<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
/X/ Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 1995,
or
/ / Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period
from ________________ to _________________
Commission File Number 0-12943
IMRE CORPORATION
(Exact Name of Registrant as specified in its charter)
DELAWARE 22-2389839
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
401 Queen Anne Avenue North, Seattle, WA 98109
(Address of principal executive offices) (zip code)
(206) 298-9400
(Registrant's telephone number including area code)
__________________________________
Indicate by check (X) whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No____
----
At October 31, 1995, 18,579,148 shares of common stock of the
Registrant were outstanding.
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TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
Consolidated Balance Sheets as of
September 30, 1995 and December 31, 1994 .................... 3
Consolidated Statements of Operations for the quarters
and nine months ended September 30, 1995 and 1994 ........... 4
Consolidated Statements of Cash Flows for the
nine months ended September 30, 1995 and 1994 ............... 5
Notes to Consolidated Financial Statements ....................... 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................... 9
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K ........................ 13
Signatures ....................................................... 14
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IMRE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
(unaudited) (audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,372,330 $ 3,670,616
Accounts receivable:
Trade 62,448 418,399
Other 41,432 61,398
Inventories 1,289,574 1,494,311
Prepaid expenses 189,484 208,560
Total current assets 2,955,268 5,853,284
Property and equipment, net 1,857,943 1,347,532
Debt issuance costs, net 220,827 520,197
Total assets $ 5,034,038 $ 7,721,013
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 436,284 $ 610,478
Accrued compensation 166,879 266,395
Accrued liabilities 406,672 606,609
Current portion of capital lease obligation
and notes payable 26,242 9,053
Total current liabilities 1,036,077 1,492,535
Convertible debentures (Note 7) 2,045,000 4,245,000
Capital lease obligation and notes payable,
net of current portion 30,376 2,759
Commitments and contingencies (Note 5)
Shareholders' equity:
Common stock, $.02 par value; authorized 35,000,000
shares; issued and outstanding, 18,417,883 and
17,000,012 shares at September 30, 1995 and
December 31, 1994 368,358 340,000
Additional paid-in capital 42,427,886 38,856,101
42,796,244 39,196,101
Accumulated deficit (40,873,659) (37,215,382)
Total shareholders' equity 1,922,585 1,980,719
Total liabilities and shareholders' equity $ 5,034,038 $ 7,721,013
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
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IMRE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Quarters Ended SepNine Months Ended September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenue $ 34,559 $ 1,614,192 $ 4,095,040 $ 4,137,119
Interest income 36,018 27,220 98,437 46,321
70,577 1,641,412 4,193,477 4,183,440
Costs and Expenses:
Production costs 401,581 974,419 1,459,860 2,057,375
Sales and marketing 77,274 809,545 745,858 3,015,047
Research and development 719,749 475,851 2,441,307 1,264,164
General and administrative 440,708 730,063 1,536,682 2,041,297
Interest 76,728 79,309 232,662 139,332
1,716,040 3,069,187 6,416,369 8,517,215
Purchase of in process research
and development (Note 2) 625,000
Debt conversion expense (Note 7) 810,386 810,386
Total operating expenses 2,526,426 3,069,187 7,851,755 8,517,215
Net loss $ (2,455,849) $ (1,427,775) $ (3,658,278) $ (4,333,775)
Net loss per share (Note 3) $ (0.14) $ (0.09) $ (0.21) $ (0.29)
Weighted average number
of shares outstanding
during the period 17,665,314 15,119,555 17,284,155 15,093,105
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
4
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IMRE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1995 1994
<S> <C> <C>
DECREASE IN CASH
AND CASH EQUIVALENTS:
Cash flows from operating activities:
Receipts from customers $ 4,440,834 $ 4,250,774
Interest received 98,437 40,658
Payments to suppliers and employees (5,777,092) (8,808,293)
Interest paid (318,401) (7,116)
Net cash used by operating activities (1,556,222) (4,523,977)
Cash flows from investing activities:
Purchase of equipment (711,437) (416,442)
Proceeds from sale of equipment 7,000
Other (16,380)
Net cash used by investing activities (704,437) (432,822)
Cash flows from financing activities:
Payment of capital lease obligation (18,315)
Proceeds from issuance of convertible debentures 4,245,000
Debt issuance costs (81,977)
Debt conversion costs (7,500)
Notes payable, net (11,812) (7,412)
Net proceeds from issuance of common stock 14,813
Net cash (used) provided by financing activities (37,627) 4,170,424
Net decrease in cash and cash equivalents: (2,298,286) (786,375)
Cash and cash equivalents:
Beginning of period 3,670,616 2,283,583
End of period $ 1,372,330 1,497,208
RECONCILIATION OF NET LOSS TO NET
CASH USED BY OPERATING ACTIVITIES:
Net loss $ (3,658,278) $ (4,333,775)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 302,481 231,426
Loss on disposal of fixed assets 16,242
Common stock issued to 401(k) plan 85,839 96,357
Common stock issued for services and expenses 87,545
Common stock issued for purchase of
in process research and development 625,000
Debt conversion expense 810,386
Changes in current assets and liabilities, net 174,563 (517,985)
$ (1,556,222) (4,523,977)
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
5
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IMRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
_____________________________
1. BASIS OF PRESENTATION AND BUSINESS OF THE COMPANY
The accompanying unaudited consolidated financial statements should be
read in conjunction with the audited consolidated financial statements
for the year ended December 31, 1994. In the opinion of management, all
adjustments necessary for a fair presentation of the accompanying
unaudited financial statements are reflected herein. All such
adjustments are normal and recurring in nature. Interim results
are not necessarily indicative of results for the full year.
