------------------ ---- ------ ----- ------------ -------- ---- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dr. Hanoch Shalit, 1996 $ 61,500 US$0(2) - - - - -
President, Chief
Executive Officer, 1995 $ 60,000(1) 0(2) - - - - -
Chairman of the
Board and Secretary 1994 $ 24,258 0(2) - - - - -
</TABLE>
- --------------------
(1) Pursuant to his employment agreement, Dr. Shalit's salary is payable at the
initial rate of $60,000 per fiscal year, which will increase at the rate of
5% per annum. However, for the calendar year ended December 31, 1995, Dr.
Shalit received less than $60,000 because his employment agreement did not
become effective until July 1, 1995. See "Executive Compensation Tables --
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 "Executive Compensation Tables -- Employment
Agreements."
(3) There were no executive officers whose total annual compensation exceeded
$100,000 for the fiscal years ended December 31, 1994, 1995, and 1996.
EMPLOYMENT AGREEMENTS
Effective July 1, 1995, the Company entered into a five-year employment
agreement with Dr. Shalit (the "Employment Agreement"). Under the Employment
Agreement, Dr. Shalit is to serve as the President, Chief Executive Officer,
Chairman of the Board and Secretary of the Company and receive an annual base
salary of $60,000, which will 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 will not compete with the Company in the United States or Canada
or disclose, without the Company's consent, confidential information that has
been
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or will be disclosed to him by the Company. Dr. Shalit's employment with the
Company will 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, the Chief Financial Officer of the Company.
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, during the term of his
employment agreement and for three years thereafter, he will 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 6, 1997, the Company entered into a three-year employment
agreement with Mr. Simon A. Cross, the Vice President - Marketing and Sales of
the Company. Under his employment agreement, Mr. Cross is to serve as the
Company's Vice President - Marketing and Sales and receive an annual salary of
$125,000, plus benefits, including a commission of 3% on revenues generated by
the Company above $4,000,000 per calendar year. In addition, Mr. Cross's
employment agreement provides that, during the term of his employment agreement
and for three years thereafter, he will 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. Cross's employment agreement may
be terminated by the Company for any cause or no cause after a minimum
employment period of one year.
In addition to the termination of the Employment Agreement, it is anticipated
that each of Messrs. Smith and Cross employment agreements will be terminated on
or about the Closing. See "Proposal 1: The Sale."
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. If Proposal 1 is approved
by stockholders, it is likely that the New Board will discontinue such
insurance, but may determine to seek a similar policy for its new chief
executive officer.
BENEFIT PLANS
In February 1996, the Board 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").
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The Stock Option Plan will be administered by the Board or a committee appointed
by the Board (the "Plan 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 shares of
Common Stock at an exercise price to be determined by the Board or the Plan
Committee. Notwithstanding the foregoing, the Company has agreed with A.S.
Goldmen & Co., Inc., the underwriter of the IPO, that until April 29, 1998, 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 IPO 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, 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,
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.
At November 17, 1997, no options had 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.
CERTAIN RELATIONSHIPS AND RELATED 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 and $63,000 in 1995 and 1996, respectively.
The Company entered into a license agreement as of June 25, 1995 with Dr. Hanoch
Shalit, the Company's President, Chief Executive Officer, Chairman of the Board
and Secretary (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 Company's 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. 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, Chairman of the Board and Secretary
of the Company for
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any reason whatsoever, but the Company or any successor of the Company continues
in existence, the Annual Royalty will automatically be increased to $250,000 per
annum. Pursuant to the terms of the License Agreement, the Annual Royalty will
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
the Employment Agreement. The Company's obligations to pay the Annual Royalty
will 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.
If Proposal 1 is approved by the stockholders, the License Agreement will be
terminated at or prior to the Closing. See "Proposal 1: The Sale."
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, including a majority of the independent and disinterested outside
directors on the Board, and will be on terms no less favorable to the Company
than those that could be obtained from unaffiliated third parties.
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PROPOSAL 3: INDEPENDENT PUBLIC ACCOUNTANTS
Most Horowitz & Company, LLP served as the independent public accountants for
the Company in 1996 and have been appointed the Company's independent public
accountants for 1997. Representatives of Most Horowitz & Company, LLP will be
present at the Annual Meeting with the opportunity to make a statement if they
desire to do so and will be available to respond to appropriate questions. The
stockholders are requested to ratify and approve the appointment of Most
Horowitz & Company, LLP as independent public accountants for 1997.
The appointment of Most Horowitz & Company will be approved if the votes cast in
favor of such approval exceed the votes cast opposing such approval, regardless
of whether Proposal 1 is approved by the stockholders.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT STOCKHOLDERS
VOTE "FOR" RATIFICATION AND APPROVAL OF MOST HOROWITZ & COMPANY AS
THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS.
OTHER BUSINESS
The Board knows of no business that will come before the meeting except that
indicated above. However, if any other matters are properly brought before the
meeting, it is intended that the persons acting under the proxy will vote
thereunder in accordance with their best judgment.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Based solely upon a review of reports on Forms 3 and 4 and amendments thereto
furnished to the Company during its most recent fiscal year and reports on Form
5 and amendments thereto furnished to the Company with respect to its most
recent fiscal year, and written representations from reporting persons that no
Form 5 was required, the Company believes that all filing requirements
applicable to its officers, directors and beneficial owners under Section 16(a)
of the Exchange Act were complied with during 1996.
COST OF PROXY SOLICITATION
The cost of preparing, assembling and mailing this proxy material will be borne
by the Company. In addition to solicitation by mail, solicitations may be made
by regular employees of the Company or by paid solicitors in person or by
telephone or telegraph. Arrangements may be made with brokerage houses,
custodians, nominees and fiduciaries to send proxy material to their principals
and the Company will reimburse them for their expense in so doing.
STOCKHOLDER PROPOSALS
It is anticipated that the 1998 Annual Meeting will be held in May 1998 with
proxy solicitation commencing in March 1998. In accordance with the proxy rules
of the Securities and Exchange Commission, proposals by stockholders intended
for inclusion in the proxy material solicited by the
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Company for the 1998 Annual Meeting are required to be received by the Company
within a reasonable time before its solicitation is made.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant to the
Exchange Act (Commission File No. 0-21752) are incorporated by reference herein:
1. Schedule 13E-3 Transaction Statement dated November __, 1997.
2. Annual Report on Form 10-K for the year ended December 31, 1996.
3. Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.
4. Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.
5. Quarterly Report on Form 10-Q for the quarter ended September 30,
1997.
THIS PROXY STATEMENT INCORPORATES BY REFERENCE DOCUMENTS RELATING TO THE COMPANY
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS RELATING TO THE
COMPANY (OTHER THAN EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE) ARE AVAILABLE TO ANY PERSON, INCLUDING
ANY BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT IS DELIVERED, ON WRITTEN OR
ORAL REQUEST, WITHOUT CHARGE, FROM IMATEC, LTD., 150 EAST 58TH STREET, NEW YORK,
NEW YORK 10155, ATTN.: INVESTOR RELATIONS, TELEPHONE (212) 826-0440. COPIES OF
DOCUMENTS SO REQUESTED WILL BE SENT BY FIRST CLASS MAIL, POSTAGE PAID, WITHIN
ONE BUSINESS DAY OF THE RECEIPT OF SUCH REQUEST.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROXY STATEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
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Annex A
ACQUISITION AGREEMENT
Agreement, dated as of September 10, 1997, among Dr. Hanoch
Shalit ("Shalit") and Imatec, Ltd., a Delaware corporation with offices at 150
East 58th Street, New York, New York 10155 ("Imatec").
Shalit desires to acquire all the capital stock of Newco, a
newly-formed, wholly-owned subsidiary of Imatec ("Newco") in exchange for the
consideration as hereinafter provided, and Imatec desires to effect such
exchange.
I. Representations and Warranties of Imatec
Imatec represents and warrants to Shalit as follows:
Section 1.01. Organization and Qualification
Imatec has no subsidiaries or affiliate corporations and does
not own any interest in any other enterprise (whether or not such enterprise is
a corporation). Exhibit A correctly sets forth as to Imatec its place of
incorporation, principal place of business, jurisdictions in which it is
qualified to do business, and the business which it presently conducts and which
it contemplates conducting. Imatec is a corporation duly organized, validly
existing, and in good standing under the laws of its jurisdiction of
incorporation, with all requisite power and authority, and all necessary
consents, authorizations, approvals, orders, licenses, certificates, and permits
of and from, and declarations and filings with, all federal, state, local, and
other governmental authorities and all courts and tribunals, to own, lease,
license, and use its properties and assets and to carry on the business in which
it is now engaged and the business in which it contemplates engaging. Imatec is
duly qualified to transact the business in which it is
<PAGE>
engaged and is in good standing as a foreign corporation in every jurisdiction
in which its ownership, leasing, licensing, or use of property or assets or the
conduct of its business makes such qualification necessary.
Section 1.02. Capitalization
The authorized capital stock of Imatec consists of 20,000,000
shares of common stock, par value $.0001 per share ("Imatec Common Stock"), of
which 3,735,201 shares are outstanding. Each of such outstanding shares of
Imatec Common Stock is validly authorized, validly issued, fully paid, and
nonassessable, has not been issued and is not owned or held in violation of any
preemptive right of Imatec. At the Closing Date, the authorized capital stock of
Newco will consist of 10,000 shares of common stock, par value $.01 per share
("Newco Common Stock"), of which 100 shares will be issued and outstanding. At
the Closing Date, each of such outstanding shares of Newco Common Stock will be
validly authorized, validly issued, fully paid, and nonassessable, will not have
been issued and will not be owned or held in violation of any preemptive right
of Newco and will be owned of record and beneficially by Imatec, free and clear
of all liens, security interests, pledges, charges, encumbrances, stockholders'
agreements, and voting trusts. At the Closing Date, there will be no commitment,
plan, or arrangement to issue, and no outstanding option, warrant, or other
right calling for the issuance of, any share of capital stock of Newco or any
security or other instrument convertible into, exercisable for, or exchangeable
for capital stock of Newco. At the Closing Date, there will be outstanding no
security or other instrument convertible into or exchangeable for capital stock
of Imatec.
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Section 1.03. Financial Condition
Imatec has delivered to Shalit true and correct copies of the
following, initialed by the chief financial officer of Imatec: audited balance
sheets of Imatec as of December 31, 1992, 1993, 1994, 1995 and 1996; the
unaudited balance sheet of Imatec as of March 31, 1997; audited statements of
income, statements of retained earnings, and statements of cash flows of Imatec
for the years ended December 31, 1992, 1993, 1994, 1995 and 1996; and the
unaudited statement of income, statement of retained earnings, and statement of
cash flows of Imatec for the three months ended March 31, 1997. Each such
balance sheet presents fairly the financial condition, assets, liabilities, and
stockholders' equity of Imatec as of its date; each such statement of income and
statement of retained earnings presents fairly the results of operations of
Imatec as applicable for the period indicated; and each such statement of cash
flows presents fairly the information purported to be shown therein. The
financial statements referred to in this Section 1.03 have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved and are in accordance with the books and records
of Imatec. Since December 31, 1996 and since March 31, 1997:
a. There has at no time been a material adverse change in the
financial condition, results of operations, business, properties,
assets, liabilities, or future prospects of Imatec.
b. Imatec has not authorized, declared, paid, or effected any
dividend or liquidating or other distribution in respect of its capital
stock or any direct or indirect redemption, purchase, or other
acquisition of any stock of Imatec .
c. The operations and business of Imatec have been conducted
in all respects only in the ordinary course.
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<PAGE>
d. There has been no accepted purchase order or quotation,
arrangement, or understanding for future sale of the products or
services of Imatec which Imatec expects will not be profitable.
e. Imatec has not suffered an extraordinary loss (whether or
not covered by insurance) or waived any right of substantial value.
f. Imatec has not paid or incurred any tax, other liability,
or expense resulting from the preparation of, or the transactions
contemplated by, this Agreement, a registration rights agreement in the
form attached hereto as Exhibit P (the "Registration Rights Agreement")
delivered in connection with the Shalit Shares (as defined in Section
4.01(b)(iii);) or the letter of credit (as defined in Exhibit G, the
"Letter of Credit"; this Agreement, the Registration Rights Agreement
and the Letter of Credit, collectively, the "Transaction Documents"),
it being understood that Imatec shall have paid or will pay all such
taxes (including stock transfer taxes resulting from this Agreement or
the transactions contemplated hereby or thereby), liabilities, and
expenses.
There is no fact known to Imatec which materially adversely affects or in the
future (as far as Imatec can foresee) may materially adversely affect the
financial condition, results of operations, business, properties, assets,
liabilities, or future prospects of Imatec; provided, however, that Imatec
expresses no opinion as to political or economic matters of general
applicability.
Section 1.04. Tax and Other Liabilities
Imatec has no liability of any nature, accrued or contingent,
including without limitation, liabilities for federal, state, local, or foreign
taxes and penalties, interest, and additions to tax ("Taxes") and liabilities to
customers or suppliers, other than the following:
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a. Liabilities for which full provision has been made on the
balance sheet and the notes thereto (the "Last Balance Sheet") as of
March 31, 1997 (the "Last Balance Sheet Date") referred to in Section
1.03 and
b. Other liabilities arising since the Last Balance Sheet Date
and prior to the Closing (as defined in Section 4.02) in the ordinary
course of business (which shall not include liabilities to customers on
account of defective products or services) which are not inconsistent
with the representations and warranties of Imatec or any other
provision of the Transaction Documents.
Without limiting the generality of the foregoing, the amounts set up as
provisions for Taxes on the Last Balance Sheet are sufficient for all accrued
and unpaid Taxes of Imatec whether or not due and payable and whether or not
disputed, under tax laws, as in effect on the Last Balance Sheet Date or now in
effect, for the period ended on such date and for all fiscal periods prior
thereto. The execution, delivery, and performance of the Transaction Documents
by Imatec will not cause any Taxes to be payable (other than by Imatec) or cause
any lien, charge, or encumbrance to secure any Taxes to be created either
immediately or upon the nonpayment of any Tax (other than on the properties or
assets of Imatec remaining after the Closing Date). The Internal Revenue Service
has audited and settled or the statute of limitations has run upon all federal
income tax returns of Imatec for all taxable years up to and including the
taxable year ended December 31, 1996. Imatec has filed all federal, state,
local, and foreign tax returns required to be filed by it; has delivered to
Shalit a true and correct copy of each such return which was filed in the past
six years, initialed by the chief financial officer of Imatec; has paid (or has
established on the Last Balance Sheet a reserve for) all Taxes, assessments, and
other governmental charges payable or remittable by it or levied upon it or its
properties, assets,
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income, or franchises which are due and payable; and has delivered to Shalit a
true and correct copy, so initialed, of any report as to adjustments received by
it from any taxing authority during the past six years and a statement, so
initialed, as to any litigation, governmental or other proceeding (formal or
informal), or investigation pending, threatened, or in prospect with respect to
any such report or the subject matter of such report.
Section 1.05. Litigation and Claims
There is no litigation, arbitration, claim, governmental or
other proceeding (formal or informal), or investigation pending, threatened, or
in prospect (or any basis therefor known to Imatec) with respect to Imatec, or
any of its businesses, properties, or assets. Imatec is not affected by any
present or threatened strike or other labor disturbance nor to the knowledge of
Imatec is any union attempting to represent any employee of Imatec as collective
bargaining agent. Imatec is not in violation of, or in default with respect to,
any law, rule, regulation, order, judgment, or decree; nor is Imatec required to
take any action in order to avoid such violation or default.
Section 1.06. Properties
Imatec owns no real property and has good title to all
properties and assets used in its business (except such properties and assets as
are held pursuant to leases or licenses described in Exhibit B or C), free and
clear of all liens, mortgages, security interests, pledges, charges, and
encumbrances (each, an "Encumbrance") (except such as are listed in Exhibit D
(the "Permitted Encumbrances")).
a. There are no accounts and notes receivable reflected on the
Last Balance Sheet, or arising since the Last Balance Sheet Date.
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b. All inventory of raw materials and work in process of
Imatec is usable. All inventory is fit for the particular purposes for
which it is intended.
c. Attached as Exhibit B is a true and complete list of all
properties and assets owned by Imatec or leased or licensed by Imatec
from or to a third party (including inventory but not including
Intangibles, as defined in Section 1.09), including with respect to
such properties and assets owned by Imatec a statement of cost, book
value and (except for land) reserve for depreciation of each item for
tax purposes, and net book value of each item for financial reporting
purposes, and, with respect to such properties and assets leased or
licensed by Imatec, a description of such lease or license. All such
properties and assets (including Intangibles) owned by Imatec are
reflected on the Last Balance Sheet (except for acquisitions subsequent
to the Last Balance Sheet Date and prior to the Closing which are
either noted in Exhibit B or C or are approved in writing by Shalit).
All tangible properties and assets owned, leased, or licensed by Imatec
are in good and usable condition (reasonable wear and tear which is not
such as to affect adversely the operation of the business of Imatec
excepted).
d. No real property leased or licensed by Imatec lies in an
area which is, or to the knowledge of Imatec or Imatec will be, subject
to zoning, use, or building code restrictions which would prohibit, and
no state of facts relating to the actions or inaction of another person
or entity or his or its ownership, leasing, licensing, or use of any
real or personal property exists or will exist which would prevent, the
continued effective ownership, leasing, licensing, or use of such real
property in the business in which Imatec is now engaged or the business
in which it contemplates engaging.
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<PAGE>
e. The properties and assets (including Intangibles) owned by
Imatec or leased or licensed by Imatec from a third party constitute
all such properties and assets which are necessary to the business of
Imatec as presently conducted or as it contemplates conducting.
f. Imatec has not caused or permitted its respective
businesses, properties, or assets to be used to generate, manufacture,
refine, transport, treat, store, handle, dispose of, transfer, produce,
or process any Hazardous Substance (as such term is defined in this
Section 1.06(f)) except in compliance with all applicable laws, rules,
regulations, orders, judgments, and decrees, and has not caused or
permitted the Release (as such term is defined in this Section 1.06(f))
of any Hazardous Substance on or off the site of any property of
Imatec. The term 'Hazardous Substance' shall mean any hazardous waste,
as defined by 42 U.S.C. Section 6903(5), any hazardous substance, as
defined by 42 U.S.C. Section 9601(14), any pollutant or contaminant, as
defined by 42 U.S.C. Section 9601(33), and all toxic substances,
hazardous materials, or other chemical substances regulated by any
other law, rule, or regulation. The term 'Release' shall have the
meaning set forth in 42 U.S.C. Section 9601(22).
Section 1.07. Contracts and Other Instruments
Exhibit D accurately and completely sets forth the information
required to be contained therein regarding contracts, agreements, instruments,
leases, licenses, arrangements, or understandings with respect to Imatec. Imatec
has furnished to Shalit (a) the certificate of incorporation (or other charter
document) and by-laws of Imatec and all amendments thereto, as presently in
effect, certified by the Secretary of the corporation and (b) the following,
initialed by the chief financial officer of Imatec: (i) true and correct copies
of all contracts, agreements,
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and instruments referred to in Exhibit D; (ii) true and correct copies of all
leases and licenses referred to in Exhibit B or C; and (iii) true and correct
written descriptions of all supply, distribution, agency, financing, or other
arrangements or understandings referred to in Exhibit D. Neither Imatec nor (to
the knowledge of Imatec) any other party to any such contract, agreement,
instrument, lease, or license is now or expects in the future to be in violation
or breach of, or in default with respect to complying with, any material term
thereof, and each such contract, agreement, instrument, lease, or license is in
full force and is the legal, valid, and binding obligation of the parties
thereto and (subject to applicable bankruptcy, insolvency, and other laws
affecting the enforceability of creditors' rights generally) is enforceable as
to them in accordance with its terms. Each such supply, distribution, agency,
financing, or other arrangement or understanding is a valid and continuing
arrangement or understanding; neither Imatec nor any other party to any such
arrangement or understanding has given notice of termination or taken any action
inconsistent with the continuance of such arrangement or understanding; and the
execution, delivery, and performance of the Transaction Documents will not
prejudice any such arrangement or understanding in any way. Imatec enjoys
peaceful and undisturbed possession under all leases and licenses under which it
is operating. Imatec is not party to or bound by any contract, agreement,
instrument, lease, license, arrangement, or understanding, or subject to any
charter or other restriction, which has had or (to the knowledge of Imatec) may
in the future have a material adverse effect on the financial condition, results
of operations, business, properties, assets, liabilities, or future prospects of
Imatec. Imatec has not engaged within the last five years in, is engaging in, or
intends to engage in any transaction with, or has had within the last five
years, now has, or intends to have any contract, agreement, instrument, lease,
license, arrangement, or understanding with, any director, officer, or
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employee of Imatec (except for employment agreements listed in Exhibit D and
employment and compensation arrangements described in Exhibit E, in each case
with such directors, officers, and employees who are not relatives or affiliates
described in the next clause), any relative or affiliate of any such director,
officer, or employee, or any other corporation or enterprise in which any such
director, officer, or employee, or any such relative or affiliate then had or
now has a 5% or greater equity or voting or other substantial interest, other
than those listed and so specified in Exhibit D. The stock ledgers and stock
transfer books and the minute book records of Imatec relating to all issuances
and transfers of stock by Imatec and all proceedings of the Board of Directors
and committees thereof of Imatec since its incorporation made available to
Shalit are the original stock ledgers and stock transfer books and minute book
records of Imatec or exact copies thereof. Imatec is not in violation or breach
of, or in default with respect to, any term of its certificate of incorporation
(or other charter document) or by-laws. Imatec is not a member of a customer or
user organization or of a trade association.
