SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to
Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 25, 1996
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Interfilm, Inc.
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(Exact Name of Registrant as Specified in its Charter)
Delaware
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(State or Other Jurisdiction of Incorporation)
0-22686 95-4078884
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(Commission File Number) (I.R.S. Employer Identification No.)
214 Carnegie Center, Suite 100, Princeton, New Jersey 08540
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(Address of Principal Executive Offices) (Zip Code)
(609) 520-1911
(Registrant's Telephone Number, Including Area Code)
Former Address: 110 Greene Street, Suite 4R, New York, New York 10012
(Former Name or Former Address, if Changed Since Last Report)
BPHNY\AB4\0067764.01
06/24/96
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This Current Report on Form 8-K contains forward-looking
statements which involve risks and uncertainties. Interfilm, Inc.'s actual
results may differ significantly from the results discussed in the
forward-looking statements.
Item 1. Changes in Control of Registrant
On June 25, 1996, pursuant to the terms and conditions of
that certain Agreement and Plan of Reorganization dated as of April 12, 1996
by and between Interfilm, Inc., a Delaware corporation ("Interfilm"),
Interfilm Acquisition Corp., a New Mexico corporation and a wholly-owned
subsidiary of Interfilm ("InSub"), and RhoMed Incorporated, a New Mexico
corporation ("RhoMed"), InSub has merged with and into RhoMed (the "Plan of
Merger"). Pursuant to the Plan of Merger, each share of RhoMed Preferred Stock
outstanding immediately prior to the effective time of the merger (the
"Effective Time") has been converted into .01 shares of the Series A
Convertible Preferred Stock of Interfilm, and each share of RhoMed Common
Stock outstanding immediately prior to the Effective Time has been converted
into .01 shares of the Series B Convertible Preferred Stock of Interfilm. On
or about July 19, 1996, upon the filing of an Amended Certificate of
Incorporation of Interfilm, each share of Series A and Series B Preferred
Stock of Interfilm shall automatically convert into 466.95404349 and
184.332593 shares of Interfilm Common Stock, respectively. Additionally, all
warrants and options to purchase RhoMed Common Stock outstanding immediately
prior to the Effective Time, including without limitation, any rights
underlying RhoMed's qualified or non-qualified stock option plans, have been
automatically converted into rights upon exercise to receive Interfilm capital
stock in the same manner in which the shares of RhoMed Common Stock were to be
converted at the Effective Time. As a result, RhoMed has become a wholly-owned
subsidiary of Interfilm and the former shareholders of RhoMed have acquired an
approximately 96% interest in the equity securities of Interfilm on a
fully-diluted basis. Consequently, there has been a change of control in
Interfilm. Further, pursuant to the terms of the Plan of Merger, the directors
of RhoMed became the directors of Interfilm upon the closing of the merger.
Further, pursuant to the terms of the Plan of Merger,
certain assets and liabilities of Interfilm (consisting principally of certain
intellectual property and claims against a third party) have been transferred
to a separate entity for the benefit of the Interfilm stockholders of record
as of June 21, 1996.
RhoMed is a development stage company dedicated to
developing and commercializing products and technologies for diagnostic
imaging, cancer therapy and ethical drug development based upon its
proprietary monoclonal anitbody, radiolabeling and enabling peptide platform
technologies. Interfilm has conducted no on-going business activities since
May 10, 1995 and the business of RhoMed represents the on-going business of
the consolidated entity.
Item 4. Change in Registrant's Certifying Accountant.
As of July 9, 1996, as a result of the change of control of Interfilm
noted above, Interfilm's former independent accountant, who was engaged as the
principal accountant to audit Interfilm's financial statements, has been
dismissed and Arthur Andersen LLP, RhoMed's Independent accountant, has been
engaged as the principal accountant to audit Interfilm's consolidated financial
statements on a going-forward basis. The decision to change accountants was
recommended and approved by the Board of Directors of Interfilm following the
change of control of Interfilm based upon Interfilm's need for one independent
accountant to be responsible for the consolidated financial statements of
Interfilm following the merger. During Interfilm's fiscal years ended December
31, 1995 and 1994, there were no disagreements between Interfilm's former
independent accountant on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure. Further, during
Interfilm's fiscal years ended December 31, 1995 and 1994, respectively,
Interfilm's former independent accountant's opinion with respect to Interfilm's
financial statements was qualified as to Interfilm's ability to continue as a
going concern.
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Item 7. Financial Statements and Exhibits
As stated above, on June 25, 1996, Interfilm, a public shell, acquired
all of the outstanding capital stock of RhoMed. For accounting purposes, the
acquisition has been treated as a recapitalization of RhoMed with RhoMed as the
acquirer (reverse acquisition). The historical financial statements prior to
June 25, 1996 are those of RhoMed. Pro forma information is not presented since
the merger pursuant to the Plan of Merger is not a business combination.
Exhibit 2.1 Agreement and Plan of Reorganization dated as of April 12,
1996 by and between Interfilm, Inc., Interfilm Acquisition
Corp. and RhoMed Incorporated.
Exhibit 99.1 RhoMed Incorporated (Unaudited) Financial Statements for the
nine-month periods ended May 31, 1996 and 1995
Exhibit 99.2 RhoMed Incorporated Financial Statements for the years ended
August 31, 1995, 1994 and 1993
BPHNY\AB4\0067764.01
06/24/96
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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 hereunto duly authorized.
Interfilm, Inc.
(Registrant)
By: /s/ JOHN J. McDONOUGH
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Name: John J. McDonough
Title: Vice President and Chief Financial Officer
Dated: July 10, 1996
BPHNY\AB4\0067764.01
06/24/96
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
INTERFILM, INC.,
(A Delaware Corporation)
INTERFILM ACQUISITION CORP.
(A New Mexico corporation and wholly
owned subsidiary of Interfilm, Inc.),
AND
RHOMED INCORPORATED,
(A New Mexico Corporation)
AS OF APRIL 12, 1996
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TABLE OF CONTENTS
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ARTICLE 1
THE MERGER
1.1 Surviving Corporation; Effective Time.............................. 1
1.2 Articles of Incorporation and Bylaws............................... 2
1.3 Directors.......................................................... 2
1.4 Conversion of Shares............................................... 2
1.5 Exchange of Certificates........................................... 2
1.6 Dissenting Shares.................................................. 4
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF INTERFILM AND INSUB
2.1 Corporate Existence, Good Standing and Authority................... 4
2.2 Capitalization..................................................... 4
2.3 Issuance and Transfer of Interfilm Preferred....................... 5
2.4 Subsidiaries....................................................... 5
2.5 Financial Statements............................................... 5
2.6 Absence of Certain Changes......................................... 6
2.7 Properties......................................................... 7
2.8 Inventories........................................................ 8
2.9 Accounts Receivable................................................ 8
2.10 Liabilities........................................................ 8
2.11 Litigation......................................................... 8
2.12 Taxes.............................................................. 9
2.13 No Breach of Agreements............................................ 9
2.14 Employees and Service Providers.................................... 10
2.15 Directors, Officers and Employees.................................. 11
2.16 Insurance.......................................................... 11
2.17 Contracts and Licenses............................................. 11
2.18 Intellectual Property Rights....................................... 13
2.19 Customers.......................................................... 14
2.20 Charter Documents.................................................. 14
2.21 Powers of Attorney; Bank Accounts.................................. 14
2.22 Compliance with Law, Consents...................................... 14
2.23 Environmental Matters.............................................. 14
2.24 Affiliate Relationships............................................ 15
2.25 Brokers or Finders................................................. 16
2.26 Representations Complete........................................... 16
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF RHOMED
3.1 Corporate Existence, Good Standing and Authority.................... 16
3.2 Capitalization...................................................... 16
3.3 Subsidiaries........................................................ 17
3.4 Financial Statements................................................ 17
3.5 Absence of Certain Changes.......................................... 17
3.6 Liabilities......................................................... 18
3.7 Litigation.......................................................... 18
3.8 Charter Documents................................................... 19
3.9 Consents and Approvals.............................................. 19
3.10 Taxes............................................................... 19
3.11 No Breach of Agreements............................................. 20
3.12 Intellectual Property Rights........................................ 20
3.13 Brokers or Finders.................................................. 20
3.14 Representations Complete............................................ 20
ARTICLE 4
CERTAIN COVENANTS AND AGREEMENTS
4.1 Conduct of Business by Interfilm and InSub.......................... 20
4.2 Conduct of Business by RhoMed....................................... 22
4.3 Necessary Consents.................................................. 23
4.4 Access to Information............................................... 23
4.5 Disclosure of Transaction........................................... 23
4.6 Other Negotiations.................................................. 23
4.7 Certain Defaults; Litigation........................................ 24
4.8 NASD Electronic Bulletin Board Additional Shares Notification....... 24
4.9 Audited Financial Statements........................................ 24
4.10 RhoMed Financial Statements......................................... 24
4.11 Financing........................................................... 24
4.12 RhoMed Voting Agreement............................................. 25
ARTICLE 5
CONDITIONS PRECEDENT TO
OBLIGATIONS OF RHOMED
5.1 Representations and Warranties True................................. 25
5.2 Covenants Performed................................................. 25
5.3 Certificate......................................................... 26
5.4 Opinion of Counsel for Interfilm and InSub.......................... 26
5.5 No Violations; No Actions........................................... 26
5.6 No Material Adverse Effect.......................................... 26
5.7 Proceedings and Documents........................................... 26
5.8 Delivery of Documents............................................... 26
5.9 Schedules........................................................... 26
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5.10 Illegality or Legal Constraint...................................... 26
5.11 Required Consents................................................... 26
5.12 Voting Agreement.................................................... 27
5.13 The Amended Certificate of Incorporation............................ 27
5.14 Certificates of Designations........................................ 27
5.15 Fairness Hearing.................................................... 28
5.16 Releases............................................................ 28
5.17 Limitation on Outstanding Interfilm Liabilities..................... 28
5.18 Creation of Trust................................................... 28
5.19 Employment by Interfilm............................................. 31
5.20 Resignation of Directors............................................ 31
5.21 Interfilm Audit..................................................... 31
5.22 Insurance........................................................... 31
5.23 Section 14(f) Information Statement................................. 31
5.24 Information Statement............................................... 32
5.25 Partial Financing................................................... 32
ARTICLE 6
CONDITIONS PRECEDENT TO
OBLIGATIONS OF INTERFILM AND INSUB
6.1 Representations True................................................ 33
6.2 Covenants Performed................................................. 33
6.3 No Violations; No Actions........................................... 33
6.4 Opinion of Counsel for RhoMed....................................... 33
6.5 No Material Adverse Change.......................................... 33
6.6 Proceedings and Documents........................................... 33
6.7 Fairness Hearing.................................................... 33
6.8 Delivery of Documents............................................... 34
6.9 Required Consents................................................... 34
6.10 Private Placement................................................... 34
ARTICLE 7
CLOSING
7.1 Time and Place...................................................... 34
7.2 Deliveries by Interfilm and InSub................................... 34
7.3 Deliveries of RhoMed................................................ 36
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ARTICLE 8
MISCELLANEOUS PROVISIONS
8.1 Survival of Representations and Warranties; Indemnity............... 38
8.2 Termination of Agreement............................................ 38
8.3 Further Assurances.................................................. 39
8.4 Broker or Finder.................................................... 39
8.5 Each Party to Bear Own Costs........................................ 39
8.6 Headings............................................................ 39
8.7 Entire Agreement; Waivers........................................... 39
8.8 Third Parties....................................................... 39
8.9 Parties in Interest................................................. 40
8.10 Notices............................................................. 40
8.11 Attorneys' Fees..................................................... 40
8.12 Governing Law....................................................... 41
8.13 Consent to Jurisdiction and Forum Selection......................... 41
8.14 Counterparts........................................................ 41
8.15 Severability........................................................ 41
8.16 Construction of Agreement; Knowledge................................ 41
8.17 Publicity........................................................... 42
8.18 Mutual Drafting..................................................... 42
8.19 Specific Performance and Other Remedies............................. 42
8.20 Definitions......................................................... 42
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is
made and entered into as of April 12, 1996, by and among RhoMed Incorporated,
a New Mexico corporation ("RhoMed"), Interfilm, Inc., a Delaware corporation
("Interfilm"), and Interfilm Acquisition Corp., a New Mexico corporation and a
wholly-owned subsidiary of Interfilm ("InSub"). For the purposes of this
Agreement, except where the context otherwise requires, the term "Interfilm"
shall include Interfilm and all of Interfilm's subsidiaries, taken as a whole.
RECITALS
WHEREAS, RhoMed, Interfilm and InSub have each determined to
engage in the transactions contemplated hereby (collectively, the
"Transaction"), pursuant to which (i) InSub will merge with and into RhoMed
(the "Merger") and (ii) subject to certain rights of the RhoMed shareholders
set forth in Section 1.6 herein, each issued and outstanding share of capital
stock of RhoMed shall be converted into shares of Interfilm capital stock in
the manner herein described;
WHEREAS, the respective Boards of Directors of RhoMed,
Interfilm and InSub have each approved the Merger, the Transaction and this
Agreement, and as of the Closing Date (as hereinafter defined), the
shareholders of RhoMed (the "RhoMed Shareholders") and Interfilm, as the sole
shareholder of InSub, shall have each approved the Merger, the Transaction and
this Agreement; and
WHEREAS, the parties intend for the transactions contemplated
by this Agreement to qualify as a plan of reorganization in accordance with
the provisions of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
ARTICLE 1
THE MERGER
1.1 Surviving Corporation; Effective Time.
(a) At the Closing (as hereinafter defined), subject to
the terms and conditions of this Agreement, InSub shall be merged with and
into RhoMed in accordance with the Business Corporation Act of New Mexico (the
"NMBCA"), whereupon the separate existence of InSub shall cease, and RhoMed
shall be the surviving corporation.
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(b) Simultaneously with the Closing, RhoMed and InSub
shall file a certificate of merger (the "Certificate of Merger") in the office
of the New Mexico State Corporation Commission in accordance with the NMBCA.
The Merger shall become effective at such time as the Certificate of Merger is
duly filed in New Mexico (the date of such filing being hereinafter referred
to as the "Effective Date" and the time of such filing being hereinafter
referred to as the "Effective Time"). It is the intention of the parties that
this Agreement shall constitute an agreement of merger under Section 53-14-7
of the NMBCA. From and after the Effective Time, RhoMed shall possess all the
rights, privileges, powers and franchises and be subject to all of the
restrictions, disabilities and duties of both RhoMed and InSub, as provided
under the NMBCA.
1.2 Articles of Incorporation and Bylaws. The Articles of
Incorporation and Bylaws of RhoMed following the Closing shall be the Articles
of Incorporation and Bylaws of RhoMed as in effect immediately prior to the
Effective Time, until thereafter amended in accordance with applicable law.
1.3 Directors and Officers. From and after the Effective Time,
until successors are duly elected or appointed and qualified in accordance
with applicable law, the directors and officers of RhoMed immediately prior to
the Effective Time shall remain directors and officers of RhoMed.
1.4 Conversion of Shares. As of the Effective Time, by virtue
of the Merger, automatically and without any action on the part of any holder
thereof:
(a) Each share of RhoMed preferred stock, no par value per
share (the "RhoMed Preferred"), outstanding immediately prior to the Effective
Time, shall be converted into 0.01 shares of Interfilm's Series A Convertible
Preferred Stock, $0.01 par value per share (the "Interfilm Series A
Preferred");
(b) Each share of RhoMed common stock, no par value per
share (the "RhoMed Common" and together with the RhoMed Preferred collectively
referred to herein as the "Shares"), outstanding immediately prior to the
Effective Time, shall be converted into 0.01 shares of Interfilm's Series B
Convertible Preferred Stock, $0.01 par value per share (the "Interfilm Series
B Preferred" and together with the Interfilm Series A Preferred collectively
referred to herein as the "Interfilm Preferred") and the rights underlying the
RhoMed Derivative Securities (as hereinafter defined), including without
limitation, any rights underlying any of RhoMed's qualified or non-qualified
stock option plans, shall be automatically converted, pursuant to Section
424(a) of the Code, into rights upon exercise to receive Interfilm capital
stock in the same manner in which the RhoMed Common are to be converted;
(c) Fractional shares of Interfilm Preferred may be issued
in connection with the conversion of the Shares into shares of Interfilm
Preferred.
1.5 Exchange of Certificates.
(a) On or prior to the Closing Date (as hereinafter
defined), InSub shall make available to each RhoMed Shareholder a form of
letter of transmittal and instructions for
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use in effecting the surrender of the certificates representing the Shares
(collectively, the "Certificates") for conversion thereof. Upon surrender to
InSub of a Certificate, together with such letter of transmittal duly
executed, the holder of such Certificate shall be entitled to receive in
exchange therefor one or more certificates as requested by the holder
(properly issued to the holder, executed and countersigned, as appropriate)
representing the number of shares of Interfilm Preferred to which such holder
shall have become entitled pursuant to the provisions of Section 1.4. Upon
receipt of evidence reasonably satisfactory to InSub of the loss, theft,
destruction or mutilation of any Certificate, and (if lost, stolen or
destroyed) of indemnity reasonably satisfactory to InSub, and (if mutilated)
upon surrender and cancellation of the Certificate, such holder shall be
entitled to receive in exchange therefor one or more certificates as requested
by the holder (properly issued to the holder, executed and countersigned, as
appropriate) representing the number of shares of Interfilm Preferred to which
such holder shall have become entitled pursuant to the provisions of Section
1.4.
(b) At the Closing, InSub shall deliver to each RhoMed
Shareholder who delivered his Certificate, together with such letter of
transmittal duly executed, in exchange therefor a certificate for the number
of shares of Interfilm Preferred to which such holder is entitled pursuant to
Section 1.4. Each Certificate converted into Interfilm Preferred shall, by
virtue of the Merger and without any action on the part of the holder thereof,
cease to be outstanding, be cancelled and retired and cease to exist. In the
event of a transfer of ownership of Certificates which have not been
registered in the transfer records of RhoMed, Interfilm Preferred may be
delivered to a transferee if the Certificate is presented to InSub and
accompanied by all documents required to evidence and effect such transfer and
to evidence that any applicable stock transfer taxes have been paid. Until
surrendered as contemplated by this Section 1.5(b), each holder of Shares
shall thereafter cease to possess any rights with respect to such Shares,
except the right to receive upon such surrender such number of shares of
Interfilm Preferred as provided by Section 1.4 and the provisions of the
NMBCA.
(c) No dividends on the Interfilm Preferred shall be paid
to the holder of any unsurrendered Certificate until such Certificate is
surrendered; provided, however, that upon surrender of the Certificate, there
shall be paid to such holder the amount of dividends, if any, which
theretofore became payable, but which were not paid by reason of the
foregoing, with respect to the number of shares of Interfilm Preferred issued
upon such surrender. Subject to the effect, if any, of applicable escheat and
other laws, following surrender of any Certificate, there shall be delivered
to the person or entity entitled thereto, without interest, the amount of
dividends so withheld as of any date subsequent to the Effective Date and
prior to such date of delivery.
(d) All Interfilm Preferred delivered in exchange for the
Shares in accordance with the terms hereof shall be deemed to have been
delivered in full satisfaction of all rights pertaining to such Shares. After
the Effective Time, there shall be no further registration of transfers on the
stock transfer books of RhoMed of the Certificates that were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented for any reason, they shall be cancelled and
exchanged as provided in this Section 1.5.
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1.6 Dissenting Shares. Notwithstanding the terms of Section
1.4, to the extent that appraisal rights are available under the NMBCA, Shares
outstanding immediately prior to the Effective Time and held by a holder who
has demanded appraisal for such Shares in accordance with such law shall not
be converted into a right to receive shares of Interfilm Preferred as provided
in Section 1.4, unless and until such holder fails to perfect or withdraws or
otherwise loses his right to appraisal. If after the Effective Time such
holder fails to perfect or withdraws or loses his right to appraisal, such
Shares shall be treated as if they had been converted as of the Effective Time
into a right to receive shares of Interfilm Preferred as provided in Section
1.4. RhoMed shall give Interfilm and InSub prompt notice of any demands
received by RhoMed for appraisal of Shares.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF INTERFILM AND INSUB
Each of Interfilm and InSub, jointly and severally, agrees with, and
represents and warrants to RhoMed as follows:
2.1 Corporate Existence, Good Standing and Authority. Each of
Interfilm and InSub is a corporation duly organized, validly existing and in
good standing under the laws of their respective jurisdictions of
incorporation or organization, has full corporate power and corporate
authority to carry on its business as now being conducted, is entitled to own,
lease or operate the property and assets now owned, leased or operated by it,
and has no operations and conducts no business outside of the states or
countries listed on Schedule 2.1 hereto. Each of Interfilm and InSub is
qualified to do business, is in good standing and has all required and
appropriate licenses in each jurisdiction in which its failure to obtain or
maintain such qualification, good standing or licensing (i) would,
individually or in the aggregate, have or reasonably could be expected to have
a material adverse effect on the assets, liabilities, business, financial
condition, results of operations, or prospects (each a "Material Adverse
Effect") of Interfilm and InSub, or (ii) would result in a material breach of
any of the other representations, warranties or covenants set forth in this
Agreement. Each of Interfilm and InSub has all requisite corporate power and
corporate authority to enter into this Agreement and all other documents
contemplated hereby (collectively, the "Interfilm Documents") and to
consummate the transactions contemplated hereby. The Interfilm Documents have
been duly executed and delivered by each of Interfilm and InSub, have been
authorized by all necessary corporate action of each of Interfilm and InSub
and constitute legal, valid and binding obligations of each of Interfilm and
InSub, enforceable against each of Interfilm and InSub in accordance with
their terms, except as such enforceability may be limited by bankruptcy,
fraudulent conveyance, insolvency, reorganization, moratorium and other laws
relating to or affecting creditors' rights generally and by general equitable
principles.
2.2 Capitalization. The authorized capital stock of Interfilm
consists of Ten Million (10,000,000) shares of common stock, $0.01 par value
per share (the "Interfilm Common"), of which Four Million Three Hundred Twenty
Seven Thousand Five Hundred (4,327,500) shares are presently issued and
outstanding, and Two Million (2,000,000) shares of preferred stock, $0.01 par
value per share, of which no shares are presently issued and outstanding. As
of the Closing Date, after the issuance of Eighty Thousand (80,000) shares of
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Interfilm Common to Mr. William Franzblau and Fifty Thousand (50,000) shares
of Interfilm Common to Mr. Joseph Merbach, Interfilm shall have Four Million
Four Hundred Fifty Seven Thousand Five Hundred (4,457,500) shares issued and
outstanding plus any additional shares of Interfilm Common issued pursuant to
the conversion of the Interfilm Derivative Securities (as hereinafter
defined). The authorized capital stock of InSub consists of One Thousand
(1,000) shares of common stock, no par value per share, of which One Hundred
(100) shares have been issued to Interfilm and are presently outstanding. All
of the outstanding shares of Interfilm Common and InSub capital stock have
been duly authorized and validly issued and are fully paid and nonassessable.