IMRE Corporation (the "Company") is engaged in the business of
developing, manufacturing and bringing to market medical devices which
restore immune system response in autoimmune diseases, organ
transplantation and certain cancers.
The U. S. Food and Drug Administration ("FDA") approved the Company's
first product, the PROSORBAr column, for commercial sale on December
23, 1987, for the treatment of patients with idiopathic thrombocytopenic
purpura (ITP), an immune-mediated bleeding disorder. The product is
approved for the removal of immunoglobulin G (IgG) and circulating
immune complexes containing IgG from plasma of patients with ITP with
platelet counts below 100,000/mm3. The Company has recently completed a
clinical trial using the PROSORBAr column for therapy in rheumatoid
arthritis and is developing a rheumatoid arthritis prognostic assay.
The Company is planning to begin a pivotal clinical trial in rheumatoid
arthritis in early 1996. IMRE is currently to conducting a pilot
clinical trial using the PROSORBAr column for therapy in kidney
transplantation.
2. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, IMRE Services Corporation and IMRE
Europe, Ltd. All intercompany accounts and transactions have been eliminated.
During the quarter ended June 30, 1995, the Company and CELx Corporation
("CELx"), the Company's former majority owned subsidiary, agreed to the
merger of CELx into the Company and the exchange of shares of CELx held by
persons other than the Company into an aggregate of 312,500 shares of the
Company's common stock. The dissolution of CELx resulted in a charge of
$625,000 recorded as purchased in process research and development. The
charge was based on the fair market value of the Company's common stock.
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3. NET LOSS PER SHARE
The computation of net loss per share is based on the weighted
average number of shares of common stock outstanding for each period.
Options and warrants have not been considered in the calculation of net
loss per share inasmuch as they would have the effect of decreasing net loss
per share.
4. INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
<S> <C> <C>
Raw materials and components $ 518,063 $ 571,800
Work in progress 658,544 884,373
Finished goods 112,967 38,138
------------- -------------
$1,289,574 $ 1,494,311
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
Employment Agreements. The Company entered into an employment
agreement as of September 30, 1994 with a new Chief Executive Officer.
The Agreement provides for specified compensation through December 31,
1997 (the ending period of the agreement) and the granting of options
to purchase 750,000 shares of the Company's common stock at the fair
market value on the date of grant. Options to purchase 250,000
shares of the Company's common stock were vested immediately, 250,000
vested on September 30, 1995, with the remaining options to vest on
September 30, 1996. Such options will vest immediately upon a change of
control of the Company, which does not preserve the continuation of the
Chief Executive Officer's duties. The agreement also provides for a
lump sum payment equal to the greater of one year's base salary or the
balance of salary due for the term of the agreement in the event of a
termination of employment, without cause, as defined.
The Company's Executive Vice President has a six month notice of
termination employment arrangement.
PATENT CONTINGENCY. In July 1993, the Company received a claim that
its PROSORBAr column infringes an issued patent. The Company has reviewed
this matter with patent counsel and has been advised that the claims of the
patent allegedly infringed by the Company are invalid or unenforceable
or not infringed. The Company does not expect the resolution of this
issue to have a material impact on its financial position or
results of operations.
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6. DISTRIBUTION AGREEMENT
On February 15, 1994, the Company entered into a 10-year exclusive
distribution agreement, with certain "take or pay" and purchase
commitments, with Baxter Healthcare Corporation ("Baxter") granting
distribution rights of its PROSORBAr column in the United States and
Canada for the treatment of thrombocytopenia and the first right
to negotiate for new PROSORBAr column indications. Baxter assumed
its sales and distribution responsibilities on April 2, 1994. Baxter, at
its own expense, provided sales and marketing support for the sale of the
product during the term of the agreement, however, the Company was
to provide significant marketing and promotional support to Baxter for
the first three years of the agreement. The Company no longer maintains a
domestic sales force.
The "take or pay" commitments and purchase minimums were primarily
subject to the Company having FDA product approval for immune
thrombocytopenic purpura and the lack of any new significant
competitive technology being introduced before October 1995 to the
thrombocytopenia therapy marketplace. The Company received a response from
the FDA in January 1995 to a Pre-market Application (PMA) supplement
filed in March 1993 requesting the name of the Company's approved
indication be changed from idiopathic thrombocytopenic purpura to
immune thrombocytopenic purpura. The request was made by the Company as it
believes the two names are used interchangeably by the medical community.
The FDA's response denied the Company's request for such a change.
As a result of the FDA response, Baxter exercised its right to
re-negotiate minimums in February 1995. In March 1995, the two companies
amended the agreement whereby Baxter: 1) made a take-or-pay payment for
the first sales year of $3.0 million on March 31, 1995 compared to the
original $3.5 million due, 2) agreed to purchase $1.0 million of
product during the second quarter of 1995, 3) released the Company from
its obligation to provide marketing and promotional support for the
second and third years of the agreement, 4) gave IMRE the right to
co-market with Baxter, 5) relinquished its first right to negotiate for
new PROSORBAr column indications, and 6) agreed under certain
circumstances, to provide advance payments to the Company for Baxter's 1996
purchases. IMRE agreed to eliminate purchase minimums and the
take-or-pay concept included in the original agreement and freed Baxter
to pursue competing thrombocytopenia therapies. The term of the
agreement remains ten years and consistent with the original
agreement, both companies have agreed to review the terms at the end of
the third year. Both companies have the right to terminate the
agreement as of September 30, 1997 if the parties are unable to agree on
terms for the remainder of the agreement or based on performance
through September 30, 1997.