Section 1.08. Employees
a. Imatec does not have, or contributes to, any pension,
profit-sharing, option, other incentive plan, or any other type of Employee
Benefit Plan (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), or has any obligation to or
customary arrangement with employees for bonuses, incentive compensation,
vacations, severance pay, insurance, or other benefits, except as set forth in
Exhibit E.
b. There has been no violation of the reporting and
disclosure requirements imposed either under ERISA or the Internal Revenue Code
of 1986, as amended, or its predecessor statute (the "Code") for which a penalty
has been or may be imposed with respect
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to any Employee Benefit Plan of Imatec. No Employee Benefit Plan of Imatec or
related trust has any liability of any nature, accrued or contingent, including
without limitation liabilities for Taxes, other than for routine payments to be
made in due course to participants and beneficiaries, except as set forth in
Exhibit E. Each Employee Benefit Plan which is a group health plan within the
meaning of Section 162(I)(3) of the Code is and has been maintained in full
compliance with the applicable requirements of Section 162(k) of the Code. There
is no litigation, arbitration, claim, governmental or other proceeding (formal
or informal), or investigation pending, threatened, or in prospect (or any basis
therefor known to Imatec) with respect to any Employee Benefit Plan or related
trust or with respect to any fiduciary, administrator, or sponsor (in its
capacity as such) of any Employee Benefit Plan. No Employee Benefit Plan of
Imatec or related trust and no such obligation or arrangement is in violation
of, or in default with respect to, any law, rule, regulation, order, judgment,
or decree nor is Imatec, any Employee Benefit Plan, or any related trust
required to take any action in order to avoid violation or default. No event has
occurred or (to the knowledge of Imatec) is threatened or about to occur which
would constitute a prohibited transaction under Section 406 of ERISA.
c. Imatec does not currently contribute to or has effectuated
or expects to effectuate either a complete or partial withdrawal from any
multi-employer Pension Plan within the meaning of Section 3(37) of ERISA.
d. Nothing contained in the Transaction Documents or otherwise
shall obligate Shalit or Newco to employ any person who is now or in the future
may be employed by Imatec.
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Section 1.09. Patents, Trademarks, Et Cetera
Imatec does not own or have pending, or is licensed under, any
patent, patent application, trademark, trademark application, trade name,
service mark, copyright, franchise, or other intangible property or asset (all
of the foregoing being herein called "Intangibles"), other than as described in
Exhibit C, all of which are in good standing and uncontested. Exhibit C
accurately sets forth with respect to Intangibles owned by Imatec, where
appropriate, a statement of cost, book value and reserve for depreciation of
each item for tax purposes, and net book value of each item for financial
reporting purposes, and with respect to Intangibles licensed by Imatec from or
to a third party, a description of such license. Neither any director, officer,
or employee of Imatec, any relative or affiliate of any such director, officer,
or employee, nor any other corporation or enterprise in which any such director,
officer, or employee, or any such relative or affiliate had or now has a 5% or
greater equity or voting or other substantial interest, possesses any Intangible
which relates to the business of Imatec. "IMATEC" and IMATEC 20/20" are
trademarks used by Imatec to identify its products, and such trademarks are
protected by registration in the name of Imatec on the register in the United
States Patent Office. There is no right under any Intangible necessary to the
business of Imatec as presently conducted or as it contemplates conducting,
except such as are so designated in Exhibit C. Imatec has not infringed, is not
infringing, or has not received notice of infringement with asserted Intangibles
of others. To the knowledge of Imatec, there is no infringement by others of
Intangibles of Imatec. As far as Imatec can foresee, there is no Intangible of
others which may materially adversely affect the financial condition, results of
operations, business, properties, assets, liabilities, or future prospects of
Imatec.
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Section 1.10. Questionable Payments
Neither Imatec, any director, officer, agent, employee, or
other person associated with or acting on behalf of Imatec has, directly or
indirectly: used any corporate funds for unlawful contributions, gifts,
entertainment, or other unlawful expenses relating to political activity; made
any unlawful payment to foreign or domestic government officials or employees or
to foreign or domestic political parties or campaigns from corporate funds;
violated any provision of the Foreign Corrupt Practices Act of 1977, as amended;
established or maintained any unlawful or unrecorded fund of corporate monies or
other assets; made any false or fictitious entry on the books or records of
Imatec; made any bribe, rebate, payoff, influence payment, kickback, or other
unlawful payment; given any favor or gift which is not deductible for federal
income tax purposes; or made any bribe, kickback, or other payment of a similar
or comparable nature, whether lawful or not, to any person or entity, private or
public, regardless of form, whether in money, property, or services, to obtain
favorable treatment in securing business or to obtain special concessions, or to
pay for favorable treatment for business secured or for special concessions
already obtained.
Section 1.11. Authority to Sell
Imatec has all requisite power and authority to execute,
deliver, and perform the Transaction Documents. All necessary corporate
proceedings of Imatec have been duly taken to authorize the execution, delivery,
and performance of the Transaction Documents by Imatec. This Agreement has been
duly authorized, executed, and delivered by Imatec, constitutes the legal,
valid, and binding obligation of Imatec, and is enforceable in accordance with
its terms. When duly authorized, executed and delivered, the Registration Rights
Agreement and the Letter of Credit will be legal, valid and binding obligations
of Imatec, will be enforceable with
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their terms. No consent, authorization, approval, order, license, certificate,
or permit of or from, or declaration or filing with, any federal, state, local,
or other governmental authority or any court or other tribunal is required by
Imatec for the execution, delivery, or performance of the Transaction Documents
by Imatec. No consent of any party to any contract, agreement, instrument,
lease, license, arrangement, or understanding to which Imatec is a party, or to
which it or he or any of its or his respective businesses, properties, or assets
are subject, is required for the execution, delivery, or performance of
Transaction Documents (except such consents referred to in Exhibit D); and the
execution, delivery, and performance of the Transaction Documents will not (if
the consents referred to in Exhibit D are obtained prior to the Closing)
violate, result in a breach of, conflict with, or (with or without the giving of
notice or the passage of time or both) entitle any party to terminate or call a
default under, entitle any party to rights and privileges that such party was
not receiving or entitled to receive immediately before the Transaction
Documents were executed under, or create any obligation on the part of Imatec
that it was not paying or obligated to pay immediately before the Transaction
Documents were executed under, any term of any such contract, agreement,
instrument, lease, license, arrangement, or understanding, or violate or result
in a breach of any term of the certificate of incorporation (or other charter
document) or by-laws of Imatec, or violate, result in a breach of, or conflict
with any law, rule, regulation, order, judgment, or decree binding on Imatec or
to which it or any of its business, properties, or assets are subject. Upon the
Closing, Shalit will have good title to all the capital stock of Newco, free and
clear of all liens, security interests, pledges, charges, encumbrances,
stockholders' agreements, and voting trusts.
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Section 1.12. Completeness of Disclosure
No representation or warranty by Imatec in this Agreement
contains or (except for changes beyond the control of Imatec) on the date of the
Closing will contain an untrue statement of material fact or omits or (except
for changes beyond the control of Imatec) on the Closing Date will omit to state
a material fact required to be stated therein or necessary to make the
statements made therein not misleading.
II. Representations and Warranties of Shalit
Shalit represents and warrants to Imatec as follows:
Section 2.01. Authority to Buy
Shalit has all requisite power and authority to execute,
deliver, and perform this Agreement. This Agreement is the legal, valid, and
binding obligation of Shalit, and is enforceable as to him in accordance with
its terms. When executed the Registration Rights Agreement will be the legal,
valid, and binding obligation of Shalit, and is enforceable as to him in
accordance with its terms.
Section 2.02. Non-Distributive Intent
Shalit is acquiring Newco Common Stock for his own account
(and not for the account of others) for investment and not with a view to the
distribution thereof. Shalit will not sell or otherwise dispose of such shares
without registration under the Securities Act of 1933 (the "Securities Act"), or
an exemption therefrom, and the certificate or certificates representing such
shares may contain a legend to the foregoing effect. By virtue of his position,
Shalit has access to the kind of financial and other information about Imatec
and Newco as would be contained in a registration statement filed under the
Securities Act. Shalit understands that he
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may not sell or otherwise dispose of such shares in the absence of either a
registration statement under the Securities Act or an exemption from the
registration provisions of the Securities Act.
Section 2.03. Questionable Payments
Neither Shalit, nor any person associated with or acting on
behalf of Shalit has, directly or indirectly: used any corporate funds for
unlawful contributions, gifts, entertainment, or other unlawful expenses
relating to political activity; made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns from corporate funds; violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended; established or maintained any unlawful or
unrecorded fund of corporate monies or other assets; made any false or
fictitious entry on the books or records of Imatec; made any bribe, rebate,
payoff, influence payment, kickback, or other unlawful payment; given any favor
or gift which is not deductible for federal income tax purposes; or made any
bribe, kickback, or other payment of a similar or comparable nature, whether
lawful or not, to any person or entity, private or public, regardless of form,
whether in money, property, or services, to obtain favorable treatment in
securing business or to obtain special concessions, or to pay for favorable
treatment for business secured or for special concessions already obtained.
III. Newco.
Section 3.01 Purchase and Sale of Purchased Assets.
Upon the terms and subject to the conditions of this Agreement, at or
prior to the closing of the transactions contemplated by this Agreement (the
"Closing"), Imatec shall transfer, sell, convey, assign and deliver to Newco,
and Newco shall purchase and acquire from Imatec, free and clear of all
Encumbrances other than Permitted Encumbrances, all of the assets of Imatec
related to, and used solely in conjunction with, the current business of Imatec
(the "Business"),
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as those assets shall exist on the date and time of the Closing (the "Closing
Date") (collectively, the "Purchased Assets"); provided, that the Purchased
Assets shall not include the Excluded Assets (as hereinafter defined). The
Purchased Assets shall include, without limitation, all of the right, title and
interest of Imatec in and to the following items, but only insofar as they are
related to, and used solely in conjunction with, the Business:
a. Equipment and Furniture. All equipment, computer hardware
and software, furniture, accessories, office and other equipment,
appliances, and any replacement parts for any such tangible assets
(collectively, the "Equipment");
b. Inventory and Supplies. All inventory and other supplies
(both on hand and on order), including, work-in-progress, raw
materials, stationery, forms, labels and promotional materials;
c. Leases, Licenses, Permits, etc. All leases, licenses,
permits and other instruments and agreements, except to the extent that
any third-party consent to such transfer, as set forth on Exhibit D
hereto, has not been obtained on or prior to the Closing Date;
d. Other Contracts and Agreements. All contracts and
agreements entered into by Imatec, except as provided in Section
1.02(b) hereof;
e. Receivables. All accounts and other receivables;
f. Security Deposits, Bonds and Claims against Third Parties.
All security deposits deposited by Imatec with third parties, all
security bonds and all claims of Imatec against third parties,
including rights under any manufacturer's and vendor's warranties;
g. Prepaid Expenses, etc. All prepaid expenses and rentals of
Imatec;
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h. Goodwill. All of the goodwill and going concern value of
the Business;
i. Intellectual Property. All (i) United States and foreign
copyright and patent registrations or pending applications and lists;
(ii) United States and foreign trademarks, service marks, logos, trade
names and brand names, and all registrations or applications to
register the foregoing; (iii) technology, know-how and trade secrets
susceptible of legal protection; and (iv) licenses with respect to, or
other rights to use, the foregoing (collectively, the "Intellectual
Property");
k. Records, etc. All records, files, reports and other
documents and data, in whatever form contained, including, without
limitation: all customer lists and customer correspondence; all
research, statistical, production, marketing and promotional materials;
all distribution records; and all post office boxes and telephone
listings; and
l. Other Assets. All other intangible and tangible assets of
Imatec.
Section 3.02 Excluded Assets.
Notwithstanding any other provision of the Transaction Documents,
Imatec shall not transfer, sell, convey, assign or deliver to Newco, and Newco
shall not purchase or acquire from Imatec, any of the following assets of Imatec
(collectively, the "Excluded Assets"):
a. Records. Any corporate minute books or stock books or
records; tax returns and tax records; and any other books and records
of Imatec related to the Excluded Assets or the Excluded Liabilities
(as hereinafter defined) of Imatec;
b. Cash. Cash, certificates of deposit, bank deposits,
marketable securities, interest on any of the foregoing or other cash
equivalents of Imatec (the "Minimum Cash Amount"); provided, however
that such Minimum Cash Amount shall be no less than $3,875,000, subject
to adjustment as provided in Section 4.02.
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Section 3.03 Assumption of Liabilities.
At or prior to the Closing, Newco shall assume, and agree to pay,
perform, fulfill and discharge all debts, claims, obligations, and liabilities
of Imatec, arising out of the use, conduct or ownership of the Business or of
the Purchased Assets by Imatec, of any kind, character or description, whether
known or unknown, accrued, absolute, contingent, determined, determinable or
otherwise, whether presently existing or arising hereafter (the "Assumed
Liabilities"); provided that the Assumed Liabilities shall not include the
Excluded Liabilities.
Section 3.04. Excluded Liabilities.
Notwithstanding the foregoing, Newco is not assuming or agreeing to
pay, perform, fulfill or discharge, or otherwise be responsible for, any debts,
claims, obligations or liabilities of Imatec, known or unknown, accrued,
absolute, contingent, determined, determinable or otherwise, whether presently
existing or arising hereafter, other than the Assumed Liabilities, including,
without limitation, any of the following (the "Excluded Liabilities"):
a. Costs. The obligations of Imatec in respect of costs or
expenses incurred in connection with the transactions contemplated by
this Agreement; and
b. Financing Liabilities. Any liabilities relating to, arising
out of, or in connection with, the bridge financing of the Company
conducted in November 1995 and April 1996 and refinanced in October
1996 or the initial public offering of the Company completed in
November 1996.
c. Other. Any Excluded Liabilities referred to in Exhibit F.
Section 3.05 Consideration for Transfer of the Purchased Assets.
In consideration for the sale and transfer of the Purchased Assets, at
or prior to the Closing, Newco will to issue 100 shares of Newco Common Stock to
Imatec.
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IV The Exchange
Section 4.01. Terms of the Exchange
On the basis of the representations, warranties, covenants,
and agreements contained in this Agreement and subject to the terms and
conditions of this Agreement:
a. Imatec shall
i. Sell, assign, transfer, and convey to Shalit at
the Closing all of the outstanding shares of Newco Common
Stock. Imatec shall deliver at the Closing certificate(s)
representing such shares duly endorsed in blank or accompanied
by stock powers duly endorsed in blank, in each case in proper
form for transfer, with signatures guaranteed by a commercial
bank located in the City of New York or a member firm of the
New York Stock Exchange, Inc., and with all stock transfer and
any other required documentary stamps affixed thereto.
ii. Deliver at Closing to Shalit the certificate of
incorporation and by-laws of Newco.
iii. Deliver at Closing to Shalit, $300,000 After Tax
(defined below) in cash or by certified or official bank check
payable in New York Clearing House funds.
iv. Deliver at Closing to Shalit the fully executed
Registration Rights Agreement in connection with the Shalit
Shares.
v. Deliver at Closing to Shalit the fully executed
Letter of Credit in connection with the Shalit Shares.
b. In consideration for the shares referred to in Section
4.01(a), Shalit shall:
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i. Deliver at the Closing to Imatec his canceled
employment agreement with Imatec dated July 1, 1995 (the
"Employment Agreement").
ii. Deliver at the Closing to Imatec the canceled
license agreement between Shalit and Imatec dated June 25,
1995 (the "License Agreement").
iii. Deliver at the Closing to Imatec his agreement
to sell all of the shares of Imatec Common Stock owned by him
(the "Shalit Shares") in the public market or to the Company
at market price over a period of 30 months according to the
schedule set forth in Exhibit G. For purposes of this
Agreement, "After Tax" means the sum remaining after payment
of individual federal, state and local taxes (calculated at
the highest tax rate applicable to Shalit at the time of
payment) owed by Shalit upon payment of the amount referred to
in this subparagraph (iii) and subparagraph (a)(ii) above.
Section 4.02 The Closing
a. The closing of the transactions contemplated by Article III and
Sections 4.01(a) and 4.01(b) shall take place at the offices of Imatec, 150 East
58th Street, New York, New York on ____________, 1997, or such other place or
date as Shalit and Imatec agree in writing. The closing of the transactions
contemplated by Sections 4.01(a) and 4.01(b) is herein called the "Closing." If
the Closing shall not take place by November 1, 1997, then the cash currently
held by Imatec (the "Minimum Cash Amount") shall be reduced by $65,000 (the
"Adjusted Cash Amount") for each month that the Closing does not occur by the
first day of such month and such Adjusted Cash Amount shall be contributed to
Newco. At Closing, if the Minimum Cash Amount is less than the actual amount of
cash and marketable securities remaining in the Company as of the Closing (the
"Actual Cash Amount"), the amounts payable to Shalit as
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described in Exhibit G shall be reduced proportionally by the positive
difference between the Minimum Cash Amount and the Actual Cash Amount.
b. In the event that the Closing occurs after October 28, 1997, the
parties agree to modify the Adjusted Cash Amount to provide for the
extraordinary expenses of Imatec set forth in Exhibit __. Any modifications made
to the Adjusted Cash Amount pursuant to this paragraph shall be made only with
the reasonable mutual consent of the parties hereto.
Section 4.03. Termination
a. This Agreement may be terminated and the transactions contemplated
herein may be abandoned by mutual consent of the parties hereto.
b. In the event of any termination of the Agreement as provided in
Section 4.03(a) above, this Agreement shall forthwith become wholly void and of
no further force and effect and there shall be no liability on the part of any
of the parties hereto or their respective officers or directors, except that (a)
the obligations of the parties under Section 12 of this Agreement shall remain
in full force and effect and (b) termination shall not preclude any party from
suing another party for wilful breach of any covenant or agreement contained
herein prior to termination.
V. Conditions to Obligations of Shalit
The obligations of Shalit under this Agreement are subject, at the
option of Shalit, to the following conditions:
Section 5.01. Accuracy of Representations and Compliance with
Conditions
All representations and warranties of Imatec contained in this
Agreement shall be accurate when made and, in addition, shall be accurate as of
the Closing as though such representations and warranties were then made in
exactly the same language by Imatec and
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regardless of knowledge or lack thereof on the part of Imatec or changes beyond
its control; as of the Closing Imatec shall have performed and complied with all
covenants and agreements and satisfied all conditions required to be performed
and complied with by it or before such time by this Agreement; and Shalit shall
have received certificates executed by the chief financial officer of Imatec,
dated the date of the Closing, to that effect, substantially in the form of
Exhibits H and I, respectively.
Section 5.02. Accountants' Letter
Imatec shall have delivered to Shalit on the date of the
Closing, letters from Most Horowitz & Company, dated as of such dates, addressed
to Shalit, in form and substance satisfactory to Shalit, stating in effect:
a. That they are, and during the period covered by their
report(s) relating to the financial statements referred to in Section
1.03 they were, independent certified public accountants with respect
to Imatec within the meaning of the Securities Act and the rules and
regulations thereunder; and
b. That, on the basis of procedures (but not an examination
made in accordance with generally accepted auditing standards)
consisting of a reading of the latest available unaudited interim
financial statements of Imatec (with an indication of the date of the
latest available unaudited interim financial statements), a reading of
the latest available minutes of the Board of Directors of Imatec and
committees of such Boards, inquiries to certain officers and other
employees of Imatec responsible for financial and accounting matters,
and other specified procedures and inquiries, nothing has come to their
attention that caused them to believe that (i) the unaudited financial
statements of Imatec referred to in Section 1.03 were not prepared in
accordance with
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generally accepted accounting principles consistent in all material
respects with those followed in the preparation of the audited
financial statements of Imatec referred to therein, or are not a fair
presentation of the information purported to be shown, (ii) there was
any change in the capital stock or debt of Imatec or any decrease in
the net current assets or stockholders' equity of Imatec as of the date
of the latest available monthly financial statements of Imatec or as of
a specified date not more than five business days prior to the date of
such letter, each as compared with the amounts shown in the Last
Balance Sheet, other than as disclosed in this Agreement or any change
or decrease (which shall be set forth in such letter) which Shalit in
his sole reasonable discretion shall accept, or (iii) there was any
decrease in consolidated net sales, net earnings, or net earnings per
share (on a primary or a fully diluted basis) of Imatec Common Stock
during the period from the Last Balance Sheet Date to the date of the
latest available monthly financial statements of Imatec or to a
specified date not more than five business days prior to the date of
such letter, each as compared with the corresponding period in 1995,
other than as disclosed in this Agreement or any decrease (which shall
be set forth in such letter) which Shalit in his sole reasonable
discretion shall accept.
Section 5.03 Registration Rights Agreement; Letter of Credit
Imatec shall have delivered to Shalit at or prior to Closing
the duly authorized, fully executed Registration Rights Agreement in the form
attached hereto as Exhibit P, and a fully executed Letter of Credit, each of
which shall be satisfactory in all material respects to Shalit.
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Section 5.04 Director and Officer Liability Insurance
Imatec shall have delivered to Shalit at or prior to Closing
evidence that the director's and officer's liability Run-Off Policy (as defined
below) in effect on the date hereof has been fully paid and will remain in
effect for a period of six years, as described more fully in Section 7.12.
Section 5.05. Other Closing Documents
Imatec shall have delivered to Shalit at or prior to the
Closing such other documents (including certificates of officers of Imatec ) as
Shalit may reasonably request in order to enable Shalit to determine whether the
conditions to their obligations under this Agreement have been met and otherwise
to carry out the provisions of the Transaction Documents.