Except as set forth in Schedule 2.2 hereto, there have been no additional
shares of capital stock of Interfilm which have been issued and are presently
outstanding and there are no subscriptions, options, warrants, conversion
rights, rights of exchange, or other rights, plans, agreements or commitments
of any nature whatsoever (including, without limitation, conversion or
preemptive rights) providing for the purchase, issuance, transaction,
registration or sale of any shares of Interfilm's or InSub's capital stock or
any securities convertible into or exchangeable for any shares of Interfilm's
or InSub's capital stock (collectively, the "Interfilm Derivative
Securities"). None of the Interfilm Derivative Securities are entitled to be
accelerated as a result of the Transaction, the Merger or the Financing (as
hereinafter defined). All of the Interfilm Derivative Securities have been
issued pursuant to valid exemptions from registration under all federal and
state securities laws and there are no outstanding obligations of Interfilm or
InSub to repurchase, redeem or otherwise acquire any of the Interfilm
Derivative Securities.
2.3 Issuance and Transfer of Interfilm Preferred. Interfilm has
the absolute and unrestricted right, power, authority and capacity to issue
the Interfilm Preferred to InSub and upon the Closing, the Interfilm
Preferred, when delivered by InSub as herein provided, shall be duly
authorized and validly issued and outstanding shares of Interfilm Preferred,
and will be fully paid and non-assessable. Upon the Closing, the RhoMed
Shareholders shall acquire from InSub legal and beneficial ownership of, good
and valid title to, and all rights to vote, the Interfilm Preferred, free from
any charge, lien, encumbrance or adverse claim of any kind whatsoever.
2.4 Subsidiaries. Except for InSub and as set forth in Schedule
2.4 hereto, Interfilm does not presently own, directly or indirectly, any
interest in any other corporation, association, joint venture or other
business entity. Any such subsidiary disclosed in Schedule 2.4 is duly
organized, validly existing and in good standing under the laws of the state
or country of its incorporation or organization and has the corporate power to
own its properties and carry on its business as now conducted, and is in good
standing in each jurisdiction in which the failure to so qualify would have a
Material Adverse Effect. Interfilm directly or indirectly owns all of the
outstanding shares of capital stock of or other equity interests in any such
subsidiary, free and clear from any charge, lien, encumbrance or adverse claim
of any kind whatsoever, and there are no existing options, warrants, calls or
commitments of any kind relating to the authorized and unissued capital stock
of or other equity interests in any such subsidiary.
2.5 Financial Statements. The audited consolidated balance
sheet and related statements of income and cash flows of Interfilm at and for
its fiscal years ended December 31, 1995 and December 31, 1994 (the "Financial
Statements") and the unaudited consolidated
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balance sheet and related statements of income and cash flows of Interfilm at
and for the two-month period ended February 29, 1996 (the "Interim Financial
Statements") are attached hereto as Schedule 2.5. The internal books and
records of Interfilm from which the Financial Statements and Interim Financial
Statements were derived do not contain any information which is false or
misleading. The Financial Statements and the Interim Financial Statements (i)
were prepared in accordance with such books and records; (ii) were prepared in
accordance with Interfilm's accounting policies and principles, and are in
accordance with generally accepted accounting principles, applied on a
consistent basis ("GAAP"); and (iii) present fairly Interfilm's financial
position and results of operations at the dates and for the periods reflected
therein.
2.6 Absence of Certain Changes. Except as set forth in Schedule
2.6 hereto, since February 29, 1996, there has not been:
(a) Any Material Adverse Effect on Interfilm or InSub;
(b) Any damage, destruction or loss, whether covered by
insurance or not, materially and adversely affecting any of the properties or
business of Interfilm or InSub;
(c) Any increase in or modification of any compensation or
benefits paid by Interfilm or InSub to any of their respective officers,
directors, employees, agents or stockholders;
(d) Any increase in or modification of any bonus, pension,
insurance or other employee benefit plan, payment or arrangement (including,
without limitation, the granting of stock options, restricted stock awards or
stock appreciation rights) made to, for or with any of Interfilm's or InSub's
directors or employees;
(e) Any declaration, setting aside or payment of dividends
or distributions in respect of the capital stock of Interfilm or InSub, or any
split-up or other recapitalization in respect of the capital stock of
Interfilm or InSub or any direct or indirect redemption, purchase or other
acquisition of any such capital stock of Interfilm or InSub or any agreement
to do any of the foregoing;
(f) Any issuance, transfer, sale or pledge by Interfilm or
InSub of any shares of their respective capital stock or other securities or
of any commitment, option, right or privilege under which Interfilm or InSub
is or may become obligated to issue any shares of its capital stock or other
securities;
(g) Any alteration in any term of any outstanding
securities of Interfilm or InSub, except as otherwise contemplated by this
Agreement;
(h) Any indebtedness incurred by Interfilm or InSub;
(i) Any loan made or agreed to be made by Interfilm or
InSub, nor has Interfilm or InSub become liable or agreed to become liable as
a guarantor with respect to any loan;
6
APITAL PRINTING SYSTEMS]
<PAGE>
(j) Any change in the accounting methods, practices
or policies followed by Interfilm or InSub from those in effect
during the past three (3) fiscal years;
(k) Any sale, assignment, or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets of material
value by Interfilm or InSub;
(l) Any purchase or other acquisition of, or any sale,
lease, disposition of, mortgage, pledge or subjection to any lien or
encumbrance on, any material property or asset, tangible or intangible, of
Interfilm or InSub or any agreement to do any of the foregoing;
(m) Any contract entered into, either in writing or
orally, between Interfilm or InSub and any other party which has a term of
greater than twelve (12) months or which requires Interfilm or InSub to pay
more than Five Thousand Dollars ($5,000.00) during the term of such contract;
(n) Any write down of the value of any asset or investment
on Interfilm's or InSub's books or records, except for depreciation and
amortization taken in the ordinary course of business and consistent with past
practice, which past practice has been previously disclosed to RhoMed;
(o) Any cancellation of any debts or waiver of any claims
or rights of substantial value, or sale, transfer or other disposition of any
properties or assets (real, personal or mixed, tangible or intangible);
(p) Any actual or threatened amendment, termination
or loss of (i) any material contract, lease, license or other agreement
to which Interfilm or InSub was or is a party; or (ii) any certificate or
other authorization required for the continued operation by Interfilm or
InSub of any material portion of their respective businesses;
(q) Any resignation or termination of employment of any
key officer or employee of Interfilm or InSub;
(r) Any change in or amendment to the Certificate of
Incorporation or Bylaws of Interfilm or InSub; or
(s) Any agreement or commitment, whether written or oral,
by Interfilm or InSub to do any of the things described in this Section 2.6.
2.7 Properties. Neither Interfilm nor InSub owns or holds title
to any real property. With respect to the property and assets it leases, each
of Interfilm and InSub is in compliance in all material respects with such
leases and holds a valid leasehold interest free of any charges, liens,
encumbrances or adverse claims of any kind whatsoever. There is set forth in
Schedule 2.7 hereto: (i) a list of all leases or rental contracts under which
Interfilm or InSub is presently a lessee, lessor, sublessee or sublessor or
has been a lessee, lessor, sublessee or sublessor in the past twenty-four (24)
months and (ii) a list of all equipment used by Interfilm
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<PAGE>
or InSub in the operation of their respective businesses which is owned or
leased by Interfilm or InSub and which had an original cost of Five Thousand
Dollars ($5,000.00) or more. Each of Interfilm and InSub has beneficial
ownership of and good and marketable title to all properties and assets used
in their respective operations or necessary for the conduct of their
respective business, and such properties and assets are subject to no
mortgages, liens, pledges, loans or encumbrances of any kind whatsoever. All
real and tangible personal property, including machinery, equipment and
fixtures currently used by Interfilm or InSub in the operation of their
respective businesses are, and at the time of the Closing will be, in good
operating condition and repair, ordinary wear and tear excepted, and are
adequate and suitable for the purposes for which they are presently being
used. To the best knowledge of Interfilm and InSub, all improvements on leased
property used by Interfilm or InSub in the operation of their respective
businesses and the present use thereof are in accordance with all applicable
laws. The value of any fixed asset used by Interfilm or InSub in the operation
of their respective businesses has not been written up or down, other than
pursuant to depreciation or amortization expenses in accordance with past
practice.
2.8 Inventories. Except as set forth on Schedule 2.8 hereto,
neither Interfilm nor InSub has, and at the time of the Closing Date will not
have, any inventories.
2.9 Accounts Receivable. Schedule 2.9 hereto sets forth (i) a
complete and accurate list of the accounts and notes receivables of Interfilm
and InSub as of the date of this Agreement, and (ii) a complete and accurate
aging of such accounts and notes receivables. Such accounts and notes
receivables arose in bona-fide arm's length transactions in the normal course
of business and such accounts and notes receivables are, and will be at the
Closing, valid and binding obligations of the account debtors without
counterclaims, set-offs or other defenses thereto. The values at which
accounts and notes receivables are carried on the books and records of
Interfilm or InSub reflect the receivables valuation policy of Interfilm and
InSub which is consistent with its past practice and in accordance with GAAP,
applied on a consistent basis.
2.10 Liabilities. Except as set forth on Schedule 2.10 hereto,
neither Interfilm nor InSub has, and as of the Closing Date will not have, any
liabilities, obligations or commitments of any kind whatsoever (whether
absolute, accrued, contingent or otherwise). Each of Interfilm and InSub has
furnished RhoMed with true and correct copies of each such document, agreement
and instrument evidencing the existing liabilities or contingent liabilities
set forth on Schedule 2.10, including all amendments with respect thereto
through the date of this Agreement.
2.11 Litigation. Except as set forth in Schedule 2.11 hereto,
no litigation, arbitration or proceeding is pending or, to the best knowledge
of Interfilm and InSub, threatened by or against Interfilm or InSub, their
respective properties or assets, the capital stock of each of Interfilm or
InSub or each of their respective officers, directors or securityholders
before any court or any government agency, and, to the best knowledge of
Interfilm and InSub, no facts exist which might form the basis for any such
litigation, arbitration or proceeding. To the best knowledge of Interfilm and
InSub, neither Interfilm nor InSub is the subject of any investigation for
violation of any laws, regulations or administrative orders applicable to
their respective businesses by any governmental authority or any other person.
There is no judgment, writ,
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decree, injunction, rule or order of any court, governmental department,
commission, agency, instrumentality or arbitrator outstanding against
Interfilm or InSub, their respective properties or assets or the capital stock
of Interfilm or InSub or which in any manner challenges or seeks to prevent,
enjoin, alter or materially delay any of the transactions contemplated hereby.
Each of Interfilm and InSub has furnished RhoMed with true and correct copies
of all pleadings relating to any ongoing litigation set forth on Schedule
2.11.
2.12 Taxes. Each of Interfilm and InSub has, subject to
extensions as permitted by applicable law, (i) duly and timely filed or caused
to be filed all federal, state and local tax returns required to be filed
prior to the date of this Agreement and will duly and timely file or cause to
be filed all applicable tax returns required to be filed prior to the Closing
which relate to Interfilm or InSub or with respect to which Interfilm or InSub
is liable or otherwise in any way subject, including, without limitation, any
income, property, sales, use, franchise, added value, withholding, and social
security taxes, and all such tax returns (A) are complete, accurate and in
accordance with all legal requirements applicable thereto and (B) as of the
time of filing, correctly reflected the facts regarding the income, business
assets, operations, activities, status or other matters of Interfilm and InSub
required to be shown thereon, (ii) paid, when due, all taxes shown to be due
and payable on such returns, or pursuant to any assessment or otherwise, and
(iii) properly accrued, charged or established adequate reserves for all taxes
arising in respect of any fiscal year of Interfilm or InSub. No tax
liabilities, disallowances or assessments relating to the business, assets or
employees or independent contractors of Interfilm or InSub have been assessed
as of the date hereof, and to the best knowledge of Interfilm and InSub there
is no basis for any such liabilities, disallowances or assessments. Neither
Interfilm nor InSub is delinquent in the payment of any taxes which would
result in the imposition of any charge, lien, encumbrance or adverse claim of
any kind whatsoever on Interfilm or InSub, their respective properties or
assets or the capital stock of Interfilm or InSub. Neither Interfilm nor InSub
is a party to or bound by (nor will Interfilm or InSub become a party to or
bound by) any tax indemnity, tax sharing or tax allocation agreement nor is
there any claim, audit, action, suit, proceeding, or investigation now pending
or threatened in writing against or with respect to Interfilm or InSub in
respect of any tax or assessment. Each of Interfilm and InSub has made
available to RhoMed true, complete and correct copies of their respective
federal income tax returns for the last three (3) taxable years and made
available such other tax returns requested by RhoMed.
2.13 No Breach of Agreements. The Transaction, and the
transactions between Interfilm, InSub and RhoMed occurring on or before the
Closing, will not result in or constitute any of the following: (i) a
conflict, violation or default with or an event that, with notice or lapse of
time or both, would be a default, breach, or violation of the Certificate of
Incorporation or Bylaws of Interfilm or the Articles of Incorporation or
Bylaws of InSub, or of any contract, lease, license, promissory note,
conditional sales contract, commitment, indenture, mortgage, deed of trust, or
other agreement, instrument or arrangement to which Interfilm or InSub is a
party or by which Interfilm or InSub or their respective assets are bound;
(ii) an event that would permit any party to terminate any agreement or to
accelerate the maturity of or permit the subordination of any indebtedness or
other obligation of Interfilm or InSub or the capital stock of Interfilm or
InSub; (iii) the creation or imposition of any charge, lien, encumbrance or
adverse claim of any kind whatsoever on any of the assets of Interfilm or
InSub or the capital stock of Interfilm or InSub; or (iv) conflict with or
result in the violation or breach of any law,
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<PAGE>
rule or regulation of any governmental authority, or any judgment, order,
injunction or decree applicable to Interfilm or InSub, their respective assets
or the capital stock of Interfilm or InSub.
2.14 Employees and Service Providers. Schedule 2.14 hereto sets
forth a listing of all employees of Interfilm who have not executed general
releases to Interfilm of any and all obligations of Interfilm to them.
Complete and accurate copies of all such releases have been supplied to
RhoMed. Except as set forth in Schedule 2.14, neither Interfilm nor InSub is
involved in any labor discussion with any unit or group seeking to become the
bargaining unit for any of Interfilm's or InSub's employees, nor has any such
unit or group notified Interfilm or InSub of an intention to commence any
organizational activities among the employees of Interfilm or InSub. Schedule
2.14 contains a listing of (i) each collective bargaining agreement and other
labor agreement to which Interfilm or InSub is a party or by which it is
bound; (ii) each employment, consulting, severance, deferred compensation,
incentive compensation, bonus, profit sharing, stock option, stock purchase,
stock appreciation, and any other employee benefit plan, contract, agreement,
or other arrangement (whether or not in writing) providing for compensation or
other benefits to employees (including officers), or independent contractors,
individually or as a group, to which Interfilm or InSub is a party or by which
it is bound; (iii) each "employee pension benefit plan" as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") and not exempted under Section 4(b) or 201 of ERISA maintained by
Interfilm or InSub or to which Interfilm or InSub is required to contribute
including any multi-employer pension plan; and (iv) each "employee welfare
benefit plan" as defined in Section 3(1) of ERISA maintained by Interfilm or
InSub or to which Interfilm or InSub contributes or is required to contribute,
including any multi-employer welfare plan, and each other plan under which
"fringe benefits" (including, without limitation, vacation plans or programs,
severance benefits, sick leave plans or programs, dental or medical plans or
programs, and related or similar benefits) are afforded to employees of, or
otherwise required to be provided by, Interfilm or InSub. Each of Interfilm
and InSub has complied in all material respects with all applicable laws,
rules and regulations relating to employment, including those relating to
wages, hours, collective bargaining and the payment and withholding of taxes
and other sums as required by appropriate governmental authorities. Except as
set forth in Schedule 2.14, all employee benefits plans, as defined in Section
3(3) of ERISA, of Interfilm and InSub in effect at any time since inception of
Interfilm and InSub are now, and have always been, established, maintained and
operated in accordance, in all material respects, with all applicable laws
(including, without limitation, ERISA and the Code) and all regulations and
interpretations thereunder and in accordance with their plan documents. There
is no unfunded liability for vested or non-vested benefits under any funded
employee benefit plan, and all contributions required to be made to or with
respect to each employee benefit plan and all costs of administering each
employee benefit plan have been completely and timely paid. With respect to
each benefit plan that is subject to Title IV of ERISA, no liability or
obligation has been incurred or is expected except for insurance premiums
under Section 4007 of ERISA, and all insurance premiums incurred or accrued up
to and including the Closing Date have been or will be timely paid by
Interfilm or InSub; and no amount is, and as of the Closing Date no amount
will be, due or owing from Interfilm or InSub to any "multi-employer plan" (as
defined in Section 3(37) of ERISA) on account of any withdrawal therefrom.
There has been no prohibited transaction as described in Section 406 of ERISA
and Section 4975 of the Code with respect to any employee benefit plan. No
employee benefit plan provides medical benefits to any former
10
<PAGE>
employees (including retirees) of Interfilm or InSub, other than benefits
required to be provided under Section 490B of the Code.
2.15 Directors, Officers and Employees. Schedule 2.15 hereto
sets forth a true and complete list of the names and current salaries of all
employees of Interfilm or InSub and of all agreements with such employees
(collectively, the "Employment Agreements"). Except for the Employment
Agreements, complete and accurate copies of which have been delivered to
RhoMed, neither Interfilm nor InSub is a party to any effective consulting or
employment agreements with individual consultants or employees (including
officers and directors). To the best knowledge of Interfilm and InSub, each of
Interfilm and InSub is in compliance with all currently applicable laws and
regulations respecting employment, discrimination in employment, verification
of immigration status, terms and conditions of employment and occupational
safety and health and equal employment opportunity practices, and is not
engaged in any unfair labor practice. Neither Interfilm nor InSub has received
any notice from any governmental entity, and there has not been asserted
before any governmental entity, any claim, action or proceeding to which
Interfilm or InSub is a party or involving Interfilm or InSub, and there is
neither pending nor, to the best knowledge of Interfilm and InSub, threatened
any investigation or hearing concerning Interfilm or InSub arising out of or
based upon any such laws, regulations or practices.
2.16 Insurance. Schedule 2.16 hereto sets forth a complete and
accurate list and summary of all policies of insurance of any nature
whatsoever maintained by Interfilm or InSub pertaining to the respective
businesses of Interfilm or InSub, showing, among other things, the amount of
coverage, the company issuing the policy and expiration date of each policy.
Such policies are in full force and effect and, except as otherwise set forth
in Schedule 2.16, such policies, or other policies covering the same risks,
have been in full force and effect, without gaps, continuously since each of
Interfilm and InSub's inception. Copies of all current insurance policies of
Interfilm and InSub have been made available to RhoMed for inspection. Neither
Interfilm nor InSub is in default under any of such policies, and neither have
not failed to give any notice or to present any claim under any such policy in
a due and timely fashion. Neither Interfilm nor InSub is aware of any facts
concerning Interfilm or InSub or their respective businesses, operations,
assets and liabilities, contingent or otherwise, upon which an insurer might
be justified in reducing coverage or increasing premiums on existing policies
and all such insurance polices can be maintained in full force and effect
without substantial increase in premium or reducing the coverage thereof
following the Closing Date. Schedule 2.16 sets forth by policy all accrued
insurance obligations relating to the respective businesses of Interfilm and
InSub as of the date of this Agreement.
2.17 Contracts and Licenses. Schedule 2.17 hereto sets forth a
complete and accurate list of:
(a) Each contract, whether written or oral, between
Interfilm or InSub and any party to whom Interfilm or InSub provides products
or services, which involved payments to Interfilm or InSub of more than Five
Thousand Dollars ($5,000.00) during the year ended December 31, 1995 or can
reasonably be expected to involve payments to Interfilm or InSub of more than
Five Thousand Dollars ($5,000.00) during or after the year ending December 31,
1996;
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(b) Each contract (except for real property leases,
equipment rental contracts, evidence of indebtedness and insurance contracts),
whether written or oral, between Interfilm or InSub and any party to whom
Interfilm or InSub is obligated or can reasonably be expected to pay more than
Five Thousand Dollars ($5,000.00) for any twelve (12) month period;
(c) Each agreement for the license of any patent,
copyright, trade secret or other proprietary right, or requiring
indemnification by Interfilm or InSub with respect to infringements of
proprietary rights;
(d) Each material permit, license, franchise, certificate
of need and each other material certificate or authorization issued to
Interfilm or InSub by any governmental authority having jurisdiction in any
area where Interfilm or InSub provides products or services (a "License" or
"Licenses");
(e) Each agreement, contract or commitment containing any
covenant limiting the freedom of Interfilm or InSub to engage in any line of
business or compete with any person;
(f) Each joint marketing or development agreement to which
Interfilm or InSub is a party, either directly or indirectly;
(g) Each distribution agreement (identifying any that
contain exclusivity provisions) to which Interfilm or InSub is a party and a
schedule of all distributors and resellers of Interfilm's or InSub's products
as of the date hereof;
(h) Each agreement, contract or commitment to which
Interfilm or InSub is a party relating to capital expenditures involving
future obligations in excess of Five Thousand Dollars ($5,000.00) and not
cancelable without penalty;
(i) Each agreement of indemnification or guaranty to which
Interfilm or InSub is a party other than indemnification agreements between
Interfilm or InSub and any of their respective officers or directors;
(j) Each agreement, contract or commitment to which
Interfilm or InSub is a party relating to the disposition or acquisition of
assets not in the ordinary course of business or any ownership interest in any
corporation, partnership, joint venture or other business enterprise;
(k) Each mortgage, indenture, loan or credit agreement,
security agreement or other agreement or instrument to which Interfilm or
InSub is a party relating to the borrowing of money or extension of credit;
and
(l) Each other agreement of Interfilm or InSub which would
otherwise be required to be filed as an exhibit pursuant to Item 601(b)(10) of
Regulation S-K of the Securities Act of 1933, as amended (the "Securities
Act") if either Interfilm or InSub was filing a Registration Statement on Form
S-1 on the date hereof.