7. CONVERTIBLE DEBENTURES
In September 1995, the Company completed an exchange offering to
holders of the Company's 7% Convertible Debentures due March 31, 2001 (the
"Convertible Debentures"). The Company offered to exchange the Convertible
Debentures for restricted common stock at $2.25 per share compared to their
original conversion price of $2.875 per share for registered common stock.
Of the original $4,245,000 outstanding principal amount, $2,200,000 of the
Convertible Debentures were converted. The Company recorded a non-cash
expense of $810,000 which represents the fair market value of the increased
number of shares issued under the terms of the offering compared to the
original conversion terms. Subsequent to September 30, 1995, an additional
$700,000 of Convertible Debentures were converted into common stock at the
original conversion price. For substantially all Convertible Debentures that
were converted, the interest accrued up to the date of conversion was paid
through the issuance of common stock at either $2.25 per share or $2.875 per
share.
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital as of September 30, 1995, and December 31,
1994, was $1.92 million and $4.36 million, respectively. The
reduction in working capital since December 31, 1994 is principally
attributable to the net loss for the period and capital expenditures.
The principal changes in the components of working capital since
December 31, 1994 were a $2.30 million decrease in cash resulting from
the cash expenditures for operating expenses and capital expenditures
exceeding the cash receipts from customers for the nine months ended
September 30, 1995, a decrease of accounts receivable, a decrease in work
in process inventory, and a decrease in accounts payable and accrued
liabilities. The decrease in accounts payable is primarily a result
of the Company's reduced operating expenses. The decrease in accrued
liabilities is primarily a result of payments made for patient treatment
costs for the Company's current clinical trial using the PROSORBAr
column for therapy in rheumatoid arthritis and payment of accrued
interest in May 1995 related to the Company's 7% Convertible Debentures.
The Company expects to incur further operating losses until the
Company can obtain marketing approval from the FDA for additional
disease indications for the PROSORBAr column or until sales to the
Company's North American distributor, Baxter Healthcare Corporation, for
the PROSORBAr column for its existing indication of idiopathic
thrombocytopenic purpura increase significantly. A clinical trial has
been completed using the PROSORBAr column for rheumatoid arthritis
therapy to obtain the necessary clinical data to apply to the FDA to
obtain approval for a pivotal clinical trial. The pivotal clinical
trial is expected to begin in early 1996. A successful pivotal clinical
trial would be necessary to obtain marketing approval from the FDA. The
Company has also begun a pilot clinical study in kidney transplantation.
The Company requires additional financing in order to fund the
completion of such clinical trials, initiate clinical trials using the
PROSORBAr column in other diseases and apply the Company's technology
to applications beyond the PROSORBAr column including the development of
its diagnostic business. The Company is seeking corporate partners to
fund additional trials in rheumatoid arthritis and kidney transplantation.
9
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The Company's current cash position, and Baxter releasing the
Company from its former obligation to provide marketing and promotional
support for the second and third years of the distribution agreement
will provide the Company with sufficient funds to support operations into
the early part of the first quarter of 1996. The Company is currently
seeking additional sources of financing to meet its short-term and
long-term liquidity needs. Such sources may include equity financing and/or
financing from potential corporate partners.
Results of Operations
Three months ended September 30, 1995. Third quarter revenue
was primarily from $35,000 of product sales to international
customers. For the same period in 1994, the Company had $1.61
million of product sales primarily to Baxter. Consistent with the amended
agreement, the Company did not make any shipments to Baxter during the
third quarter of 1995 and does not expect to make any further shipments to
Baxter for the fourth quarter of 1995.
Total operating expenses for the quarter ended September 30, 1995,
excluding debt conversion expense decreased 44.1% to $1.72 million from
$3.07 million for the same period in 1994. Production costs
decreased 58.8% to $0.40 million compared to $0.97 million in 1994
primarily as a result of very few shipments in 1995 compared to 1994.
The Company did not produce any product during the third quarter of
1995 and production costs primarily represent fixed manufacturing labor
and overhead costs.
Sales and marketing expenses decreased 90.5% to $77,000 from
$0.81 million for the same period in 1994. Such expenses decreased
because Baxter has provided complete sales and marketing support for
the sale of the product since April 1, 1995 compared to partial support
for the same period in 1994. The Company no longer maintains a sales
force. Sales and marketing expenses are comprised primarily of personnel
costs associated with business development efforts and international
customer support.
Research and development expenses increased 51.3% to $0.72 million
compared to $0.48 million for the same period in 1994. The increase is
primarily a result of expenses incurred for: 1) the Company's recently
completed clinical trial using the PROSORBAr column for therapy in
rheumatoid arthritis, 2) development of the Company's proprietary
10
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genetic screening diagnostic test used to predict which rheumatoid
arthritis patients will develop the severe form of the disease, and 3) the
Company's current clinical trial using the PROSORBAr column in kidney
transplantation. The Company was not conducting a clinical trial
for the same period in 1994 and the diagnostic test technology was
obtained by the Company in the fourth quarter of 1994.