Section 5.06. Review of Proceedings
All actions, proceedings, instruments, and documents required
to carry out the Transaction Documents or incidental thereto and all other
related legal matters shall be subject to the reasonable approval of Eliot
Gerber, counsel to Shalit.
Section 5.07. Legal Action
There shall not have been instituted or threatened any legal
proceeding relating to, or seeking to prohibit or otherwise challenge the
consummation of, the transactions contemplated by the Transaction Documents, or
to obtain substantial damages with respect thereto.
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Section 5.08. No Governmental Action
There shall not have been any action taken, or any law, rule,
regulation, order, or decree proposed, promulgated, enacted, entered, enforced,
or deemed applicable to the transactions contemplated by the Transaction
Documents by any federal, state, local, or other governmental authority or by
any court or other tribunal, including the entry of a preliminary or permanent
injunction, which, in the sole reasonable judgment of Shalit, (a) makes any of
the transactions contemplated by the Transaction Documents illegal, (b) results
in a delay in the ability of Shalit to consummate any of the transactions
contemplated by the Transaction Documents, (c) requires the divestiture by
Shalit of any of the shares of Newco Common Stock to be sold pursuant to the
Transaction Documents or of a material portion of the business of Newco, or (d)
otherwise prohibits, restricts, or delays consummation of any of the
transactions contemplated by the Transaction Documents or impairs the
contemplated benefits to Shalit of any of the transactions contemplated by the
Transaction Documents.
Section 5.09. Contractual Consents Needed
The parties to this Agreement shall have obtained at or prior
to the Closing all consents required for the consummation of the transactions
contemplated by the Transaction Documents from any party to any contract,
agreement, instrument, lease, license, arrangement, or understanding to which
any of them is a party, or to which any of them or any of their respective
businesses, properties, or assets are subject.
Section 5.10. Financing
The Letter of Credit defined in Exhibit G shall, at the
Closing, be evidenced by a duly authorized, executed, and delivered Letter of
Credit satisfactory in all material respects to Shalit and upon terms and
conditions at least as favorable to Shalit as set forth in Exhibit J, the
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Letter of Credit at the Closing shall be in full force, valid, and binding upon
the parties thereto, the Letter of Credit shall (subject to applicable
bankruptcy, insolvency, and other laws affecting the enforceability of
creditors' rights generally) be enforceable as to the parties thereto in
accordance with their terms at the Closing.
Section 5.11. Release of Guarantees
Imatec shall have been released at or prior to the Closing
from the guarantees of those obligations of Imatec listed in Exhibit K.
Section 5.12. Investment by Others
No offer shall have been publicly proposed or made by any
other party to purchase shares of Imatec Common Stock or Newco Common Stock or
otherwise to acquire the stock or assets of Imatec or Newco. Shalit shall not
have otherwise acquired knowledge that more than 5% of the outstanding shares of
Imatec Common Stock or Newco Common Stock has been or may be acquired by a
person (as defined in Section 13(d)(3) of the Exchange Act) other than Shalit.
Section 5.13. Repayment of Loans
Principal, premium (if any), and interest on the loans
identified in Exhibit L as being owed to Imatec shall have been repaid at or
prior to the Closing in full or Shalit, in his sole reasonable discretion, shall
have consented in writing to alternate arrangements for the repayment thereof.
Section 5.14. Resignations
All directors of Imatec shall have resigned at or prior to the
Closing as directors and members of all committees of the Board of Directors in
writing effective immediately after
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the Closing. All officers and employees of Imatec shall have resigned at or
prior to the Closing in writing effective immediately after the Closing.
Section 5.15. Releases
Shalit shall have received at or prior to the Closing from
each person who is, who before the Closing becomes, or who at any time between
that date which is one year prior to the date this Agreement is executed and the
date this Agreement is executed was, an officer or a director of Imatec a
release, dated the date of the Closing, substantially in the form of Exhibit M.
Section 5.16. Officers' and Directors' Noncompetition Agreement
Shalit shall have received at or prior to the Closing from
each person who is, who before the Closing becomes, or who at any time between
that date which is one year prior to the date this Agreement is executed and the
date this Agreement is executed was, an officer or a director of Imatec an
agreement not to compete, substantially in the form of Exhibit N.
Section 5.17. Officers' and Directors' Confidentiality Agreement
Shalit shall have received at or prior to the Closing from
each person who is, who before the Closing becomes, or who at any time between
that date which is one year prior to the date this Agreement is executed and the
date this Agreement is executed was, an officer or a director of Imatec an
agreement to keep confidential certain data, substantially in the form of
Exhibit O.
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VI Conditions to the Obligations of Imatec
The obligations of Imatec under this Agreement are subject, at the
option of Imatec, to the following conditions:
Section 6.01. Accuracy of Representations and Compliance with
Conditions
All representations and warranties of Shalit contained in this
Agreement shall be accurate when made and, in addition, shall be accurate as of
the Closing as though such representations and warranties were then made in
exactly the same language by Shalit and regardless of knowledge or lack thereof
on the part of Shalit or changes beyond his control; as of the Closing, Shalit
shall have performed and complied with all covenants and agreements and
satisfied all conditions required to be performed and complied with by him at or
before such time by this Agreement; and Imatec shall have received certificates
executed by Shalit dated the date of the Closing, to that effect, substantially
in the form of Exhibits H and I, respectively.
Section 6.02. Other Closing Documents
Shalit shall have delivered to Imatec at or prior to the
Closing such other documents as Imatec may reasonably request in order to enable
Imatec to determine whether the conditions to its obligations under this
Agreement have been met and otherwise to carry out the provisions of this
Agreement.
Section 6.03. Review of Proceedings
All actions, proceedings, instruments, and documents required
to carry out this Agreement or incidental thereto and all other related legal
matters shall be subject to the reasonable approval of Brock Fensterstock
Silverstein McAuliffe & Wade LLC, counsel to
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Imatec, and Shalit shall have furnished such counsel such documents as such
counsel may have reasonably requested for the purpose of enabling them to pass
upon such matters.
Section 6.04. Legal Action
There shall not have been instituted or threatened any legal
proceeding relating to, or seeking to prohibit or otherwise challenge the
consummation of, the transactions contemplated by the Transaction Documents, or
to obtain substantial damages with respect thereto.
Section 6.05. No Governmental Action
There shall not have been any action taken, or any law, rule,
regulation, order, or decree proposed, promulgated, enacted, entered, enforced,
or deemed applicable to the transactions contemplated by the Transaction
Documents by any federal, state, local, or other governmental authority or by
any court or other tribunal, including the entry of a preliminary or permanent
injunction, which, in the sole reasonable judgment of Imatec, (a) makes any of
the transactions contemplated by the Transaction Documents illegal, (b) results
in a delay in the ability of Imatec to consummate any of the transactions
contemplated by the Transaction Documents, or (c) otherwise prohibits,
restricts, or delays consummation of any of the transactions contemplated by the
Transaction Documents or impairs the contemplated benefits to Imatec of any of
the transactions contemplated by the Transaction Documents.
Section 6.06. Fairness Opinion
Imatec shall have received the opinion of Spencer Trask
Securities, Inc. to the effect that the transactions contemplated by this
Agreement are fair, from a financial point of view, to the Imatec stockholders
and such opinion shall not have been withdrawn.
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Section 6.07. Contractual Consents Needed
The parties to this Agreement shall have obtained at or prior
to the Closing all consents required for the consummation of the transactions
contemplated by the Transaction Documents from any party to any contract,
agreement, instrument, lease, license, arrangement, or understanding to which
any of them is a party, or to which any of them or any of their respective
businesses, properties, or assets are subject.
Section 6.08. Investment by Others
No offer shall have been publicly proposed or made by any
other party to purchase shares of Imatec Common Stock or Newco Common Stock or
otherwise to acquire the stock or assets of Imatec or Newco. Imatec shall not
have otherwise acquired knowledge that more than 5% of the outstanding shares of
Imatec Common Stock or Newco Common Stock has been or may be acquired by a
person (as defined in Section 13(d)(3) of the Exchange Act) other than Shalit.
Section 6.09. Resignations
All directors of Imatec shall have resigned at or prior to the
Closing as directors and members of all committees of the Board of Directors in
writing effective immediately after the Closing. All officers and employees of
Imatec shall have resigned at or prior to the Closing in writing effective
immediately after the Closing.
Section 6.10. Releases
Imatec shall have received at or prior to the Closing from
Shalit a release, dated the date of the Closing, substantially in the form of
Exhibit K.
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Section 6.11. Officers' and Directors' Noncompetition Agreement
Imatec shall have received at or prior to the Closing from
Shalit an agreement not to compete, substantially in the form of Exhibit N.
VII Covenants and Agreements of Imatec
Imatec covenants and agrees as follows:
Section 7.01 Access
Until the earlier of the Closing and the rightful abandonment
or termination of this Agreement pursuant to Article IV or otherwise (the
"Release Time"), Imatec will afford the officers, employees, counsel, agents,
investment bankers, accountants, and other representatives of Shalit and
lenders, investors, and prospective lenders and investors free and full access
to the plants, properties, books, and records of Imatec, will permit them to
make extracts from and copies of such books and records, and will from time to
time furnish Shalit with such additional financial and operating data and other
information as to the financial condition, results of operations, businesses,
properties, assets, liabilities, or future prospects of Imatec as Shalit from
time to time may reasonably request. Until the Release Time, Imatec will cause
the independent certified public accountants of Imatec to make available to
Shalit and his independent certified public accountants the work papers relating
to the audits of Imatec referred to in Section 1.03.
Section 7.02. Conduct of Business
Until the Release Time, Imatec will conduct its affairs so
that at the Closing no representation or warranty of Imatec will be inaccurate,
no covenant or agreement of Imatec will be breached, and no condition in this
Agreement will remain unfulfilled by reason of the actions or omissions of
Imatec. Except as otherwise reasonably requested by Shalit in writing,
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until the Release Time, Imatec will use its best efforts to preserve the
business operations of Imatec intact, to keep available the services of its
present personnel, to preserve in full force and effect the contracts,
agreements, instruments, leases, licenses, arrangements, and understandings of
Imatec, and to preserve the good will of its suppliers, customers, and others
having business relations with any of them. Until the Release Time, Imatec will
conduct its business and operations in all respects only in the ordinary course.
Section 7.03. Advice of Changes
Until the Release Time, Imatec will immediately advise Shalit
in a detailed written notice of any fact or occurrence or any pending or
threatened occurrence of which either of them obtains knowledge and which (if
existing and known at the date of the execution of this Agreement) would have
been required to be set forth or disclosed in or pursuant to this Agreement or
Exhibit J hereto, which (if existing and known at any time prior to or at the
Closing) would make the performance by any party of a covenant contained in this
Agreement impossible or make such performance materially more difficult than in
the absence of such fact or occurrence, or which (if existing and known at the
time of the Closing) would cause a condition to any party's obligations under
this Agreement not to be fully satisfied.
Section 7.04. Confidentiality
Imatec shall insure that all confidential information which
Imatec, any of its officers, directors, employees, counsel, agents, investment
bankers, or accountants (other than Shalit) may now possess or may hereafter
create or obtain relating to the financial condition, results of operations,
business, properties, assets, liabilities, or future prospects of Imatec, any
affiliate, or any customer or supplier or any such affiliate shall not be
published, disclosed, or made accessible by any of them to any other person or
entity at any time or used by any of them
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except pending the Closing in the business and for the benefit of Imatec, in
each case without the prior written consent of Shalit; provided, however, that
the restrictions of this sentence shall not apply (a) with respect to the
obligations of Imatec after the Closing takes place, (b) with respect to the
obligations of all such persons and entities after this Agreement is rightfully
terminated, but only to the extent such confidential information relates to the
financial condition, results of operations, business, properties, assets,
liabilities, or future prospects of Imatec, of any affiliate of Imatec, or
(insofar as such confidential information was obtained directly by Imatec, or
any such affiliate from any customer or supplier of Imatec) of any such customer
or supplier, (c) as may otherwise be required by law, (d) as may be necessary or
appropriate in connection with the enforcement of this Agreement, or (e) to the
extent such information shall have otherwise become publicly available. Imatec
shall, and shall cause all other such persons and entities to, deliver to Shalit
all tangible evidence of such confidential information to which the restrictions
of the foregoing sentence apply at the Closing or the earlier rightful
termination of this Agreement.
Section 7.05. Public Statements
Before Imatec shall release any information concerning the
Transaction Documents or the transactions contemplated therein which is intended
for or may result in public dissemination thereof, they shall cooperate with
Shalit, shall furnish drafts of all documents or proposed oral statements to
Shalit for comments, and shall not release any such information without the
reasonable written consent of Shalit. Nothing contained herein shall prevent
Imatec from releasing any information to any governmental authority if required
to do so by law.
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Section 7.06. Other Proposals
Until the Release Time, subject to the fiduciary duties of
Imatec's officers and directors, Imatec shall not, and shall neither authorize
nor permit any officer, director, employee, counsel, agent, investment banker,
accountant, or other representative of Imatec directly or indirectly, to: (a)
initiate contact with any person or entity in an effort to solicit any Takeover
Proposal (as such term is defined in this Section 7.06); (b) cooperate with, or
furnish or cause to be furnished any non-public information concerning the
business, properties, or assets of Imatec to, any person or entity in connection
with any Takeover Proposal; (c) negotiate with any person or entity with respect
to any Takeover Proposal; or (d) enter into any agreement or understanding with
the intent to effect a Takeover Proposal. Imatec will immediately give written
notice to Shalit of the details of any Takeover Proposal of which it becomes
aware. As used in this Section 7.06 and in Section 8.06, "Takeover Proposal"
shall mean "any proposal, other than as contemplated by this Agreement, (x) for
a merger, consolidation, reorganization, other business combination, or
recapitalization involving Imatec for the acquisition of a 5% or greater
interest in the equity or in any class or series of capital stock of Imatec for
the acquisition of the right to cast 5% or more of the votes on any matter with
respect to Imatec or for the acquisition of a substantial portion of any of its
assets other than in the ordinary course of its business or (y) the effect of
which may be to prohibit, restrict, or delay the consummation of any of the
transactions contemplated by this Agreement or impair the contemplated benefits
to Shalit of any of the transactions contemplated by this Agreement.
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Section 7.07. Consents Without Any Condition
Imatec shall not make any agreement or reach any understanding
not approved in writing by Shalit as a condition for obtaining any consent,
authorization, approval, order, license, certificate, or permit required for the
consummation of the transactions contemplated by the Transaction Documents.
Section 7.08. Release by Imatec
If the Closing takes place, effective immediately after the
Closing, Imatec fully and unconditionally releases and discharges all claims and
causes of action which it, its officers, directors, employees, counsel, agents,
successors, or assigns (other than Shalit) ever had, now have, or hereafter may
have against Shalit or Newco, and, when acting as such, its officers, directors,
employees, counsel, and agents, in each case past, present, or as they may exist
at any time after the date of this Agreement, and each person, if any, who
controls, controlled, or will control Imatec within the meaning of Section 15 of
the Securities Act or Section 20(a) of the Exchange Act, except claims and
causes of action arising out of, based upon, or in connection with the
transaction Documents or for employee benefits to the extent consistent with
Exhibit E and the other representations and warranties of Imatec.
Section 7.09. Noncompetition
If the Closing takes place, Imatec agrees, in consideration of
the obligations of Shalit hereunder: (a) for a period of three years after the
date of the Closing, it will not and will not cause its directors, officers,
employees, counsel or agents to (i) compete with or be engaged in the same
business as, or Participate In (as hereinafter defined in this Section 7.09) any
other business or organization which at any time during the three-year period
after the date of the Closing competes with or is engaged in the same business
as, Newco with respect to any
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product or service sold or activity engaged in up to the time of the Closing in
any geographical area in which at the time of the Closing such product or
service is sold or activity engaged in or (ii) Participate In any other business
or organization which at any time during the three-year period after the date of
the Closing uses a name containing either the words "IMATEC" or "IMATEC 20/20"
or words similar to or susceptible of confusion with the words "IMATEC" or
"IMATEC 20/20," or any combination or abbreviation thereof; (b) it will not and
will not cause its directors, officers, employees, counsel or agents to directly
or indirectly reveal the name of, solicit or interfere with, or endeavor to
entice away from Newco or Shalit, any of their respective suppliers, customers,
or employees; and (c) it will not and will not cause its directors, officers,
employees, counsel or agents to directly or indirectly employ any person who, at
any time up to the date of the Closing, was an employee of Imatec within a
period of three years after such person leaves the employ of such corporation.
As used in this Section 7.09, "Participate In" shall mean "directly or
indirectly, for his own benefit or for, with, or through any other person or
entity, own, manage, operate, control, loan money to, or participate in the
ownership, management, operation, or control of, or be connected as a director,
officer, employee, partner, consultant, agent, independent contractor, or
otherwise with, or acquiesce in the use of his name in." Imatec agrees that the
provisions of this Section 7.09 are necessary and reasonable to protect Newco
and Shalit, in the conduct of their busineSection If any restriction contained
in this Section 7.09 shall be deemed to be invalid, illegal, or unenforceable by
reason of the extent, duration, or geographical scope thereof, or otherwise,
then the court making such determination shall have the right to reduce such
extent, duration, geographical scope, or other provisions hereof, and in its
reduced form such restriction shall then be enforceable in the manner
contemplated hereby.
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Section 7.10. File Tax Return
If the Closing takes place, Imatec agrees to file, within the
time allowed by law, all applicable federal, state, local, and foreign tax
returns with the appropriate jurisdictions, for the period January 1, 1997
through the date of the Closing, to include therein all information required to
be contained therein relating to Imatec for such period, and to pay all Taxes
with respect to Imatec for such period.
Section 7.11. Voting By Imatec
Imatec agrees that until the Release Time, it will vote all
securities of Newco which it is entitled to vote against (a) any merger,
consolidation, reorganization, other business combination, or recapitalization
involving Newco, (b) any sale of assets of Newco, (c) any stock split, stock
dividend, or reverse stock split relating to any class or series of Newco's
stock, (d) any issuance of any shares of capital stock of Newco, any option,
warrant, or other right calling for the issuance of any such share of capital
stock, or any security convertible into or exchangeable for any such share of
capital stock, (e) any authorization of any other class or series of stock of
Newco, (f) the amendment of the certificate of incorporation (or other charter
document) or the by-laws of Newco, or (g) any proposition the effect of which
may be to inhibit, restrict, or delay the consummation of any of the
transactions contemplated by the Transaction Documents or impair the
contemplated benefits to Shalit of the transactions contemplated by the
Transaction Documents.
Section 7.12. Liability Insurance Policy
If the Closing takes place, Imatec agrees that it will cause
Imatec's directors' and officers' liability insurance policies in effect on the
date hereof to be continued in full force and effect for a "run-off" period of
up to six years after the date of the Closing (the "Run-Off
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Policy") if the original directors' and officers' liability insurance policies
are in full force and effect at the time of the Closing; provided, however, that
Imatec may replace the Run-Off Policy with a new officers' and directors'
liability policy or policies (the "New Policy") as long as the New Policy's
limits of liability are no less than the aggregate amount of the limits of
liability in the Run-Off Policy and the New Policy (a) is not more limited in
scope than the Run-Off Policy, (b) does not increase the amount of the
retention or the amount of insurance for which Imatec or any director or officer
is responsible as specified in the Run-Off Policy, (c) continues to cover all
persons presently covered or to be covered prior to the date hereof under the
Run-Off Policy, and (d) does not otherwise adversely change (with reference to
any of the persons now or in the future covered thereby) any of the terms,
conditions, or Coverage (as defined in this Section 7.12) of the Run-Off Policy.
As used in this Section 7.12, "Coverage" shall include, but not be limited to,
any or all of (e) the types of claims, (f) specific claims, or (g) the time
period of claims covered in any policy. Imatec agrees that it will cause any New
Policy obtained to be continued in full force and effect for up to six years
after the date of the Closing.
Section 7.13. Registration Rights
Imatec shall file a post-effective amendment to its
Registration Statement on Form SB-2, Commission file No. 333-3589, dated October
1996, pursuant to the provisions of the Registration Rights Agreement, and shall
comply in all other respects therewith.
VIII. Covenants and Agreements of Shalit
Shalit covenants and agrees as follows:
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Section 8.01. Conduct of Business
Until the Release Time, Shalit, in his capacity as President
and Chief Executive Officer of Imatec, will cause Imatec to conduct its affairs
so that at the Closing no representation or warranty of Imatec will be
inaccurate, no covenant or agreement of Imatec will be breached, and no
condition in this Agreement will remain unfulfilled by reason of the actions or
omissions of Imatec. Except as otherwise requested by Shalit in writing, until
the Release Time, Shalit, in his capacity as President and Chief Executive
Officer of Imatec, will cause Imatec to use its best efforts to preserve the
business operations of Imatec intact, to keep available the services of its
present personnel, to preserve in full force and effect the contracts,
agreements, instruments, leases, licenses, arrangements, and understandings of
Imatec, and to preserve the good will of its suppliers, customers, and others
having business relations with Imatec. Until the Release Time, Shalit will cause
Imatec to, conduct its business and operations in all respects only in the
ordinary course.
Section 8.02. Shalit Representations and Warranties
Until the Release Time, Shalit will conduct his affairs so that at the
Closing no representation or warranty of Shalit will be inaccurate, no covenant
or agreement of Shalit will be breached, and no condition to this Agreement will
remain unfulfilled by reason of the actions or omissions of Shalit.