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The contracts and agreements which are required to be identified in Schedule
2.17 are hereinafter referred to as the "Contracts." True and complete copies
of each written Contract and true and complete written summaries of each oral
Contract have been delivered to RhoMed by Interfilm and InSub. Except as set
forth in Schedule 2.17:
(i) Each of the Contracts is a valid, binding and
enforceable agreement of Interfilm or InSub and, the other parties
thereto and will continue to be valid, binding and enforceable after
the Closing Date;
(ii) As of the date hereof, neither Interfilm nor InSub
has any reason to believe that it will not be able to fulfill all of
its obligations under the Contracts which remain to be performed
after the date hereof;
(iii) There has not occurred any material default (or
event which upon the provision of notice or lapse of time or both
would become such a default) under any of the Contracts on the part
of Interfilm or InSub;
(iv) The Contracts are all of the agreements, contracts
and instruments that are material to Interfilm or InSub and
necessary for the operation of its businesses;
(v) The Licenses are the only governmental permits,
licenses, franchises, certificates of need and other certificates
and authorizations that are required for and are material to the
operation of Interfilm's or InSub's businesses as such businesses
are now, and since January 1, 1993 have been, conducted;
(vi) The Licenses are, and as of the Closing Date will be,
in full force and effect and the continuing validity and
effectiveness of such Licenses will not be affected by the exchange
of the Interfilm Preferred to the RhoMed Shareholders as herein
contemplated; and
(vii) Each of Interfilm and InSub is and has been in
compliance in all material respects with all material conditions or
requirements of the Licenses, and neither Interfilm nor InSub has
been notified by any governmental or licensing authority that such
parties intend to cancel, terminate or modify any of such Licenses,
and neither Interfilm nor InSub knows of any valid grounds for any
such cancellation, termination or modification.
2.18 Intellectual Property Rights. Schedule 2.18 hereto sets
forth a list of all patents, patent applications, inventions, trade names,
trademarks, service marks, brandmarks, copyrights, registrations and
applications therefor (collectively, the "Rights"), owned by or used in the
respective businesses of Interfilm or InSub, or which are registered in the
name of Interfilm or InSub. The Rights are adequate for the conduct of the
respective businesses of Interfilm or Insub and, to the best knowledge of
Interfilm and InSub, are not being infringed or violated by any other person
or entity, nor do they infringe any rights of others. All Rights are vested in
(or, if applicable, leased or licensed by) Interfilm or InSub free and clear
of any charges, liens, encumbrances or adverse claims of any kind whatsoever.
All Rights which are licenses granted to Interfilm or InSub by others are
identified in Schedule 2.18, and all such
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licenses will continue in full force and effect upon the consummation of the
transactions contemplated hereby.
2.19 Customers. No customer of Interfilm or InSub has exercised
any right of return or similar remedy with respect to any products or services
provided by Interfilm or InSub, and neither Interfilm nor InSub is, to the
best of its knowledge, aware of any intentions, claims or plans by any
customers to return any products or cancel services in the future.
2.20 Charter Documents. Each of Interfilm and InSub has
provided to RhoMed for its examination (i) complete and accurate copies of the
Certificate of Incorporation and Bylaws of Interfilm and the Articles of
Incorporation and Bylaws of InSub, both as amended to the Closing Date; (ii)
the minute books of Interfilm and InSub containing all proceedings, consents,
actions and meetings of the stockholders and Board of Directors of Interfilm
and the shareholders and Board of Directors of InSub; and (iii) the stock
transfer books of each of Interfilm and InSub setting forth all transfers of
capital stock of each of Interfilm and InSub since their respective
inceptions.
2.21 Powers of Attorney; Bank Accounts. Schedule 2.21 hereto
sets forth (i) the names and addresses of all persons holding a power of
attorney on behalf of Interfilm or InSub; and (ii) the names and addresses of
all banks or other financial institutions in which Interfilm or InSub has an
account, deposit, or safe-deposit box, with the number and a description of
the account and the names of all persons authorized to draw on such accounts
or deposits or to have access to such boxes.
2.22 Compliance with Law, Consents. The respective businesses
and operations of Interfilm and InSub have been and are being conducted in
compliance with all laws, rules, regulations and licensing requirements
applicable thereto. Neither Interfilm nor InSub is aware of any facts which
might form the basis for a claim that any material violation of such laws
exists. There are no unresolved notices of deficiency or charges of violation
brought or, to the best knowledge of Interfilm and InSub, threatened against
Interfilm or InSub, under any federal, state or local laws or regulations.
Except in connection with the Fairness Hearing (as hereinafter defined) and
the filing of the Certificate of Merger, no consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority or any
non-governmental third party on the part of Interfilm or InSub is required in
connection with the execution, delivery and performance by Interfilm or InSub
of this Agreement, the consummation of the transactions contemplated hereby.
2.23 Environmental Matters.
(a) For the purposes of this Agreement, the term
"Environmental Laws" shall mean all federal, state and local environmental
protection, occupational, health and safety or similar laws, ordinances,
restrictions, licenses, rules, regulations and permit conditions, including,
without limitation, the Federal Water Pollution Control Act, Resource
Conservation & Recovery Act, Clean Air Act, Compensation and Liability Act,
Emergency Planning and Community Right to Know, Occupational Safety and Health
Act and other federal, state or local laws of similar effect, each as amended,
and the term "Hazardous Materials" shall mean any
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hazardous or toxic substances, wastes or materials, defined as such or
governed by any applicable Environmental Law.
(b) (i) Neither Interfilm nor InSub has received any
notices, directives, violation reports, actions or claims from or by (1) any
federal, state or local governmental agency concerning Interfilm or InSub and
any applicable Environmental Law, or (2) any person alleging that, in
connection with Hazardous Materials, conditions at any real properties leased
by Interfilm or InSub have resulted in or caused or threatened to result in or
cause injury or death to any person or damages to any property, including,
without limitation, damage to natural resources, and to the best knowledge of
Interfilm and InSub no such notices, directives, violation reports, actions,
claims, assessments or allegations exist; (ii) neither Interfilm nor InSub
currently leases, operate or own any real properties that are listed or are
threatened to be listed on a "Superfund" List or with respect to which there
is any pending proceeding or investigation under any applicable Environmental
Law, and, to the best knowledge of Interfilm and InSub, no such proceeding or
investigation is threatened; (iii) throughout the period of operation of any
real properties by Interfilm or InSub, each of Interfilm and InSub has
operated and continues to operate such real properties in compliance with all
applicable Environmental Law; (iv) no underground storage tanks either are or,
to the best knowledge of Interfilm and InSub, have been located at any of such
real properties; (v) there has been no spill, discharge, release,
contamination or cleanup of or by any Hazardous Materials used, generated,
treated, stored, disposed of or handled by Interfilm or InSub at such real
properties and to the best knowledge of Interfilm and InSub, no spill,
discharge or release or contamination or cleanup of or by Hazardous Materials
has occurred on or to such real properties by any third party; (vi) Neither
Interfilm nor InSub has used, generated, treated, stored, disposed of,
handled, transported or released any Hazardous Material in a manner which
would give rise to any liability under any applicable Environmental Law; (vii)
neither Interfilm nor InSub is aware of any facts, events, or conditions
(including, without limitation, the generation, treatment, transport, storage,
emission, disposal, release or other placement, deposit or location of any
substance) which materially interfere with or prevent continued compliance by
Interfilm or InSub with, or give rise to any present or potential liability
(including with respect to past activities) under any applicable Environmental
Law; and (viii) to the best knowledge of Interfilm and InSub, neither
Interfilm nor InSub has released any other person from any claim under any
applicable Environmental Law nor waived any rights or defenses concerning any
environmental conditions.
2.24 Affiliate Relationships. Neither Interfilm nor InSub has
any material financial interest, direct or indirect, in any supplier or
service provider to, or customer of, subsidiary or other party to any contract
or other arrangement which is material to Interfilm or InSub. No officer,
director or securityholder of Interfilm or InSub (nor any spouse of any of
such persons, or any trust, partnership or corporation in which any of such
persons has or has had a material economic interest), has or has had, directly
or indirectly, (i) an interest in any entity which furnishes or sells a
material amount of products or services that Interfilm or InSub furnishes or
sells; (ii) an interest in any entity that purchases from or sells or
furnishes to Interfilm or InSub, any material amount of products or services;
(iii) a beneficial interest in any contract or agreement set forth in Schedule
2.17; or (iv) a beneficial interest in RhoMed; provided, that ownership of no
more than one percent (1%) of the outstanding voting stock of a publicly
traded corporation shall not be deemed an "interest in any entity" for
purposes of this Section 2.24.
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2.25 Brokers or Finders. Neither Interfilm nor InSub has
incurred, and will not incur, directly or indirectly, any liability for
brokerage or finders' fees or agents' commissions or any similar charges in
connection with this Agreement or any transaction contemplated hereby other
than fees payable to Wharton Capital, in an amount equal to 5,588.6860985
shares of Interfilm Series B Preferred, which fees will be paid by RhoMed
immediately following the Closing.
2.26 Representations Complete. None of the representations and
warranties made by Interfilm or InSub herein, nor any statement made in any
Exhibit, Schedule or certificate furnished pursuant to this Agreement,
contains or will contain any untrue statement of a material fact, or omit to
state any material fact required to be stated therein, or necessary in order
to make the statements made, in light of the circumstances under which they
were made, not misleading.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF RHOMED
RhoMed represents and warrants to each of Interfilm and InSub that:
3.1 Corporate Existence, Good Standing and Authority. RhoMed is
a corporation duly organized, validly existing and in good standing under the
laws of the State of New Mexico. RhoMed has full corporate power and corporate
authority to carry on its business as now being conducted and is entitled to
own, lease or operate the property and assets now owned, leased or operated by
it, and has no operations and conducts no business outside of the states or
countries listed on Schedule 3.1 hereto. RhoMed is qualified to do business,
is in good standing and has all required and appropriate licenses in each
jurisdiction in which its failure to obtain or maintain such qualification,
good standing or licensing (i) would, individually or in the aggregate, have
or reasonably could be expected to have a Material Adverse Effect on RhoMed;
or (ii) would result in a material breach of any of the other representations,
warranties or covenants set forth in this Agreement. RhoMed has all requisite
corporate power and corporate authority to enter into this Agreement and all
other documents contemplated hereby (collectively, the "RhoMed Documents") and
to consummate the transactions contemplated hereby. The RhoMed Documents have
been duly executed and delivered by RhoMed, have been authorized by all
necessary corporate action of RhoMed and constitute legal, valid and binding
obligations of RhoMed, enforceable against RhoMed in accordance with their
terms, except as such enforceability may be limited by bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium and other laws relating to
or affecting creditors' rights generally and by general equitable principles.
3.2 Capitalization. The authorized capital stock of RhoMed
consists of Sixty Million (60,000,000) shares of common stock, par value $0.01
per share, of which Twelve Million Nine Hundred Eighty Eight Thousand Sixty
Nine (12,988,069) shares are presently issued and outstanding, of which Six
Million Sixty Thousand (6,060,000) shares have been issued in connection with
the Financing, and Ten Million (10,000,000) shares of preferred stock, par
value $0.01 per share, of which Four Million (4,000,000) shares are presently
issued and outstanding. All outstanding shares of RhoMed capital stock have
been duly authorized and
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validly issued and are fully paid and nonassessable. Except as set forth on
Schedule 3.2 hereto, there have been no additional shares of capital stock of
RhoMed which have been issued and are presently outstanding and there are no
subscriptions, options, warrants, conversion rights, rights of exchange or
other rights, plans, agreements or commitments of any nature whatsoever
(including, without limitation, conversion or preemptive rights) providing for
the purchase, issuance, transfer, registration or sale of any shares of
RhoMed's capital stock or any securities convertible into or exchangeable for
any shares of RhoMed capital stock (collectively, the "RhoMed Derivative
Securities"). Except as set forth on Schedule 3.2, none of the RhoMed
Derivative Securities are entitled to be accelerated as a result of the
Transaction, the Merger or the Financing. All of the shares of capital stock
issued by RhoMed and the RhoMed Derivative Securities have been issued
pursuant to valid exemptions from registration under all federal and state
securities laws and there are no outstanding obligations of RhoMed to
repurchase, redeem or otherwise acquire any of the shares of capital stock
issued by RhoMed or any of the RhoMed Derivative Securities.
3.3 Subsidiaries. Except as set forth in Schedule 3.3
hereto, RhoMed does not presently own, directly or indirectly, any interest in
any other corporation, association, joint venture or other business entity.
Any such subsidiary disclosed in Schedule 3.3 is duly organized, validly
existing and in good standing under the laws of the state or country of its
incorporation or organization and has the corporate power to own its
properties and carry on its business as now conducted, and is in good standing
in each jurisdiction in which the failure to so qualify would have a Material
Adverse Effect. RhoMed directly or indirectly owns all of the outstanding
shares of capital stock of or other equity interests in any subsidiary, free
and clear of any charge, lien, encumbrance or adverse claim of any kind
whatsoever, and there are no existing options, warrants, calls or commitments
of any kind relating to the authorized and unissued capital stock of or other
equity interests in any such subsidiary. For the purposes of this Agreement,
except where the context otherwise requires, the term "RhoMed" shall include
RhoMed and all of RhoMed's subsidiaries, taken as a whole.
3.4 Financial Statements. The audited balance sheet and related
statements of income and cash flows of RhoMed at and for its fiscal years
ended August 31, 1995 and August 31, 1994 (the "RhoMed Financial Statements")
and the unaudited balance sheet and related statements of income and cash
flows of RhoMed at and for the six (6) month period ended February 29, 1996
(the "RhoMed Interim Financial Statements") are attached hereto as Schedule
3.4. The internal books and records of RhoMed from which the RhoMed Financial
Statements and the RhoMed Interim Financial Statements were derived do not
contain any information which is false or misleading. The RhoMed Financial
Statements and the RhoMed Interim Financial Statements (i) were prepared in
accordance with such books and records; (ii) were prepared in accordance with
RhoMed's accounting policies and principles, and are in accordance with GAAP;
and (iii) present fairly RhoMed's financial position and results of operations
at the dates and for the periods reflected therein.
3.5 Absence of Certain Changes. Except as set forth in Schedule
3.5 hereto, since February 29, 1996, there has not been:
(a) Any Material Adverse Effect in RhoMed;
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(b) Any increase in or modification of any bonus, pension,
insurance or other employee benefit plan, payment or arrangement (including,
without limitation, the granting of stock options, restricted stock awards or
stock appreciation rights) made to, for or with any of RhoMed's directors or
employees except in the ordinary course of business;
(c) Any declaration, setting aside or payment of dividends
or distributions in respect of the capital stock of RhoMed, or any split-up or
other recapitalization in respect of the capital stock of RhoMed or any direct
or indirect redemption, purchase or other acquisition of any such capital
stock of RhoMed or any agreement to do any of the foregoing;
(d) Any issuance, transfer, sale or pledge by RhoMed of
any shares of its capital stock or other securities or of any commitment,
option, right or privilege under which RhoMed is or may become obligated to
issue any shares of its capital stock or other securities;
(e) Any alteration in any term of any outstanding
securities of RhoMed, except as otherwise contemplated by this Agreement;
(f) Any change in the accounting methods, practices or
policies followed by RhoMed from those in effect during the past year;
(g) Any sale, assignment, or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets of material
value by RhoMed;
(h) Any change in or amendment to the Articles of
Incorporation or Bylaws of RhoMed; or
(i) Any agreement or commitment, whether written or oral,
by RhoMed to do any of the things described in this Section 3.5.
3.6 Liabilities. Except as set forth on Schedule 3.6 hereto,
RhoMed does not have, and as of the Closing Date will not have, any individual
liability, obligation or commitment of any kind which exceeds Twenty-Five
Thousand Dollars ($25,000.00) (whether absolute or accrued). RhoMed has
furnished Interfilm and InSub with true and correct copies of each such
document, agreement and instrument evidencing such liabilities or contingent
liabilities set forth on Schedule 3.6, including all amendments with respect
thereto through the date of this Agreement.
3.7 Litigation. Except as set forth in Schedule 3.7 hereto, no
litigation, arbitration or other proceeding is pending or, to the best
knowledge of RhoMed, threatened by or against RhoMed, its properties or
assets, the capital stock of RhoMed or its officers, directors or shareholders
before any court or any government agency, and, to the best knowledge of
RhoMed, no facts exist which might form the basis for any such litigation,
arbitration or proceeding. To the best knowledge of RhoMed, RhoMed is not the
subject of any investigation for violation of any laws, regulations or
administrative orders applicable to its business by any
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governmental authority or any other person. There is no judgment, decree,
injunction, rule or order of any court, governmental department, commission,
agency, instrumentality or arbitrator outstanding against RhoMed, its
properties or assets or the capital stock of RhoMed or which in any manner
challenges or seeks to prevent enjoin, alter or materially delay any of the
transactions contemplated hereby.
3.8 Charter Documents. RhoMed has provided to Interfilm for its
examination complete and accurate copies of the Articles of Incorporation and
Bylaws of RhoMed, both as amended to the Closing Date.
3.9 Consents and Approvals. The business and operations of
RhoMed have been and are being conducted in material compliance with all laws,
rules, regulations and licensing requirements applicable thereto. RhoMed is
unaware of any facts which might form the basis for a claim that any material
violation of such laws exists. There are no unresolved notices of deficiency
or charges of violation brought or, to the best knowledge of RhoMed without
due inquiry, threatened against RhoMed, under any federal, state or local laws
or regulations. Except in connection with the consent of the RhoMed
Shareholders and the filing of the Certificate of Merger, no consent,
approval, order, authorization of, or registration, qualification,
designation, declaration or filing with, any federal, state or local
governmental authority or any non-governmental third party on the part of
RhoMed is required in connection with the execution, delivery and performance
by RhoMed of this Agreement, the consummation of the transactions contemplated
hereby or RhoMed's operation of its business following the Closing Date.
3.10 Taxes. Except as set forth on Schedule 3.10 hereto, RhoMed
has, subject to extensions as permitted by applicable law, (i) duly and timely
filed, or caused to be filed all federal, state and local tax returns required
to be filed prior to the date of this Agreement and will duly and timely file
or cause to be filed all applicable tax returns required to be filed prior to
the Closing which relate to RhoMed or with respect to which RhoMed is liable
or otherwise in any way subject, including, without limitation, any income,
property, sales, use, franchise, added value, withholding, and social security
taxes, and all such tax returns (A) are complete, accurate and in accordance
with all legal requirements applicable thereto and (B) as of the time of
filing, correctly reflected the facts regarding the income, business assets,
operations, activities, status or other matters of RhoMed required to be shown
thereon, (ii) paid, when due, all taxes shown to be due and payable on such
returns, or pursuant to any assessment or otherwise, and (iii) properly
accrued, charged or established adequate reserves for all taxes arising in
respect of any fiscal year of RhoMed. No tax liabilities, disallowances or
assessments relating to the business, assets or employees or independent
contractors of RhoMed have been assessed as of the date hereof. Except as set
forth on Schedule 3.10, RhoMed is not delinquent in the payment of any taxes
which would result in the imposition of any charge, lien, encumbrance or
adverse claim of any kind whatsoever on RhoMed, its properties or assets or
the capital stock of RhoMed. RhoMed is not a party to or bound by (nor will
Interfilm or InSub become a party to or bound by) any tax indemnity, tax
sharing or tax allocation agreement nor is there any claim, audit, action,
suit, proceeding, or investigation now pending or threatened in writing
against or with respect to RhoMed in respect of any tax or assessment.
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3.11 No Breach of Agreements. The consummation of the
transactions contemplated by this Agreement, and the transactions between
RhoMed, Interfilm and InSub occurring on or before the Closing, will not
result in or constitute any of the following: (i) a conflict, violation or
default with or an event that, with notice or lapse of time or both, would be
a default, breach, or violation of the Articles of Incorporation or Bylaws of
RhoMed, or of any contract, lease, license, promissory note, conditional sales
contract, commitment, indenture, mortgage, deed of trust, or other agreement,
instrument or arrangement to which RhoMed is a party or by which RhoMed or its
assets are bound; (ii) an event that would permit any party to terminate any
agreement or to accelerate the maturity of or permit the subordination of any
indebtedness or other obligation of RhoMed or the capital stock of RhoMed;
(iii) the creation or imposition of any charge, lien, encumbrance or adverse
claim of any kind whatsoever on any of the assets of RhoMed or the capital
stock of RhoMed; or (iv) conflict with or result in the violation or breach of
any law, rule or regulation of any governmental authority, or any judgment,
order, injunction or decree applicable to RhoMed, its assets or the capital
stock of RhoMed.
3.12 Intellectual Property Rights. Schedule 3.12 hereto sets
forth a list of all patents, trade names, trademarks, service marks,
brandmarks and copyrights (collectively, the "RhoMed Rights"), owned by or
used in the business of RhoMed, or which are registered in the name of RhoMed.
As of the date of this Agreement, RhoMed has not received any notices of
infringement with respect to the RhoMed Rights and, to the best knowledge of
RhoMed without any due investigation, the RhoMed Rights are not being
infringed or violated by any other person or entity, nor do they infringe any
rights of others. All RhoMed Rights which are licenses granted to RhoMed by
others are identified in Schedule 3.12, and all such licenses will continue in
full force and effect upon the consummation of the transactions contemplated
hereby.
3.13 Brokers or Finders. RhoMed has not incurred, and will not
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement
or any transaction contemplated hereby other than fees payable to Wharton
Capital, in an amount equal to 5,588.6860985 shares of Interfilm Series B
Preferred, which fees will be paid by RhoMed immediately following the
Closing.
3.14 Representations Complete. None of the representations and
warranties made by RhoMed herein, nor any statement made in any Exhibit,
Schedule or certificate furnished pursuant to this Agreement, contains or will
contain any untrue statement of a material fact, or omit to state any material
fact required to be stated therein, or necessary in order to make the
statements made, in light of the circumstances under which they were made, not
misleading.