General and administrative expenses decreased 39.6% to $0.44 million
compared to $0.73 million for the same period in 1994. The decrease is
principally a result of reduced professional services and personnel
expenses compared to the same period in 1994.
The Company recognized a non-recurring non-cash expense of $0.81
million, in the third quarter of 1995, related to IMRE's completion of an
exchange offering to holders of the Company's 7% Convertible Debentures due
March 31, 2001. The Company offered to exchange the convertible
debentures for restricted common stock at $2.25 per share compared to
their original conversion price of $2.875 per share for registered common
stock. Of the original $4,245,000 outstanding principal amount,
$2,200,000 of the Convertible Debentures were converted. The non-recurring
non-cash expense represents the fair market value of the increased number
of shares issued under the terms of the offering compared to the original
conversion terms. Subsequent to September 30, 1995, an additional
$700,000 of Convertible Debentures were converted into common stock at
the original conversion price. This leaves IMRE with $1,345,000 of 7%
Convertible Debentures due March 31, 2001 outstanding which improves the
balance sheet by reducing debt and increasing equity, as well as
reducing the Company's interest obligation.
Interest expense is primarily related to the 7% Convertible Debentures
issued in April 1994 and due March 31, 2001.
The decrease in operating expenses offset by the decrease in revenue
resulted in a net loss of $2.46 million in 1995 compared to a net loss of
$1.43 million for the same period in 1994.
Nine Months Ended September 30, 1995. For the nine months ended
September 30, 1995, the Company reported revenue of $4.10 million, a
decrease of 1.0%, from the revenue of $4.14 million reported in the same
period in 1994. The revenue for 1995 includes the $3.0 million
take-or-pay payment made by Baxter in March 1995.
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Total operating expenses decreased 24.7% from $8.52 million in 1994
to $6.42 million in 1995, excluding the purchase of in process research
and development and the debt conversion expense. The decrease is primarily
a result of a decrease in sales and marketing expenses which were
partially offset by an increase in research and development expenses.
Sales and marketing expenses decreased because Baxter has provided
complete sales and marketing support for the sale of the product since
April 1, 1995 compared to partial support for the same period in 1994.
The Company no longer maintains a sales force. Sales and marketing
expenses are comprised primarily of personnel costs associated with
business development efforts and international customer support.
The increase in research and development expenses are primarily
a result of expenses incurred for: 1) the Company's recently completed
clinical trial using the PROSORBAr column for therapy in rheumatoid
arthritis, 2) development of the Company's proprietary genetic screening
diagnostic test used to predict which rheumatoid arthritis patients will
develop the severe form of the disease, and 3) the Company's current
clinical trial using the PROSORBAr column in kidney transplantation.
The Company was not conducting a clinical trial for the same period in
1994 and the diagnostic test technology was obtained by the Company in the
fourth quarter of 1994.
The Company reported a net loss for the nine months ended September
30, 1995 of $3.66 million, compared to $4.33 million in 1994. The decreased
net loss is primarily a result of a decrease of operating expenses which
were partially offset by the non-recurring non-cash charge for IMRE's
purchase in the second quarter of 1995 of the minority interest of
CELx, its former majority owned diagnostics subsidiary and the debt
conversion expense noted above.
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PART II
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Description of
No. Exhibit
10.1 September 1995 Exchange Agreement between the Company
and certain holders of its 7% Convertible Debentures
due March 31, 2001.
Exhibit 10.1 to this Form 10-Q for the quarter ended
September 30, 1995.
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IMRE Corporation
November 13, 1995 Martin D. Cleary
--------------------- Chief Executive Officer and President
Date (Principal Executive Officer)
November 13, 1995 Alex P. de Soto
--------------------- Vice President,
Date Chief Financial Officer
(Chief Accounting and
Financial Officer)
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EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT is made as of ____________, 1995 by and between
IMRE CORPORATION, a Delaware corporation (hereinafter referred to as the
"Company") and the individual or entity whose name and signature appear on
the signature page below (hereinafter referred to as "Exchanger").
WHEREAS, Exchanger is the owner and holder of the Company's 7%
Convertible Debentures due March 31, 2001 in the principal amount shown
beneath Exchanger's signature and address on the signature page below (the
"Convertible Debentures"); and
WHEREAS, the Company and the Exchanger desire to exchange shares of the
Company's common stock, par value $0.02 per share (the "Common Stock") for
the Convertible Debentures (such exchange being hereinafter referred to as
the "Debt Exchange"), subject to the terms and conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, agreements and conditions hereinafter set forth, the parties
hereto hereby agree as follows:
SECTION 1. EXCHANGE OF SECURITIES.
1.1 EXCHANGE OF SECURITIES. In reliance upon the representations and
warranties made herein and subject to the terms and conditions hereof: (a)
Exchanger hereby assigns and tenders the Convertible Debentures to the
Company in exchange for Common Stock of the Company, and the Company agrees
to issue Common Stock in exchange for the Convertible Debentures at the
Closing (as herein defined); and (b) if Exchanger elects by signature in the
space below, Exchanger hereby assigns and tenders to the Company Exchanger's
right to receive all interest accrued or to accrue on the Convertible
Debentures up to but not including the Closing Date (the "Accrued Interest"),
and the Company agrees to issue Common Stock in exchange for the Accrued
Interest at the Closing. If Exchanger does not elect by signature in the
space below to the exchange of Accrued Interest for Common Stock, the Company
will pay the Accrued Interest to Exchanger when due under and in accordance
with the terms of the Convertible Debentures.