Section 8.03. Advice of Changes
Until the Release Time, Shalit will immediately advise Imatec in a
detailed written notice of any fact or occurrence or any pending or threatened
occurrence of which he obtains knowledge and which (if existing and known at the
date of the execution of this Agreement)
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would have been required to be set forth or disclosed in or pursuant to this
Agreement or Exhibit J hereto, which (if existing and known at any time prior to
or at the Closing) would make the performance by any party of a covenant
contained in this Agreement impossible or make such performance materially more
difficult than in the absence of such fact or occurrence, or which (if existing
and known at the time of the Closing) would cause a condition to any party's
obligations under the Transaction Documents not to be fully satisfied.
Section 8.04. Confidentiality
Shalit shall insure that all confidential information which
Shalit may now possess or may hereafter create or obtain relating to the
financial condition, results of operations, business, properties, assets,
liabilities, or future prospects of Imatec, any affiliate of Imatec, or any
customer or supplier of Imatec or any such affiliate shall not be published,
disclosed, or made accessible by him to any other person or entity at any time
or used by him except pending the Closing in the business and for the benefit of
Imatec, in each case without the prior written consent of Imatec; provided,
however, that the restrictions of this sentence shall not apply (a) with respect
to the obligations of Imatec after the Closing takes place, (b) with respect to
the obligations of all such persons and entities after this Agreement is
rightfully terminated, but only to the extent such confidential information
relates to the financial condition, results of operations, business, properties,
assets, liabilities, or future prospects of Imatec, of any affiliate of Imatec,
or (insofar as such confidential information was obtained directly by Imatec, or
any such affiliate from any customer or supplier of Imatec) of any such customer
or supplier, (c) as may otherwise be required by law, (d) as may be necessary or
appropriate in connection with the enforcement of the Transaction Documents, or
(e) to the extent such information shall have otherwise become publicly
available. Shalit shall, and shall
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cause all other such persons and entities to, deliver to Imatec all tangible
evidence of such confidential information to which the restrictions of the
foregoing sentence apply at the Closing or the earlier rightful termination of
this Agreement.
Section 8.05. Public Statements
Before Shalit shall release any information concerning the
Transaction Documents or the transactions contemplated by the Transaction
Documents which is intended for or may result in public dissemination thereof,
they shall cooperate with Imatec, shall furnish drafts of all documents or
proposed oral statements to Imatec for comments, and shall not release any such
information without the written consent of Imatec. Nothing contained herein
shall prevent Shalit from releasing any information to any governmental
authority if required to do so by law.
Section 8.06. Other Proposals
Until the Release Time, subject to his fiduciary duties as an
officer and director of Imatec, Shalit shall not directly or indirectly, to: (a)
initiate contact with any person or entity in an effort to solicit any Takeover
Proposal; (b) cooperate with, or furnish or cause to be furnished any non-public
information concerning the business, properties, or assets of Imatec to, any
person or entity in connection with any Takeover Proposal; (c) negotiate with
any person or entity with respect to any Takeover Proposal; or (d) enter into
any agreement or understanding with the intent to effect a Takeover Proposal.
Shalit will immediately give written notice to Imatec of the details of any
Takeover Proposal of which any of them becomes aware.
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Section 8.07. Consents Without Any Condition
Shalit shall not make any agreement or reach any understanding
not approved in writing by Imatec as a condition for obtaining any consent,
authorization, approval, order, license, certificate, or permit required for the
consummation of the transactions contemplated by the Transaction Documents.
Section 8.08. Release by Shalit
If the Closing takes place, effective immediately after the
Closing, Shalit fully and unconditionally releases and discharges all claims and
causes of action which he ever had, now have, or hereafter may have against
Imatec, and, when acting as such, his employees, counsel and agents, in each
case past, present, or as they may exist at any time after the date of this
Agreement, and each person, if any, who controls, controlled, or will control
any of them within the meaning of Section 15 of the Securities Act or Section
20(a) of the Exchange Act, except claims and causes of action arising out of,
based upon, or in connection with the Transaction Documents or for employee
benefits to the extent consistent with Exhibit E and the other representations
and warranties of Shalit.
Section 8.09. Voting By Shalit
Shalit agrees that until the Release Time, he will vote all
securities of Imatec which he is entitled to vote against (a) any merger,
consolidation, reorganization, other business combination, or recapitalization
involving Imatec , (b) any sale of assets of Imatec, (c) any stock split, stock
dividend, or reverse stock split relating to any class or series of Imatec 's
stock, (d) any issuance of any shares of capital stock of Imatec , any option,
warrant, or other right calling for the issuance of any such share of capital
stock, or any security convertible into or exchangeable for any such share of
capital stock, (e) any authorization of any other class or
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series of stock of Imatec, (f) the amendment of the certificate of incorporation
(or other charter document) or the by-laws of Imatec, or (g) any proposition the
effect of which may be to inhibit, restrict, or delay the consummation of any of
the transactions contemplated by the Transaction Documents or impair the
contemplated benefits to Imatec of the transactions contemplated by the
Transaction Documents.
IX. Indemnity Against Liabilities
Section 9.01 Manner of Claims.
Imatec and Shalit may not assert any claim against the other party
under this Agreement, unless notice of a claim therefor is asserted by the other
party in writing and is received by the other party on or prior to the date on
which the representation, warranty, covenant or agreement on which such claim or
action is based ceases to survive as set forth in Section 9.04 hereof,
irrespective of whether the subject matter of such claim or action shall have
occurred before or after such date. Any notice of a claim by reason of any of
the representations, warranties, covenants or agreements contained in this
Agreement shall state specifically the representation, warranty or agreement
with respect to which the claim is made, and shall describe in detail the facts
and circumstances giving rise to an alleged basis for the claim, and, if then
determinable, the amount of liability asserted against the other party by reason
of the claim.
Section 9.02 Indemnification by Imatec.
a. Imatec shall indemnify and hold Shalit and his counsel and
agents harmless against and in respect of any and all damages, losses,
claims, penalties, liabilities, costs and expenses (including, without
limitation, all fines, interest, legal fees and expenses and amounts
paid in settlement) (collectively, "Losses"), that are sustained or
incurred by them and arise from or relate to (i) any misrepresentation
or breach of any
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warranty set forth in Article 1 hereof; (ii) any claim for any finder's
fee or brokerage or other commission arising by reason of any services
alleged to have been rendered to or at the instance of Imatec with
respect to the Transaction Documents and the transactions contemplated
hereby or thereby; (iii) the nonfulfillment of any covenant or
agreement to be performed on the part of Imatec hereunder; or (iv) the
Excluded Liabilities.
b. Payments by Imatec shall be limited to the amount of any
Losses that remains after deducting therefrom (i) any Tax benefit to
Shalit and (ii) any insurance proceeds and any indemnity, contribution
or other similar payment recoverable by Shalit or his counsel or agents
from any third party with respect thereto.
c. Notwithstanding anything to the contrary contained in this
Agreement, Imatec shall have no liability under any provision of this
Agreement for: (i) any Losses to the extent that such Losses result
from or arise out of actions taken by Shalit or his counsel or agents
after the Closing Date; and (ii) any consequential damages. Shalit
shall take and shall cause his counsel and agents to take all
reasonable steps to mitigate their Losses upon and after becoming aware
of any event which could reasonably be expected to give rise to any
Losses.
Section 9.03 Indemnification by Shalit.
a. Shalit shall indemnify and hold Imatec, its affiliates,
directors, officers, employees, agents and stockholders harmless
against and in respect of any and all Losses that are sustained or
incurred by them and arise from or relate to (i) any misrepresentation
or breach of any warranty set forth in Article 2 hereof; (ii) any claim
for any finder's fee or brokerage or other commission arising by reason
of any services alleged to have been rendered to or at the instance of
Shalit with respect to the
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Transaction Documents or the transactions contemplated hereby or
thereby; (iii) the nonfulfillment of any covenant or agreement to be
performed on the part of Shalit hereunder; (iv) the effect Imatec's
non-compliance with any bulk sales or similar laws; provided that
Shalit shall not be required to indemnify Imatec against any Excluded
Liabilities; or (v) the Assumed Liabilities.
b. Payments by Shalit pursuant to Section 9.03(a) shall be
limited to the amount of any Losses that remains after deducting
therefrom (i) any Tax benefit to Imatec or any affiliate thereof; and
(ii) any insurance proceeds and any indemnity, contribution or other
similar payment recoverable by Imatec from any third party with respect
thereto.
c. Notwithstanding anything to the contrary contained in this
Agreement, Shalit shall have no liability under any provision of this
Agreement for any consequential damages. Imatec shall take all
reasonable steps to mitigate its Losses upon and after becoming aware
of any event which could reasonably be expected to give rise to any
Losses.
Section 9.04 Limitation of Remedies.
a. The parties hereby acknowledge and agree that, from and
after the Closing, their sole and exclusive remedy with respect to any
and all claims relating to the subject matter of this Agreement shall
be pursuant to the indemnification provisions set forth in this Article
9. In furtherance of the foregoing, each of the parties hereby waives,
to the fullest extent permitted under applicable law, any and all other
rights, claims and causes of action it may have, from and after the
Closing, against the other
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party or its affiliates, directors, officers, employees and agents
relating to the subject matter of this Agreement.
b. Except as set forth in this Agreement, none of the parties
is making any representation, warranty, covenant or agreement with
respect to the matters contained herein. Notwithstanding anything to
the contrary contained in this Agreement, no breach of any
representation, warranty, covenant or agreement contained herein shall
give rise to any right on the part of either party, after the
consummation of the purchase and sale of the Purchased Assets
contemplated by this Agreement, to rescind the Transaction Documents or
any of the transactions contemplated hereby or thereby.
Section 9.05 Notice to Indemnitor.
Promptly after the assertion of any claim by a third party or
occurrence of any event which may give rise to a claim for indemnification from
an Indemnitor under this Article 9, the Party seeking indemnification hereunder
(each, "an Indemnitee") shall notify, pursuant to Section 9.01 hereof, the Party
from whom indemnification is sought (the "Indemnitor") in writing, of such claim
and, with respect to claims by third parties, shall so notify the Indemnitor as
soon as practicable; provided, that the failure to timely notify the Indemnitor
pursuant to this Section 9.05 shall not affect the rights of the Indemnitee,
except to the extent the Indemnitor is prejudiced thereby.
Section 9.06 Right of Parties to Settle or Defend.
The Indemnitor shall have the right, at its own expense, to contest and
defend against such claim, subject to Section 9.8 hereof. If the Indemnitor
fails to undertake the defense of or settle or pay any such third party claim
within ten days after the Indemnitee has given written notice to the Indemnitor
of such claim, or if the Indemnitor, after having given such notification
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to the Indemnitee, fails within 30 days to defend, settle or pay such claim,
then the Indemnitee may take any and all necessary action to dispose of such
claim, including, without limitation, the settlement or full payment thereof
upon such terms as it shall deem appropriate, in its sole discretion. If the
Indemnitee contests such claim, the Indemnitor shall have the right to be
represented, at its own expense, by its own counsel and accountants, its
participation to be subject to the reasonable direction of the Indemnitee.
Whether the Indemnitor or Indemnitee contests such claim, (i) the Indemnitee
shall make available to the Indemnitor and its attorneys and accountants, at all
reasonable times during normal business hours, all books, records, and other
documents in its possession relating to such claim; and (ii) the Party
contesting any such claim shall be furnished all reasonable assistance in
connection therewith by the other Party.
Section 9.07 Settlement Proposals.
a. If the Indemnitee desires to settle any third-party claim
(whether or not contested by the Indemnitor), the Indemnitee shall
advise the Indemnitor in writing of the amount it proposes to pay in
settlement thereof (the "Proposed Settlement"). If such Proposed
Settlement is unsatisfactory to the Indemnitor, it shall have the
right, at its expense, to contest (or continue to contest) such claim
by giving written notice of such election to the Indemnitee within ten
days after the Indemnitor's receipt of the advice of the Proposed
Settlement. If the Indemnitor does not deliver such written notice
within ten days after receipt of such advice, or if the Indemnitor,
after having given such notice to the Indemnitee, fails forthwith to
defend, settle or pay such claim, the Indemnitee may offer the Proposed
Settlement to the third party making such claim. If the Proposed
Settlement is not accepted by the party making such claim, any new
Proposed Settlement figure which the Indemnitee may wish to present to
the party making such
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<PAGE>
claim shall first be presented to the Indemnitor who shall have the
right, subject to the conditions hereinabove set forth in this Article
9, to contest such claim. In all such events, the Indemnitor shall
indemnify the Indemnitee and hold it harmless against and from any and
all costs of defense, payment or settlement, including reasonable
attorneys' fees incurred in connection therewith.
b. The Indemnitor may settle any third-party claim only if it
has agreed to contest the claim in accordance with Section 9.6(a)
above. If any Indemnitor desires to settle any third-party claim, the
Indemnitor shall not, without the Indemnitee's prior written consent,
(i) settle or compromise such proceeding, claim or demand, or consent
to the entry of any judgment which does not include as an unconditional
term thereof the delivery by the claimant or plaintiff to the
Indemnitee of a written release from all liability in respect of such
proceeding, claim or demand or (ii) settle or compromise any such
proceeding, claim or demand, in any manner that may adversely affect
the Indemnitee other than as a result of money damages or other money
payments.
Section 9.08 Reimbursement.
At the time the amount of any liability on the part of any Indemnitor
under this Article 9 is determined (which in the case of payments to third
persons shall be the earlier of (a) the date of such payments or (b) the date
that a court of competent jurisdiction shall enter a final judgment, order or
decree (after exhaustion of appeal rights) establishing such liability), the
Indemnitor shall, within 30 days, upon notice from the Indemnitee, pay to the
Indemnitee, the amount of the indemnity claim. X. Miscellaneous
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<PAGE>
Section 10.01. Further Actions
At any time and from time to time, each party agrees, at its
or his expense, to take such actions and to execute and deliver such documents
as may be reasonably necessary to effectuate the purposes of this Agreement.
Section 10.02. Availability of Equitable Remedies
Since a breach of the provisions of this Agreement could not
adequately be compensated by money damages, any party shall be entitled, either
before or after the Closing, in addition to any other right or remedy available
to it, to an injunction restraining such breach or a threatened breach and to
specific performance of any such provision of this Agreement, and in either case
no bond or other security shall be required in connection therewith, and the
parties hereby consent to the issuance of such an injunction and to the ordering
of specific performance.
Section 10.03. Survival
The covenants, agreements, representations, and warranties
contained in or made pursuant to this Agreement shall survive the Closing and
any delivery of the purchase price by Shalit, irrespective of any investigation
made by or on behalf of any party. The statements contained in any other
document executed by either party relating hereto or thereto or delivered to the
other party in connection with the transactions contemplated hereby or thereby,
or in any statement, certificate, or other instrument delivered by or on behalf
of either party pursuant hereto or thereto or delivered to the other party in
connection with the transactions contemplated hereby or thereby shall be deemed
representations and warranties, covenants and agreements, or conditions, as the
case may be, of such party hereunder for all purposes of this
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<PAGE>
Agreement (including all statements, certificates, or other instruments
delivered pursuant hereto or thereto or delivered in connection with the
transactions contemplated hereby or thereby).
Section 10.04. Modification
This Agreement and the Exhibits hereto set forth the entire
understanding of the parties with respect to the subject matter hereof (except
as provided in Section 10.03), supersede all existing agreements among them
concerning such subject matter, and may be modified only by a written instrument
duly executed by each party with the approval of the Board of Directors or by an
officer of each corporate party.
Section 10.05. Notices
Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested (or by the most nearly comparable method if mailed from
or to a location outside of the United States) or by Federal Express, Express
Mail, or similar overnight delivery or courier service or delivered (in person
or by telecopy, telex, or similar telecommunications equipment) against receipt
to the party to whom it is to be given at the address of such party set forth in
the preamble to this Agreement (or to such other address as the party shall have
furnished in writing in accordance with the provisions of this Section 10.05)
with a copy to each of the other parties hereto. Any notice given to any
corporate party shall be addressed to the attention of the Corporate Secretary.
Notice to the estate of any party shall be sufficient if addressed to the party
as provided in this Section 10.05. Any notice or other communication given by
certified mail (or by such comparable method) shall be deemed given at the time
of certification thereof (or comparable act), except for a notice changing a
party's address which will be deemed given at
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<PAGE>
the time of receipt thereof. Any notice given by other means permitted by this
Section 10.05 shall be deemed given at the time of receipt thereof.
Section 10.06. Waiver
Any waiver by any party of a breach of any term of this
Agreement shall not operate as or be construed to be a waiver of any other
breach of that term or of any breach of any other term of this Agreement. The
failure of a party to insist upon strict adherence to any term of this Agreement
on one or more occasions will not be considered a waiver or deprive that party
of the right thereafter to insist upon strict adherence to that term or any
other term of this Agreement. Any waiver must be in writing and, in the case of
a corporate party, be authorized by a resolution of the Board of Directors of
the waiving party.
Section 10.07. Binding Effect
The provisions of this Agreement shall be binding upon and
inure to the benefit of Shalit and his successors and assigns and Imatec and its
successors and assigns, and shall inure to the benefit of each Indemnitee and
Shalit Indemnitee and its successors and assigns (if not a natural person) and
his assigns, heirs, and personal representatives (if a natural person).
Section 10.08. No Third Party Beneficiaries
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<PAGE>
This Agreement does not create, and shall not be construed as creating,
any rights enforceable by any person not a party to this Agreement (except as
provided in Section 10.7).
Section 10.09. Separability
If any provision of this Agreement is invalid, illegal, or
unenforceable, the balance of this Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
Section 10.10. Headings
The headings in this Agreement are solely for convenience of
reference and shall be given no effect in the construction or interpretation of
this Agreement.
Section 10.11. Counterparts; Governing Law
This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. It shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflict of laws. Any action, suit, or proceeding arising out of, based on, or
in connection with this Agreement or the transactions contemplated hereby may be
brought only in the United States District Court for the Southern District of
New York and each party covenants and agrees not to assert, by way of motion, as
a defense, or otherwise, in any such action, suit, or proceeding, any claim that
it or he is not subject personally to the jurisdiction of such court, that its
or his property is exempt or immune from attachment or execution, that the
action, suit, or proceeding is brought in an inconvenient forum, that the venue
of the action, suit, or proceeding is improper, or that this Agreement or the
subject matter hereof may not be enforced in or by such court.
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<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first written above.
DR. HANOCH SHALIT
/s/ Dr. Hanoch Shalit
---------------------
IMATEC, LTD
By: /s/ Neal Factor
---------------------
Neal Factor, Director
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<PAGE>
TABLE OF CONTENTS
Page
----
I. Representations and Warranties of Imatec
1.01 Organization and Qualification...............................1
1.02 Capitalization...............................................2
1.03 Financial Condition..........................................3
1.04 Tax and Other Liabilities....................................5
1.05 Litigation and Claims........................................6
1.06 Properties...................................................7
1.07 Contracts and Other Instruments..............................9
1.08 Employees...................................................11
1.09 Patents, Trademarks, Et Cetera..............................12
1.10 Questionable Payments.......................................13
1.11 Authority to Sell...........................................14
1.12 Completeness of Disclosure..................................16
II. Representations and Warranties of Shalit
2.01 Authority to Buy............................................16
2.02 Non-Distributive Intent.....................................16
2.03 Questionable Payments ......................................17
III. Newco
3.01 Purchase and Sale of Purchased Assets.......................17
3.02 Excluded Assets.............................................19
3.03 Assumption of Liabilities ..................................20
3.04 Excluded Liabilities........................................20
3.05 Consideration for Transfer of the Purchased Assets .........21
IV. The Exchange
4.01 Terms of the Exchange.......................................21
4.02 The Closing.................................................23
4.03 Termination.................................................24
V. Conditions to Obligations of Shalit
5.01 Accuracy of Representations and Compliance with Conditions..24
5.02 Accountants' Letter.........................................25
5.03 Registration Rights Agreement; Letter of Credit.............26
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<PAGE>
Page
----
5.04 Director and Officer Run-Off Policy.........................27
5.05 Other Closing Documents.....................................27
5.06 Review of Proceedings.......................................27
5.07 Legal Action................................................27
5.08 No Governmental Action......................................28
5.09 Contractual Consents Needed.................................28
5.10 Financing...................................................29
5.11 Release of Guarantees.......................................29
5.12 Investment by Others........................................29
5.13 Repayment of Loans..........................................29
5.14 Resignations................................................30
5.15 Releases....................................................30
5.16 Officers' and Directors' Noncompetition Agreement...........30
5.17 Officers' and Directors' Confidentiality Agreement..........31
VI. Conditions to the Obligations of Imatec
6.01 Accuracy of Representations and Compliance with Conditions..31
6.02 Other Closing Documents.....................................32
6.03 Review of Proceedings.......................................32
6.04 Legal Action................................................32
6.05 No Governmental Action......................................32
6.06 Fairness Of Opinion.........................................33
6.07 Contractual Consents Needed.................................33
6.08 Investment by Others........................................33
6.09 Resignations................................................34
6.10 Releases....................................................34
6.11 Officers' and Directors' Noncompetition Agreement...........34
VII. Covenants and Agreements of Imatec
7.01 AcceSection ................................................34
7.02 Conduct of BusineSection ...................................35
7.03 Advice of Changes...........................................35
7.04 Confidentiality.............................................36
7.05 Public Statements...........................................37
7.06 Other Proposals.............................................37
7.07 Consents Without Any Condition..............................38
7.08 Release by Imatec...........................................39
7.09 Noncompetition..............................................39
7.10 File Tax Return.............................................41
7.11 Voting By Imatec............................................41
7.12 Liability Insurance Policy..................................42
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<PAGE>
Page
----
7.13 Registration Rights.........................................43
VIII. Covenants and Agreements of Shalit
8.01 Conduct of Business ........................................43
8.02 Shalit Representations and Warranties.......................44
8.03 Advice of Changes...........................................44
8.04 Confidentiality.............................................44
8.05 Public Statements...........................................45
8.06 Other Proposals.............................................46
8.07 Consents Without Any Condition..............................46
8.08 Release by Imatec...........................................46
8.09 Voting By Shalit ...........................................47
IX. Miscellaneous
9.01 Manner of Claims............................................48
9.02 Indemnification by Imatec...................................48
9.03 Indemnification by Shalit...................................49
9.04 Limitation of Remedies......................................50
9.05 Notice to Indemnitor........................................51
9.06 Right of Parties to Settle or Defend........................51
9.07 Settlement Proposals........................................52
9.08 Reimbursement...............................................53
X. Miscellaneous
10.01 Further Actions.............................................54
10.02 Availability of Equitable Remedies..........................54
10.03 Survival....................................................54
10.04 Modification................................................55
10.05 Notices.....................................................55
10.06 Waiver......................................................56
10.07 Binding Effect..............................................57
10.08 No Third Party Beneficiaries................................57
10.09 Separability................................................57
10.10 Headings....................................................57
10.11 Counterparts; Governing Law.................................57
LIST OF EXHIBITS
EXHIBIT A - LIST OF SUBSIDIARIES AND INFORMATION ABOUT THEM
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<PAGE>
EXHIBIT B - LIST OF PROPERTY OWNED, LEASED, AND LICENSED
EXHIBIT C - LIST OF INTANGIBLES OWNED AND LICENSED
EXHIBIT D - LIST OF CONTRACTS, AGREEMENTS, INSTRUMENTS, AND ARRANGEMENTS
EXHIBIT E - LIST OF EMPLOYEE PLANS AND BENEFITS AND OF CERTAIN EMPLOYEES AND
AGENTS
EXHIBIT F - LIST OF EXCLUDED LIABILITIES
EXHIBIT G - SCHEDULE OF SALE OF SHALIT SHARES
EXHIBIT H - OFFICERS' CERTIFICATE CONCERNING ACCURACY
EXHIBIT I - IMATEC' CERTIFICATE CONCERNING ACCURACY
EXHIBIT J - TERMS OF LETTER OF CREDIT
EXHIBIT K - GUARANTEES TO BE RELEASED
EXHIBIT L - LOANS TO BE REPAID
EXHIBIT M - RELEASE
EXHIBIT N - AGREEMENT NOT TO COMPETE
EXHIBIT O - CONFIDENTIALITY AGREEMENT
EXHIBIT P - REGISTRATION RIGHTS AGREEMENT
<PAGE>
Annex B
Spencer Trask
Securities Incorporated
July 8, 1997
Imatec, Ltd.