ARTICLE 4
CERTAIN COVENANTS AND AGREEMENTS
4.1 Conduct of Business by Interfilm and InSub. During the
period from the date of this Agreement to the Closing Date, each of Interfilm
and InSub shall conduct their respective operations only according to its
ordinary and usual course of business and will use its best efforts to
preserve intact its business organization, keep available the services of its
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officers and employees and maintain satisfactory relationships with licensors,
suppliers, distributors, clients and others having business relationships with
Interfilm or InSub. During the period from the date of this Agreement to the
Closing Date, each of Interfilm and InSub shall confer on a regular and
frequent basis with one or more designated representatives of RhoMed to report
material operational matters and to report the general status of ongoing
operations, including, without limitation, weekly development reports
concerning Section 4.1(a)(vi) below. Each of Interfilm and InSub shall
immediately notify RhoMed of any emergency or other change in the normal
course of its business or in the operation of its properties and of any
governmental complaints, investigations or hearings (or communications
indication that the same may be contemplated), adjudicatory proceedings,
budget meetings or
submissions involving Interfilm and permit RhoMed's representatives prompt
access to all materials prepared in connection therewith. Further:
(a) From the date hereof until the Closing, neither
Interfilm nor InSub shall, without RhoMed's prior express written consent or
except as expressly permitted hereby:
(i) incur any additional indebtedness, or guarantee any
indebtedness or obligation of any other party;
(ii) issue, redeem or purchase any of Interfilm's or
InSub's capital stock or securities convertible into Interfilm or
InSub capital stock or grant or issue any options, warrants or
rights to subscribe for Interfilm or InSub capital stock or
securities convertible into Interfilm or InSub capital stock or
commit to do any of the foregoing;
(iii) enter into, amend or terminate any material
agreement or arrangement;
(iv) increase the compensation payable or to become
payable to any of Interfilm's or InSub's officers, employees or
agents, including, without limitation, the payment or obligation to
pay any bonus, pension, retirement or insurance proceeds to such
persons, or adopt or amend any employee benefit plan or arrangement;
(v) enter into any employment contract or agreement with
any existing or prospective employee which is not terminable at
will;
(vi) pay any obligation or liability, fixed or contingent,
other than pursuant to the terms of Section 5.17 this Agreement, in
connection with the reduction of the outstanding liabilities of
Interfilm as of the Closing Date;
(vii) cancel, without full payment, any note, loan or
other obligation owing to Interfilm or InSub;
(viii) acquire or dispose of any properties or assets used
in the business of Interfilm or InSub;
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(ix) create or suffer to be imposed any lien, mortgage,
security interest or other charge on or against Interfilm's or
InSub's properties or assets;
(x) engage in any other material activities or
transactions;
(xi) make or adopt any change in the Certificate of
Incorporation or Bylaws of Interfilm or the Articles of
Incorporation or Bylaws of InSub as in force and effect on the date
hereof; or
(xii) take any action, or omit to take any action, within
their control, that would cause, and shall promptly notify RhoMed in
writing of any event or occurrence which cause any of the
representations and warranties set forth in Article 2 hereof to
become untrue, incomplete, or inaccurate in any material respect as
or prior to the Closing Date.
(b) From the date hereof until the Closing, or except as
expressly permitted hereby, each of Interfilm and InSub shall, unless
otherwise expressly consented to in writing by RhoMed:
(i) maintain Interfilm's and InSub's existing insurance
policies, unless comparable insurance is substituted therefor, and
shall not take any action to terminate or modify those insurance
policies;
(ii) maintain Interfilm's and InSub's books and records
consistent with past practices and policies and in accordance with
GAAP;
(iii) maintain in good working condition, ordinary wear
and tear excepted, and in compliance in all material respects with
all applicable laws and regulations, all fixed assets owned, leased
or operated, as the case may be, by Interfilm or InSub;
(iv) observe and perform, and remain in compliance with,
Interfilm's or InSub's obligations in agreements and contracts the
breach or violation of which would have, individually or in the
aggregate, a Material Adverse Effect and not enter into any
agreements or contracts which would require payments by Interfilm or
InSub of more than Five Thousand Dollars ($5,000.00) over any period
of twelve (12) months; and
(v) maintain compliance with the terms and conditions of
all Licenses and Rights held by Interfilm or InSub or under which it
operates or conducts its businesses and use their best efforts to
maintain all such Licenses and Rights in full force and effect.
4.2 Conduct of Business by RhoMed. During the period from the
date of this Agreement to the Closing Date, RhoMed shall conduct its
operations in the ordinary and usual course to preserve intact its business
organization, keep available the services of its officers and
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employees and maintain satisfactory relationships with licensors, suppliers,
distributors, clients and others having business relationships with RhoMed.
4.3 Necessary Consents. Prior to the Closing, each of the
parties hereto shall obtain such written consents and releases and take such
other actions as may be necessary or appropriate to allow the consummation of
the transactions contemplated hereby and to allow the continuation of
Interfilm's and InSub's respective businesses by RhoMed after the Closing as
conducted at the date hereof.
4.4 Access to Information. Each of the parties hereto (each a
"Disclosing Party") shall give the other parties and their respective
accountants, legal counsel and other representatives (collectively, the
"Requesting Parties") full access, during normal business hours throughout the
period prior to the Closing, to all of the properties, books, contracts,
commitments and records relating to the business, assets and liabilities of
the Disclosing Party, and shall furnish the Requesting Parties, their
respective accountants, legal counsel and other representatives during such
period all such information concerning its affairs as the Requesting Parties
may reasonably request; provided, that any furnishing of such information
pursuant hereto or any investigation by a Requesting Party shall not affect
such Requesting Party's right to rely on the representations, warranties and
covenants made by the Disclosing Party in this Agreement. Pending the Closing,
each Requesting Party shall hold in confidence all information so obtained and
will use such information only for purposes related to the transactions
contemplated hereby. Each Requesting Party further agrees that, pending the
Closing, it will not disclose any such information to any third party except
upon the prior written consent of the Disclosing Party, or except as required
by law or except to its accountants, legal counsel or other representatives
who have agreed to maintain the confidentiality of such information. If the
transactions contemplated hereby are not consummated, the Requesting Party
shall return all data to the Disclosing Party and continue to honor the
foregoing confidentiality and non-disclosure covenants for a period of three
(3) years. Such obligation of confidentiality shall not extend to any
information (i) which is shown to be or to have been generally known to others
engaged in the same trade or business as the Disclosing Party; (ii) previously
known to the Requesting Party prior to the start of discussions leading to the
execution of this Agreement; (iii) obtained by the Requesting Party in good
faith from third parties who are not obligated to maintain the information
confidential; (iv) that is or shall be public knowledge through no act or
omission by the Requesting Party or any of its directors, officers, employees,
or representatives; or (v) that is required to be disclosed pursuant to any
law, rule or regulation or pursuant to any order or decree of any appropriate
court or governmental agency or pursuant to any disclosure obligations set
forth in the federal securities laws.
4.5 Disclosure of Transaction. Each of the parties hereto agree
to issue a mutually acceptable joint press release upon the execution of this
Agreement and upon the Closing. Each party will review and agree to the text
of any other public announcement related to this Agreement, the Closing or the
transactions contemplated hereby prior to the release thereof.
4.6 Other Negotiations. Prior to the Closing, or such earlier
date on which this Agreement is terminated in accordance with its terms, none
of the parties hereto nor any of their respective officers, directors,
employees, agents or representatives will, directly or
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indirectly, initiate discussions or negotiate, or authorize any person or
entity to discuss or negotiate on behalf of such party with any other party,
or entertain or consider any inquiries or proposals received from any other
party, concerning the possible disposition of such party's business, assets or
capital stock, in whole or in part. None of the parties hereto will furnish
any information concerning such party to any person other than the other
parties hereto for the purpose of, or with the intent of, permitting such
person or entity to evaluate a possible acquisition of such party's business,
assets or capital stock, in whole or in part. Notwithstanding anything in this
Section 4.6 to the contrary, each of the parties hereto shall be permitted to
take any action otherwise prohibited in this Section, if any such action, in
the good faith judgment of the Board of Directors of such party based upon the
advice of counsel, is required under applicable law in the exercise of the
fiduciary duties of the Board of Directors of such party.
4.7 Certain Defaults; Litigation. Each of the parties hereto
will give prompt notice to the other parties of:
(a) any notice of default received by such party
subsequent to the date of this Agreement and prior to the Closing under any
instrument or agreement to which such party or its assets is a party or by
which it is bound, which default could, if not remedied, result in a Material
Adverse Effect or which would render incorrect or misleading any
representation made herein, and
(b) any suit, action, proceeding or investigation
instituted or threatened against or affecting such party subsequent to the
date of this Agreement and prior to the Closing which, if adversely
determined, could result in a Material Adverse Effect or which would render
incorrect or misleading any representation made herein.
4.8 NASD Electronic Bulletin Board Additional Shares
Notification. Prior to the Closing, Interfilm shall maintain its listing on
the NASD Electronic Bulletin Board and shall comply with all required rules or
regulations in order to cause the shares of Interfilm Common into which the
shares of Interfilm Preferred are to be converted, as set forth in the
Certificates of Designation described in Section 5.14 herein, to be approved
for listing on the NASD Electronic Bulletin Board, subject to official notice
of issuance.
4.9 Audited Financial Statements. At least thirty (30) days
prior to the Closing Date, Interfilm shall deliver to RhoMed audited
consolidated financial statements of Interfilm, including footnotes, for the
fiscal year ended December 31, 1995 in reviewable form and prepared by
Interfilm's independent auditors in accordance with GAAP (the "Interfilm
Audit").
4.10 RhoMed Financial Statements. At least thirty (30) days
prior to the Closing Date, RhoMed shall deliver to Interfilm unaudited summary
financial statements of RhoMed for the period from September 1, 1995 to
February 29, 1996 in reviewable form and prepared in accordance with GAAP.
4.11 Financing.
(a) RhoMed shall use its best efforts to effect the sale
of up to an aggregate amount of Five Million Dollars ($5,000,000.00) of RhoMed
Common at Twenty-Five
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Cents ($0.25) per share (the "Private Placement Shares") in a private
placement transaction solely to "Accredited Investors", as such term is
defined under Regulation D promulgated under the Securities Act (the "Private
Placement"). As of the date hereof, Six Million Sixty Thousand (6,060,000)
shares of RhoMed Common have been issued in connection with the Financing. The
Private Placement is more fully described on the term sheet attached hereto as
Exhibit A.
(b) In addition to the Private Placement, those principals
of Interfilm and certain third parties set forth on Schedule 4.11 hereto shall
purchase Six Hundred Thousand Dollars ($600,000.00) of RhoMed Common (the "IF
Purchaser Financing Shares" and together with the Private Placement Shares
collectively referred to herein as the "Financing Shares") in a private
placement transaction solely to Accredited Investors (the "IF Purchaser
Financing" and together with the Private Placement collectively referred to
herein as the "Financing") in the amounts set forth next to such investor's
name on Schedule 4.11 on the same terms as the Private Placement with the
proceeds of such sale being placed, within seventy two (72) hours of the
receipt by Interfilm of written notice from RhoMed to the effect that RhoMed
has received gross proceeds of Three Million Five Hundred Thousand Dollars
($3,500,000.00) in connection with the Financing, into escrow pending the
Closing pursuant to the escrow agreement substantially in form and substance
reasonably satisfactory to Interfilm and its counsel (the "Escrow Agreement").
Certain purchasers and third parties set forth on Schedule 4.11 shall also
receive warrants to purchase RhoMed Common substantially in the form as
attached hereto as Exhibit B (the "Interfilm Warrants").
4.12 RhoMed Voting Agreement. The holders of at least fifty-one
percent (51%) of the total outstanding shares entitled to vote of each of
RhoMed Common and RhoMed preferred stock shall have executed a voting
agreement (the "RhoMed Voting Agreement") whereby such shareholders agree to
vote their respective shares in favor of the approval of this Agreement and
such agreement shall have been delivered to Interfilm and InSub no later than
five (5) business days following the execution of this Agreement.
ARTICLE 5
CONDITIONS PRECEDENT TO
OBLIGATIONS OF RHOMED
The obligations of RhoMed to consummate the transactions contemplated by
this Agreement are subject to the satisfaction, at or before the Closing, of
all the following conditions, unless expressly waived in writing by RhoMed:
5.1 Representations and Warranties True. All representations
and warranties by each of Interfilm and InSub in this Agreement or the
Schedules and Exhibits hereto, or in any written statement or certificate that
shall be delivered by Interfilm or InSub under this Agreement shall be true on
and as of the Closing Date as though such representations and warranties and
Schedules and Exhibits were made on and as of that date.
5.2 Covenants Performed. Each of Interfilm and InSub shall have
performed, satisfied, and complied with all covenants, agreements, and
conditions required by this
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Agreement to be performed or complied with by Interfilm or InSub on or before
the Closing Date.
5.3 Certificate. RhoMed shall have received from Interfilm and
InSub a certificate from the officers of Interfilm and InSub, dated the
Closing Date, certifying, in such detail as RhoMed and its counsel may
reasonably request, that the conditions specified in this Article 5 have been
satisfied.
5.4 Opinion of Counsel for Interfilm and InSub. RhoMed shall
have received an opinion from Loeb & Loeb, LLP, counsel for Interfilm and
InSub, dated the Closing Date, in form and substance satisfactory to RhoMed
and its counsel (the "L&L Opinion").
5.5 No Violations; No Actions. Consummation of the Transaction
shall not violate any order, decree or judgment of any court or governmental
body having competent jurisdiction and no action or proceeding shall have been
instituted or threatened by any person, entity or governmental agency which,
in any such case, in the sole judgment of RhoMed, has a reasonable probability
of resulting in (i) the obtaining of material damages from Interfilm or InSub;
(ii) an order, judgment or decree restraining, prohibiting or rendering
unlawful the consummation of the Transaction or the Financing; or (iii) other
relief in connection therewith.
5.6 No Material Adverse Effect. During the period from February
29, 1996 to the Closing Date, there shall not have been any material adverse
change in the condition (financial or other), liabilities, business or
prospects of Interfilm or InSub.
5.7 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated hereby and all
documents and instruments incident to such transactions shall be in form and
substance reasonably satisfactory to RhoMed and its counsel, and RhoMed shall
have received all such counterpart originals or certified or other copies of
such documents as it may reasonably request.
5.8 Delivery of Documents. RhoMed shall have received all
documents and other items to be delivered by Interfilm and InSub under
Section 7.2.
5.9 Schedules. Interfilm and InSub shall have completed and
attached hereto all Schedules required by this Agreement, and such schedules
shall have been updated immediately prior to the Closing, and all such
Schedules shall have been acceptable to RhoMed, in its sole discretion.
5.10 Illegality or Legal Constraint. No statute, rule,
regulation, executive order, decree, injunction or restraining order shall
have been enacted, promulgated or enforced (and not repealed, superseded or
otherwise made inapplicable) by any court or governmental authority which
prohibits the consummation of the Transaction (each party agreeing promptly to
use its reasonable best efforts to have any such order, decree or injunction
lifted). There shall be no pending legal action, suit or proceeding regarding
the Transaction.
5.11 Required Consents. All consents, approvals and waivers
from third parties necessary to the transactions as contemplated hereby and to
the continued validity and
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effectiveness of the Licenses and Rights shall have been obtained. There shall
have been obtained any and all governmental authorizations, permits, approvals
and consents of securities or "blue sky" commissions of any jurisdiction and
of any other governmental body or agency, that may reasonably be deemed
necessary so that the consummation of the Transaction shall be in compliance
with applicable laws.
5.12 Voting Agreement. The holders of at least fifty-one
percent (51%) of the total outstanding shares of Interfilm Common shall have
executed a voting agreement (the "Voting Agreement") whereby such stockholders
agree to vote their respective shares of Interfilm Common in favor of the
approval and adoption of the Amended Certificate of Incorporation (as
hereinafter defined) and the proposed reverse stock split, if any, in a
fractional amount as determined by RhoMed (the "Reverse Stock Split") in
connection with a Written Consent of Interfilm Stockholders in Lieu of a
Special Meeting and such agreement shall have been delivered to RhoMed no
later than five (5) business days following the execution of this Agreement.
5.13 The Amended Certificate of Incorporation. The Board of
Directors of Interfilm shall have approved an Amended Certificate of
Incorporation of Interfilm in form and substance as shall have been approved
by RhoMed and its counsel (the "Amended Certificate of Incorporation") which
is to be submitted to the Interfilm stockholders for their approval and
adoption and which shall provide for, upon such approval and adoption, an
increase in the number of shares of Interfilm capital stock which Interfilm
would be authorized to issue, a change in the name of Interfilm and the
approval of the Reverse Stock Split to be effective following the Closing;
5.14 Certificates of Designations. Interfilm shall have filed
with the Secretary of State of the State of Delaware Certificates of
Designations with respect to the Interfilm Series A Preferred and Interfilm
Series B Preferred which set forth the respective rights, preferences and
limitations of the Interfilm Preferred. Such Certificates of Designations, in
such form as shall have been approved by RhoMed and its counsel, shall provide
for, among other things:
(a) that each share of Interfilm Series A Preferred shall
automatically convert into 466.95404349 shares of Interfilm Common upon the
filing of the Amended Certificate of Incorporation and that each share of
Interfilm Series A Preferred shall be entitled to vote on an as converted
basis as a single class with the Interfilm Common. For every one (1) share of
Interfilm Common which is issued and outstanding as of the Closing that is in
excess of an aggregate of Four Million Four Hundred Fifty Seven Thousand Five
Hundred (4,457,500) shares plus any shares of Interfilm Common which are
issued upon conversion of the Interfilm Derivative Securities, the total
number of shares of Interfilm Common into which the Interfilm Series A
Preferred will convert will increase by Eleven and One Half (11.5) shares of
Interfilm Common. For every Twenty-Five Cents ($0.25) in excess of Fifty
Thousand Dollars ($50,000.00) in the aggregate of actual, contingent or other
liabilities, obligations or commitments of Interfilm and InSub collectively
outstanding as of the Closing Date, as determined by RhoMed after consultation
with Interfilm, the total number of shares of Interfilm Common into which the
Interfilm Series A Preferred will convert will increase by an additional
1.681034556 shares of Interfilm Common. Cash, in the amount of $0.05 per share
of Interfilm
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Series A Preferred, will be issued, on a pro rata basis, in lieu of fractional
shares upon the conversion of the Interfilm Series A Preferred into Interfilm
Common.
(b) that each share of Interfilm Series B Preferred shall
automatically convert into 184.332593 shares of Interfilm Common upon the
filing of the Amended Certificate of Incorporation and that each share of
Interfilm Series B Preferred shall be entitled to vote on an as converted
basis as a single class with the Interfilm Common. For every one (1) share of
Interfilm Common which is issued and outstanding as of the Closing that is in
excess of an aggregate of Four Million Four Hundred Fifty Seven Thousand Five
Hundred (4,457,500) shares plus any shares of Interfilm Common which are
issued upon conversion of the Interfilm Derivative Securities, the total
number of Interfilm Common into which the Interfilm Series B Preferred will
convert will increase by Eleven and One Half (11.5) shares of Interfilm
Common. For every Twenty-Five Cents ($0.25) in excess of Fifty Thousand
Dollars ($50,000.00) in the aggregate of actual, contingent or other
liabilities, obligations or commitments of Interfilm and InSub collectively
outstanding as of the Closing Date, as determined by RhoMed after consultation
with Interfilm, the total number of shares of Interfilm Common into which the
Interfilm Series B Preferred will convert will increase by an additional
1.235028373 shares of Interfilm Common. Cash, in the amount of $0.14 per share
of Interfilm Series B Preferred, will be issued, on a pro rata basis, in lieu
of fractional shares upon the conversion of the Interfilm Series B Preferred
into Interfilm Common.
5.15 Fairness Hearing. Interfilm shall have prepared and filed
a permit application, in form and substance satisfactory to RhoMed and its
counsel, requesting that a fairness hearing be held by the California
Department of Corporations satisfying the requirements of Section 3(a)(10) of
the Securities Act (the "Fairness Hearing") and Interfilm shall have received
a permit for the issuance of the Interfilm Preferred and the Interfilm Common
underlying the Interfilm Preferred to the RhoMed Shareholders pursuant to the
terms herein.
5.16 Releases. Interfilm shall have obtained consents and
releases, in writing and in form and substance reasonably satisfactory to
RhoMed and its counsel, from all of the creditors of Interfilm who will not
have been paid in full prior to the Closing Date or which obligations are to
be assumed by the Trust. Those obligations to be assumed by the Trust are set
forth on Schedule 5.16 hereto which Schedule 5.16 will be updated immediately
prior to Closing. In addition, Interfilm shall have obtained releases from
each of Millennium Capital Partners, Ltd. and Mr. Robert N. Weingarten in form
and substance reasonably satisfactory to RhoMed and its counsel.
5.17 Limitation on Outstanding Interfilm Liabilities. Interfilm
and InSub collectively shall have no more than Eighty Thousand Dollars
($80,000.00) in the aggregate of actual, contingent or other liabilities,
obligations or commitments outstanding and the identity and terms of such
remaining liabilities shall have been approved by RhoMed and its counsel.
5.18 Creation of Trust.
(a) No later than April 22, 1996, Interfilm shall supply
to RhoMed and its counsel a written valuation (the "Valuation"), prepared by
BDO Seidman, LLP, of the
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following Interfilm assets: (i) any and all rights underlying that certain
pending or proposed litigation against, inter alia, Sony Corporation of
America (the "Sony Litigation"), (ii) the intellectual property assets listed
on Schedule 5.18 hereto (the "IP") and (iii) all cash and rights to cash of
Interfilm and its subsidiaries existing immediately prior to the Effective
Time (the Sony Litigation, the IP and the cash and rights to cash,
collectively referred to herein as the "Transferred Assets"). In the event
that such Valuation of the Transferred Assets exceeds the aggregate sum of Two
Million Dollars ($2,000,000.00), Interfilm shall have the option, but not the
obligation, by immediate written notice to RhoMed, to terminate this
Agreement, whereupon each party hereto shall have no further obligations to
the others under this Agreement, other than such obligations as are
specifically stated to survive termination in accordance with the terms
hereof. RhoMed agrees, promptly upon receipt of an invoice therefor and
regardless of the occurrence of the Closing, to pay to Interfilm up to Twenty
Thousand Dollars ($20,000.00) of the cost of the Valuation. In addition,
following the Closing, the Trust shall have the right to pursue the Sony
Litigation in the name of Interfilm and/or its affiliates.
(b) In the event that the Valuation is Two Million Dollars
($2,000,000.00) or less, or in the event that Interfilm shall not have
exercised its option to terminate this Agreement as provided in Section
5.18(a) above, then Interfilm shall transfer, prior to Closing, the
Transferred Assets, to a party mutually agreed to by the parties hereto (the
"Agent"), to be held by the Agent in an irrevocable escrow (the "Irrevocable
Escrow") pending the Closing. Immediately following the Closing, Interfilm and
RhoMed shall, by their respective attorneys, give the Agent written
certification that all conditions necessary to the completion of the Closing
have taken place. Upon receipt of such certification, the Agent shall
immediately cause the Transferred Assets to be transferred to an irrevocable
trust (the "Trust"), in form and substance satisfactory to RhoMed and its
counsel. The Trust shall contain provisions to the effect that (i) neither
Interfilm nor RhoMed shall be obligated to provide any funding whatsoever in
connection with any of the Transferred Assets; (ii) Interfilm and RhoMed shall
agree to be responsible for up to Seven Thousand Five Hundred Dollars
($7,500.00) per annum of the reasonable and usual costs of the trustee of the
Trust, for so long as the Trust shall not have been terminated, but in no
event longer than three (3) years from the date hereof; and (iii) any and all
proceeds generated by the Trust shall continue to be held in trust for
purposes of indemnifying RhoMed for all liabilities, expenses and costs that
it may incur, including tax and related claims and expenses and the reasonable
fees and expenses of its professional advisors, including attorneys and
accountants, as a result of the Sony Litigation and any obligations of
Interfilm and InSub under Section 8.1(b) herein (collectively, the "Claims").