_____________________________________
Signature of Exchanger electing to
exchange Accrued Interest for Common Stock
By__________________________________
Title:
1.2 EXCHANGE RATIO. The Company agrees that at the Closing it will
issue to Exchanger one (1) share of Common Stock for each $2.25 of (a)
principal amount of the Convertible Debentures and (b) Accrued Interest, if
applicable. The Company will have the right to pay cash to Exchanger in lieu
of issuing fractional shares. The aggregate of such shares to be issued to
Exchanger is referred to hereinafter as the "Shares."
1.3 EXPIRATION DATE. Exchanger acknowledges and understands that this
Agreement shall be effective only if signed by the Exchanger and returned to
the Company prior to 12:00 midnight ,
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Seattle time, on September 15, 1995 (the "Expiration Date"), subject to
extension of the Expiration Date by the Company.
1.4 WITHDRAWAL RIGHTS. Notwithstanding Section 1.1 above, Exchanger
may withdraw Exchanger's assignment and tender of Convertible Debentures and
Accrued Interest, if applicable, hereunder and terminate this Agreement at
any time prior to 12:00 midnight, Seattle time, on the Expiration Date by
notice to the Company. Such notice must be given in accordance with Section
10.4 below, must specify Exchanger's name, the aggregate principal amount of
Convertible Debentures to be withdrawn and the name of the registered holder
if different from that of the person who originally tendered and must bear
the signature of Exchanger or be accompanied by evidence satisfactory to the
Company that the person withdrawing the tender is or has become the holder of
such Convertible Debentures. Any purported notice of withdrawal which lacks
any of the required information or is dispatched to any other address will
not be effective to withdraw any previously tendered Convertible Debentures.
All questions as to the form and validity (including time of receipt) of any
notice of withdrawal will be determined by the Company in its sole
discretion, which determination will be final and binding.
1.5 TIME AND PLACE OF CLOSING. The closing of the Debt Exchange will
occur at the office of the Company, 401 Queen Anne Avenue N., Seattle,
Washington on the first business day after the Expiration Date, as it may be
extended (such closing hereinafter referred to as the "Closing" and such
closing date herein called the "Closing Date").
1.6 CLOSING DELIVERIES. At the Closing, Exchanger shall deliver or
cause to be delivered to the Company free and clear of all restrictions upon
transfer, liens, pledges, charges, and encumbrances of any kind, nature or
restriction the certificates representing the Convertible Debentures duly
registered in the name of Exchanger for cancellation. Concurrently therewith,
the Company shall deliver or cause to be delivered to Exchanger free and
clear of all restrictions upon transfer, liens, pledges, charges, and
encumbrances of any kind, nature or restriction (except as otherwise set
forth herein) certificates representing the Shares duly registered in the
name of Exchanger.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
2.1 MAKING OF REPRESENTATIONS AND WARRANTIES. The Company hereby makes
the following representations and warranties contained in this Section 2.
2.2 ORGANIZATION AND QUALIFICATION OF THE COMPANY. The Company is a
corporation duly incorporated, validly existing and in good standing under
the laws of the State of Delaware with full power and authority to own or
lease its properties and to conduct the business heretofore conducted by it
in the manner and in the places where such properties are owned or leased or
such business is conducted by it. The Company is duly registered or
qualified to do business as a foreign corporation in the State of Washington
and neither the character or location of the properties owned or leased by
the Company nor the nature of the business transacted by the Company makes
registration or qualification in any other jurisdiction necessary, except
where failure to so qualify would not have a material adverse effect on the
Company.
2.3 AUTHORITY OF THE COMPANY; NO CONFLICTS.
(a) The Company has full power and authority to enter into and perform
this Agreement, issue the Shares and consummate the transactions contemplated
hereby. When issued in accordance with this Agreement, the Shares will be
validly issued, fully paid and nonassessable. All necessary action,
corporate or otherwise, has been taken by the Company to authorize the
execution,
2
<PAGE>
delivery, and performance of this Agreement, and the same is the valid and
binding obligation of the Company enforceable in accordance with its terms.
(b) The execution and delivery of this Agreement by the Company do not,
and the issuance of the Shares and the performance of the terms hereof by the
Company will not, constitute a default or event of default under, or violate,
conflict with, or result in any breach of the terms, conditions, or
provisions of: (i) the corporate charter or By-laws of the Company; (ii) the
laws or regulations of any jurisdiction or any other governmental
requirements; or (iii) any material mortgage, lien, lease, agreement,
contract, instrument, order, arbitration award, injunction, judgment or
decision to which the Company is a party or by which it its property is bound
or materially affected. No approval, authorization, license, permit or other
action by, or filing with, any federal, state, or municipal commission,
board, agency or other governmental authority is required in connection with
the execution and delivery by the Company of this Agreement, the issuance of
the Shares or the consummation of the transaction contemplated hereby.
2.4 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company is as set forth in the Company's Annual Report on Form 10-K for its
fiscal year ended December 31, 1994.