150 East 58th St., 21st Floor
New York, NY 10022
Attention: Independent Committee of the Board of Directors
Gentlemen:
You have asked for the opinion of Spencer Trask Securities, Inc. ("Spencer
Trask") as to the fairness, from a financial point of view, to the stockholders
of Imatec, Ltd., other than Dr. Hanoch Shalit, of certain transactions as set
forth in the draft Letter of Intent between Imatec, Ltd. ("Imatec" or the
"Company") and Dr. Hanoch Shalit dated June 19, 1997 (the "Transaction").
In arriving at our opinion, we have reviewed such business records of the
Company as we considered relevant and necessary for purpose of our opinion,
including but not limited to the following:
1. Draft Letter of Intent dated June 19, 1997 between the Company and Dr.
Hanoch Shalit
2. Form 10-KSB for the fiscal year ended December 31, 1996
3. Form 10-QSB reports for the period ended March 31, 1997
4. Private Placement Memorandum dated October 20, 1995
5. Prospectus and SEC Registration Statement in connection with October
29, 1996 initial public offering
6. License Agreement dated June 25, 1995 between the Company and Dr.
Hanoch Shalit
7. Employment Agreement dated July 1, 1995 between the Company and Dr.
Hanoch Shalit
8. News reports as per Bloomberg Information Services.
9. Stock issuance and trading history
10. Product literature
11. Asset schedules
12. Intellectual property, including U.S. Patents Nos. 4,939,581;
5,115,229; and 5,345,315
13. Internal management-prepared financial projections
14. Internal marketing and promotion records
15. Published articles relating to the Company and its licensed technology
In addition, we have visited Imatec's facilities in New York City and have
discussed with management the current status of and outlook for Imatec's
operating results, assets and liabilities; industry conditions and outlook;
material contained in the foregoing documents; and other matters we considered
relevant to our inquiry. We also conducted other inquiries, financial studies
and analyses as we deemed appropriate for purposes of this opinion.
535 Madison Avenue New York, New York 10022 212-355-5565 800-622-7078
Fax: 212-751-3362
<PAGE>
In our review and in arriving at our opinion we have not independently verified
any of the foregoing information and have relied upon its being complete and
accurate in all material aspects, and we have not made an independent appraisal
of specific properties or other assets of Imatec. Our opinion is provided
for your benefit in connection with the proposed Transaction according to the
terms of our engagement letter dated June 25, 1997.
Spencer Trask Securities, Inc., as part of its investment banking business, is
regularly engaged in the valuation of businesses and their securities in
connection with private placements, mergers and acquisitions, and valuations for
estate, corporate and other purposes. Spencer Trask is being paid a fee for
rendering this opinion and performing related valuation analyses, which fee is
not contingent upon its conclusions.
Based upon and subject to the foregoing, it is our opinion that, as of the date
of this letter, the terms of the proposed Transaction between the Company and
Dr. Hanoch Shalit are fair, from a financial point of view, to the stockholders
of Imatec, Ltd. other than Dr. Shalit.
Very truly yours,
SPENCER TRASK SECURITIES, INC.
By: /s/ Roger K. Baumberger
-----------------------------------------
Roger K. Baumberger, CFA
Managing Director - Corporate Finance
2
<PAGE>
Spencer Trask
Securities Incorporated
July 8, 1997
Imatec, Ltd.
150 East 58th St., 21st Floor
New York, NY 10022
Attention: Independent Committee of the Board of Directors
Gentlemen:
We are writing in connection with the Fairness Opinion to be rendered to you by
Spencer Trask Securities, Inc. relating to certain transactions as set forth in
the draft Letter of Intent to Imatec, Ltd. ("Imatec" or the "Company") dated
June 19, 1997 (the "Transaction"). The purpose of this letter and related
Exhibits is to describe the factors considered and the analyses used as a basis
for the conclusions expressed in said Fairness Opinion.
COMPANY BACKGROUND
Imatec was found in 1988 by its Chief Executive Officer, Dr. Hanoch Shalit, for
the purposes of developing, marketing and licensing proprietary methods and
systems of accurate reproduction of images in terms of black-and-white tone and
color shading (the "Technology"). The Technology is currently based upon three
United States patents which have been exclusively licensed to the Company by Dr.
Shalit. Commercial applications of the Technology are believed to exist in the
medical diagnostic imaging, teleradiology and graphic arts industries, both as
an "add-on" device for end-users and as an equipment performance enhancer for
incorporation by original equipment manufacturers (OEM's).
Prior to late 1995, the Company was essentially a single-person firm which
engaged in ongoing R & D while at the same time attempting to license the
Technology to OEM's. During that seven year period, three patents were issued to
Dr. Shalit, in 1990, 1992 and 1994 covering various aspects of accurate
black-and-white and color image reproduction. In November, 1995, the first
significant outside funding was obtained in the form of privately-placed bridge
financing in gross amount of $1,850,000. Shortly thereafter, management was
expanded to include a Vice President - Sales and a Chief Financial Officer and
marketing efforts were accelerated. Subsequent financing has included a second
closing of privately-placed bridge financing in gross amount of $2,150,000 and
in Initial Public Offering ("IPO") on October 29, 1996 in gross amount of
$6,000,000 which, after repayment of $1,025,000 bridge debt, netted the Company
$3,695,000. The IPO price was $5.00 per share of Common Stock and $0.25 per
Redeemable Warrant exercisable at $6.50 per share of Common Stock.
535 Madison Avenue New York, New York 10022 212-355-5565 800-622-7078
Fax: 212-751-3362
<PAGE>
At present, the Company has four employees, approximately $4.3 million in cash
and cash equivalents and no debt. From inception to the present, except for a
nominal amount of consulting fees in prior years, the Company has generated no
revenue from Technology licensing or product sales. Management advises that
there have been recent discussions with one large manufacturer of medical
imaging cameras but that specific licensing terms have not been negotiated and
there is not a Letter of Intent or licensing agreement in place or imminent. The
Common Shares, traded in the Nasdaq SmallCap Market, have declined significantly
in price over the past several months and have recently sold at approximately
$0.50 per share. See Exhibit F.
Management's strategy for achievement of its business objectives appears to be
in process of changing somewhat from the strategy at the time of the IPO. The
Company is continuing to pursue "voluntary" licensing agreements with medical
imaging equipment companies relating to the black-and-white tone adjustment
features of the Technology, inasmuch as most medical diagnostic images are black
and white and the Company has a prototype black-and-white tone adjuster it can
demonstrate. In the area of color shading adjustment, the Company does not have
a prototype adjuster to demonstrate the capabilities of its system and believes
that there are already fairly good color adjustment solutions in the
marketplace. Accordingly, the Company is now considering the use or threat of
legal action to require "involuntary" licensing and/or damage awards in the area
of color shading adjustment. Management believes that a number software products
and related systems utilized in the graphic arts industry may be infringing upon
one or more patents underlying the Technology. Patent lawyers have recently been
engaged and have begun to send letters to companies believed to be infringing,
suggesting that a license agreement be negotiated in lieu of formal legal
action. One of these companies is a well-know computer manufacturer which
incorporates color-matching software into its PC operating system. The other
companies are relatively small software manufacturers. To date, no formal legal
actions have been instituted pending further communication with the alleged
infringers in an effort to determine the relative strength of the Company's
position.
THE TRANSACTION
The Transaction involves releasing the Company from all obligations, liabilities
and rights relating to the Technology and Dr. Shalit's employment in exchange
for an immediate cash payment to Dr. Shalit of $300,000 net of taxes and future
payments not to exceed $1,950,000 net of taxes (the "Maximum Amount"). Dr.
Shalit's employment agreement extends until July 1, 2000 at a current rate of
$66,000 per year, increasing by 5% per year, plus car allowance and other fringe
benefits. The License Agreement dated June 25, 1995, pursuant to which the
Company has rights to the Technology, provides that the Company will pay Dr.
Shalit an annual royalty at the current rate of $147,000 increasing by $7,000
per year, until the expiration of the life of the last patent or patent
application in any country - i.e. at least until the year 2011, or a total of
$2,310,000 from this date forward. Furthermore, if Dr. Shalit ceases to be
employed by the Company, the royalty increases to $250,000 per year plus annual
increases of $12,500 per year - i.e. at least a total of $3,350,000 from this
date forward if his employment were to terminate July 1, 2000. The Company's
liabilities pursuant to the License Agreement also include all legal costs,
expenses and settlement amounts relating to either defending third-party suits
alleging patent infringement by the licensed Technology or pursuing legal
actions instituted by Dr. Shalit (not the Company) against patent infringers.
2
<PAGE>
The Maximum Amount of future payments to Dr. Shalit pursuant to the Transaction
may be in the form of repurchasing shares of Company common stock owned by Dr.
Shalit ("Shalit Shares") at $2.43 per share net of taxes or, if Shalit Shares
are sold in the public market, payment to Dr. Shalit of the difference between
the sale price and $2.43 net of taxes. Should Dr. Shalit sell his shares in the
public market for in excess of $2.43 net of taxes, the aggregate after-tax
payments to him will be reduced by such excess amount. In addition, under any or
all of the following scenarios, actual payments by the Company necessary for Dr.
Shalit to realize the Maximum Amount of $1,950,000 net of taxes will be reduced
by: a) sale of Shalit Shares in the public market at a price of $0.66 or more;
b) reductions in Federal, New York State or New York City income tax rates; c)
reduction in Federal capital gains tax rates. The actual payments by the Company
necessary for Dr. Shalit to realize the Maximum Amount of $1,950,000 net of
taxes will be increased by a) increases in Federal, New York State or New York
City income tax rates; or b) increase in Federal capital gains tax rates.
VALUATION METHODOLOGY
Implicit in determining the fairness of the Transaction is determining whether
or not the shareholders of the Company are likely to have shares with equal or
more implicit value with closing of the Transaction or without closing of the
Transaction.
General Approach
A. We considered the following in valuing the Transaction:
1. An analysis of the characteristics of the Company's outstanding
securities, including:
a. Past transactions;
b. Rights and obligations of these securities and any agreements
restricting their transferability or otherwise affecting their
value;
c. The marketability of these securities
2. An analysis of the financial condition and operating results of
Imatec, including:
a. Balance sheets, including assets, liabilities and book value;
b. Historical operating results and factors affecting profits;
c. Outlook for the company at valuation date.
3. Discussions with Imatec's management
4. Discussions with the Company's patent counsel
5. Conversations with persons in the imaging industry
6. Review of published information relating to the company's technology
and industry and outlook at the valuation date.
B. Access to Information and Personnel
During the course of our analysis, we had access to all materials and personnel
we deemed necessary or pertinent to the formation of our opinion. No limitations
were imposed by the Company on the scope of our investigation.
3
<PAGE>
C. Assumptions and Limitations
1. We have assumed that all information supplied by the management of
Imatec and its advisors is accurate, without independent verification
thereof.
2. This report is not intended for general circulation or publication and
is to be used only for the purpose specified.
Specific Valuation Methodologies Employed
In the case of securities valuation, there are a number of standard approaches.
These include the a) the market approach, which takes into account the
securities' market price (if publicly traded); their implied market value based
on the trading prices for similar publicly-traded companies; and their implied
market value based on the acquisition price of similar companies which have been
acquired; b) the income approach, which estimates the net present value of
anticipated future cash flows; and c) the liquidation approach, which estimates
the amount which would be realized by the securities' holders if the company
were liquidated rather than continuing as a going concern or being sold as a
going concern
The Transaction, as more fully summarized above, involves the exchange of (i)
one set of present, "status quo" liabilities associated with the Technology and
current management's business strategy and prospects relating thereto for (ii)
(a) another set of liabilities associated with terminating current management
and eliminating liabilities associated with the Technology and prospects
relating thereto; plus (b) "free cash" after collateralization of the Letter of
Credit supporting the Maximum Amount for the Shalit Shares; plus (c) a net
operating loss for tax purposes of approximately $1.2 million; plus (d) "shell
value" implicit in a publicly-held company with cash assets, no liabilities and
no business operations. Accordingly, the income approach has been utilized to
compare the net present values of estimated future cash flows associated with
the two scenarios, i.e. "status quo" vs. Transaction. See Exhibit A.
INCOME APPROACH
Under the "Status Quo" scenario, Company management supplied monthly expense
projections through August, 2000, based on its assumption of no revenue during
that time period and continuation of its current business strategy without the
initiation and prosecution of formal legal claims against alleged patent
infringers. Future cash flows beyond August, 2000, without Dr. Shalit's salary
and benefits and with a higher level of guaranteed royalty payments to Dr.
Shalit from the licensed Technology, were estimated. These future cash flows
were then discounted to the present at the Treasury note rate to arrive at their
Net Present Value ("NPV". Also included is a Liquidity Analysis which indicates
that without revenue, the Company would have no cash remaining by the end of the
year 2000. See Exhibit B.
Considerable attention was paid to the assumption of no revenue during the
period under evaluation. Correspondence and internal records of conversations
and contacts with prospective licensees' of the Technology was reviewed and
discussed with management. Since 1991, over 200 large and small medical imaging
equipment and graphics arts equipment companies were contacted. The pace of
marketing and sales efforts expanded considerably in 1996 and 1997, with
4
<PAGE>
the availability of funding and a Vice President - Sales to augment the efforts
of the CEO. Advertising expenses of $202,000 were incurred plus considerable
expenses in attending major trade shows at which the Company had a
demonstration/promotion booth, including the Radiological Society of North
America Exhibition and the SPIE Medical Imaging Conference. To date, the Company
has not succeeded in securing any licensees. Management states that there is
only one serious prospect at this time, a large, well-known medical imaging
equipment company. If an agreement is to be struck, there remains additional
Technology evaluation and feasibility analysis by the prospect, negotiation of
terms for additional R & D for product customization, negotiation of license fee
terms and FDA approval by the licensee. Late 1998 is considered to be the
earliest possible date for initial installations by the licensee if in fact a
license agreement is reached. If the prospective licensee's customers, both new
and "retrofitted," are pleased with the improved quality of their image
reproductions, management has opined that it is possible that other medical
equipment companies will want to license the Technology in order to remain
competitive. However, management has also acknowledged that tone reproduction of
black and white medical images is not accepted as a critical issue in the
industry as there is no absolute reference and the choice of contrast and
brightness/density is often a matter of personal preference. Based on the
foregoing, there is considered to be a low probability of achieving meaningful
licensing revenue in the next several years, if ever.
See Exhibit C.
The other revenue possibility is from patent infringers involved with color
adjustment methods and systems. No actual litigation has yet begun and some of
the companies contacted by Imatec's patent lawyers have flatly denied any
infringement. Correspondence but no meaningful dialogue has begun with the large
computer manufacturer which includes color-matching software in its PC operating
system along with many other operating system features. Discussions with the
Company's patent attorneys indicate that meaningful evaluation of litigation
success against these companies, both in terms of whether or not there will be a
favorable outcome and whether the dollar amount of damages/license payments will
offset the costs of litigation, is not possible at this time. They point out
that, in the absence of negotiated settlement, such litigation can last 3 years
or longer and is inherently expensive because of the large volume of documents
and research involved. Additionally, there is risk of either a preemptive or
counter lawsuit against Company and/or Dr. Shalit as patent-holder for patent
infringement or invalidity of issuance, also involving defensive legal expenses
by the Company. The Adjustment of the "status quo" cash flows to include assumed
future patent infringement income would necessitate including additional legal
expenses; however, neither of these items is susceptible to meaningful
estimation at this time.
The cash payments by the Company to Dr. Shalit pursuant to the Transaction have
been estimated, based on various scenarios involving applicable tax rates and
share prices. These cash outflows have been discounted at the same rate is the
"Status Quo" outflows to arrive at Net Present Value. See Exhibit D.
LIQUIDATION APPROACH
Liquidation of the Company has not been proposed as an alternative to the Status
Quo or the Transaction. However, valuation consideration should be given to this
alternative. The estimated cash and cash equivalents of the Company at June 30,
1997 is $4.4 million. Approval of a liquidation would require a stockholder
vote. Given Dr. Shalit's economic interest in maintaining
5
<PAGE>
the Company as a going concern in order to continue receiving his salary,
benefits, royalties and assurance of legal costs and expenses to protect the
Technology or to institute lawsuits against patent infringers, it is likely that
he, with approximately 24% of the outstanding shares, would vigorously oppose
such an action. Accordingly, it is reasonable to assume several months
continuation of the Company and its current level of expenses, plus legal and
other costs of a proxy battle, prior to a liquidation being approved, if at all.
Total Company cash expenses through October, 1997 have been estimated by
management at $740 thousand, plus an estimated $250,000 legal and proxy expenses
relating to a proposed liquidation, or a total of approximately $1 million.
Resultant estimated cash and equivalents at the end of October would be
approximately $3.4 million less liabilities estimated at $100,000, or a net
amount of $3.3 million for distribution to shareholders. On a per share basis,
this would amount to approximately $0.98 per share based on 3,735,000 common
shares outstanding. This does not take into account, however, the possibility
that additional legal expenses relating to patent infringement claims might be
incurred prior to any liquidation approval.
Analysis pursuant to Exhibit D indicates that the NPV of maximum Company
payments to Dr. Shalit pursuant to the Transaction is approximately $3.3
million, implying that that amount will need to be pledged to secure a letter of
credit in favor of Dr. Shalit. Resultant "free cash" would be approximately $1
million at June 30, 1997, plus NOL of $1.2 million plus estimated "shell value"
of $250,000. Implied Company value would be approximately $1.7 million or $0.46
per share. This does not take into account additional value per share which
might result from future per-share market prices above $0.66 per share which
would reduce the Company's obligations pursuant to the letter of credit and make
available more free cash to the Company, nor does it take into account the
possibility of Company asset deployment in such a way as to increase shareholder
value.
Overall, the liquidation approach is not considered to be a viable consideration
in this valuation analysis because of uncertainties as to whether it would be a
direct benefit to the shareholders and whether it would be approved by the
shareholders in view of likely vigorous opposition by a large stockholder.
IMPACT OF THE TRANSACTION ON THE COMPANY AND ITS STOCKHOLDERS
As of June 30, 1997, the Company had approximately 3,735,000 shares outstanding.
Loss from operations in 1996 was $1.2 million, up from $595 thousand in 1995,
with continuing losses from operations in the first quarter of 1997 of $353
thousand and anticipated ongoing losses for the next several years. The common
share market price has declined from a high of $6.13 in January, 1997 to a
current level of approximately $0.50 per share, indicating stockholder
dissatisfaction with the Company's current and anticipated performance. It is
believed that the comparative NPV's of the "Status Quo" vs. the Transaction and
the opportunity to redeploy the Company's post-Transaction assets in the form of
free cash estimated at approximately $1 million, net operating loss
carryforwards of approximately $1.2 million and estimated $250,000 "shell
value," indicate that the stockholders of Imatec, Ltd. have reasonable grounds
to expect, assuming rational use of the Company's assets by new management, that
the terms of the Transaction are adequate from a financial perspective.