Further, in the event that, prior to the second anniversary of the Closing,
any proceeds (the "Proceeds") shall be generated by the Trust arising out of
the Sony Litigation or a sale or other transfer of the IP which exceed the
amounts payable to RhoMed pursuant to this Section 5.18(b), then such sum as
shall be reasonably necessary to secure any Claims as to which RhoMed shall
have given the Trust notice prior to such second anniversary, plus $100,000,
shall continue to be held in the Trust pending resolution of the Claims.
(c) Notwithstanding anything to the contrary in this
Agreement, the Trust shall hold all of the proceeds of the Sony Litigation
(the "Proceeds") unless and until permitted to distribute to the Beneficiaries
(as defined in the Trust) or disburse such Proceeds pursuant to the provisions
of this Section 5.18(c). The terms of the Trust are set out in Exhibit C
attached hereto.
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(i) Upon the request of and at the expense of the Trust,
Interfilm shall request from the Internal Revenue Service a private
letter ruling (the "Private Letter Ruling") confirming that the
Proceeds will not be treated as the income of Interfilm or any
member of its consolidated group for federal income tax purposes. If
Interfilm receives the Private Letter ruling confirming such
treatment, Interfilm shall give written notice to the Trust and the
Trust may immediately distribute to the Beneficiaries so much of the
aggregate Proceeds up to Ten Million Dollars ($10,000,000.00) as
exceed the amount, if any, required to be held by the Trust pursuant
to Section 5.18(b) hereof. If (A) the Trust does not receive the
Private Letter Ruling confirming such treatment or (B) the Internal
Revenue Service provides notice to Interfilm that it will not
provide Interfilm with the Private Letter Ruling confirming such
treatment, then the Trust shall continue to hold (unless disbursed
pursuant to Section 5.18(c)(iii) hereof) that portion of the
aggregate Proceeds up to Ten Million Dollars ($10,000,000.00) which
is equal to forty percent (40%) of the amount by which the aggregate
Proceeds up to Ten Million Dollars ($10,000,000.00) exceeds Two
Million Dollars ($2,000,000.00) (the "Forty Percent Holdback") until
the date which is thirty (30) days after the earlier of (1) the
sixth anniversary of the due date (including any extensions) of the
federal income tax return of Interfilm for its taxable year in which
the Trust receives the Proceeds (or the date on which Interfilm
files such return for such year, if later than such sixth
anniversary) and (2) the date of a determination (as defined in
Section 1313(a) of the Code, a "Determination") of the amount of all
taxes, if any, payable by Interfilm in connection with the
transactions contemplated by this Agreement.
(ii) In addition to any amounts withheld pursuant to
Section 5.18(c)(i), the Trust shall continue to hold (unless
disbursed pursuant to Section 5.18(c)(iii) hereof) and shall not
distribute to the Beneficiaries, fifty percent (50%) of the amount
by which the aggregate Proceeds exceed Ten Million Dollars
($10,000,000.00) until the date which is thirty (30) days after the
earlier of (1) the sixth anniversary of the due date (including any
extensions) of the federal income tax return of Interfilm for its
taxable year which includes the Closing Date (or the date on which
Interfilm files such return for such year, if later than such sixth
anniversary) and (2) the date of a Determination of the amount of
all taxes, if any, payable by Interfilm in connection with the
transactions which are contemplated by this Agreement.
(iii) Upon notice to the Trust by Interfilm of any
assessment by the Internal Revenue Service against Interfilm of any
taxes, penalties or interest payable in connection with the
transactions which are contemplated by this Agreement, the Trust
shall immediately pay to Interfilm all such taxes, penalties and
interest so assessed (the "Tax Assessment"), and any reasonable
attorney's and accountant's fees and expenses incurred in connection
therewith. Interfilm shall immediately pay the amount of the Tax
Assessment to the Internal Revenue Service in payment thereof or,
upon the written request of the Trust and at the Trust's sole
expense, Interfilm shall decline to pay the amount of the Tax
Assessment and shall file a petition in United States Tax Court
asserting any available defenses to the assessment. If Interfilm
pays the amount of the Tax Assessment to the Internal Revenue
Service, at the request of the Trust and at the Trust's sole
expense, Interfilm shall file a refund claim with respect to the Tax
Assessment and, if so requested by the Trust and at the Trust's sole
expense, shall pursue such claim until a Determination is obtained.
If Interfilm receives a refund with respect to the Tax Assessment,
it shall, after deducting its reasonable expenses incurred in
connection
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with obtaining such refund, promptly pay the amount so refunded plus any
interest received thereon to the Trust.
(iv) All Proceeds other than those required to be held by
the Trust pursuant to Section 5.18(b) and this Section 5.18(c) may
be distributed to the Beneficiaries of the Trust following the
second anniversary of the Closing.
(d) In the event that a suitable alternative to the Trust,
which the parties agree may include, without limitation, the creation of a
limited partnership, may be agreed to by the parties hereto prior to Closing,
such alternative vehicle will replace the Trust, so long as the documentation
therefor, and the creation of such alternative, is consistent with the terms
of the Trust and is in form and substance reasonably acceptable to RhoMed and
its counsel.
5.19 Employment by Interfilm. Interfilm shall use its best
efforts to assure an orderly and successful transition. Except for the
obligations set forth in Schedule 5.19 hereto, RhoMed shall not retain or
assume any obligation with respect to liabilities relating to any employees of
Interfilm or InSub, including, without limitation, obligations for accrued
vacation time, severance arrangements, workers' compensation or any liability
for any insurance, medical or other welfare benefits.
5.20 Resignation of Directors. The directors and officers of
Interfilm shall have submitted their resignations in writing to Interfilm
which shall be effective as of the Closing Date. The resignations of the
officers of Interfilm shall include or be accompanied by termination and
release agreements, in form and substance satisfactory to RhoMed and its
counsel, effective to release RhoMed and its shareholders and representatives
from all claims or liabilities of such officers arising from or related to
their employment with Interfilm or termination therefrom.
5.21 Interfilm Audit. Interfilm shall have received an
unqualified opinion which includes an explanatory paragraph regarding "going
concern" issues from its independent auditors in connection with the Interfilm
Audit and shall have delivered the same to RhoMed.
5.22 Insurance. The officers and directors of Interfilm shall
have fully cooperated with RhoMed in RhoMed's efforts to obtain Directors &
Officers Liability Insurance and Public Liability Insurance. RhoMed agrees
that, to the extent Directors and Officers Liability Insurance can be obtained
by it without additional expense, it shall use reasonable efforts to cause
such insurance to include coverage of directors and officers of Interfilm who
shall have held such offices prior to the Closing Date.
5.23 Section 14(f) Information Statement. Interfilm shall have
prepared and filed, at least ten (10) days prior to the date of the Closing,
an information statement pursuant to Section 14(f) of the Securities Exchange
Act of 1934, as amended, with the Securities and Exchange Commission which
shall have been distributed to the Interfilm stockholders of record within ten
(10) days prior to the date of such distribution.
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5.24 Information Statement. Interfilm shall have prepared and
shall, immediately following the Closing, file an information statement
pursuant to Section 14(c) of the Securities Exchange Act of 1934, as amended,
with the Securities and Exchange Commission (the "Information Statement")
which is to be distributed to the Interfilm stockholders of record as of a
date prior to the Closing Date which meets the requirements of both the
Delaware General Corporation Law and any applicable rules or regulations of
the Securities and Exchange Commission to inform such stockholders of the
approval and adoption of Interfilm's Amended Certificate of Incorporation and
the Reverse Stock Split.
5.25 Partial Financing. Within seventy two (72) hours of the
receipt by Interfilm of written notice from RhoMed to the effect that RhoMed
has received gross proceeds of Three Million Five Hundred Thousand Dollars
($3,500,000.00) in connection with the Financing, RhoMed shall have received
Six Hundred Thousand Dollars ($600,000.00) from those individuals set forth on
Schedule 4.11, which funds shall have been placed into escrow pending the
Closing pursuant to the terms of the Escrow Agreement.
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ARTICLE 6
CONDITIONS PRECEDENT TO
OBLIGATIONS OF INTERFILM AND INSUB
The obligations of Interfilm and InSub to consummate the transactions
contemplated by this Agreement are subject to the satisfaction, at or before
the Closing, of all the following conditions, unless expressly waived in
writing by Interfilm:
6.1 Representations True. All representations and warranties by
RhoMed in this Agreement or the Schedules and Exhibits hereto, or in any
written statement or certificate that shall be delivered to Interfilm and
InSub by RhoMed under this Agreement shall be true on and as of the Closing as
though such representations and warranties were made on and as of that date.
6.2 Covenants Performed. RhoMed shall have performed,
satisfied, and complied with all covenants, agreements, and conditions
required by this Agreement to be performed or complied with by RhoMed on or
before the Closing.
6.3 No Violations; No Actions. Consummation of the transactions
contemplated by this Agreement shall not violate any order, decree or judgment
of any court or governmental body having competent jurisdiction and no action
or proceeding shall have been instituted or threatened by any person, entity
or governmental agency which, in any such case, in the sole judgment of
Interfilm or InSub, has a reasonable probability of resulting in (i) the
obtaining of material damages from Interfilm or InSub, (ii) an order, judgment
or decree restraining, prohibiting or rendering unlawful the consummation of
the transactions contemplated by this Agreement or the Financing, or (iii)
other relief in connection therewith.
6.4 Opinion of Counsel for RhoMed. Interfilm and InSub shall
have received an opinion from Brobeck, Phleger & Harrison LLP, counsel for
RhoMed, dated the Closing Date, in form and substance reasonably satisfactory
to Interfilm and InSub and its counsel (the "BP&H Opinion").
6.5 No Material Adverse Change. During the period from February
29, 1996 to the Closing, there shall not have been any material adverse change
in the condition (financial or other), liabilities, business or prospects of
RhoMed.
6.6 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated hereby and all
documents and instruments incident to such transactions shall be in form and
substance satisfactory to each of Interfilm and InSub and its counsel, and
Interfilm shall have received all such counterpart originals or certified or
other copies of such documents as he may reasonably request.
6.7 Fairness Hearing. Interfilm shall have received a permit
for the issuance of the Interfilm Preferred and the Interfilm Common
underlying the Interfilm Preferred to the RhoMed Shareholders pursuant to the
Fairness Hearing.
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6.8 Delivery of Documents. Interfilm and InSub shall have
received all documents and other items to be delivered by RhoMed under
Section 7.3.
6.9 Required Consents. All consents, approvals and waivers from
third parties and governmental authorities necessary to the transactions as
contemplated hereby shall have been obtained.
6.10 Private Placement. In connection with the Financing,
RhoMed shall have completed the sale of no less than such number of Private
Placement Shares as shall have resulted in gross proceeds to RhoMed of no less
than Three Million Five Hundred Thousand Dollars ($3,500,000.00).
ARTICLE 7
CLOSING
7.1 Time and Place. The closing of the Merger (the "Closing")
shall occur at the offices of Brobeck, Phleger & Harrison LLP, 1301 Avenue of
the Americas, New York, New York 10019 at 10:00 a.m. on the earliest
practicable date after the conditions of Articles 5 and 6 shall have been met
or at such other time and date to which the parties may agree in writing
(the "Closing Date").
7.2 Deliveries by Interfilm and InSub. At the Closing,
Interfilm and InSub shall execute and deliver or cause to be executed and
delivered to RhoMed:
(a) Corporate Documents. The Certificate of Incorporation
of Interfilm and the Articles of Incorporation of InSub, certified by the
Secretary of State of Delaware and the New Mexico State Corporation
Commission, respectively, as of a recent date, the Certificates of Designation
of Interfilm, certified by the Secretary of State of Delaware, and the Bylaws
of Interfilm and InSub, certified by the Secretary of Interfilm as in effect
as of the Closing Date.
(b) Amended Certificate of Incorporation. A copy of the
proposed Amended Certificate of Incorporation;
(c) Information Statement. A copy of the Information
Statement to be distributed to the Interfilm stockholders of record pursuant
to the requirements of both the Delaware General Corporation Law and any
applicable rules or regulations of the Securities and Exchange Commission
informing such stockholders that the Amended Certificate of Incorporation has
been adopted and approved along with a copy of the names and addresses of the
Interfilm stockholders of record to whom the Information has been sent;
(d) Certificate of Good Standing and Tax Status. Each of
Interfilm and its subsidiaries, including InSub, shall have delivered to
RhoMed (i) certificates from the Secretary of State or other appropriate
official of its respective jurisdiction of incorporation or organization to
the effect that each of Interfilm and its subsidiaries,
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including InSub, is in good standing or subsisting in such jurisdiction and
listing all charter documents of each of Interfilm and its subsidiaries,
including InSub, on file; (ii) a certificate from the Secretary of State or
other appropriate official in each state listed on Schedule 7.2(d) hereto in
which either Interfilm or its subsidiaries, including InSub, is qualified to
do business to the effect that Interfilm or its subsidiaries, including InSub,
is in good standing in such state; and (iii) certificates as to the tax status
of each of Interfilm and its subsidiaries, including InSub, in its
jurisdiction of incorporation and each state in which Interfilm or its
subsidiaries, including InSub, is qualified to do business.
(e) Financial Statements. The Interim Financial Statements
shall have been updated to a date within seven (7) days of the Closing Date,
and such updated financials shall have been delivered to RhoMed.
(f) Resolutions. A copy of the resolutions of the Boards
of Directors of Interfilm and InSub, certified, respectively, by the Secretary
of each of Interfilm and InSub as having been duly and validly adopted and
being in full force and effect, authorizing execution and delivery of this
Agreement and performance of the transactions contemplated hereby by Interfilm
and InSub;
(g) Secretary's Certificate. RhoMed shall have received a
certificate of the Secretary of each of Interfilm and InSub, in form and
substance satisfactory to RhoMed and its counsel, certifying (i) that attached
thereto are true and complete copies of the Certificates of Incorporation,
Certificate of Designation and Bylaws of Interfilm or the Articles of
Incorporation and Bylaws of InSub, as amended to the Closing Date; (ii) that
attached thereto are true and complete copies of the resolutions of the Board
of Directors of each of Interfilm and InSub authorizing the execution,
delivery and performance of this Agreement and any other documents,
instruments and certificates required to be executed by it in connection
herewith and approving the consummation of the Transaction in the manner
contemplated hereby; (iii) the names and true signatures of the officers of
Interfilm and InSub signing this Agreement and all other documents to be
delivered in connection with the Transaction and (iv) such other matters as
RhoMed may reasonably request;
(h) Books and Records. All of the minute books, stock
ledgers and similar corporate records of Interfilm and InSub;
(i) Lien Searches. Such Uniform Commercial Code lien
searches, releases and such other instruments showing that there were no
financing statements, judgments, taxes or other liens outstanding against
Interfilm or any of its assets as of the Closing Date or a date that is not
more than five (5) days prior to the Closing Date (except for liens listed on
Schedule 7.2(i) hereto);
(j) Consents. Evidence that all consents, releases,
approvals, or authorizations of or notifications to any third parties
(including governmental agencies), if any, required to effect the Merger and
to consummate the transactions contemplated hereby have been obtained by
Interfilm, including, without limitation, documentation
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evidencing the receipt of a permit from the California Department of
Corporations for the issuance of the Interfilm Preferred and the Interfilm
Common underlying the Interfilm Preferred to the RhoMed Shareholders pursuant
to an exemption from registration under Section 3(a)(10) of the Securities Act
and documentation evidencing such releases;
(k) Interfilm Board and Officer Positions. The RhoMed
nominees for directors of the Board of Directors of Interfilm shall have been
properly elected to the Board of Directors of Interfilm and the RhoMed
nominees for officers of Interfilm shall have been properly elected as
officers of Interfilm, each effective immediately following the Closing;
(l) Termination of Employment Agreements. Evidence of the
termination of those employment agreements listed in Schedule 2.14;
(m) Interfilm Purchasers Financing. Documentation
evidencing that those individuals set forth on Schedule 4.11 have purchased
Six Hundred Thousand Dollars ($600,000.00) of RhoMed Common on the same terms
as the Financing and have funded the escrow pending the Closing pursuant to
the terms and conditions of the Escrow Agreement;
(n) Trust. Documentation evidencing the creation and
effectiveness of the Irrevocable Escrow and the Trust or any alternative
vehicle agreed to by the parties hereto pursuant to Section 5.18(d) hereof;
(o) Electronic Bulletin Board. Any necessary documentation
to evidence the approval of the listing of the shares of Interfilm Common into
which the shares of Interfilm Preferred are to be converted;
(p) Stock Certificates. Certificates representing the
Interfilm Preferred to be issued in the Merger, endorsed over to the RhoMed
Shareholders or accompanied by duly executed stock powers;
(q) Opinion of Counsel. The L&L Opinion; and
(r) Other Documents. Such other documents and instruments
as RhoMed or its counsel shall deem reasonably necessary to consummate the
transactions contemplated hereby.
All documents delivered to RhoMed shall be in form and substance
reasonably satisfactory to RhoMed and its counsel.
7.3 Deliveries of RhoMed. At the Closing, RhoMed shall execute
and deliver or cause to be executed and delivered to Interfilm and InSub
simultaneously with delivery of the items referred to in Section 7.2 above:
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(a) Corporate Documents. The Articles of Incorporation of
RhoMed, certified by the New Mexico State Corporation Commission as of a
recent date and the Bylaws of RhoMed, certified by the Secretary of RhoMed as
in effect at the Closing;
(b) Certificates of Good Standing. Good Standing
Certificates dated as of a recent date, with respect to RhoMed, issued by the
Secretary of State of each of the States listed in Schedule 7.3(b) hereto;
(c) Resolutions. A copy of the resolutions of each of the
Board of Directors of and shareholders of RhoMed, certified by the Secretary
thereof as having been duly and validly adopted and being in full force and
effect, authorizing execution and delivery of this Agreement and performance
of the transactions contemplated hereby by RhoMed;
(d) Consents. Evidence that all consents, approvals, or
authorizations of or notifications to any third parties (including
governmental agencies), if any, required to consummate the transactions
contemplated hereby have been obtained by RhoMed;
(e) Opinion of BP&H. The BP&H Opinion;
(f) Escrow Agreement. The Escrow Agreement;
(g) Warrants. The Warrants;
(h) Voting Agreement. The RhoMed Voting Agreement;
(i) Financial Statements. The RhoMed Interim Financial
Statements shall have been updated to a date within seven (7) days of the
Closing Date, and such updated financials shall have been delivered to
Interfilm and InSub.
(j) Interfilm Fee. An amount equal to Interfilm's legal,
financial advisory and accounting fees, and their other expenses, to the
extent that such amount does not exceed Thirty Seven Thousand Five Hundred
Dollars ($37,500.00). In the event that the Closing does not occur and an
Information Statement reasonably acceptable to RhoMed and its counsel shall
have been prepared, then RhoMed shall pay to counsel to Interfilm Seven
Thousand Five Hundred Dollars ($7,500.00); and
(k) Other Documents. Such other documents and instruments
as Interfilm or InSub or its counsel reasonably shall deem necessary to
consummate the transactions contemplated hereby.
All documents delivered to Interfilm and InSub shall be in form and
substance reasonably satisfactory to Interfilm and InSub.
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ARTICLE 8
MISCELLANEOUS PROVISIONS
8.1 Survival of Representations and Warranties; Indemnity.
(a) Survival of Representations. Except as otherwise
expressly provided herein, the representations, warranties, covenants and
agreements of Interfilm, InSub and RhoMed contained in or made pursuant to
this Agreement shall survive the execution and delivery of this Agreement and
the Closing Date and shall in no way be affected by any investigation of the
subject matter thereof made by or on behalf of Interfilm, RhoMed or the RhoMed
Shareholders; provided, however, that such representations, warranties,
covenants and agreements shall expire unless claims are made on or before the
second anniversary of the Closing Date.
(b) Indemnification. If the Closing of the Transaction
shall occur, then, subject to the provisions of this Section 8.1, Interfilm
and InSub shall, jointly and severally, indemnify and hold harmless RhoMed and
each person, if any, who controls RhoMed within the meaning of the Securities
Act, from and against all loss, liability, damage, cost and expense
(including, without limitation, reasonable costs of investigation, defense and
prosecution of litigation and attorneys' fees) (collectively, the "Damages")
incurred by RhoMed arising from any misrepresentation or breach of warranty,
covenant or agreement made by Interfilm or InSub in this Agreement; without
limiting its rights as set forth above, RhoMed shall also have the right to
seek such indemnification by making a claim against the Trust under the terms
of the Trust. If RhoMed seeks indemnification for any Claim under this Section
8.1(b), RhoMed shall give notice to the Trust and to Interfilm within thirty
(30) days of RhoMed becoming aware of any such Claim or of facts upon which
any such Claim will be based. The notice shall set forth such material
information with respect thereto as is then reasonably available to RhoMed.
Notwithstanding the foregoing (i) RhoMed shall not have any obligation to give
any notice of any assertion of liability by a third party unless such
assertion is in writing and (ii) the rights of RhoMed to be indemnified
hereunder in respect of Claims resulting from the assertion of liability by
third parties shall not be adversely affected by its failure to give notice
pursuant to the foregoing unless and, if so, only to the extent that
Interfilm, InSub or the Trust is materially prejudiced thereby. With respect
to any assertion of liability by a third party that results in a Claim, the
parties hereto shall make available to each other all relevant information in
their possession material to any such assertion. The Trust shall immediately
reserve such sums as shall be reasonably necessary to secure its obligation to
provide indemnification for such Claims (as they may be amended from time to
time by notice to the Trust by RhoMed) and shall promptly pay to RhoMed all
amounts expended by RhoMed relating to such Claims upon presentation of an
invoice therefor.
8.2 Termination of Agreement. All parties hereto agree to
fulfill the requirements of Articles 5 and 6 as soon as practicable. If any
precondition to the completion of the transactions contemplated hereby as set
forth in Articles 5 and 6 is not fulfilled on or prior to June 15, 1996, which
date may be extended by mutual written agreement of the parties if the
Fairness Hearing permit is being actively pursued by the parties hereto, this
Agreement shall be null and void and have no further effect and no party shall
have any liability to any other party
38
<PAGE>
as a result of such termination, except as to such matters as are specified to
survive the termination of this Agreement.