2.5 DISCLOSURE DOCUMENTS.
(a) The Company has previously furnished to Exchanger a Tender Offer and
Exchange Circular (the "Exchange Circular") and copies of its Annual Report
on Form 10-K (without exhibits) for the year ended December 31, 1994 and its
Quarterly Report on Form 10-Q for the quarterly periods ended March 31 and
June 30, 1995 filed with the Commission under the Securities and Exchange Act
of 1934 ("1934 Act")(collectively the "Disclosure Documents"). None of the
information contained in the Exchange Circular or in the Disclosure Documents
contains any untrue statement of a material fact or omits to state any
material fact necessary to make the statements contained therein, in light of
the circumstances under which they were made, not misleading, which
misstatement or omission was not corrected in a subsequent Disclosure
Document or in the Exchange Circular.
(b) Each of the balance sheets included in the Disclosure Documents
(including any related notes and schedules) fairly presents the consolidated
financial position of the Company as of its date, and the other financial
statements included in the Disclosure Documents (including related notes and
schedules), fairly present the consolidated results of operation or other
information included therein of the Company for the periods or as of the
dates therein set forth in accordance with generally accepted accounting
principles consistently applied during the periods involved (except that the
interim reports are subject to normal recurring adjustments which might be
required as result of year-end audit, and except as otherwise stated therein).
2.6 CHANGES. Except as set forth in the Disclosure Documents, since
December 31, 1994:
(a) except for continuing operating losses through the date hereof,
there has been no material adverse change in the business, property,
financial condition or results of operations of the Company taken as a whole;
(b) there has not been any direct or indirect redemption, purchase or
other acquisition of any shares of the Company's capital stock by the
Company, or any declaration, setting aside or payment of any dividend or
other distribution by the Company in respect of its capital stock;
(c) except for the transaction contemplated hereby, the Company has not
incurred any material obligation or liability other than in the ordinary
course of its business, has not incurred any
3
<PAGE>
contingent liability (as guarantor or otherwise) with respect to the
obligations of others, has not transferred or otherwise disposed of any
material assets other than in the ordinary course of business, and has in all
other respects conducted its business in the ordinary course;
(d) there has been no damage, destruction or casualty loss (whether or
not covered by insurance) materially and adversely affecting the business,
property, financial condition or results of operations of the Company taken
as a whole; and
(e) except for the granting of options to purchase shares of Common
Stock, the Company has not incurred any obligation or liability to any
stockholder, director, or officer of the Company other than in the ordinary
course of the Company's business and the Company has not made any loans or
advances to any of its stockholders, directors, or officers, except for
normal advances or reimbursable expenses.
2.7 MISSTATEMENTS AND OMISSIONS. The Company has not made any material
misstatements of fact or omitted to state any material fact necessary or
desirable to make complete, accurate and not misleading every representation,
warranty and agreement set forth herein.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF EXCHANGER.
3.1 MAKING OF REPRESENTATIONS AND WARRANTIES. Exchanger hereby makes
the representations and warranties contained in this Section 3.
3.2 ACCREDITED INVESTOR. Exchanger is an "accredited investor" within
the definition set forth in Rule 501(a) under the 1933 Act.
3.3 SHARES NOT REGISTERED. Exchanger understands (i) that the Shares
have not been registered for sale under federal or state securities laws and
that the Shares are being offered and issued to Exchanger pursuant to one or
more exemptions from the registration requirements of such securities laws;
(ii) that in order to satisfy such requirements Exchanger must be acquiring
the Shares for its own account for investment and not with a view to
distribution thereof except in accordance with applicable securities laws and
that the representations and warranties contained in this Section 3 are given
with the intention that the Company may rely thereon for purposes of claiming
such exemption; and (iii) that the Shares cannot be sold unless subsequently
registered under such laws or unless an exemption from such registration is
available.
3.4 SHARES ACQUIRED FOR INVESTMENT; LIMITATION ON DISPOSITION.
Exchanger agrees that the Shares will not be sold or otherwise transferred
unless (i) a registration statement with respect thereto has become effective
under the 1933 Act; or (ii) there is presented to the Company an opinion of
counsel reasonably satisfactory to the Company that registration under
federal and state securities is not required; or (iii) pursuant to the
provisions of Rule 144 promulgated under the 1933 Act (and, in the case of
(i) and (iii), there is presented to the Company an opinion of counsel
reasonably satisfactory to the Company that the sale or transfer will not
subject the Company to any liability under applicable state securities laws).
Exchanger consents that any transfer agent of the Company may be instructed
not to transfer any Shares, unless it receives satisfactory evidence of
compliance with the foregoing provisions, and that there may be endorsed upon
any certificate or other instrument representing the
4
<PAGE>
Shares (and any certificates or instruments issued in substitution therefor),
a legend calling attention to the foregoing restrictions on transferability
of such shares stating in substance:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER UNITED STATES FEDERALOR STATE
SECURITIES LAW AND MAY NOT BE OFFERED FOR SALE,
SOLD OR OTHERWISE TRANSFERRED OR ASSIGNED FOR
VALUE, DIRECTLY OR INDIRECTLY, NOR MAY THE
SECURITIES BE TRANSFERRED ON THE BOOKS OF THE
CORPORATION, WITHOUT REGISTRATION OF SUCH
SECURITIES UNDER ALL APPLICABLE UNITED STATES
FEDERAL OR STATE SECURITIES LAW OR COMPLIANCE
WITH AN APPLICABLE EXEMPTION THEREFROM, SUCH
COMPLIANCE, AT THE OPTION OF THE CORPORATION, TO
BE EVIDENCED BY AN OPINION OF SHAREHOLDER'S
COUNSEL, IN FORM ACCEPTABLE TO THE CORPORATION,
THAT NO VIOLATION OF SUCH REGISTRATION PROVISIONS
WOULD RESULT FROM SUCH PROPOSED TRANSFER OR
ASSIGNMENT."