6
<PAGE>
VALUATION COMPANY BACKGROUND
Spencer Trask Securities, Inc. an investment banking firm which is regularly
engaged in securities transactions, equity research, mergers and acquisitions,
private placements and business valuation. Roger K. Baumberger, Managing
Director - Corporate Finance, is a Chartered Financial Analyst and a member of
the Association for Investment Management and Research and the New York Society
of Security Analysts.
Spencer Trask Securities, Inc. is being paid a fee for this valuation opinion,
which compensation is not contingent on the results of the analyses, opinions
and conclusions in this report. The reported analyses, opinions and conclusions
are based upon professional judgments applied to the indicated assumptions and
we have no economic interest in the Transaction or Imatec, Ltd.
Very truly yours,
SPENCER TRASK SECURITIES, INC.
By: /s/ Roger K. Baumberger
------------------------------------------
Roger K. Baumberger, CFA
Managing Director - Corporate Finance
Attachments: Valuation Summary and Analyses
7
<PAGE>
Exhibit A
---------
IMATEC, LTD.
VALUATION SUMMARY
JUNE 30, 1997
I. "STATUS QUO" NET CASH OUTFLOWS
Exhibit B: Scenario A, No Revenue, NPV - Most Likely $3,827,954
Exhibit C: Scenario B, Revenue, NPV - Less Likely 2,801,717
II. PROPOSED TRANSACTION - COMPANY CASH OUTFLOWS
Exhibit D:
Scenario A, $0.50 market price per share, 35% capital
gains tax, NPV $3,318,491
Scenario B, $1.00 market price per share, 35% capital
gains tax, NPV 3,012,885
Scenario C, $0.50 market price per share, 27% capital
gains tax, NPV 3,027,737
Scenario D, $1.00 market price per share, 27% capital
gains tax, NPV 2,886,346
Maximum Co. payments irrespective of market price, 35%
capital gains rate, NPV 3,318,491
Maximum Co. payments irrespective of market price, 27%
capital gains rate, NPV 3,027,737
III. PUBLIC SALE VS. COMPANY REPURCHASE ANALYSIS
EQUILIBRIUM PER-SHARE PRICE
(HIGHER PRICE LOWERS TOTAL MAXIMUM CO. PAYMENTS AS PER SECTION II. ABOVE)
Exhibit E:
At 35% capital gains tax rate $0.66
At 27% capital gains tax rate $0.88
IV. COMMON STOCK TRADING HISTORY
See Exhibit F
<PAGE>
Exhibit B
---------
IMATEC LTD.
PRESENT VALUE ANALYSIS
SCENARIO A - STATUS QUO, NO REVENUE
<TABLE>
<CAPTION>
1997 Total
July August Sept. Oct. Nov. Dec. 1997
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
License fees and royalties - new licensees 0 0 0 0 0 0 0
Patent infringement settlements 0 0 0 0 0 0 0
Patent infringement judgments 0 0 0 0 0 0 0
-------- -------- -------- -------- -------- -------- --------
Total revenue from technology $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Expenses:
Technology royalty - Dr. Shalit $ 12,863 $ 12,863 $ 12,863 $ 12,863 $ 12,863 $ 12,863 $ 77,178
Salary - Dr. Shalit 5,088 5,088 5,088 5,088 5,088 7,632 33,072
Other salaries 12,379 12,379 12,379 12,744 12,744 25,548 88,173
Payroll taxes and benefits 4,657 4,657 4,657 4,703 4,703 5,682 29,059
Selling and travel expenses 5,000 5,000 5,000 5,000 15,000 20,000 55,000
Legal fees 17,333 17,333 17,333 17,333 17,333 17,333 103,998
Consulting fees 33,560 33,560 33,560 33,560 33,560 29,166 196,966
R & D expenses 5,000 5,000 5,000 5,000 5,000 5,000 30,000
Other expenses 34,687 33,517 109,017 58,669 34,499 31,562 301,951
-------- -------- -------- -------- -------- -------- --------
Total expenses 130,567 129,397 204,897 154,960 140,790 154,786 915,397
Less: public company expenses (md. legal) 4,870 5,200 79,700 29,870 5,200 4,700 129,540
Less: non-cash expenses 35,266 35,266 35,266 35,266 35,266 30,872 207,202
-------- -------- -------- -------- -------- -------- --------
Total technology-related cash expenses $ 90,431 $ 88,931 $ 89,931 $ 89,824 $100,324 $119,214 $578,655
Less: revenue 0 0 0 0 0 0 $ 0
-------- -------- -------- -------- -------- -------- --------
Net cash outlay (income) - technology $ 90,431 $ 88,931 $ 89,931 $ 89,824 $100,324 $119,214 $578,655
Annualized discount rate 6.29%
Discount rate per month 0.510%
NPV net cash outlay (income) - technology $89,972 $88,031 $88,569 $88,015 $97,804 $115,630
Total NPV, technology cash outflows, 6/30/97 (1) $3,827,954
(1) exclusive of NPV 12/31/2000 of future royalty payments to Dr. Shalit through 2011, in amount of $2,418,258
(excluded because of Company lack of liquidity at that time)
LIQUID ASSET POSITION
Cash and short-term investments - start of month $4,377,304 $4,300,655 $4,224,780 $4,072,194 $3,969,296 $3,879,911
Less: cash expenses net of revenue 95,301 94,131 169,631 119,694 105,524 123,914
Plus: interest income 18,652 18,256 17,045 16,796 16,139 6,590
---------- ---------- ---------- ---------- ---------- ----------
Cash and short-term investments - end of month $4,300,655 $4,224,780 $4,072,194 $3,969,296 $3,879,911 $3,762,587
</TABLE>
<PAGE>
IMATEC LTD.
PRESENT VALUE ANALYSIS
SCENARIO A - STATUS QUO, NO REVENUE
<TABLE>
<CAPTION>
1998
Revenue: Jan Feb Mar April
<S> <C> <C> <C> <C>
License fees and royalties - new licensees 0 0 0 0
Patent infringement settlements 0 0 0 0
Patent infringement judgments 0 0 0 0
---------- ---------- ---------- ----------
Total revenue from technology $0 $0 $0 $0
Expenses:
Technology royalty - Dr. Shalit $12,863 $12,863 $12,863 $12,863
Salary - Dr. Shalit 5,088 5,088 5,088 5,088
Other salaries 13,225 13,225 13,548 13,548
Payroll taxes and benefits 5,034 5,034 5,058 5,058
Selling and travel expenses 6,000 6,000 16,000 21,000
Legal fees 17,333 17,333 17,333 17,333
Consulting fees 0 0 0 0
R & D expenses 5,000 5,000 5,000 5,000
Other expenses 43,027 33,356 32,856 58,526
---------- ---------- ---------- ----------
Total expenses 107,570 97,899 107,746 138,416
Less: public company expenses (incl. legal) 9,870 5,200 4,700 29,870
Less: non-cash expenses 1,706 1,706 1,706 1,706
---------- ---------- ---------- ----------
Total technology-related cash expenses $95,994 $90,993 $101,340 $106,840
Less: revenue 0 0 0 0
---------- ---------- ---------- ----------
Net cash outlay (income)-technology $95,994 $90,993 $101,340 $106,840
NPV net cash outlay (income) - technology $92,636 $87,364 $96,805 $101,541
LIQUID ASSET POSITION
Cash and short-term investments - start of month $3,762,587 $3,672,650 $3,591,967 $3,501,052
Less: cash expenses net of revenue 105,864 96,193 106,040 136,710
Plus: interest income 15,927 15,510 15,125 14,651
---------- ---------- ---------- ----------
Cash and short-term investments - end of month $3,672,650 $3,591,967 $3,501,052 $3,378,993
<PAGE>
<CAPTION>
Revenue: May June July August
<S> <C> <C> <C> <C>
License fees and royalties - new licensees 0 0 0 0
Patent infringement settlements 0 0 0 0
Patent infringement judgments 0 0 0 0
---------- ---------- ---------- ----------
Total revenue from technology $0 $0 $0 $0
Expenses:
Technology royalty - Dr. Shalit $12,863 $12,863 $12,863 $12,863
Salary - Dr. Shalit 7,632 5,088 5,342 5,342
Other salaries 26,754 13,548 13,802 13,802
Payroll taxes and benefits 5,058 5,058 5,058 5,058
Selling and travel expenses 6,000 6,000 6,000 6,000
Legal fees 17,333 17,333 17,333 17,333
Consulting fees 0 0 0 0
R & D expenses 5,000 5,000 5,000 5,000
Other expenses 56,822 36,357 33,960 33,790
---------- ---------- ---------- ----------
Total expenses 137,462 101,247 99,358 99,188
Less: public company expenses (incl. legal) 30,200 4,700 4,870 5,200
Less: non-cash expenses 1,706 1,706 1,706 1,706
---------- ---------- ---------- ----------
Total technology-related cash expenses $105,556 $94,841 $92,782 $92,282
Less: revenue 0 0 0 0
---------- ---------- ---------- ----------
Net cash outlay (income)-technology $105,556 $94,841 $92,782 $92,282
NPV net cash outlay (income) - technology $99,812 $89,225 $86,845 $85,938
LIQUID ASSET POSITION
Cash and short-term investments - start of month $3,378,993 $3,257,373 $3,171,533 $3,087,204
Less: cash expenses net of revenue 135,756 99,541 97,652 97,482
Plus: interest income 14,136 13,701 13,323 12,948
---------- ---------- ---------- ----------
Cash and short-term investments - end of month $3,257,373 $3,171,533 $3,087,204 $3,002,670
<CAPTION>
Total
Revenue: Sept. Oct. Nov. Dec. 1998
<S> <C> <C> <C> <C>
License fees and royalties - new licensees 0 $0 $0 $0 $0
Patent infringement settlements 0 0 0 0 0
Patent infringement judgments 0 0 0 0 0
---------- ---------- ---------- ---------- ----------
Total revenue from technology $0 $0 $0 $0 $0
Expenses:
Technology royalty - Dr. Shalit $12,863 $12,863 $12,863 $12,863 $154,356
Salary - Dr. Shalit 5,342 5,342 5,342 8,013 67,795
Other salaries 13,802 13,802 13,802 27,135 189,993
Payroll taxes and benefits 5,058 5,058 5,058 5,058 60,648
Selling and travel expenses 6,000 6,000 16,000 21,000 122,000
Legal fees 17,333 17,333 17,333 17,333 207,996
Consulting fees 0 0 0 0 0
R & D expenses 5,000 5,000 5,000 5,000 60,000
Other expenses 83,291 33,960 33,790 31,664 511,399
---------- ---------- ---------- ---------- ----------
Total expenses 148,689 99,358 109,188 128,066 1,374,187
Less: public company expenses (incl. legal) 54,700 4,870 5,200 4,700 164,080
Less: non-cash expenses 1,706 1,706 1,706 1,706 20,472
---------- ---------- ---------- ---------- ----------
Total technology-related cash expenses $92,283 $92,782 $102,282 $121,660 $1,189,635
Less: revenue 0 0 0 0 $0
---------- ---------- ---------- ---------- ----------
Net cash outlay (income)-technology $92,283 $92,782 $102,282 $121,660 $1,189,635
NPV net cash outlay (income) - technology $85,503 $85,529 $93,808 $111,015
LIQUID ASSET POSITION
Cash and short-term investments - start of month $3,002,670 $2,868,181 $2,782,567 $2,686,519
Less: cash expenses net of revenue 146,983 97,652 107,482 126,360
Plus: interest income 12,494 12,038 11,434 14,940
---------- ---------- ---------- ----------
Cash and short-term investments - end of month $2,868,181 $2,782,567 $2,686,519 $2,575,099
</TABLE>
<PAGE>
IMATEC LTD.
PRESENT VALUE ANALYSIS
SCENARIO A - STATUS QUO, NO REVENUE
<TABLE>
<CAPTION>
1999
Revenue: Jan Feb Mar April
<S> <C> <C> <C> <C>
License fees and royalties - new licenses $0 $0 $0 $0
Patent infringement settlements 0 0 0 0
Patent infringement judgments 0 0 0 0
---------- ---------- ---------- ----------
Total revenue from technology $0 $0 $0 $0
Expenses:
Technology royalty - Dr. Shalit $13,506 $13,506 $13,506 $13,506
Salary - Dr. Shalit 5,342 5,342 5,342 5,342
Other salaries 21,828 21,828 22,006 22,006
Payroll taxes and benefits 5,430 5,430 5,444 5,444
Selling and travel expenses 7,000 7,000 17,000 22,000
Legal fees 17,875 17,875 17,875 17,875
Consulting fees 0 0 0 0
R & D expenses 5,000 5,000 5,000 5,000
Other expenses 29,531 24,861 49,361 50,056
Total expenses 105,512 100,842 135,534 141,229
Less: public company expenses (incl. legal) 4,870 5,200 29,700 29,870
Less: non-cash expenses 1,706 1,706 1,706 1,706
---------- ---------- ---------- ----------
Total technology-related cash expenses 98,936 93,936 104,128 109,653
Less: revenue 0 0 0 0
---------- ---------- ---------- ----------
Net cash outlay (income)-technology $98,936 $93,936 $104,128 $109,653
NPV net cash outlay (income) - technology $89,821 $84,849 $93,578 $98,043
LIQUID ASSET POSITION
Cash and short-term investments - start of month $2,575,099 $2,480,757 $2,390,662 $2,265,421
Less: cash expenses net of revenue 103,806 99,136 133,828 139,523
Plus: interest income 9,464 9,041 8,587 8,045
---------- ---------- ---------- ----------
Cash and short-term investments - end of month $2,480,757 $2,390,662 $2,265,421 $2,133,943
<CAPTION>
Revenue: May June July August
<S> <C> <C> <C> <C>
License fees and royalties - new licenses $0 $0 $0 $0
Patent infringement settlements 0 0 0 0
Patent infringement judgments 0 0 0 0
---------- ---------- ---------- ----------
Total revenue from technology $0 $0 $0 $0
Expenses:
Technology royalty - Dr. Shalit $13,506 $13,506 $14,181 $14,181
Salary - Dr. Shalit 8,013 5,342 5,609 5,609
Other salaries 33,009 22,006 22,006 22,006
Payroll taxes and benefits 6,490 5,444 5,465 5,465
Selling and travel expenses 7,000 7,000 7,000 7,000
Legal fees 17,875 17,875 17,875 17,875
Consulting fees 0 0 0 0
R & D expenses 5,000 5,000 5,000 5,000
Other expenses 24,886 27,886 25,056 24,886
Total expenses 115,779 104,059 102,192 102,022
Less: public company expenses (incl. legal) 5,200 4,700 4,870 5,200
Less: non-cash expenses 1,706 1,706 1,706 1,706
---------- ---------- ---------- ----------
Total technology-related cash expenses 108,873 97,653 95,616 95,116
Less: revenue 0 0 0 0
---------- ---------- ---------- ----------
Net cash outlay (income)-technology $108,873 $97,653 $95,616 $95,116
NPV net cash outlay (income) - technology $96,852 $86,430 $84,197 $83,332
LIQUID ASSET POSITION
Cash and short-term investments - start of month $2,133,943 $2,027,435 $1,932,249 $1,838,535
Less: cash expenses net of revenue 114,073 102,353 100,486 100,316
Plus: interest income 7,565 7,167 6,772 6,381
---------- ---------- ---------- ----------
Cash and short-term investments - end of month $2,027,435 $1,932,249 $1,838,535 $1,744,600
<PAGE>
<CAPTION>
Total
Revenue: Sept. Oct. Nov. Dec. 1999
<S> <C> <C> <C> <C>
License fees and royalties - new licenses $0 $0 $0 $0 $0
Patent infringement settlements 0 0 0 0 0
Patent infringement judgments 0 0 0 0 0
---------- ---------- ---------- ---------- ----------
Total revenue from technology $0 $0 $0 $0 $0
Expenses:
Technology royalty - Dr. Shalit $14,181 $14,181 $14,181 $14,181 $166,122
Salary - Dr. Shalit 5,609 5,609 5,609 8,414 71,182
Other salaries 22,006 22,390 22,390 33,585 287,066
Payroll taxes and benefits 5,465 5,494 5,494 6,565 67,630
Selling and travel expenses 7,000 7,000 17,000 22,000 134,000
Legal fees 17,875 17,875 17,875 17,875 214,500
Consulting fees 0 0 0 0 0
R & D expenses 5,000 5,000 5,000 5,000 60,000
Other expenses 74,411 25,081 24,911 34,161 415,087
----------
Total expenses 151,547 102,630 112,460 141,781 1,415,587
Less: public company expenses (incl. legal) 54,700 4,870 5,200 4,700 159,080
Less: non-cash expenses 1,706 1,706 1,706 1,706 20,472
---------- ---------- ---------- ---------- ----------
Total technology-related cash expenses 95,141 96,054 105,554 135,375 1,236,035
Less: revenue 0 0 0 0 0
---------- ---------- ---------- ---------- ----------
Net cash outlay (income)-technology $95,141 $96,054 $105,554 $135,375 $1,236,035
NPV net cash outlay (income) - technology $82,931 $83,302 $91,076 $116,214
LIQUID ASSET POSITION
Cash and short-term investments - start of month $1,744,600 $1,600,671 $1,505,185 $1,399,247
Less: cash expenses net of revenue 149,841 100,924 110,754 140,075
Plus: interest income 5,912 5,438 4,816 4,085
---------- ---------- ---------- ----------
Cash and short-term investments - end of month $1,600,671 $1,505,185 $1,399,247 $1,263,257
</TABLE>
<PAGE>
IMATEC LTD.