8.3 Further Assurances. At the request of any of the parties
hereto, and without further consideration, each party agrees to execute such
documents and instruments and to do such further acts as may be necessary or
desirable to effectuate the transactions contemplated hereby including,
without limitation, that the principals of Interfilm shall cooperate with
RhoMed in the preparation of any short-year tax returns required of Interfilm
or InSub as a result of the Transaction.
8.4 Broker or Finder. Each of the parties represents and
warrants that it has dealt with no broker or finder in connection with any of
the transactions contemplated by this Agreement other than Wharton Capital,
and, insofar as it knows, no other broker or other person is entitled to any
broker or finder's fee in connection with these transactions. Each of the
parties further agrees to indemnify and hold harmless any other against any
loss, liability, damage, cost, claim, or expense incurred by reason of any
brokerage commission or finder's fee alleged to be payable to any party other
than Wharton Capital because of any act, omission, or statement of the
indemnifying party.
8.5 Each Party to Bear Own Costs. Each of the parties shall pay
all costs and expenses incurred or to be incurred by it in negotiating and
preparing this Agreement and in closing and carrying out the transactions
contemplated by this Agreement. Upon Closing, RhoMed shall be responsible, and
pay at Closing, for the first Thirty Seven Thousand Five Hundred Dollars
($37,500.00) of such fees and expenses incurred by or on behalf of Interfilm
and InSub. In the event that the Closing does not occur and an Information
Statement reasonably acceptable to RhoMed and its counsel shall have been
prepared, then RhoMed shall pay to counsel to Interfilm Seven Thousand Five
Hundred Dollars ($7,500.00).
8.6 Headings. The subject headings of the Articles and Sections
of this Agreement are included for purposes of convenience only, and shall not
affect the construction or interpretation of any of its provisions.
8.7 Entire Agreement; Waivers. This Agreement and the Exhibits
and Schedules hereto constitute the entire agreement between the parties
pertaining to the contemporaneous agreements, representations, and
understandings of the parties. No supplement, modification, or amendment of
this Agreement shall be binding unless executed in writing by all parties. No
waiver of any of the provisions of this Agreement shall be deemed, or shall
constitute, a waiver of any other provision, whether or not similar, nor shall
any waiver constitute a continuing waiver. No waiver shall be binding unless
executed in writing by the party making the waiver.
8.8 Third Parties. Nothing in this Agreement, whether express
or implied, is intended to confer any rights or remedies under or by reason of
this Agreement on any persons other than the parties to it and their
respective successors and assigns, nor is anything in this Agreement intended
to relieve or discharge the obligation or liability of any third person to any
party to this Agreement, nor shall any provision give any third persons any
right of subrogation or action over against any party to this Agreement.
39
<PAGE>
8.9 Parties in Interest. This Agreement may not be transferred,
assigned, pledged or hypothecated by any party hereto, other than by operation
of law. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and thereto and their respective heirs, executors,
administrators, successors and assigns.
8.10 Notices. All notices, requests, demands, and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given on the date of service if served personally on the party
to whom notice is to be given, on the date of transmittal of services via
telecopy to the party to whom notice is to be given, or on the third day after
\ mailing if mailed to the party to whom notice is to be given, by first class
mail, registered or certified, postage prepaid, and properly addressed as
follows:
To Interfilm
or InSub at: Interfilm, Inc.
110 Greene Street, Suite 4R
New York, New York 10012
Attention: Mr. William Franzblau
Telecopy No.: (212) 334-8428
With a copy to: Loeb & Loeb LLP
1000 Wilshire Boulevard
Suite 1800
Los Angeles, California 90017-2475
Attention: David L. Ficksman, Esq.
Telecopy No.: (213) 688-3460
To RhoMed at: RhoMed Incorporated
214 Carnegie Center
Suite 100
Princeton, New Jersey 08540
Attention: Mr. Edward J. Quilty
Telecopy No.: (609) 452-0880
With a copy to: Brobeck, Phleger & Harrison LLP
1301 Avenue of the Americas
30th Floor
New York, New York 10019
Attention: Robert P. Wessely, Esq.
Telecopy No.: (212) 586-7878
Any party may change its address for purposes of this paragraph by giving
notice of the new address to each of the other parties in the manner set forth
above.
8.11 Attorneys' Fees. If any party to this Agreement shall
bring any action, suit, counterclaim or appeal for any relief against the
other, declaratory or otherwise, to enforce the terms hereof or to declare
rights hereunder (collectively, an "Action"), the Prevailing Party shall be
entitled to recover as part of any such Action its reasonable attorneys' fees
and costs,
40
<PAGE>
including any fees and costs incurred in bringing and prosecuting such Action
and/or enforcing any order, judgment, ruling or award granted as part of such
Action. "Prevailing Party" within the meaning of this Section 8.11 includes,
without limitation, a party who agrees to dismiss an Action upon the other
party's payment of all or a portion of the sums allegedly due or performance
of the covenants allegedly breached, or who obtains substantially the relief
sought by it.
8.12 Governing Law. The terms of this Agreement shall be
governed by the laws of the State of New York, without regard to principles of
choice or conflicts of laws.
8.13 Consent to Jurisdiction and Forum Selection. The parties
agree that all actions or proceedings arising in connection with this
Agreement shall be tried and litigated exclusively in the State and Federal
courts located in the Borough of Manhattan in New York, New York. The
aforementioned choice of venue is intended by the parties to be mandatory and
not permissive in nature, thereby precluding the possibility of litigation
between the parties with respect to or arising out of this Agreement in any
jurisdiction other than that specified in this Section 8.13. Each party hereby
waives any right it may have to assert the doctrine of forum non conveniens or
similar doctrine or to object to venue with respect to any proceeding brought
in accordance with this paragraph, and stipulates that the State and Federal
courts located in the Borough of Manhattan in New York, New York shall have in
personam jurisdiction and venue over each of them for the purposes of
litigating any dispute, controversy or proceeding arising out of or related to
this Agreement. Each party hereby authorizes and accepts service of process
sufficient for personal jurisdiction in any action against it as contemplated
by this Section 8.13 by registered or certified mail, return receipt
requested, postage prepaid, to its address for the giving of notices as set
forth in this Agreement. Any final judgment rendered against a party in any
action or proceeding shall be conclusive as to the subject of such final
judgment and may be enforced in other jurisdictions in any manner provided by
law.
8.14 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same instrument.
8.15 Severability. All provisions contained herein are
severable and in the event that any of them shall be held to be to any extent
invalid or otherwise unenforceable by any court of competent jurisdiction,
such provision shall be construed as if it were written so as to effectuate to
the greatest possible extent the parties' expressed intent; and in every case
the remainder of this Agreement shall not be affected thereby and shall remain
valid and enforceable, as if such affected provision were not contained
herein.
8.16 Construction of Agreement; Knowledge. The words "include,"
"includes," and "including" when used herein shall be deemed in each case to
be followed by the words "without limitation." For purposes of this Agreement,
and except as provided in the following sentence, the term "knowledge," when
used in reference to a corporation means the actual knowledge of the executive
officers of such corporation after such officers shall have made inquiry that
is customary and appropriate under the circumstances to which reference is
made, and when used in reference to an individual means the actual knowledge
of such
41
<PAGE>
individual after the individual shall have made inquiry that is customary and
appropriate under the circumstances to which reference is made.
8.17 Publicity. The parties shall cooperate with each other in
the development and distribution of all news releases and other public
disclosures relating to the transactions contemplated hereby. None of the
parties shall issue or make, or cause to have issued or made, any press
release or announcement concerning the transactions contemplated hereby
without the advance approval in writing of the form and substance thereof by
the other parties, unless otherwise required by applicable law.
8.18 Mutual Drafting. This Agreement is the joint product of
the parties hereto, and each provision hereof has been subject to the mutual
consultation, negotiation and agreement of such parties, and shall not be
construed for or against any party hereto.
8.19 Specific Performance and Other Remedies. The parties
hereto each acknowledge that the rights of each party to consummate the
transactions contemplated hereby are special, unique and of extraordinary
character, and that, in the event that any party violates or fails or refuses
to perform any covenant or agreement made by it herein, the non-breaching
party may be without an adequate remedy at law. The parties each agree,
therefore, that in the event that either party violates or fails or refuses to
perform any covenant or agreement made by such party herein, the non-breaching
party or parties may, subject to the terms of this Agreement and in addition
to any remedies at law for damages or other relief, institute and prosecute an
action in any court of competent jurisdiction to enforce specific performance
of such covenant or agreement or seek any other equitable relief.
8.20 Definitions. The following terms are defined on the page
of this Agreement referenced below:
Defined Term Page
Accredited Investors ....................................................... 25
Action ..................................................................... 40
Agreement .................................................................. 1
Amended Certificate of Incorporation ....................................... 27
BP&H Opinion ............................................................... 33
Certificate of Merger ...................................................... 2
Certificates ............................................................... 3
Claims ..................................................................... 29
Closing .................................................................... 34
Closing Date ............................................................... 34
Code ....................................................................... 1
Contracts .................................................................. 13
Damages .................................................................... 38
Determination .............................................................. 30
Disclosing Party ........................................................... 23
Effective Date ............................................................. 2
42
<PAGE>
Effective Time ............................................................. 2
Employment Agreements ...................................................... 11
Environmental Laws ......................................................... 14
ERISA ...................................................................... 10
Escrow Agreement ........................................................... 25
Fairness Hearing ........................................................... 28
Financial Statements ....................................................... 5
Financing .................................................................. 25
Financing Shares ........................................................... 25
Forty Percent Holdback ..................................................... 30
GAAP ....................................................................... 6
Hazardous Materials ........................................................ 14
IF Purchaser Financing ..................................................... 25
IF Purchaser Financing Shares .............................................. 25
Information Statement ...................................................... 32
InSub ...................................................................... 1
Interfilm .................................................................. 1
Interfilm Audit ............................................................ 24
Interfilm Common ........................................................... 4
Interfilm Derivative Securities ............................................ 5
Interfilm Documents ........................................................ 4
Interfilm Preferred ........................................................ 2
Interfilm Series A Preferred ............................................... 2
Interfilm Series B Preferred ............................................... 2
Interfilm Warrants ......................................................... 25
Interim Financial Statements ............................................... 6
IP ......................................................................... 29
Irrevocable Escrow ......................................................... 29
L&L Opinion ................................................................ 26
License .................................................................... 12
Licenses ................................................................... 12
Material Adverse Effect .................................................... 4
Merger ..................................................................... 1
NMBCA ...................................................................... 1
Prevailing Party ........................................................... 41
Private Letter Ruling ...................................................... 30
Private Placement .......................................................... 25
Private Placement Shares ................................................... 25
Proceeds ................................................................... 29
Requesting Parties ......................................................... 23
Reverse Stock Split ........................................................ 27
RhoMed ..................................................................... 1
RhoMed Common .............................................................. 2
RhoMed Derivative Securities ............................................... 17
RhoMed Documents ........................................................... 16
RhoMed Financial Statements ................................................ 17
RhoMed Interim Financial Statements ........................................ 17
43
<PAGE>
RhoMed Preferred ........................................................... 2
RhoMed Rights .............................................................. 20
RhoMed Shareholders ......................................................... 1
RhoMed Voting Agreement .................................................... 25
Rights ..................................................................... 13
Securities Act ............................................................. 12
Shares ..................................................................... 2
Sony Litigation ............................................................ 29
Superfund .................................................................. 15
Tax Assessment ............................................................. 30
Transaction ................................................................ 1
Transferred Assets ......................................................... 29
Trust ...................................................................... 29
Valuation .................................................................. 28
Voting Agreement ........................................................... 27
[The remainder of this page intentionally left blank]
44
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
and Plan of Reorganization as of the date first above written.
INTERFILM, INC.
By:/s/ WILLIAM I. FRANZBLAU
Its: EXECUTIVE VICE PRESIDENT
AND CHIEF OPERATING OFFICER
INTERFILM ACQUISITION CORP.
By:/s/ WILLIAM I. FRANZBLAU
Its: PRESIDENT
RHOMED INCORPORATED
By:
Its:
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
Plan of Reorganization as of the date first above written.
INTERFILM, INC.
By:
Its:
INTERFILM ACQUISITION CORP.
By:
Its:
RHOMED INCORPORATED
By:/s/ EDWARD J. QUILTY
Its: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
<PAGE>
EXHIBITS
<PAGE>
Exhibit A
Form of Private Placement
RHOMED INCORPORATED
CONFIDENTIAL TERM SHEET, MARCH 6, 1996
$4,000,000
-------------------
RhoMed Incorporated, a New Mexico corporation (the "Company"), is offering
(the "Offering") for sale to persons who qualify as "accredited investors" as
that term is defined in Regulation D under the Securities Act of 1933, as
amended (the "Securities Act"), a total of 40 units (the "Units"), each Unit
consisting of 400,000 shares of common stock, no par value, of the Company
(the "Common Stock"), at a purchase price of $.25 per share.
AN INVESTMENT IN THE UNITS OFFERED HEREBY INVOLVES A HIGHT DEGREE OF RISK. SEE
"RISK FACTORS" AND "PROPOSED PRIVATE PLACEMENT EQUITY OFFERING." Prospective
investors should retain their own professional advisors to review and evaluate
the economic, tax and other consequences of investing in the Offering and
should not construe the contents of this Term Sheet, or any other information
furnished by the Company, as legal or tax advice.
This Term sheet is being furnished by Paramount Capital, Inc. (the "Placement
Agent") as agent, solely for use by prospective purchasers in connection with
the Offering. The Company has retained the Placement Agent as exclusive agent
in connection with the Offering.
THIS TERM SHEET HAS BEEN PREPARED BY THE COMPANY AND NO REPRESENTATION OR
WARRANTY IS MADE BY THE PLACEMENT AGENT AS TO THE ACCURACY OR COMPLETENESS OF
THE INFORMATION CONTAINED HEREIN. The exhibits attached to this Term Sheet
constitute an integral part hereof. Prospective investors will be given the
opportunity to meet with management, visit the Company's facilities and
conduct their own due diligence investigations, upon which they must rely
solely in making their investment decision.
NEITHER THE UNITS NOR THE SECURITIES COMPRISING OR UNDERLYING THE UNITS HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR THE SECURITIES
OR "BLUE SKY" LAWS OF ANY JURISDICTION. THE INFORMATION CONTAINED HEREIN HAS
NOT BEEN APPROVED BY THE SECURITIES AND EXCHANGE COMMISSION HEREIN HAS NOT
BEEN APPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR SIMILAR BODY. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
PARAMOUNT CAPITAL
I N C O R P O R A T E D
<PAGE>
RHOMED INCORPORATED
TERMS OF EQUITY FINANCING
MARCH 6, 1996
The following is a summary of the proposed terms of the sale (the
"Offering") of a maximum of $4,000,000 of Units (as defined below) of RhoMed
Incorporated, a New Mexico corporation (the "Company") pursuant to a Common
Stock Purchase Agreement.
UNITS
Issuer: RhoMed Incorporated, a New Mexico corporation (the "Company").
Issue: Units (the "Units"), each consisting of 400,000 shares of common stock, no
par value, of the Company (the "Common Stock"), at a purchase price of $.25
per share.
Purchase Price
Per Unit: $100,000.
Minimum 1 Unit, subject to the right of the Company to accept
subscriptions for fractional Units.
Investment:
Maximum
Offering: $4,000,000.
Minimum There will be no miminum offering amount required for the
Offering: purchase and sale of Units. The Units may be sold on a continuous basis until
the maximum offering has been reached or until the Offering of Units is
terminated by the Company.
<PAGE>
Summary of
Business of the
Company: RhoMed Incorporated is a biopharmaceutical company with core
competencies in two proprietary technologies,
conformationally constrained metallo-peptide technology and
direct radiolabeling of peptides and proteins. The Company
intends to develop diagnostic and therapeutic peptide- and
protein-based pharmaceuticals.
The Company was founded to develop
radiopharmaceutical drugs to diagnose or treat
conditions such as cancer, infectious disease and
blood clots. Current development efforts are
focused on the Company's MIDAS technology, relating
to receptor-specific metallo-peptides which can be
used as ethical pharmaceuticals, or as radioactive
drugs for diagnosis or treatment of disease. The
Company belives that its MIDAS technology can be
used to make peptide-based drugs, and that this
technology can overcome problems identified with
current peptide technologies, including molecular
instability and low binding affinities.
Risk Factors An investment in the Units is highly speculative. The Company is
a development stage company and, accordingly, its operations are
subject to all the risk inherent in the establishment of a new
business enterprise. Potential investors should be aware of the
problems, delays, expense and difficulties encountered by any company
in the development stage, many of which may be beyond the Company's
control. These include, but are not limited to, unanticipated
problems and additional cost relating to development, testing,
regulatory compliance, production, marketing, competition, obtaining
adequate reimbursement from third-party payors for its products,
retaining and attracting key personnel, protecting its proprietary
rights and avoiding infringement claims by third parties. The company
expects to continue to incur losses for the foreseeable future and
there can be no assurance that the Company will successfully complete
the transition from a development stage company to profitability. The
company is dependent on the receipt of the proceeds of this Offering
to continue its operations. The company will require subsantial
additional financings. In the event such financings are not obtained,
the purchasers of the Units will most likely lose their entire
investment. The documents provided in connection with the Offering
may contain certain statements of a forward looking nature relating
to future events or the future financial performance of the Company.
Prospective investors are cautioned that such statements are only
predictions and that actual events or results may differ materially.
<PAGE>
Stock Outstanding
Prior to this
Offering: Common Stock [1]: 6,928,069 shares
Preferred Stock:
Series A: 4,000,000 [2] shares
Outstanding
Indebtedness: See Attached Financial Statements.
Use of
Proceeds: The Company intends to use the net proceeds from the sale of
the Units for research and development expenses, payment of
principal and interest obligations for outstanding debt and
payment of license fees, patent prosecution costs,
consulting fees, past due obligations and for general
working capital and corporate purposes, including salaries
and fees of officers, directors, employees, consultants and
advisers.
<PAGE>
Potential
Merger: The Company is currently negotiating a merger or similar transaction with a
publicly traded company (the "Merger"). No assurance can be given that such
transaction or a similar transaction will be consummated in a timely fashion,
if at all. There can be no assurance that such Merger will provide any
additional liquidity for the Units acquired in this Offering, that the effects of
such Merger will be favorable for the Company or its shareholders or that
such Merger will result in the successful integration of the merging entities
respective operations.
Resale of
Securities
Offered: No market exists for the trading of any of the Company's
securities and none is expected to develop after the
consummation of the Offering. The Common Stock (or the
"Securities") are not registered under the Securities Act of
1933, as amended (the "Act"), and will be "restricted
securities" under the Act. The Securities may not be resold
absent registration under the Act and applicable state
securities laws or an available exemption thereunder. Rule
144 under the Act (the "Rule") is
- -------------------------
1 Excludes shares of Common stock that may be issuable upon the
exercise of outsanding options, warrants, convertible notes and
other securities. See the Common Stock Purchase Agreement.
2 The 4,000,000 shares of Preferred Stock, no par value, of the Company
(the "Preferred Stock") were issued pursuant to an outstanding right
granted to the designees of The Castle Group, Ltd., an affiliate of
the Placement Agent of this Offering. Such shares are convertible
into a maximum of 10,132,859 shares of common Stock of the Company.
<PAGE>
an example of one such exemption under the Act. In
general, the Rule provides an exemption from
registration for resales of securities which are
made at least two years after their original
purchase, assuming certain other conditions of the
Rule are met. There can be no assurance that such
conditions will ever be met.
Registration
Rights:
The Company agrees that no later than 180 days
after (x) the closing date of an initial public
offering of the Common Stock by the Company
registered under the Act or (y) the first date on
which the Common Stock of the Company (or
securities received in exchange for Common Stock of
the Company) trades on a national securities
exchange, on the National Association of Security
Dealers, Inc. Automated Quotations System
("NASDAQ") or on the OTC Electronic Bulletin Board
or in "pink sheets", the Company will file a
registration statement (the "Registration
Statement"), use its reasonable best efforts to
effect the registration and maintain the
effectiveness of such Registration Statement until
the completion of the distribution of Common Stock
contemplated thereby.
Eligible
Investors:
The offering of Units is made in reliance on
exemptions from the registration and qualification
requirements of the Act and applicable state
securities laws. Subscriptions will be accepted
only from "accredited investors", as such term is
defined under Regulation D under the Act.
Placement Fees:
Paramount Capital, Inc. will act as Placement Agent
for this Offering. The Placement Agent or its
designees will receive: cash commissions equal to
9% of the gross proceeds from the sale of the Units
in the Offering; a non-accountable expense
allowance equal to 4% of gross proceeds from the
sale of Units in the Offering; and underwriter's
warrants equal to 10% of the Common Stock issued in
the Offering at an exercise price of $.30 per
share.
Purchases by
Affiliates of the
Placement Agent:
In the event that affiliates of the Placement Agent
purchase Units, the purchase price per Unit paid by
such purchaser shall be net of commissions and
non-accountable expense allowance. Accordingly, the
Placement Agent will not receive a commission on
the Units purchased by its affiliates.
4
<PAGE>
Subscription
Documents:
At the request of a potential investor, a Common
Stock Purchase Agreement, including all exhibits,
will be provided to such potential investor.
Interested parties should contact their Paramount
Representative or Michael S. Weiss of the Placement
Agent at (212) 832-5700.
Available
Information: Any documents or information concerning the Company
which a prospective purchaser reasonably requests
to inspect or have disclosed to him or her will be
made available or disclosed, subject in appropriate
circumstances to receipt by the Company of
reasonable assurances that such documents or
information will be maintained in confidence.
Exhibits:
Exhibit A: Bylaws of RhoMed Incorporated
Exhibit B: Amended and Restated Articles of
Incorporation of RhoMed Incorporated.
Exhibit C: Financial Statements for the Years
Ended August 31, 1995, 1994 and 1993.
Exhibit D: Unaudited Financial Statements for the
Period Ended January 31, 1996.
5
<PAGE>
RhoMed
SUPPLEMENT AND NOTICE OF AMENDMENT NO. 1,
DATED MARCH 20, 1996, to the
CONFIDENTIAL TERM SHEET DATED MARCH 6, 1996
RhoMed Incorporated and Paramount Capital, Inc. have mutually agreed
to increase the maximum offering of Units from $4,000,000 to $5,000,000.
Accordingly, the Confidential Term Sheet dated March 6, 1996 is amended to
provide that the Maximum Offering is $5,000,000.