3.5 ACCESS TO INFORMATION. Exchanger acknowledges receipt from the
Company of the information referred to in Section 2.5 hereof and access to
information if requested.
SECTION 4. COVENANTS OF THE COMPANY.
4.1 MAKING OF COVENANTS AND AGREEMENTS. The Company makes the
covenants and agreements set forth in this Section 4.
4.2 CONSUMMATION OF AGREEMENT. The Company shall perform and fulfill
all conditions and obligations on its part to be performed and fulfilled
under this Agreement, to the end that the transactions contemplated by this
Agreement shall be carried out. To this end, the Company will obtain all
necessary authorizations or approvals of its Board of Directors or a duly
authorized Board Committee to the execution and performance of this
Agreement, which shall include as integral parts thereof the issuance to
Exchanger of the Shares upon the terms and conditions set forth in this
Agreement.
4.3 CURRENT PUBLIC INFORMATION. The Company will file all reports
required to be filed by it under the 1933 Act or the 1934 Act and the rules
and regulations adopted by the Commission thereunder, and will take such
further action as any Exchanger may reasonably request all to the extent
required to enable each such Exchanger to sell the Shares pursuant to (i)
Rule 144 adopted by the Commission under the 1933 Act, as such rule may be
amended from time to time, or (ii) any similar rule or regulation hereafter
adopted by the Commission.
SECTION 5. COVENANTS OF EXCHANGER.
5.1 MAKING OF COVENANTS AND AGREEMENTS. Exchanger makes the covenants
and agreements set forth in this Section.
5.2 CONSUMMATION OF AGREEMENT. Exchanger shall perform and fulfill all
conditions and obligations on its part to be performed and fulfilled under
this Agreement, to the end that the transactions contemplated by this
Agreement shall be carried out.
5
<PAGE>
5.3 CURRENT PUBLIC INFORMATION. Exchanger shall file all reports
required to be filed by it under the 1934 Act and the rules and regulations
adopted by the Commissioner thereunder, including without limitation, as
applicable, Schedules 13G, 13D, Form 3, Form 4, and Form 5.
5.4 FURNISHING OF INFORMATION. Exchanger shall furnish to the Company
all information, questionnaires and statements reasonably requested by the
Company in connection with the Company's preparation of reports, proxy
materials and other filings under the 1933 Act and the 1934 Act. Exchanger
shall further furnish to the Company all written information and statements
reasonably requested in order for the Company to more fully comply with its
commitment under Section 7 hereof.
SECTION 6. CONDITIONS PRECEDENT TO EXCHANGER'S OBLIGATIONS.
6.1 CONDITIONS. The obligations of Exchanger to consummate this
Agreement and the transactions contemplated hereby are subject to the
satisfaction of the following conditions on or prior to the Closing Date
except to the extent that any such condition can be and is waived by
Exchanger:
(a) BOARD OF DIRECTOR AUTHORIZATION. This Agreement and the
transactions contemplated hereby shall have been duly approved by a majority
vote of the Company's Board of Directors or a duly authorized Board Committee.
(b) REPRESENTATIONS; WARRANTIES; COVENANTS. Each of the representations
and warranties of the Company contained in Section 2 hereof shall be true and
correct in all material respects as though made at the time of and as of the
Closing; and the Company shall, at or before the Closing, have performed all
of its obligations hereunder which by the terms hereof are to be performed on
or before the Closing.
SECTION 7. INDEMNIFICATION.
7.1 INDEMNIFICATION OF EXCHANGER. The Company agrees to indemnify and
hold harmless, to the extent permitted by law, Exchanger against any and all
losses, claims, damages, liabilities and expenses caused by any breach of the
representations, warranties, covenants and agreements of the Company
contained in this Agreement.
7.2 INDEMNIFICATION OF THE COMPANY. Exchanger agrees to indemnify and
hold harmless, to the extent permitted by law, the Company, its directors and
officers and each person who controls the Company (within the meaning of the
1933 Act) against any and all losses, claims, damages, liabilities and
expenses caused by any breach of the representations, warranties, covenants
and agreements of Exchanger contained in this Agreement.
7.3 DEFENSE OF ACTION. Any person entitled to indemnification
hereunder will (i) give prompt notice to the indemnifying party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit the indemnifying party
to assume the defense of such claim with counsel reasonably satisfactory to
the indemnified party. If such defense is not assumed, the indemnifying
party will not be subject to any liability for any settlement made without
its consent (but such consent will not be unreasonably withheld). An
indemnifying party who is not entitled to, or elects not to, assume the
defense of a claim will not be obligated to pay the fees and expenses of more
than one counsel for all parties indemnified by such indemnifying party with
respect to such claim, unless in the reasonable judgment of any indemnified
party a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim.
6
<PAGE>
SECTION 8. TERMINATION OF AGREEMENT.