PRESENT VALUE ANALYSIS
SCENARIO A - STATUS QUO, NO REVENUE
<TABLE>
<CAPTION>
2000
Revenue: Jan Feb Mar April
<S> <C> <C> <C> <C>
License fees and royalties - new licenses $0 $0 $0 $0
Patent infringement settlements 0 0 0 0
Patent infringement judgments 0 0 0 0
---------- ---------- ---------- ----------
Total revenue from technology $0 $0 $0 $0
Expenses:
Technology royalty - Dr. Shalit $14,181 $14,181 $14,181 $14,181
Salary - Dr. Shalit 5,609 5,609 5,609 5,609
Other salaries 22,920 22,920 23,107 23,107
Payroll taxes and benefits 5,769 5,769 5,784 5,784
Selling and travel expenses 7,000 7,000 17,000 22,000
Legal fees 18,444 18,444 18,444 18,444
Consulting fees 0 0 0 0
R & D expenses 5,000 5,000 5,000 5,000
Other expenses 29,635 24,965 24,464 25,135
Total expenses 108,558 103,888 113,589 119,260
Less: public company expenses (incl. legal) 4,870 4,870 4,870 4,870
Less: non-cash expenses 1,706 1,706 1,706 1,706
---------- ---------- ---------- ----------
Total technology-related cash expenses 101,982 97,312 107,013 112,684
Less: revenue 0 0 0 0
---------- ---------- ---------- ----------
Net cash outlay (income)-technology $101,982 $97,312 $107,013 $112,684
NPV net cash outlay (income) - technology $87,104 $82,693 $90,475 $94,787
LIQUID ASSET POSITION
Cash and short-term investments - start of month $1,263,257 $1,160,089 $1,061,291 $952,504
Less: cash expenses net of revenue 106,852 102,182 111,883 117,554
Plus: interest income 3,684 3,384 3,095 2,778
---------- ---------- ---------- ----------
Cash and short-term investments - end of month $1,160,089 $1,061,291 $952,504 $837,728
<CAPTION>
Revenue: May June July August
<S> <C> <C> <C> <C>
License fees and royalties - new licenses $0 $0 $0 $0
Patent infringement settlements 0 0 0 0
Patent infringement judgments 0 0 0 0
---------- ---------- ---------- ----------
Total revenue from technology $0 $0 $0 $0
Expenses:
Technology royalty - Dr. Shalit $14,181 $14,181 $20,833 $20,833
Salary - Dr. Shalit 8,414 5,609 0 0
Other salaries 34,660 23,107 28,996 28,996
Payroll taxes and benefits 6,882 5,784 5,805 5,805
Selling and travel expenses 7,000 7,000 7,000 7,000
Legal fees 18,444 18,444 18,444 18,444
Consulting fees 0 0 0 0
R & D expenses 5,000 5,000 5,000 5,000
Other expenses 24,990 27,990 19,218 19,048
Total expenses 119,571 107,115 105,296 105,126
Less: public company expenses (incl. legal) 4,870 4,870 4,870 4,870
Less: non-cash expenses 1,706 1,706 1,706 1,706
---------- ---------- ---------- ----------
Total technology-related cash expenses 112,995 100,539 98,720 98,550
Less: revenue 0 0 0 0
---------- ---------- ---------- ----------
Net cash outlay (income)-technology $112,995 $100,539 $98,720 $98,550
NPV net cash outlay (income) - technology $94,566 $83,715 $81,783 $81,228
LIQUID ASSET POSITION
Cash and short-term investments - start of month $837,728 $722,306 $619,004 $517,219
Less: cash expenses net of revenue 117,865 105,409 103,590 103,420
Plus: interest income 2,443 2,107 1,805 1,509
---------- ---------- ---------- ----------
Cash and short-term investments - end of month $722,306 $619,004 $517,219 $415,308
<PAGE>
<CAPTION>
Total
Revenue: Sept. Oct. Nov. Dec. 2000
<S> <C> <C> <C> <C>
License fees and royalties - new licenses $0 $0 $0 $0 $0
Patent infringement settlements 0 0 0 0
Patent infringement judgments 0 0 0 0
---------- ---------- ---------- ---------- ----------
Total revenue from technology $0 $0 $0 $0 $0
Expenses:
Technology royalty - Dr. Shalit $20,833 $20,833 $20,833 $20,833 $210,084
Salary - Dr. Shalit 0 0 0 0 36,459
Other salaries 28,996 28,996 28,996 44,099 338,900
Payroll taxes and benefits 5,738 5,769 5,769 6,893 71,551
Selling and travel expenses 7,000 7,000 17,000 22,000 134,000
Legal fees 18,444 18,444 18,444 18,444 221,328
Consulting fees 0 0 0 0 0
R & D expenses 5,000 5,000 5,000 5,000 60,000
Other expenses 63,989 19,084 19,084 27,731 325,333
----------
Total expenses 150,000 105,126 115,126 145,000 1,397,655
Less: public company expenses (incl. legal) 54,700 4,870 5,200 4,700 108,430
Less: non-cash expenses 1,706 1,706 1,706 1,706 20,472
---------- ---------- ---------- ---------- ----------
Total technology-related cash expenses 93,594 98,550 108,220 138,594 1,268,753
Less: revenue 0 0 0 0 0
---------- ---------- ---------- ---------- ----------
Net cash outlay (income)-technology $93,594 $98,550 $108,220 $138,594 $1,268,753
NPV net cash outlay (income) - technology $76,751 $80,405 $87,847 $111,932
LIQUID ASSET POSITION
Cash and short-term investments - start of month $415,308 $268,225 $165,587 $52,650
Less: cash expenses net of revenue 148,294 103,420 113,420 143,294
Plus: interest income 1,211 782 483 154
---------- ---------- ---------- ----------
Cash and short-term investments - end of month $268,225 $165,587 $52,650 ($90,490)
</TABLE>
<PAGE>
IMATEC LTD. Exhibit C
PRESENT VALUE ANALYSIS
SCENARIO B - STATUS QUO, REVENUE COMMENCING 1998
<TABLE>
<CAPTION>
1997 Total
Revenue: July August Sept. Oct. Nov. Dec. 1997
<S> <C> <C> <C> <C> <C> <C> <C>
License fees and royalties - new licensees 0 0 0 0 0 0 0
Patent infringement settlements 0 0 0 0 0 0 0
Patent infringement judgments 0 0 0 0 0 0 0
---------- ---------- ---------- ---------- ---------- ---------- --------
Total revenue from technology $0 $0 $0 $0 $0 $0 $0
Expenses:
Technology royalty - Dr. Shalit $12,863 $12,863 $12,863 $12,863 $12,863 $12,863 $77,178
Salary - Dr. Shalit 5,088 5,088 5,088 5,088 5,088 7,632 33,072
Other salaries 12,379 12,379 12,379 12,744 12,744 25,548 88,173
Payroll taxes and benefits 4,657 4,657 4,657 4,703 4,703 5,682 29,059
Selling and travel expenses 5,000 5,000 5,000 5,000 15,000 20,000 55,000
Legal fees 17,333 17,333 17,333 17,333 17,333 17,333 103,998
Consulting fees 33,560 33,560 33,560 33,560 33,560 29,166 196,966
R & D expenses 5,000 5,000 5,000 5,000 5,000 5,000 30,000
Other expenses 34,687 33,517 109,017 58,669 34,499 31,562 301,951
---------- ---------- ---------- ---------- ---------- ---------- --------
Total expenses 130,567 129,397 204,897 154,960 140,790 154,786 915,397
Less: public company expenses (incl. legal) 4,870 5,200 79,700 29,870 5,200 4,700 129,540
Less: non-cash expenses 35,266 35,266 35,266 35,266 35,266 30,872 207,202
---------- ---------- ---------- ---------- ---------- ---------- --------
Total technology-related cash expenses $90,431 $88,931 $89,931 $89,824 $100,324 $119,214 $578,655
Less: revenue 0 0 0 0 0 0 $0
---------- ---------- ---------- ---------- ---------- ---------- --------
Net cash outlay (income) - technology $90,431 $88,931 $89,931 $89,824 $100,324 $119,214 $578,655
6.29%
Discount rate per month 0.51%
NPV net cash outlay (income) - technology $89,972 $88,031 $88,569 $88,015 $97,804 $115,630
Total NPV, technology net cash outflows, status qu $2,801,717
LIQUID ASSET POSITION
Cash and short-term invest. - start of month $4,377,304 $4,300,655 $4,224,780 $4,072,194 $3,969,296 $3,879,911
Less: cash expenses net of revenue 95,301 94,131 169,631 119,694 105,524 123,914
Plus: interest income 18,652 18,256 17,045 16,796 16,139 6,590
---------- ---------- ---------- ---------- ---------- ----------
Cash and short-term invest. - end of month $4,300,655 $4,224,780 $4,072,194 $3,969,296 $3,879,911 $3,762,587
</TABLE>
<PAGE>
IMATEC LTD.
PRESENT VALUE ANALYSIS
SCENARIO B - STATUS QUO, REVENUE COMMENCING 1998
<TABLE>
<CAPTION>
1999
Revenue: Jan Feb Mar April
<S> <C> <C> <C> <C>
License fees and royalties - new licensees $41,667 $41,667 $41,667 $41,667
Patent infringement settlements 0 0 0 0
Patent infringement judgments 0 0 0 0
---------- ---------- ---------- ----------
Total revenue from technology $41,667 $41,667 $41,667 $41,667
Expenses:
Technology royalty - Dr. Shalit $13,506 $13,506 $13,506 $13,506
Salary - Dr. Shalit 5,342 5,342 5,342 5,342
Other salaries 21,828 21,828 22,006 22,006
Payroll taxes and benefits 5,430 5,430 5,444 5,444
Selling and travel expenses 7,000 7,000 17,000 22,000
Legal fees 17,875 17,875 17,875 17,875
Consulting fees 0 0 0 0
R & D expenses 5,000 5,000 5,000 5,000
Other expenses 29,531 24,861 49,361 50,056
Total expenses 105,512 100,842 135,534 141,229
Less: public company expenses (incl. legal) 4,870 5,200 29,700 29,870
Less: non-cash expenses 1,706 1,706 1,706 1,706
---------- ---------- ---------- ----------
Total technology-related cash expenses 98,936 93,936 104,128 109,653
Less: revenue 41,667 41,667 41,667 41,667
---------- ---------- ---------- ----------
Net cash outlay (income) - technology $57,269 $52,269 $62,461 $67,986
NPV net cash outlay (income) - technology $51,993 $47,213 $56,133 $60,788
LIQUID ASSET POSITION
Cash and short-term investments - start of month $2,700,099 $2,649,210 $2,602,779 $2,521,463
Less: cash expenses net of revenue 62,139 57,469 92,161 97,856
Plus: interest income 11,250 11,038 10,845 10,506
---------- ---------- ---------- ----------
Cash and short-term investments - end of month $2,649,210 $2,602,779 $2,521,463 $2,434,112
<CAPTION>
Revenue: May June July August
<S> <C> <C> <C> <C>
License fees and royalties - new licensees $41,667 $41,667 $41,667 $41,667
Patent infringement settlements 0 0 0 0
Patent infringement judgments 0 0 0 0
---------- ---------- ---------- ----------
Total revenue from technology $41,667 $41,667 $41,667 $41,667
Expenses:
Technology royalty - Dr. Shalit $13,506 $13,506 $14,181 $14,181
Salary - Dr. Shalit 8,013 5,342 5,609 5,609
Other salaries 33,009 22,006 22,006 22,006
Payroll taxes and benefits 6,490 5,444 5,465 5,465
Selling and travel expenses 7,000 7,000 7,000 7,000
Legal fees 17,875 17,875 17,875 17,875
Consulting fees 0 0 0 0
R & D expenses 5,000 5,000 5,000 5,000
Other expenses 24,886 27,886 25,056 24,886
Total expenses 115,779 104,059 102,192 102,022
Less: public company expenses (md. legal) 5,200 4,700 4,870 5,200
Less: non-cash expenses 1,706 1,706 1,706 1,706
---------- ---------- ---------- ----------
Total technology-related cash expenses 108,873 97,653 95,616 95,116
Less: revenue 41,667 41,667 41,667 41,667
---------- ---------- ---------- ----------
Net cash outlay (income) - technology $67,206 $55,986 $53,949 $53,449
NPV net cash outlay (income) - technology $59,786 $49,552 $47,507 $46,828
LIQUID ASSET POSITION
Cash and short-term investments - start of month $2,434,112 $2,371,848 $2,321,045 $2,271,896
Less: cash expenses net of revenue 72,406 60,686 58,819 58,649
Plus: interest income 10,142 9,883 9,671 9,466
---------- ---------- ---------- ----------
Cash and short-term investments - end of month $2,371,848 $2,321,045 $2,271,896 $2,222,713
<CAPTION>
Total
Revenue: Sept. Oct. Nov. Dec. 1999
<S> <C> <C> <C> <C> <C>
License fees and royalties - new licensees $41,667 $41,667 $45,833 $45,833 $508,333
Patent infringement settlements 0 0 0 0 0
Patent infringement judgments 0 0 0 0 0
---------- ---------- ---------- ---------- ----------
Total revenue from technology $41,667 $41,667 $45,833 $45,833 $508,333
Expenses:
Technology royalty - Dr. Shalit $14,181 $14,181 $14,181 $14,181 $166,122
Salary - Dr. Shalit 5,609 5,609 5,609 8,414 71,182
Other salaries 22,006 22,390 22,390 33,585 287,066
Payroll taxes and benefits 5,465 5,494 5,494 6,565 67,630
Selling and travel expenses 7,000 7,000 17,000 22,000 134,000
Legal fees 17,875 17,875 17,875 17,875 214,500
Consulting fees 0 0 0 0 0
R & D expenses 5,000 5,000 5,000 5,000 60,000
Other expenses 74,411 25,081 24,911 34,161 415,087
----------
Total expenses 151,547 102,630 112,460 141,781 1,415,587
Less: public company expenses (incl. legal) 54,700 4,870 5,200 4,700 159,080
Less: non-cash expenses 1,706 1,706 1,706 1,706 20,472
---------- ---------- ---------- ---------- ----------
Total technology-related cash expenses 95,141 96,054 105,554 135,375 1,236,035
Less: revenue 41,667 41,667 45,833 45,833 508,333
---------- ---------- ---------- ---------- ----------
Net cash outlay (income) - technology $53,474 $54,387 $59,721 $89,542 $727,702
NPV net cash outlay (income) - technology $46,612 $47,167 $51,529 $76,868
LIQUID ASSET POSITION
Cash and short-term investments - start of month $2,222,713 $2,123,800 $2,073,392 $2,017,110
Less: cash expenses net of revenue 108,174 59,257 64,921 94,242
Plus: interest income 9,261 8,849 8,639 8,405
---------- ---------- ---------- ----------
Cash and short-term investments - end of month $2,123,800 $2,073,392 $2,017,110 $1,931,273
</TABLE>
<PAGE>
IMATEC LTD.
PRESENT VALUE ANALYSIS
SCENARIO B - STATUS QUO, REVENUE COMMENCING 1998
<TABLE>
<CAPTION>
1998
Revenue: Jan Feb Mar April
<S> <C> <C> <C> <C>
License fees and royalties - new licensees 0 0 0 0
Patent infringement settlements 0 0 0 0
Patent infringement judgments 0 0 0 0
---------- ---------- ---------- ----------
Total revenue from technology $ 0 $ 0 $ 0 $ 0
Expenses:
Technology royalty - Dr. Shalit $ 12,863 $ 12,863 $ 12,863 $ 12,863
Salary - Dr. Shalit 5,088 5,088 5,088 5,088
Other salaries 13,225 13,225 13,548 13,548
Payroll taxes and benefits 5,034 5,034 5,058 5,058
Selling and travel expenses 6,000 6,000 16,000 21,000
Legal fees 17,333 17,333 17,333 17,333
Consulting fees 0 0 0 0
R & D expenses 5,000 5,000 5,000 5,000
Other expenses 43,027 33,356 32,856 58,526
---------- ---------- ---------- ----------
Total expenses 107,570 97,899 107,746 138,416
Less: public company expenses (incl. legal) 9,870 5,200 4,700 29,870
Less: non-cash expenses 1,706 1,706 1,706 1,706
---------- ---------- ---------- ----------
Total technology-related cash expenses $ 95,994 $ 90,993 $ 101,340 $ 106,840
Less: revenue 0 0 0 0
---------- ---------- ---------- ----------
Net cash outlay (income) - technology $ 95,994 $ 90,993 $ 101,340 $ 106,840
NPV net cash outlay (income) - technology $ 92,636 $ 87,364 $ 96,805 $ 101,541
LIQUID ASSET POSITION
Cash and short-term investments - start of month $3,762,587 $3,672,650 $3,591,967 $3,501,052
Less: cash expenses net of revenue 105,864 96,193 106,040 136,710
Plus: interest income 15,927 15,510 15,125 14,651
---------- ---------- ---------- ----------
Cash and short-term investments - end of month $3,672,650 $3,591,967 $3,501,052 $3,378,993
<CAPTION>
Revenue: May June July August
<S> <C> <C> <C> <C>
License fees and royalties - new licensees 0 0 0 0
Patent infringement settlements 0 0 0 0
Patent infringement judgments 0 0 0 0
---------- ---------- ---------- ----------
Total revenue from technology $ 0 $ 0 $ 0 $ 0
Expenses:
Technology royalty - Dr. Shalit $ 12,863 $ 12,863 $ 12,863 $ 12,863
Salary - Dr. Shalit 7,632 5,088 5,342 5,342
Other salaries 26,754 13,548 13,802 13,802
Payroll taxes and benefits 5,058 5,058 5,058 5,058
Selling and travel expenses 6,000 6,000 6,000 6,000
Legal fees 17,333 17,333 17,333 17,333
Consulting fees 0 0 0 0
R & D expenses 5,000 5,000 5,000 5,000
Other expenses 56,822 36,357 33,960 33,790
---------- ---------- ---------- ----------
Total expenses 137,462 101,247 99,358 99,188
Less: public company expenses (incl. legal) 30,200 4,700 4,870 5,200
Less: non-cash expenses 1,706 1,706 1,706 1,706
---------- ---------- ---------- ----------
Total technology-related cash expenses $ 105,556 $ 94,841 $ 92,782 $ 92,282
Less: revenue 0 0 0 0
---------- ---------- ---------- ----------
Net cash outlay (income) - technology $ 105,556 $ 94,841 $ 92,782 $ 92,282
NPV net cash outlay (income) - technology $ 99,812 $ 89,225 $ 86,845 $ 85,938
LIQUID ASSET POSITION
Cash and short-term investments - start of month $3,378,993 $3,257,373 $3,171,533 $3,087,204
Less: cash expenses net of revenue 135,756 99,541 97,652 97,482
Plus: interest income 14,136 13,701 13,323 12,948
---------- ---------- ---------- ----------
Cash and short-term investments - end of month $3,257,373 $3,171,533 $3,087,204 $3,002,670
<PAGE>
<CAPTION>
Total
Revenue: Sept. Oct. Nov. Dec. 1998
<S> <C> <C> <C> <C> <C>
License fees and royalties - new licensees 0 $ 41,667 $ 41,667 $ 41,667 $ 125,000
Patent infringement settlements 0 0 0 0 0
Patent infringement judgments 0 0 0 0 0
---------- ---------- ---------- ---------- ----------
Total revenue from technology $ 0 $ 41,667 $ 41,667 $ 41,667 $ 125,000
Expenses:
Technology royalty - Dr. Shalit $ 12,863 $ 12,863 $ 12,863 $ 12,863 $ 154,356
Salary - Dr. Shalit 5,342 5,342 5,342 8,013 67,795
Other salaries 13,802 13,802 13,802 27,135 189,993
Payroll taxes and benefits 5,058 5,058 5,058 5,058 60,648
Selling and travel expenses 6,000 6,000 16,000 21,000 122,000
Legal fees 17,333 17,333 17,333 17,333 207,996
Consulting fees 0 0 0 0 0
R & D expenses 5,000 5,000 5,000 5,000 60,000
Other expenses 83,291 33,960 33,790 31,664 511,399
---------- ---------- ---------- ---------- ----------
Total expenses 148,689 99,358 109,188 128,066 1,374,187
Less: public company expenses (incl. legal) 54,700 4,870 5,200 4,700 164,080
Less: non-cash expenses 1,706 1,706 1,706 1,706 20,472
---------- ---------- ---------- ---------- ----------
Total technology-related cash expenses $ 92,283 $ 92,782 $ 102,282 $ 121,660 $1,189,635
Less: revenue 0 41,667 41 667 41,667 $ 125,000
---------- ---------- ---------- ---------- ----------
Net cash outlay (income) - technology $ 92,283 $ 51,115 $ 60,615 $ 79,993 $1,064,635
NPV net cash outlay (income) - technology $ 85,503 $ 47,120 $ 55,594 $ 72,994
LIQUID ASSET POSITION
Cash and short-term investments - start of month $3,002,670 $2,868,181 $2,824,234 $2,769,852
Less: cash expenses net of revenue 146,983 55,985 65,815 84,693
Plus: interest income 12,494 12,038 11,434 14,940
---------- ---------- ---------- ----------
Cash and short-term investments - end of month $2,868,181 $2,824,234 $2,769,852 $2,700,099
</TABLE>
<PAGE>
IMATEC LTD.
PRESENT VALUE ANALYSIS
SCENARIO B -STATUS QUO, REVENUE COMMENCING 1998
<TABLE>
<CAPTION>
2000
Revenue: Jan Feb Mar April
<S> <C> <C> <C> <C>
License fees and royalties - new licensees $ 45,833 $ 45,833 $ 45,833 $ 45,833
Patent infringement settlements 0 0 0 0
Patent infringement judgments 0 0 0 0
Total revenue from technology $ 45,833 $ 45,833 $ 45,833 $ 45,833
Expenses:
Technology royalty - Dr. Shalit $ 14,181 $ 14,181 $ 14,181 $ 14,181
Salary - Dr. Shalit 5,609 5,609 5,609 5,609
Other salaries 22,920 22,920 23,107 23,107
Payroll taxes and benefits 5,769 5,769 5,784 5,784
Selling and travel expenses 7,000 7,000 17,000 22,000
Legal fees 18,444 18,444 18,444 18,444
Consulting fees 0 0 0 0
R & D expenses 5,000 5,000 5,000 5,000
Other expenses 29,635 24,965 24,464 25,135
Total expenses 108,558 103,888 113,589 119,260
Less: public company expenses (incl. legal) 4,870 4,870 4,870 4,870
Less: non-cash expenses 1,706 1,706 1,706 1,706
---------- ---------- ---------- ----------
Total technology-related cash expenses 101,982 97,312 107,013 112,684
Less: revenue 45,833 45,833 45,833 45,833
---------- ---------- ---------- ----------
Net cash outlay (income) - technology $ 56,149 $ 51,479 $ 61,180 $ 66,851
NPV net cash outlay (income) - technology $ 47,957 $ 43,745 $ 51,725 $ 56,233
LIQUID ASSET POSITION
Cash and short-term investments - start of month $1,931,273 $1,878,302 $1,829,779 $1,771,354
Less: cash expenses net of revenue 61,019 56,349 66,050 71,721
Plus: interest income 8,047 7,826 7,624 7,381
---------- ---------- ---------- ----------
Cash and short-term investments - end of month $1,878,302 $1,829,779 $1,771,354 $1,707,014
<CAPTION>
Revenue: May June July August
<S> <C> <C> <C> <C>
License fees and royalties - new licensees $ 45,833 $ 45,833 $ 45,833 $ 45,833
Patent infringement settlements 0 0 0 0
Patent infringement judgments 0 0 0 0
---------- ---------- ---------- ----------
Total revenue from technology $ 45,833 $ 45,833 $45, 833 $ 45,833
Expenses:
Technology royalty - Dr. Shalit $ 14,181 $ 14,181 $ 20,833 $ 20,833
Salary - Dr. Shalit 8,414 5,609 0 0
Other salaries 34,660 23,107 28,996 28,996
Payroll taxes and benefits 6,882 5,784 5,805 5,805
Selling and travel expenses 7,000 7,000 7,000 7,000
Legal fees 18,444 18,444 18,444 18,444
Consulting fees 0 0 0 0
R & D expenses 5,000 5,000 5,000 5,000
Other expenses 24,990 27,990 19,218 19,048
Total expenses 119,571 107,115 105,296 105,126
Less: public company expenses (incl. legal) 4,870 4,870 4,870 4,870
Less: non-cash expenses 1,706 1,706 1,706 1,706
---------- ---------- ---------- ----------
Total technology-related cash expenses 112,995 100,539 98,720 98,550
Less: revenue 45,833 45,833 45,833 45,833
---------- ---------- ---------- ----------
Net cash outlay (income) - technology $ 67,162 $ 54,706 $ 52,887 $ 52,717
NPV net cash outlay (income) - technology $ 56,208 $ 45,551 $ 43,813 $ 43,451
LIQUID ASSET POSITION
Cash and short-term investments - start of month $1,707,014 $1,642,095 $1,589,361 $1,538,227
Less: cash expenses net of revenue 72,032 59,576 57,757 57,587
Plus: interest income 7,113 6,842 6,622 6,409
---------- ---------- ---------- ----------
Cash and short-term investments - end of month $1,642,095 $1,589,361 $1,538,227 $1,487,049
<PAGE>
<CAPTION>
Total
Revenue: Sept. Oct. Nov. Dec. 2000
<S> <C> <C> <C> <C> <C>
License fees and royalties - new licensees $ 45,833 $ 45,833 $ 49,583 $ 49,583 $ 557,500
Patent infringement settlements 0 0 0 0
Patent infringement judgments 0 0 0 0
---------- ---------- ---------- ----------
Total revenue from technology $ 45,833 $ 45,833 $ 49,583 $ 49,583 $ 557,500
Expenses:
Technology royalty - Dr. Shalit $ 20,833 $ 20,833 $ 20,833 $ 20,833 $ 210,084
Salary - Dr. Shalit 0 0 0 0 36,459
Other salaries 28,996 28,996 28,996 44,099 338,900
Payroll taxes and benefits 5,738 5,769 5,769 6,893 71,551
Selling and travel expenses 7,000 7,000 17,000 22,000 134,000
Legal fees 18,444 18,444 18,444 18,444 221,328
Consulting fees 0 0 0 0 0
R & D expenses 5,000 5,000 5,000 5,000 60,000
Other expenses 63,989 19,084 19,084 27,731 325,333
----------
Total expenses 150,000 105,126 115,126 145,000 1,397,655
Less: public company expenses (incl. legal) 54,700 4,870 5,200 4,700 108,430
Less: non-cash expenses 1,706 1,706 1,706 1 706 20,472
---------- ---------- ---------- ---------- ----------
Total technology-related cash expenses 93,594 98,550 108,220 138,594 1,268,753
Less: revenue 45,833 45,833 49,583 49,583 557,500
---------- ---------- ---------- ---------- ----------
Net cash outlay (income) - technology $ 47,761 $ 52,717 $ 58,637 $ 89,011 $ 711,253
NPV net cash outlay (income) - technology $ 39,166 $ 43,011 $ 47,598 $ 71,887
LIQUID ASSET POSITION
Cash and short-term investments - start of month $1,487,049 $1,390,785 $1,338,993 $1,280,735
Less: cash expenses net of revenue 102,461 57,587 63,837 93,711
Plus: interest income 6,196 5,795 5,579 5,336
---------- ---------- ---------- ----------
Cash and short-term investments - end of month $1,390,785 $1,338,993 $1,280,735 $1,192,361
</TABLE>
<PAGE>
Exhibit D
---------
IMATEC, LTD.