AMENDMENT TO COMMON STOCK PURCHASE AGREEMENT
The Common Stock Purchase Agreement (the "Agreement") entered into
between RhoMed Incorporated (the "Corporation") and the undersigned (the
"Subscriber") is amended pursuant to Section 5.2 of the Agreement, as follows:
1. The first paragraph of the preamble of the Agreement is amended to
provide that the Corporation desires to issue an aggregate of up to a maximum
$5,000,000 of Common Stock.
2. Section 3.1 of the Agreement is amended to provide that the
maximum amount of the offering is $5,000,000.
This Amendment to the Common Stock Purchase Agreement is made as of
March 20.
RHOMED INCORPORATED
By:__________________________
Stephen A. Slusher
Vice President
<PAGE>
Exhibit B
THE INTERFILM WARRANTS
[Form of]
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
ANY APPLICABLE STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT. ANY SUCH
TRANSFER MAY ALSO BE SUBJECT TO APPLICABLE STATE SECURITIES LAWS.
RHOMED INCORPORATED
Class C Warrant for the Purchase of
Shares of Common Stock
No.__________ _______ Shares
FOR VALUE RECEIVED, RHOMED INCORPORATED, a New Mexico corporation
(the "COMPANY"), hereby certifies that [] or his permitted assigns, is
entitled to purchase from the Company, at any time or from time to time
commencing on [Insert Closing Date] and prior to 5:00 P.M., New York City
time, on four years from [Insert Closing Date] (the "TERMINATION DATE"),
[Insert Number of Shares--50% of Number Purchased] ([]) fully paid and
non-assessable shares of the Common Stock, no par value, of the Company for an
aggregate purchase price of $[] (computed on the basis of $.40 per share).
Class C Warrant Page 1
<PAGE>
Herein, (i) said Common Stock, together with any other
equity securities which may be issued by the Company with respect thereto or
in substitution therefor, including, but not limited, such securities as may
be issued pursuant to the Agreement and Plan of Reorganization by and among
Interfilm, Inc., Interfilm Acquisition Corp. and RhoMed Incorporated as of
April __, 1996, is referred to as the "COMMON STOCK", (ii) the shares of the
Common Stock purchasable hereunder or under any other Warrant (as hereinafter
defined) are referred to as the "WARRANT SHARES", (iii) the aggregate purchase
price payable for the Warrant Shares hereunder is referred to as the
"AGGREGATE WARRANT PRICE", (iv) the price payable for each of the Warrant
Shares hereunder is referred to as the "PER SHARE WARRANT PRICE", (v) this
Warrant, all similar Warrants issued on the date hereof and all Warrants
hereafter issued in exchange or substitution for this Warrant or such similar
Warrants are referred to as the "WARRANTS" and (vi) the holder of this Warrant
is referred to as the "HOLDER" and the holder of this Warrant and all other
Warrants or Warrant Shares issued upon the exercise of any Warrant are
referred to as the "HOLDERS". The Aggregate Warrant Price is not subject to
adjustment. The Per Share Warrant Price is subject to adjustment as
hereinafter provided; in the event of any such adjustment, the number of
Warrant Shares shall be adjusted by dividing the Aggregate Warrant Price by
the Per Share Warrant Price in effect immediately after such adjustment.
1. EXERCISE OF WARRANT.
(a) This Warrant may be exercised, in whole at any time or
in part from time to time, commencing on [Insert Closing Date] and prior to
the Termination Date, unless terminated earlier as set forth in Section 8
hereof, by the holder by the surrender of this Warrant (with the subscription
form at the end hereof duly executed) at the address set forth in Subsection
10(a) hereof, together with proper payment of the Aggregate Warrant Price, or
the proportionate part thereof if this Warrant is exercised in part, with
payment for Warrant Shares made by certified or official bank check payable to
the order of the Company; or
(b) If this Warrant is exercised in part, this Warrant must
be exercised for a number of whole shares of the Common Stock and the Holder
is entitled to receive a new Warrant covering the Warrant Shares which have
not been exercised and setting forth the proportionate part of the Aggregate
Warrant Price applicable to such Warrant Shares. Upon surrender of this
Warrant, the Company will (i) issue a certificate or certificates in the name
of the Holder for the largest number of whole shares of the Common Stock to
which the Holder shall be entitled and, if this Warrant is exercised in whole,
in lieu of any fractional share of the Common Stock to which the Holder shall
be entitled, pay to the Holder cash in an amount equal to the fair value of
such fractional share (determined in such reasonable manner as the Board of
Directors of the Company shall determine), and (ii) deliver the other
Class C Warrant Page 2
<PAGE>
securities and properties receivable upon the exercise of this Warrant, or the
proportionate part thereof if this Warrant is exercised in part, pursuant to
the provisions of this Warrant.
2. RESERVATION OF WARRANT SHARES; LISTING. The Company
agrees that, prior to the expiration of this Warrant, the Company will at all
times have authorized and in reserve, and keep available, solely for issuance
and delivery upon the exercise of this Warrant, the shares of the Common Stock
and other securities and properties as from time to time shall be receivable
upon the exercise of this Warrant, free and clear of all restrictions (other
than restrictions necessary to comply with Federal and state securities laws)
on sale or transfer and free and clear of all preemptive rights and rights of
first refusal.
3. PROTECTION AGAINST DILUTION.
(a) In case the Company shall hereafter (i) pay a dividend
or make a distribution on its capital stock in shares of Common Stock, (ii)
subdivide its outstanding shares of Common Stock into a greater number of
shares, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares or (iv) issue by reclassification of its Common Stock any
shares of capital stock of the Company, the Per Share Warrant Price shall be
adjusted to be equal to a fraction, the numerator of which shall be the
Aggregate Warrant Price and the denominator of which shall be the number of
shares of Common Stock or other capital stock of the Company which he would
have owned immediately following such action had such Warrant been exercised
immediately prior thereto. An adjustment made pursuant to this Subsection 3(a)
shall become effective immediately after the record date in the case of a
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or reclassification.
(b) In case of any capital reorganization or
reclassification, or any consolidation or merger to which the Company is a
party other than a merger or consolidation in which the Company is the
continuing corporation, or in case of any sale or conveyance to another entity
of the property of the Company as an entirety or substantially as an entirety,
or in the case of any statutory exchange of securities with another
corporation (including any exchange effected in connection with a merger of a
third corporation into the Company), the Holder of this Warrant shall have the
right thereafter to receive on the exercise of this Warrant the kind and
amount of securities, cash or other property which the Holder would have owned
or have been entitled to receive immediately after such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or
conveyance had this Warrant been exercised immediately prior to the effective
date of such reorganization, reclassification, consolidation, merger,
statutory exchange, sale or conveyance and in any such case, if necessary,
appropriate adjustment shall be made in the application of the provisions set
forth in this Section 3 with respect to the rights and interests thereafter of
the
Class C Warrant Page 3
<PAGE>
Holder of this Warrant to the end that the provisions set forth in this
Section 3 shall thereafter correspondingly be made applicable, as nearly as
may reasonably be, in relation to any shares of stock or other securities or
property thereafter deliverable on the exercise of this Warrant. The above
provisions of this Subsection 3(c) shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, statutory
exchanges, sales or conveyances. The issuer of any shares of stock or other
securities or property thereafter deliverable on the exercise of this Warrant
shall be responsible for all of the agreements and obligations of the Company
hereunder. Notice of any such reorganization, reclassification, consolidation,
merger, statutory exchange, sale or conveyance and of said provisions so
proposed to be made, shall be mailed to the Holders of the Warrants not less
than 30 days prior to such event; provided, however, that notice need not have
been given on account of transactions provided for in the Agreement and Plan
of Reorganization by and among Interfilm, Inc., Interfilm Acquisition Corp.
and RhoMed Incorporated as of April __, 1996. A sale of all or substantially
all of the assets of the Company for a consideration consisting primarily of
securities shall be deemed a consolidation or merger for the foregoing
purposes.
(c) In case any event shall occur as to which the other
provisions of this Section 3 are not strictly applicable but as to which the
failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles hereof then, in each such case, the Holders of Warrants
representing the right to purchase a majority of the Warrant Shares subject to
all outstanding Warrants may appoint a firm of independent public accountants
of recognized national standing reasonably acceptable to the Company, which
shall give their opinion as to the adjustment, if any, on a basis consistent
with the essential intent and principles established herein, necessary to
preserve the purchase rights represented by the Warrants. Upon receipt of such
opinion, the Company will promptly mail a copy thereof to the Holder of this
Warrant and shall make the adjustments described therein. The fees and
expenses of such independent public accountants shall be borne by the Company.
(d) No adjustment in the Per Share Warrant Price shall be
required unless such adjustment would require an increase or decrease of at
least $0.05 per share of Common Stock; provided, however, that any adjustments
which by reason of this Subsection 3(d) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment; provided,
further, however, that adjustments shall be required and made in accordance
with the provisions of this Section 3 (other than this Subsection 3(d)) not
later than such time as may be required in order to preserve the tax-free
nature of a distribution to the Holder of this Warrant or Common Stock
issuable upon the exercise hereof. All calculations under this Section 3 shall
be made to the nearest cent or to the nearest 1/100th of a share, as the case
may be. Anything in this Section 3 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Per Share Warrant
Price, in addition to those required by this Section 3, as it in its
discretion shall deem to be advisable
Class C Warrant Page 4
<PAGE>
in order that any stock dividend, subdividsion of shares or distribution of
rights to purchase stock or securities convertible or exchangeable for stock
hereafter made by the Company to its stockholders shall not be taxable.
(e) Whenever the Per Share Warrant Price is adjusted as
provided in this Section 3 and upon any modification of the rights of a Holder
of Warrants in accordance with this Section 3, the Company shall promptly
obtain, at its expense, a certificate of a firm of independent public
accountants of recognized standing selected by the Board of Directors (who may
be the regular auditors of the Company) setting forth the Per Share Warrant
Price and the number of Warrant Shares after such adjustment or the effect of
such modification, a brief statement of the facts requiring such adjustment or
modification and the manner of computing the same and cause copies of such
certificate to be mailed to the Holders of the Warrants.
(f) If the Board of Directors of the Company shall declare
any dividend or other distribution with respect to the Common Stock other than
a cash distribution out of earned surplus, the Company shall mail notice
thereof to the Holders of the Warrants not less than 15 days prior to the
record date fixed for determining stockholders entitled to participate in such
dividend or other distribution.
(g) If, as a result of an adjustment made pursuant to this
Section 3, the Holder of any Warrant thereafter surrendered for exercise shall
become entitled to receive shares of two or more classes of capital stock or
shares of Common Stock and other capital stock of the Company, the Board of
Directors (whose determination shall be conclusive and shall be described in a
written notice to the Holder of any Warrant promptly after such adjustment)
shall determine the allocation of the adjusted Per Share Warrant Price between
or among shares or such classes of capital stock or shares of Common Stock and
other capital stock.
4. FULLY PAID STOCK; TAXES. The Company agrees that the
shares of the Common Stock represented by each and every certificate of
Warrant Shares delivered on the exercise of this Warrant be validly issued and
outstanding, fully paid and nonassessable, and not subject to preemptive
rights or rights of first refusal, and the Company will take all such actions
as may be necessary to assure that the par value or stated value, if any, per
share of the Common Stock is at all times equal to or less than the then Per
Share Warrant Price. The Company further covenants and agrees that it will
pay, when due and payable, any and all Federal and state stamp, original issue
or similar taxes which may be payable in respect of the issue of any Warrant
Share or any certificate thereof.
Class C Warrant Page 5
<PAGE>
5. REGISTRATION UNDER SECURITIES ACTS OF 1933. The Holder of
this Warrant shall have the same registration rights as provided in Section 4
of the Common Stock Purchase Agreement dated as of the date hereof between the
Company and such Holder (or such Holder's predecessor in interest).
6. LIMITED TRANSFERABILITY. This Warrant may not be sold,
transferred, assigned or hypothecated by the Holder except in compliance with
the provisions of the Act and the applicable state securities "blue sky" laws,
and is so transferable only upon the books of the Company which it shall cause
to be maintained for such purpose. The Company may treat the registered Holder
of this Warrant as he or it appears on the Company's books at any time as the
Holder for all purposes. The Company shall permit any Holder of a Warrant or
his duly authorized attorney, upon written request during ordinary business
hours, to inspect and copy or make extracts from its books showing the
registered holders of Warrants. All Warrants issued upon the transfer or
assignment of this Warrant will be dated the same date as this Warrant, and
all rights of the holder thereof shall be identical to those of the Holder.
7. CALL OF WARRANT BY COMPANY. This Warrant automatically
terminates if:
(a) The Common Stock, or any securities into which the
Common Stock has been converted, trades on a national securities exchange, on
the National Association of Security Dealers, Inc. Automated Quotations System
("NASDAQ"), on the NASD Electronic Bulletin Board, or in "pink sheets", and
has, during any consecutive thirty trading day period, had a closing price for
at least twenty trading days equal to or greater than $0.60 per share, said
closing price to be determined on the basis of the initial Per Share Warrant
Price and initial aggregate number of Warrant Shares, making adjustment to the
Per Share Warrant Price and number of Warrant Shares as provided in Section
3(e) (THE "TERMINATION EVENT");
(b) Notice of the Termination Event is given to the Holder
at the address and as set forth in Subsection 10(a) hereof; and
(c) The Holder has not, by the close of the thirtieth day
following giving notice of the Termination Event, exercised the Warrant as set
forth in Section 1.
8. LOSS, ETC., OF WARRANT. Upon receipt of evidence
satisfactory to the company of the loss, theft, destruction or mutilation of
this Warrant, and of indemnity reasonably satisfactory to the company, if
lost, stolen or destroyed, and upon surrender and
Class C Warrant Page 6
<PAGE>
cancellation of this Warrant, if mutilated, the company shall execute and
deliver to the Holder a new Warrant of like date, tenor and denomination.
9. WARRANT HOLDER NOT SHAREHOLDER. Except as otherwise
provided herein, this Warrant does not confer upon the Holder any right to
vote or to consent to or receive notice as a stockholder of the Company, as
such, in respect of any matters whatsoever, or any other rights or liabilities
as a stockholder, prior to the exercise hereof.
10. COMMUNICATION. No notice or other communication under
this Warrant shall be effective unless, but any notice or other communication
shall be effective and shall be deemed to have been given if, the same is in
writing and is mailed by first-class mail, postage prepaid, addressed to:
(a) the Company at 4261 Balloon Park Road NE, Albuquerque,
NM 87109-5802 or such other as Company has designated in writing to the
Holder, or
(b) The Holder at the address indicated on the signature
page to the Common Purchase Agreement, or such other address as the Holder has
designated in writing to the Company.
11. HEADINGS. The headings of this Warrant have been
inserted as a matter of convenience and shall not affect the construction
hereof.
12. APPLICABLE LAW. This Warrant shall be governed by and
construed in accordance with the law of the State of New York without giving
effect to the principles of conflicts of law thereof.
Class C Warrant Page 7
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to
be signed by its Chairman and CEO and its corporate seal to be hereunto
affixed and attested by its Secretary this __ day of _______, 1996.
RHOMED INCORPORATED
By: ______________________
Chairman and CEO
ATTEST:
- ---------------
Secretary
[Corporate Seal]
Class C Warrant Page 8
<PAGE>
SUBSCRIPTION
The undersigned, _________________, pursuant to the
provisions of the foregoing Warrant, hereby agrees to subscribe for and
purchase ____________________ shares of the Common Stock, no par value, of
RhoMed Incorporated, covered by said Warrant, and makes payment therefor in
full at the price per share provided by said Warrant.
Dated:_____________________ Signature:__________________________
Address:____________________________
ASSIGNMENT
FOR VALUE RECEIVED _________________ hereby sells, assigns
and transfers unto ___________________ the foregoing Warrant and all rights
evidenced thereby, and does irrevocably constitute and appoint
________________________, attorney, to transfer said Warrant on the books of
RhoMed Incorporated.
Dated:_____________________ Signature:__________________________
Address:____________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED __________________ hereby assigns and
transfers unto ____________________ the right to purchase ______________
shares of the Common Stock, no par value per share, of RhoMed Incorporated
covered by the foregoing Warrant, and a proportionate part of said Warrant and
the rights evidenced thereby, and does irrevocably constitute and appoint
__________________, attorney, to transfer that part of said Warrant on the
books of RhoMed Incorporated .
Dated:_____________________ Signature:__________________________
Address:____________________________
Class C Warrant Page 9
<PAGE>
Exhibit C
THE IRREVOCABLE TRUST
THE INTERFILM STOCKHOLDERS TRUST
<PAGE>
THE INTERFILM STOCKHOLDERS TRUST
INTERFILM, INC. a Delaware corporation ("Interfilm"), hereby
establishes this Trust as of this _____ day of May, 1996, (the "Trust") with
reference to the following:
A. Pursuant to that certain Agreement and Plan of
Reorganization dated as of April 11, 1996 (the "Merger Agreement") by and
among RhoMed Incorporated, ("RhoMed"), Interfilm, Inc. ("Interfilm") and
Interfilm Acquisition Corp. ("InSub"), concurrently herewith, InSub will merge
(the "Merger") with and into RhoMed and each issued and outstanding share of
the Preferred Stock and Common Stock of RhoMed will be converted into shares
of Interfilm Series A Preferred Stock and Interfilm Series B Preferred Stock.
B. In connection with the Merger and pursuant to the Merger
Agreement, the assets of Interfilm and Interfilm Technologies, Inc. ("ITI")
set forth on Exhibit A attached hereto (the "Interfilm Assets") are being
transferred herewith to the Trust effective immediately after the effective
time of the Merger (the "Effective Time") to hold, liquidate and distribute
the same as set forth herein.
NOW, THEREFORE, pursuant to the Merger Agreement, Interfilm
and ITI hereby establish this Trust, and Interfilm and ITI irrevocably assign,
set over and deliver to the Trust the Trust Assets (as hereinafter defined).
ARTICLE 1. NAME AND DEFINITIONS
1.1 The Trust shall be known as the Interfilm Stockholders
Trust.
1.2 For purposes of the Trust, unless the context otherwise
requires:
(a) "Beneficiaries" shall mean the holders of record of the
shares of Common Stock of Interfilm as of
<PAGE>
the close of Interfilm's stock transfer books on May __, 1996 (the "Record
Date"), and/or such other persons not holders of record of such shares who can
establish valid title to the liquidating distributions payable hereunder in
view of their beneficial interest in such shares as of the Record Date, and
the respective successors in interest of any of the foregoing.
(b) "Trust Estate" shall mean the aggregate of the Interfilm
Assets.
(c) "Trust Receipts" shall mean all rents, royalties, income
proceeds and other receipts of or from the Trust Estate, including, without
limitation, any recovery against Sony Corporation of America and its
affiliates ("Sony") arising from litigation filed or to be filed against Sony
(the "Sony Litigation") and any
amounts obtained from the sale or licensing of any intellectual property.
(d) "Trustee" shall mean William Franzblau or his
successor(s) appointed pursuant to Article 9 hereof.
ARTICLE 2. PURPOSE AND LIMITATIONS OF THE TRUST AND THE TRUST
AGREEMENT.
2.1 The Trust has been organized pursuant to the Merger
Agreement for the primary purpose of receiving, liquidating and distributing
the Trust Estate, and, subject to the limitations set forth herein, its
activities shall be limited to those reasonably necessary to, and consistent
with, the accomplishment of such purpose. The Trust shall not be an
organization having as its purpose the carrying on of a profit-making
business.
2.2 Except as provided herein, in no event shall any part of
the Trust Estate revert or be distributed to Interfilm, ITI or to any
stockholder of Interfilm or ITI as such other than a Beneficiary entitled
thereto under the terms of this Trust. Any unclaimed part of the Trust Estate
<PAGE>
shall be subject to disposition in accordance with applicable laws.
2.3 No part of the Trust Estate or the Trust Receipts shall
be used or disposed of by the Trustee for any purpose other than (i) for the
purposes for which this Trust was created as set forth in Section 2.1 hereof,
including without limitation, the payment of, and the creation of reserves for
the payment of, the unpaid or contingent liabilities and debts of Interfilm as
of the Effective time, the indemnity obligations of Interfilm under the Merger
Agreement or the liabilities of Interfilm existing as of the Effective Time
which are assumed by the Trust pursuant to the terms of the Merger Agreement
and which are listed on Exhibit B attached hereto, (collectively, the
"Interfilm Liabilities") and the obligations, liabilities and the expenses
incurred in connection with the administration of the Trust Estate; and (ii)
the distribution thereof to the Beneficiaries in accordance with the terms of
this Trust. In order to preserve and protect the Trust Estate pending
disposition or distribution thereof, the Trustee shall not invest monies
forming a part of the Trust Estate except in demand and time deposits in
federally insured banks or savings institutions o short term certificates of
deposit.
ARTICLE 3. TRANSFER TO THE TRUSTEE.
The Trustee agrees to accept the Trust and the assets
constituting the Trust Estate, subject to the Interfilm Liabilities. However,
the Trustee shall be responsible only for the assets delivered to him or
registered in the Trust's name and shall have no duty to make, nor incur any
liability for failing to make, any search for unknown assets. The Trustee
shall be responsible for only those liabilities of which it is informed, and
shall have no duty to make, nor incur any liability for failing to make, any
search for unknown liabilities. The Trustee shall hold the Trust Estate
without provision for or
<PAGE>
the payment of any interest thereon to any Beneficiary, except that interest
earned on any assets of the Trust shall become a part of the Trust Estate.
ARTICLE 4. PAYMENT OF LIABILITIES AND EXPENSES; INDEMNITY TO
INTERFILM.
4.1 Prior to any distribution to the Beneficiaries, the
Trustee shall pay from the Trust Estate, or otherwise discharge or provide
for, all expenses, charges, liabilities, and obligations of the Trust,
including the Interfilm Liabilities and any taxes imposed on the Trust and any
taxes imposed on the Trust and any taxes imposed on Interfilm or RhoMed with
respect to the transfer of the Interfilm Assets to the Trust up to the
Valuation Indemnity (as hereinafter defined). The Trustee may, in his sole
discretion, make provisions by reserve or otherwise out of the Trust Estate,
for such amount as the Trustee may determine to be necessary to meet present
or future liabilities of the Trust, whether fixed or contingent.
4.2 Subject to Section 4.1 above, the Trustee shall withhold
from time to time from that portion of the Trust Estate otherwise
distributable to the Beneficiaries such sums as may be sufficient to pay any
taxes or other charges which have been or may be imposed on the Beneficiaries
under the income tax laws or other laws of the United States or any state or
political subdivision by reason of distributions which have been or will be
made to the Beneficiaries, and the Trustee may, in his discretion, enter into
agreements with taxing or other authorities for the payment of such amounts as
may be withheld in accordance with the provisions of this Section.