8.1 TERMINATION. At any time prior to the Closing Date this Agreement
may be terminated (i) by mutual consent of the parties; (ii) by the Company,
upon written notice to Exchanger, if there has been a material
misrepresentation, breach of warranty or breach of covenant by the Exchanger
in its representations and warranties or covenants; (iii) by Exchanger, upon
written notice to the Company in accordance with Section 1.4 above.
8.2 EFFECT OF TERMINATION. If this Agreement is terminated as above
provided, all obligations of the parties to be performed on or subsequent to
the effective date of termination as above provided shall terminate without
further liability of either party to the other. In the event that this
Agreement is terminated, each party will return all papers, documents,
financial statements and other data furnished to it by or with respect to
each other party to such party (including any copies thereof made by the
first party).
SECTION 9. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING.
9.1 SURVIVAL OF WARRANTIES. All representations, warranties,
agreements, covenants and obligations herein or in any schedule, exhibit,
certificate or financial statement delivered by the Company to Exchanger
incident to the transactions contemplated hereby shall be deemed to have been
relied upon by the other party hereto, and with respect to representations
and warranties, shall survive for a period of one (1) year following the
Closing. All agreements, covenants and obligations shall survive the Closing
regardless of any investigation made by or on behalf of either party hereto
and shall not merge in the performance of any obligation by either party
hereto.
SECTION 10. MISCELLANEOUS.
10.1 LAW GOVERNING. This Agreement shall be construed under and
governed by the laws of the State of Washington.
10.2 SOLICITATION FEES.
(a) The Company (i) represents and warrants that it has not paid or
given any commission or other remuneration directly or indirectly for
soliciting the Debt Exchange and (ii) hereby agrees to indemnify and hold
harmless the Exchanger of and from any liability arising from any payment or
other remuneration given directly or indirectly for soliciting the Debt
Exchange (and the costs and expenses of defending against such liability or
asserted liability) for which the Company, or any of its employees or
representatives, are responsible.
(b) Exchanger (i) represents and warrants that Exchanger retained no
finder or broker in connection with the transactions contemplated by this
Agreement (ii) represents and warrants that Exchanger has not paid or given
any commission or other remuneration directly or indirectly for soliciting
the Debt Exchange and (iii) hereby agrees to indemnify and to hold harmless
the Company and all other Exchangers of and from any liability arising from
any payment or other remuneration given directly or indirectly for soliciting
the Debt Exchange (and the costs and expenses of defending against such
liability or asserted liability) for which Exchanger, or any of Exchanger's
employees or representatives, are responsible.
10.3 TRANSFER TAXES. Subject to the following, the Company will pay all
transfer taxes, if any, applicable to the Debt Exchange. The Company will
not pay any transfer taxes, whether imposed on the registered holder or any
other persons, and such transfer taxes will be the sole responsibility of
Exchanger if (a) the Shares and/or substitute Convertible Debentures, for
amounts not tendered or
7
<PAGE>
exchanged, are to be delivered to, or are to be registered or issued in the
name of any person other than the registered holder of the Convertible
Debentures exchanged hereby, (b) the certificates representing the
Convertible Debentures tendered for exchange are registered in the name of
any person or entity other than the person or entity signing this Agreement,
or (c) a transfer tax is imposed for any reason other than transfer, exchange
or sale of the Convertible Debentures pursuant to the Debt Exchange.
10.4 NOTICES. All notices, requests, demands or other communications
hereunder shall be deemed to have been duly given if delivered, if sent by
facsimile or if mailed by certified or registered mail to Exchanger at the
address indicated on the signature page below and to the Company as follows:
Mr. Alex P. de Soto
Chief Financial Officer
IMRE CORPORATION
401 Queen Anne Avenue North
Seattle, WA 98109
Fax: (206) 298-9494
With copy to:
Bryce L. Holland, Esq.
Bogle & Gates
2 Union Square
601 Union Street
Seattle, WA 98101
Fax: (206) 621-2660
or to such other address of which either party may notify the other party.
10.5 ENTIRE AGREEMENT. This Agreement contains the entire agreement of
the parties hereto with reference to the subject matter hereof, and all
inducements to the making of this Agreement relied upon by either party
hereto have been expressed herein.
10.6 ASSIGNABILITY. This Agreement may not be assigned by either
Exchanger or the Company without the prior written consent of the other
party. This Agreement shall be enforceable by and shall inure to the benefit
of and be binding upon the parties hereto and their successors and no others.
10.7 FEES AND EXPENSES. Each of the parties will bear its own expenses
in connection with the negotiation and consummation of the transactions
contemplated by this Agreement.
10.8 PUBLICITY AND DISCLOSURE. Except as may be required by federal
securities laws, no press release or public disclosure, either written or
oral, of the transactions contemplated by this Agreement, shall be made by
Exchanger without the prior approval of the Company.
10.9 COUNTERPARTS. This Agreement may be executed simultaneously in
multiple counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same document.
8
<PAGE>
10.10 AMENDMENTS AND WAIVERS. Except as otherwise provided herein, any
provision in this Agreement may be amended or waived if the Company shall
obtain the written consent of the holders of a majority in interest of the
Company's 7% Convertible Debentures exchanged pursuant to this Agreement and
other agreements identical hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date set forth above.
IMRE CORPORATION
By___________________________
Its__________________________
_____________________________
Signature of Exchanger
By___________________________
Its__________________________
_____________________________
_____________________________
_____________________________
Print Name and Address of Exchanger
$____________________________
Principal Amount of Convertible
Debentures tendered for exchange
9
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0
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