PROPOSED TRANSACTION - COMPANY CASH OUTFLOWS
SCENARIO A - $0.50 SALE PRICE PER SHARE
35% CAPITAL GAINS TAX RATE
<TABLE>
<CAPTION>
1997 1997 1998 1998 1999 1999
July Dec. June Dec. June Dec.
<S> <C> <C> <C> <C> <C> <C>
Future guaranteed payments:
No. of shares to be sold by Dr. Shalit n/a 128,480 256,959 171,306 171,306 107,066
Assumed market price per share sold n/a $ 0.50 $ 0.50 $ 0.50 $ 0.50 $ 0.50
Proceeds from shares sold n/a 64,240 128,480 85,653 85,653 53,533
Less: capital gains tax @ 35% n/a 22,484 44,968 29,979 29,979 18,737
------ ------ ------ ------ ------
Net proceeds to Dr. Shalit from shares sold 0 41,756 83,512 55,674 55,674 34,796
Guaranteed after-tax amount to Dr. Shalit $300,000 300,000 600,000 400,000 400,000 250,000
Remaining payment to Dr. Shalit, after income taxes @ 47% $300,000 258,244 516,488 344,326 344,326 215,204
(a)Cash outlay by Company: payment to Dr. Shalit, pre-tax $566,038 487,253 974,506 649,671 649,671 406,044
(b)Max. cash outlay by Co., repurchase @ 35% cap. gains 461,538 923,077 615,385 615,385 384,615
NPV of Max. Co. cash payments @ 0.51% per month $566,038 $447,664 $868,414 $561,539 $544,658 $330,178
Total NPV of Maximum Co. payments, 6/30/97 $3,318,491
</TABLE>
IMATEC, LTD.
PROPOSED TRANSACTION - COMPANY CASH OUTFLOWS
SCENARIO B - $1.00 SALE PRICE PER SHARE
35% CAPITAL GAINS TAX RATE
<TABLE>
<CAPTION>
1997 1997 1998 1998 1999 1999
July Dec. June Dec. June Dec.
<S> <C> <C> <C> <C> <C> <C>
Future guaranteed payments:
No of shares to be sold by Dr. Shalit n/a 128,480 256,959 171,306 171,306 107,066
Assumed market price per share sold n/a $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Proceeds from shares sold n/a 128,480 256,959 171,306 171,306 107,066
Less: capital gains tax @ 35% n/a 44,968 89,936 59,957 59,957 37,473
------ ------ ------ ------ ------
Net proceeds to Dr. Shalit from shares sold 0 83,512 167,023 111,349 111,349 69,593
Guaranteed after-tax amount to Dr. Shalit $300,000 300,000 600,000 400,000 400,000 250,000
Remaining payment to Dr. Shalit, after income taxes @ 47% $300,000 216,488 432,977 288,651 288,651 180,407
(a)Cash outlay by Company: payment to Dr. Shalit, pre-tax $576,923 408,468 816,937 544,625 544,625 340,391
(b)Max. cash outlay by Co., repurchase @ 35% cap. gains 461,538 923,077 615,385 615,385 384,615
NPV of Company cash payments $576,923 $396,189 $768,559 $496,970 $482,031 $292,213
Total NPV of Maximum Co. payments, 6/30/97 $3,012,885
</TABLE>
<PAGE>
IMATEC, LTD.
PROPOSED TRANSACTION - COMPANY CASH OUTFLOWS
SCENARIO C - $0.50 SALE PRICE PER SHARE
27% CAPITAL GAINS TAX RATE
<TABLE>
<CAPTION>
1997 1997 1998 1998 1999 1999
July Dec. June Dec. June Dec.
<S> <C> <C> <C> <C> <C> <C>
Future guaranteed payments:
No of shares to be sold by Dr. Shalit n/a 128,480 256,959 171,306 171,306 107,066
Assumed market price per share sold n/a $ 0.50 $ 0.50 $ 0.50 $ 0.50 $ 0.50
Proceeds from shares sold n/a 64,240 128,480 85,653 85,653 53,533
Less: capital gains tax @ 27% n/a 17,345 34,689 23,126 23,126 14,454
-------- -------- -------- -------- --------
Net proceeds to-Dr. Shalit from shares sold 0 46,895 93,790 62,527 62,527 39,079
Guaranteed after-tax amount to Dr. Shalit $300,000 300,000 600,000 400,000 400,000 250,000
Remaining payment to Dr. Shalit, after income taxes @ 47% $300,000 253,105 506,210 337,473 337,473 210,921
(a)Cash outlay by company: payment to Dr. Shalit, pre-tax $576,923 477,556 955,113 636,742 636,742 397,964
(b)Max. cash outlay by Co., repurchase @ 27% cap. gains 410,959 821,918 547,945 547,945 342,466
NPV of Company cash payments $576,923 $398,605 $773,245 $500,000 $484,970 $293,994
Total NPV of Maximum Co. payments, 6/30/97 $3,027,737
</TABLE>
IMATEC, LTD.
PROPOSED TRANSACTION - COMPANY CASH OUTFLOWS
SCENARIO D - $1.00 SALE PRICE PER SHARE
27% CAPITAL GAINS TAX RATE
<TABLE>
<CAPTION>
1997 1997 1998 1998 1999 1999
July Dec. June Dec. June Dec.
<S> <C> <C> <C> <C> <C> <C>
Future guaranteed payments:
No of shares to be sold by Dr. Shalit n/a 128,480 256,959 171,306 171,306 107,066
Assumed market price per share sold n/a $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Proceeds from shares sold n/a 128,480 256,959 171,306 171,306 107,066
Less: capital gains tax @ 27% n/a 34,690 69,379 46,253 46,253 28,908
-------- -------- -------- -------- --------
Net proceeds to Dr. Shalit from shares sold 0 93,790 187,580 125,053 125,053 78,158
Guaranteed after-tax amount to Dr. Shalit $300,000 300,000 600,000 400,000 400,000 250,000
Remaining payment to Dr. Shalit, after income taxes @ 47% $300,000 206,210 412,420 274,947 274,947 171,842
(a)Cash outlay by company: payment to Dr. Shalit, pre-tax $566,038 389,075 778,151 518,767 518,767 324,230
(b)Max. cash outlay by Co., repurchase @ 27% cap. gains 410,959 821,918 547,945 547,945 342,466
NPV of Company cash payments $566,038 $377,379 $732,070 $473,375 $459,145 $278,339
Total NPV of Maximum Co. payments, 6/30/97 $2,886,346
</TABLE>
Notes:
1. Income tax and capital gains tax rates include Federal, New York State and
New York City @ maximum.
2. Cash outlay figures in bold type are the lowest amount required to be paid
at each payment date.
<PAGE>
Exhibit E
---------
IMATEC, LTD.
PUBLIC SALE VS. COMPANY REPURCHASE ANALYSIS
EQUILIBRIUM PER-SHARE PRICE (1)
<TABLE>
<CAPTION>
@ 35% Rate
$0.66
<S> <C> <C> <C> <C>
Example calculations:
No. shares 128,480 128,480 128,480 128,480
Public price per share $ 0.66 $ 0.25 $ 1.00 $ 2.00
Scenario: Public sale of shares
Net proceeds to Dr. Shalit from shares sold $ 84,797 $ 32,120 $128,480 $256,960
Less: capital gains tax @ 35% $ 29,679 $ 11,242 $ 44,968 $ 89,936
-------- -------- -------- --------
Net proceeds to Dr. Shalit from shares sold $ 55,118 $ 20,878 $ 83,512 $167,024
Gtd. Amount $300,000 $300,000 $300,000 $300,000
Remaining payment to Dr. Shalit, after income taxes @ 47% $244,882 $279,122 $216,488 $132,976
Cash outlay by company: payment to Dr. Shalit, pre-tax $462,042 $526,645 $408,468 $250,898
Scenario: Company repurchase of shares
Gtd. Amount $300,000 $300,000 $300,000 $300,000
Gtd. Amount, including capital gains tax $461,538 $461,538 $461,538 $461,538
<CAPTION>
@ 27% Rate
$0.88
<S> <C> <C> <C> <C>
Example calculations:
No. shares 128,480 128,480 128,480 128,480
Public price per share $ 0.66 $ 0.25 $ 1.00 $ 2.00
Scenario: Public sale of shares
Net proceeds to Dr. Shalit from shares sold $113,062 $ 32,120 $128,480 $256,960
Less: capital gains tax @ 35% 30,527 8,672 34,690 69,379
-------- -------- -------- --------
Net proceeds to Dr. Shalit from shares sold $ 82,536 $ 23,448 $ 93,790 $187,581
Gtd. Amount $300,000 $300,000 $300,000 $300,000
Remaining payment to Dr. Shalit, after income taxes @ 47% $217,464 $276,552 $206,210 $112,419
Cash outlay by company: payment to Dr. Shalit, pre-tax $410,310 $521,797 $389,075 $212,112
Scenario: Company repurchase of shares
Gtd. Amount $300,000 $300,000 $300,000 $300,000
Gtd. Amount, including capital gains tax $410,959 $410,959 $410,959 $410,959
</TABLE>
(1) if per share price is less, Company pays less if it repurchases shares and
Dr. Shalit pays capital gains rate;
if per share price is more, Company would pay less if Dr. Shalit sells in
the public market and Dr. Shalit pays income rate on deficiency payment.
(2) based on current passed Senate and House bills, there is a possibility of
Federal capital gains cut to 20% from 28%
<PAGE>
Exhibit F
3 Equity H P
COMPOSITE/CLOSE/PRICE TABLE PAGE 1 / 3
IMATEC LTD (IMEC US) PRICE 11/16 R $ DELAYED
HI 6 1/4 ON 1/14/97
RANGE 1/2/97 TO 7/2/97 PERIOD D (D-W-M-Q-Y) AVE 3.2319 VL 11487
T (T=Trd, B=Bid, A=ASK, W=Wa) LOW 5/16 ON 5/29/97
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DATE PRICE VOLUME DATE PRICE VOLUME DATE PRICE VOLUME
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
F F 6/13 F 5/23 13/32 1300
T T 6/12 T 5/22 1/2 3000
W 7/ 2 7/16 1000 W 6/11 1/2 1000 W 5/21 7/16 4000
T 7/ 1 T 6/10 1/2 500 T 5/20 7/16 4500
M 6/30 7/16 500 M 6/ 9 1/2 1500 M 5/19 11/16 7100
F 6/27 F 6/ 6 1/2 7900 F 5/16 7/8 21500
T 6/26 7/16 8400 T 6/ 5 1000 T 5/15 7/8 7000
W 6/25 W 6/ 4 1/2 3000 W 5/14 1 3/16 14500
T 6/24 T 6/ 3 7/16 10500 T 5/13 1 1/16 2200
M 6/23 1/2 2400 M 6/ 2 1/2 59400 M 5/12 1 7/16 3100
F 6/20 7/16 900 F 5/30 7/16 5600 F 5/ 9 1 7/16 2200
T 6/19 7/16 17000 T 5/29 L 5/16 40000 T 5/ 8 1 1/2 10000
W 6/18 W 5/28 1/2 19000 W 5/ 7 1 45/64 3000
T 6/17 1/2 3000 T 5/27 11/32 13500 T 5/ 6
M 6/16 M 5/26 M 5/ 5
- ------------------------------------------------------------------------------------------------------------------------------------
Bloomberg-all rights reserved. Frankfurt: 69-920410 Hong Kong: 2-521-3000 London: 171-330-7500 New York: 212-318-2000
Princeton: 609-279-3000 Singapore: 226-3000 Sydney: 2-9777-8600 Tokyo: 3-3201-8900 Sao Paulo: 11-3048-4500
G206-259-1 10-Jul-97 14:31:57
</TABLE>
<PAGE>
DG48 Equity H P
COMPOSITE/CLOSE/PRICE TABLE PAGE 2 / 3
IMATEC LTD (IMEC US) PRICE 11/16 R $ DELAYED
HI 6 1/4 ON 1/14/97
RANGE 1/2/97 TO 7/2/97 PERIOD D (D-W-M-Q-Y) AVE 3.2319 VL 11487
T (T=Trd, B=Bid, A=ASK, W=Wa) LOW 5/16 ON 5/29/97
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DATE PRICE VOLUME DATE PRICE VOLUME DATE PRICE VOLUME
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
F 5/ 2 F 4/11 3 6500 F 3/21 3 3/8 39200
T 5/ 1 1 21/32 4000 T 4/10 3 1/4 1000 T 3/20 3 3/8 16300
W 4/30 W 4/ 9 W 3/19 3 7/8 6500
T 4/29 1 9/16 3000 T 4/ 8 3 1/4 10000 T 3/18 4 1/8 8500
M 4/28 1 7/8 1900 M 4/ 7 2 3/4 36800 M 3/17 4 1/8 4900
F 4/25 1 9/16 41500 F 4/ 4 F 3/14 4 1/8 2900
T 4/24 1 5/8 8000 T 4/ 3 3 20200 T 3/13 4 1/8 4400
W 4/23 1 7/16 4300 W 4/ 2 3 3/16 1000 W 3/12 4 1/4 2700
T 4/22 1 1/2 2900 T 4/ 1 3 11100 T 3/11 4 1/8 6400
M 4/21 1 5/8 11300 M 3/31 3 1/8 17300 M 3/10 4 5/8 18400
F 4/18 2 3/4 15000 F 3/28 F 3/ 7 4 3/4 31800
T 4/17 2 7/8 2000 T 3/27 3 23/64 29300 T 3/ 6 3 7/8 9300
W 4/16 3 13100 W 3/26 3 1/8 23000 W 3/ 5 4 1/4 3000
T 4/15 3 3/8 10500 T 3/25 3 1/2 13800 T 3/ 4 4 3800
M 4/14 2 5/8 5800 M 3/24 3 5/8 500 M 3/ 3 4 14900
- ------------------------------------------------------------------------------------------------------------------------------------
Bloomberg-all rights reserved. Frankfurt: 69-920410 Hong Kong: 2-521-3000 London: 171-330-7500 New York: 212-318-2000
Princeton: 609-279-3000 Singapore: 226-3000 Sydney: 2-9777-8600 Tokyo: 3-3201-8900 Sao Paulo: 11-3048-4500
G206-259-1 10-Jul-97 14:31:58
</TABLE>
<PAGE>
DG48 Equity H P
COMPOSITE/CLOSE/PRICE TABLE PAGE 3 / 3
IMATEC LTD (IMEC US) PRICE 11/16 R $ DELAYED
HI 6 1/4 ON 1/14/97
RANGE 1/2/97 TO 7/2/97 PERIOD D (D-W-M-Q-Y) AVE 3.2319 VL 11487
T (T=Trd, B=Bid, A=ASK, W=Wa) LOW 5/16 ON 5/29/97
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DATE PRICE VOLUME DATE PRICE VOLUME DATE PRICE VOLUME
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
F 2/28 4 1/2 24900 F 2/ 7 5 3/4 6700 F 1/17 5 7/8 13900
T 2/27 4 3/8 28100 T 2/ 6 5 7/16 37600 T 1/16 5 1/2 18300
W 2/26 4 1/8 37100 W 2/ 5 5 1/2 38600 W 1/15 6 1/8 44700
T 2/25 4 43900 T 2/ 4 5 1/8 25500 T 1/14 H6 1/4 26000
M 2/24 4 60700 M 2/ 3 5 1/8 12200 M 1/13 5 3/4 8500
F 2/21 4 5/8 2500 F 1/31 5 1/8 2000 F 1/10 5 7/8 11200
T 2/20 4 7/8 14700 T 1/30 5 3000 T 1/ 9 5 7/8 17000
W 2/19 5 3900 W 1/29 5 1/8 1000 W 1/ 8 6 74200
T 2/18 5 1/8 9500 T 1/28 5 5/16 2000 T 1/ 7 6 22400
M 2/17 M 1/27 5 1/8 10200 M 1/ 6 6 21500
F 2/14 5 4900 F 1/24 5 1/4 7900 F 1/ 3 4 3/4 1300
T 2/13 5 3000 T 1/23 5 1/4 19500 T 1/ 2 4 3/4 500
W 2/12 5 1000 W 1/22 5 5/16 7600
T 2/11 5 4000 T 1/21 5 3/4 11700
M 2/10 5 3/8 16400 M 1/20 5 5/8 15500
- ------------------------------------------------------------------------------------------------------------------------------------
Bloomberg-all rights reserved. Frankfurt: 69-920410 Hong Kong: 2-521-3000 London: 171-330-7500 New York: 212-318-2000
Princeton: 609-279-3000 Singapore: 226-3000 Sydney: 2-9777-8600 Tokyo: 3-3201-8900 Sao Paulo: 11-3048-4500
G206-259-1 10-Jul-97 14:32:00
</TABLE>
<PAGE>
IMATEC, LTD.
Annual Meeting of Stockholders - __________, 1997
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned stockholder in Imatec, Ltd. (the "Corporation") hereby
constitutes and appoints Neal Factor and Josef Weiss, and each of them, his true
and lawful attorneys and proxies, with full power of substitution in and for
each of them, to vote all shares of the Corporation which the undersigned is
entitled to vote at the Annual Meeting of stockholders to be held at the offices
of the Company, 150 East 58th Street, New York, New York, on ______________,
December __, 1997, ________ ___.m., Eastern Daylight Savings Time, or at any
postponement or adjournment thereof, on any and all of the proposals contained
in the Notice of the Annual Meeting of stockholders, with all the powers the
undersigned would possess if present personally at said meeting, or at any
postponement or adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR THE NOMINEES LISTED UNDER PROPOSAL 2.A. ON THE REVERSE SIDE AND FOR THE
APPROVAL OF PROPOSALS 1 and 3.
(Continued and to be signed and dated on the other side)
<PAGE>
The Directors recommend a vote FOR Proposals 1, 2A and 3 Please mark
your votes
[X] as this
example
---------------
COMMON
PROPOSAL Proposal to approve the sale of
1. the Company's current business FOR AGAINST ABSTAIN
to Dr. Hanoch Shalit, the
Company's President, Chief [ ] [ ] [ ]
Executive Officer, Chairman of
the Board and Secretary and
ratification of the Board's actions
in connection therewith
IF YOU VOTE FOR PROPOSAL 1, PLEASE COMPLETE THE FOLLOWING:
PROPOSAL
2.A. Election of Directors - FOR All nominees WITHHOLD
Alternative A listed (except a AUTHORITY in vote
marked in the for all nominees
contrary, see listed at left
instruction below)
Clifford A. Brandeis, William M. [ ] [ ]
Thompson and John M. Thompson
IF YOU VOTE AGAINST PROPOSAL 1, PLEASE COMPLETE THE FOLLOWING.
IF PROPOSAL 1 IS NOT APPROVED THE FOLLOWING PERSONS WILL BE
THE NOMINEES FOR DIRECTOR:
PROPOSAL
2.B. Election of Directors - FOR All nominees WITHHOLD
Alternative A listed (except a AUTHORITY in vote
marked in the for all nominees
contrary, see listed at left
instruction below)
Dr. Hanoch Shalit, Neal Factor,
Steven Ai, Simon Cross and Josef [ ] [ ]
Weiss
PROPOSAL Proposal to ratify and approve the
3. appointment of Most Horowitz & FOR AGAINST ABSTAIN
Company as independent public
accountants for the fiscal year [ ] [ ] [ ]
ending December 31, 1997
INSTRUCTION: To withhold authority to vote for any individual nominee, line
through the name of the nominee
The above named proxies are granted the authority, in their discretion, to act
upon such other matters as may properly come before the meeting or any
postponement or adjournment thereof.
Dated , 1997_________________________________________________
Signature(s) ________________________________________________
Signatures __________________________________________________
Please sign exactly as your name appears and return this
immediately in the enclosed stamped self-addressed envelope