4.3 It is expressly understood that neither Interfilm nor
any affiliate of Interfilm, including RhoMed, shall be obligated to provide
any funds whatsoever with respect to payment of the Interfilm Liabilities or
in connection with the collection of the Trust Receipts,
<PAGE>
including the Sony Litigation. By way of example, any expenses pertaining to
the Sony Litigation shall be the responsibility of the Trust and not
Interfilm. Accordingly, any and all Trust Receipts and the Trust Assets shall
be reserved for the period(s) set forth in Section 4.4 and paid by the Trustee
for purposes of reimbursing Interfilm and any of its affiliates, including
RhoMed, for all liabilities, expenses, costs and reasonable fees and expenses
of their professional advisors, including attorneys and accountants that they
may incur as a result of the Sony Litigation, and for payment of the Interfilm
Liabilities.
4.4 Notwithstanding anything herein to the contrary, in the
event that the Trust Receipts exceed the amounts payable to RhoMed or
Interfilm pursuant to Section 5.18(b)(iii) of the Merger Agreement prior to
the second anniversary of the Effective Time, the Trustee shall retain such
sum as shall be reasonably necessary to secure any Claims (as such term is
defined in the Merger Agreement) as to which notice shall have been given to
the Trustee prior to such second anniversary plus $100,000. In addition
thereto, upon the request of and at the expense of the Trust, Interfilm shall
request from the Internal Revenue Service a private letter ruling that the
Trust Receipts from the Sony Litigation are not taxable to Interfilm or any of
its affiliates. In connection therewith, the Trust shall continue to hold all
of the Trust Receipts until such time as the Trust shall have received a
private letter ruling of the Internal Revenue Service with respect to the
federal income tax due on the transfer of the Interfilm Assets to the Trust
(the "Trust Transfer"). In the event that (i) the Trust does not seek a
private letter ruling from the Internal Revenue Service with respect to the
Trust Transfer, or (ii) the Internal Revenue Service provides notice to the
Trust that it will not provide the Trust with a private letter ruling with
respect to the Trust Transfer, then an
<PAGE>
percent (40%) of any Trust Receipts which exceed Two Million dollars
($2,000,000) but which are less than Ten Million Dollars ($10,000,000), and
(ii) fifty percent (50%) of any Trust Receipts which exceed Ten Million
Dollars ($10,000,000), shall continue to be held by the Trust and shall not be
distributed to the Beneficiaries until the date which is thirty (30) days
after the later of (i) the sixth anniversary of the due date (including any
extensions) of the federal income tax return of Interfilm for its taxable year
which includes the Effective Time or (ii) the date on which Interfilm files
such return for such year, or (iii) a Final Determination (as hereinafter
defined). Upon a final determination of the amount of all taxes, if any,
payable by Interfilm or RhoMed arising out of the Trust Transfer (the "Final
Determination"), the Trust shall, out of the Valuation Indemnity, immediately
pay to Interfilm or RhoMed, as the case may be, all such taxes, penalties and
interest assessed, and reasonable related attorney and accountants fees and
expenses incurred in connection with the Trust Transfer. All Trust Receipts
other than those set forth in Sections 5.18(b) and 5.18(c) of the Merger
Agreement may be distributed to the Beneficiaries following the second
anniversary of the Effective Time.
4.5 If Interfilm receives notice of any Claim or other
commencement of any action or proceeding with respect to which the Trust is
obligated to provide indemnification pursuant to the Merger Agreement or this
Trust, Interfilm shall promptly give the Trustee written notice thereof which
notice shall specify, if known, the amount or an estimate of the amount of the
liability arising therefrom. Such notice shall be a condition precedent to any
liability of the Trust for indemnification hereunder. Interfilm shall not
settle or compromise any claim by a third party for which it is entitled to
indemnification hereunder, without the prior written consent of the Trustee
which consent shall not be
<PAGE>
written consent of the Trustee which consent shall not be unreasonably
withheld or delayed, unless suit shall have been instituted against it and the
Trustee shall not have taken control of such suit after notification thereof
as provided herein.
4.6 In connection with any Claim giving rise to indemnity
under the Trust or the Merger Agreement resulting from or arising out of any
claim or legal proceeding by a third party, the Trust, at its sole cost and
expense, may, upon written notice to Interfilm, assume the defense of any such
claim or legal proceeding (including claims where Interfilm or RhoMed is named
as a defendant) using counsel of its choice (subject to the approval of
Interfilm, which approval may not be unreasonably withheld or delayed) if it
acknowledges to Interfilm in writing its obligations to indemnify Interfilm
with respect to all elements of such claim. Interfilm shall be entitled to
participate in (but not control) the defense of any such action, with its
counsel and at its own expense; provided, however, that if Interfilm, in its
reasonable discretion, determines that there exists a conflict of interest
between the Trust and Interfilm, Interfilm shall have the right to engage
separate counsel, the reasonable costs and expenses of which shall be paid by
the Trust, but in no event shall the Trust be liable to pay for the costs and
expenses of more than one such separate counsel; and, provided further, that
if Interfilm is named as a defendant in any legal proceeding, Interfilm shall
have the right, at its own expense, upon written notice to the Trust, to
assume the defense thereof, subject to the right of the Trust to participate
(but not control) such defense at its own cost. If the Trust does not assume
the defense of any claim or litigation resulting therefrom as set forth in the
first proviso clause of the immediately preceding sentence, Interfilm may
defend or settle against such claim or litigation, after giving notice of the
same to
<PAGE>
the Trust, on such terms as Interfilm may deem appropriate in its reasonable
judgment, and the Trust shall be entitled to participate in (but not control)
the defense of such action, with its counsel and at its own expense. In
connection with any Claim made by RhoMed pursuant to Article 8 of the Merger
Agreement, the Trust shall immediately reserve such sums as shall be
reasonably necessary to secure its obligation to provide indemnification for
such claims pursuant to the Merger Agreement (as they may be amended from time
to time by notice to the Trust by RhoMed) and shall promptly pay to RhoMed all
amounts expended by RhoMed relating to such claims upon presentation of an
invoice therefor.
ARTICLE 5. DISTRIBUTIONS TO BENEFICIARIES.
5.1 Subject to Article 4 and Section 8.5 hereof, the Trustee
shall, as the Trustee in his sole discretion deems appropriate (but at least
on an annual basis), distribute and pay, or cause to be distributed and paid,
to the Beneficiaries on a date set by the Trustee, all or part of the Trust
Estate that remains after payment of, or provision for, expenses, liabilities,
obligations, and reserves for contingent claims arising hereunder and for
potential claims of unlocated Beneficiaries, as provided herein and after the
withholding of the taxes or charges, if any, as provided herein. Such
distributions shall be made in proportion to the respective interest of the
Beneficiaries in the Trust, based on the percentage that the number of shares
of Interfilm Common Stock beneficially owned by each Beneficiary (or such
Beneficiary's predecessor in interest) bears to the total number of shares of
Interfilm Common Stock outstanding, each determined as of the Record Date (as
to each Beneficiary, the "Pro Rata Interest").
5.2 If any conflicting claims or demands are made or
asserted to any interest of any Beneficiary herein, the
<PAGE>
Trustee shall be entitled, at his sole election, to refuse to comply with any
such conflicting claims or demands. The Trustee shall be entitled to refrain
and refuse to act until (i) the rights of the adverse claimants have been
adjudicated by a final judgment of a court of competent jurisdiction, or
(ii) all differences have been adjusted by valid written agreement between all
of such parties, and the Trustee shall have been furnished with an executed
counterpart of such agreement; the Trustee may, in his absolute discretion,
require that there be furnished a surety bond or other security satisfactory
to the Trustee to fully indemnify him as between all conflicting claims or
demands.
5.3 Any portion of the Trust Estate which shall be available
to, but unclaimed or refused by, any Beneficiary shall be deemed to be subject
to applicable escheat laws, and the Trustee is expressly authorized to pay
and/or deliver such portion of the Trust Estate at such time or times as may
be consonant with such laws and in accordance with the provisions thereof.
5.4 The Trustee shall make such reports in writing to each
of the Beneficiaries as the Trustee deems appropriate.
ARTICLE 6. TERM AND TERMINATION.
6.1 The Trust will terminate as soon as practicable
following liquidation of substantially all the known assets of the Trust
Estate and the satisfaction of all probable transferee liabilities of the
Trust or the Beneficiaries known to exist at the time of such termination.
6.2 After the termination of the Trust, and for the purpose
of liquidating and winding up the affairs of the Trust, the Trustee shall
continue to act as such until his duties have been fully performed. Upon the
distribution of all of the Trust Estate to the Beneficiaries and the payment
<PAGE>
and discharge of, or other adequate provision for, all debts, liabilities, and
obligations of the Trust, the Trustee shall have no further duties or
obligations hereunder.
ARTICLE 7. POWERS OF THE TRUSTEES.
7.1 The Trustee shall have the power to hold, and shall
hold, the legal and equitable title to all assets which at any time constitute
the Trust Estate, and the Trustee shall hold and administer such assets and
property in trust, pursuant to the terms of this Trust.
7.2 Subject to the limitations imposed by Articles 2 and 4
herein, the Trustee shall have the following specific powers:
(a) To sell, transfer, assign, convey, or invest the Trust
Estate or any part thereof.
(b) To collect and receive any and all property and assets
due to or owing or belonging to Interfilm as of the Effective Time or
the Trust, to give full discharge and release therefor.
(c) To collect, liquidate or otherwise convert into cash all
property, assets and rights in the Trust Estate, and to pay,
discharge and satisfy all remaining liabilities, expenses and
obligations of, and claims against, Interfilm, the Trust and the
Trustee, with the right to prosecute and defend litigation, including
all claims against Sony and enter into settlements and compromises in
connection therewith.
(d) To retain or receive on behalf of, and for the benefit
of, those Beneficiaries who have not been located or have refused
payment, all liquidating distributions, unclaimed dividends, and
other payments to which they may be entitled hereunder, and to
make disposition thereof in accordance with applicable laws.
(e) To do and perform any acts or things reasonable or
appropriate for the continued operation
<PAGE>
and the conservation, protection and orderly administration of the
Trust Estate, and, in connection therewith, to employ such agents,
attorneys and counsel, and to confer upon them such authority as the
Trustee may deem expedient, and to pay reasonable compensation
therefor.
(f) The exercise of any discretionary power vested in the
Trustee shall be final and conclusive upon all Beneficiaries
hereunder and upon all persons whomsoever.
(g) The Trustee shall, to the extent necessary, prepare and
file appropriate federal and California income tax returns and other
returns and reports required by applicable law on behalf of the
Trust.
The enumeration of powers in this Section shall not be
considered in any way to limit or control the power of the Trustee to act as
specifically authorized by any other Section or provision of this Agreement
and to act in such manner as the Trustee may in his absolute discretion deem
reasonable or appropriate to conserve, protect and administer the Trust Estate
or to confer on the Beneficiaries the benefits intended to be conferred upon
them by this Trust.
ARTICLE 8. DUTY OF CARE AND LIABILITIES OF TRUSTEE.
8.1 The Trustee hereby agrees to accept and undertake to
discharge the Trust created hereby, upon the terms and conditions hereof. In
so doing it shall act in all matters in his absolute discretion and shall be
liable only for his own willful misconduct. Without prejudice to the
generality of the foregoing provisions of this Section 8.1, it is further
provided that:
<PAGE>
(a) No successor Trustee shall be in any way responsible for
the acts or omissions of the Trustee in office prior to the date on
which it became a Trustee.
(b) The Trustee shall not be deemed bound by any duties or
obligations other than those specifically set forth in this Trust,
and no implied covenants or obligations shall be read into this Trust
against the Trustee
(c) In the absence of bad faith or gross negligence on the
part of the Trustee, the Trustee may conclusively rely, as to the
truth of the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the Trustee.
(d) The Trustee shall not be liable for any error of
judgment made in good faith.
(e) If any controversy arises between the parties hereto or
with any third person with respect to the subject matter of this
Trust or its terms or conditions, the Trustee shall not be required
to determine the same or take any action, but may await the
settlement of any such controversy by final appropriate legal
proceedings or otherwise as may be reasonably required by it.
8.2 Except as otherwise provided in Section 8.1:
(a) The Trustee may rely and shall be protected in
acting upon any notice, resolution, certificate, credential,
statement, instrument, opinion, report, notice, request, consent,
order, or other paper or document believed by him to be genuine and
to have been signed or presented by the proper party or parties.
(b) The Trustee shall have the right to rely upon
and shall be fully protected in acting upon the advice or opinion of
any attorney, auditor or other
<PAGE>
expert at any time employed by him in connection with any matter
concerning the Trust or the Trust Estate.
(c) Persons dealing with the Trustee shall look
only to the Trust Estate to satisfy any liability incurred by the
Trustee to such person in carrying out the terms of this Trust, and
the Trustee shall have no other obligation to satisfy any such
liability except in the event of the Trustee's willful misconduct
hereunder.
8.3 No bond shall be required of the Trustee.
8.4 The Trustee shall be indemnified by and receive
reimbursement from the Trust Estate against and for any and all loss,
liability, expense, or damage, including without limitation his attorneys'
fees and costs, which the Trustee may incur or sustain in the exercise and
performance of any of its powers and duties under this Trust in accordance
with the terms hereof.
8.5 Notwithstanding anything herein to the contrary, all
amounts to be paid hereunder except for the payment of Trust expenses of
$3,000 or less or as set forth on Exhibit B attached hereto shall be made
pursuant to instructions by the Trustee through a third party paying agent
reasonably acceptable to Interfilm.
ARTICLE 9. SUCCESSOR TRUSTEE.
9.1 The Trustee may resign, and be discharged from the Trust
hereby created by giving written notice. Such resignation shall become
effective upon the appointment of the Trustee's successor and such successor's
acceptance of such appointment.
9.2 In case at any time a Trustee shall resign or be removed
by a majority vote of the Beneficiaries (based on their Pro Rata Interest), a
vacancy shall be deemed to exist in the office of such Trustee, and a
successor shall be appointed by majority vote (based on their Pro Rata
Interest) of the Beneficiaries upon written notice to the
<PAGE>
Trustee and the consent (not to be unreasonably withheld or delayed) of
Interfilm.
9.3 Any successor Trustee appointed hereunder shall execute
counterparts of this Trust. Thereupon such successor Trustee shall, without
any further act, be deemed to have accepted its appointment, and become vested
with all the estates, properties, rights, powers, trusts, and duties of its
predecessor in the Trust hereunder with like effect as if originally named
therein; but the retiring Trustee shall nevertheless, when requested in
writing by the successor Trustee and upon payment of any expenses in
connection therewith, execute and deliver an instrument or instruments
conveying and transferring to such successor Trustee upon the trusts herein
expressed, all the estates, properties, rights, powers, and trust of such
retiring Trustee and shall duly assign, transfer, and deliver to such
successor Trustee all property and money held by it hereunder.
ARTICLE 10. COMPENSATION AND EXPENSES OF TRUSTEE.
10.1 The Trustee shall be entitled to reasonable
compensation for his services hereunder, in the amount of $10,000 per year out
of the first proceeds of the Trust Receipts or from the amounts paid to the
Trust pursuant to Section 10.3 hereof.
10.2 The Trustee shall be reimbursed monthly first from the
Trust Receipts and then from the Trust Estate for all expenses reasonably
incurred by him in the exercise of powers or in the performance of his duties
in accordance with the Trust.
10.3 Interfilm shall be responsible for up to $7,500 per
annum for the first full three years of the term hereof to be applied first to
the payment of Trust expenses and then to the fees set forth in Section 10.1
hereof, and
<PAGE>
shall make payment therefor to the Trustee upon an invoice from the Trustee.
ARTICLE 11. AMENDMENT OF TRUST.
This Trust may be amended by the Trustee without a vote of
the Beneficiaries solely for the purpose of qualifying or continuing to
qualify the Trust as a "liquidating trust" as distinguished from an
"association" for purposes of the Internal Revenue Code, as amended from time
to time. In all other cases, the Trust may be amended only by a majority vote
of the Beneficiaries (in accordance with their Pro Rata Interest) with the
consent of Interfilm which shall not be unreasonably withheld or delayed.
ARTICLE 12. MISCELLANEOUS.
12.1 This Trust shall be administered in, and under the laws
of, the State of Delaware, and this Trust and the validity thereof shall be
governed by and construed in accordance with the laws of that State.
12.2 In the event any provision of this Trust or the
application thereof to any person or in any circumstances shall be finally
determined by a court of proper jurisdiction to be invalid or unenforceable to
any extent, the remainder of this Trust, or the application of such provision
to persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each remaining provision of
this Trust shall be valid and enforced to the fullest extent permitted by law.
12.3 Any notice required or provided for in this Trust shall
be in writing and be deemed to have been given when deposited in a United
States Post Office or letter box, first class postage prepaid registered or
return receipt, or personally delivered.
12.4 Each Beneficiary's interest in the Trust and/or the
Trust Estate, and his rights thereto, shall not
<PAGE>
be assignable or transferable in any manner, except by will, intestate
succession, or operation of law.
12.5 Except as provided in Article 11 above, the Trust
created hereunder shall be irrevocable and no person shall have the right or
power, whether alone or in conjunction with others, in whatever capacity, to
alter, amend, revoke or terminate this Trust, or any of the terms of this
Trust in whole or in part, or to designate the persons who shall possess or
enjoy the trust property or the income therefrom.
12.6 For purposes of this Trust, unless the context shall
indicate or require otherwise, words of the masculine gender shall be deemed
and construed to include correlative words of the feminine and neuter gender,
words of the neuter gender shall be deemed and construed to include
correlative words of the masculine and feminine gender, and words of the
singular shall be deemed and construed to mean words of the plural and vice
versa.
IN WITNESS WHEREOF, the Company and the Trustee have
executed this Trust at New York, New York on the day and year first above
written.
INTERFILM, INC.
By:____________________________
An Authorized Officer
-----------------------------
William Franzblau, Trustee
INTERFILM TECHNOLOGIES, INC.
By:____________________________
16
<PAGE>
EXHIBIT "A"
1. All rights against Sony Corporation of America ("Sony")
and any affiliate of Sony, including those arising from litigation filed or to
be filed, including the right to file and prosecute such litigation in the
name of Interfilm and ITI and to receive all amounts from any settlement,
judgment or otherwise with respect thereto.
2. All intellectual property of Interfilm existing
immediately prior to the Effective Time as set forth on Schedule 218 to the
Merger Agreement.
3. All cash and rights to cash of Interfilm and ITI existing
immediately prior to the Effective Time.
<PAGE>
EXHIBIT "B"
payout
</TABLE>
<TABLE>
<CAPTION>
Total
Invoice
Amount RhoMed Interfilm
--------- --------- -----------
<S> <C> <C> <C> <C>
ADP 908.33 908.33 -
AMERICAN STOCK TRANSFER 3,400.00 3,400.00 -
BODOIN AND AIMES 50,000.00 - 50,000.00
CENTURY COMMUNICATIONS 543.14 - 543.14
COOPER, BRIAN 1,500.00 - 1,500.00
CORPORATE EXPRESS 11.76 11.76 -
DAVIS & GILBERT 1,152.42 - 1,152.42
DEAN WITTER 51.32 - 51.32
DELOITTE TOUCHE 16,250.00 16,250.00 -
DELSON BUSINESS SYSTEMS 3,740.00 3,740.00 -
DEPOSITORY TRUST 75.00 75.00 -
FILM BOND 125.00 - 125.00
FRANZELAU, WILLIAM 1,200.00 - 1,200.00
FRONTIER 2,032.54 2,032.54 -
J&R FILM 4,843.75 4,843.75 -
LA DEPARTMENT OF POWER 419.66 419.66 -
LOEB & LOEB 11,044.18 - 11,044.18
MANHATTAN MINI STORAGE - - -
MARSHALL OTOOLE 6,022.95 6,022.95 -
MCCARTHY 689.96 - 689.96
NYNEX 370.92 370.92 -
OXFORD HEALTH PLAN 3,420.32 3,420.32 -
PARK AVENUE PRODUCTIONS 90.30 - 90.30
PITNEY BOWES 729.28 729.28 -
PR NEWSWIRE 125.00 125.00 -
PRUDENTIAL 41.71 - 41.71
SOHO SERVICE 268.02 - 268.02
SONY ELECTRONICS 1,587.73 1,587.73 -
SONY THEATRES 2,221.84 2,221.84 -
SOUTHBANK 26.55 - 26.55
ZALE KOFF GRAPHICS 3,842.87 3,842.87 -
----------- ----------- -----------
116,734.55 50,001.95 66,732.60 116,734.55
=========== =========== =========== ----------
</TABLE>
The amounts listed in the Interfilm column may be assumed by the Trust.
Page 1
RHOMED INCORPORATED
FINANCIAL STATEMENTS (UNAUDITED)
FOR THE NINE MONTHS ENDED MAY 31, 1996 AND 1995
<PAGE>
<TABLE>
<CAPTION>
RhoMed Incorporated
(A Development Stage Company)
Balance Sheets
May 31, 1996 and 1995
May 31,
-----------------------------
1996 1995
-------------- -------------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 5,400,789 $ 32,485
Accounts receivable 2,936 6,875
Prepaid expenses and other 132,150 3,519
-------------- -------------
Total current assets 5,535,875 42,879
Property and equipment, net of accumulated
depreciation of $217,559 and $161,041 as of May 31, 1996,
and 1995, respectively 110,213 149,467
Intangibles, net of accumulated amortization of $90,304
and $59,374 as of May 31, 1996 and 1995, respectively 64,161 313,887
-------------- -------------
$ 5,710,249 $ 506,233
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 217,810 $ 319,796
Accrued compensation owed to employees 153,491 174,006
Accrued expenses 452,031 69,033
Commissions on stock sales payable 476,760 -
Notes payable, related party - 196,000
Current portion of long-term financing 240,000 60,000
Senior "A" bridge notes, including related party transaction of $100,000
as of May 31, 1996 1,090,000 -
Senior "B" bridge notes, including related party transaction of $100,000
as of May 31, 1996 890,510 -
-------------- -------------
Total current liabilities 3,520,602 818,835
Long-term financing, including accrued interest, of $309,422 and
$285,614 as of May 31, 1996 and 1995, respectively 1,816,485 2,026,140
Convertible notes payable to shareholders, including accrued interest of
$35,312 and $27,312 as of May 31, 1996 and 1995, respectively 115,312 107,312
-------------- -------------
5,452,399 2,952,287
-------------- -------------
Commitments and contingencies
Shareholders' equity (deficit):
Preferred stock, no par value 10,000,000 and 5,000,000 shares authorized
and 4,000,000 and no shares outstanding as of May 31, 1996 and 1995,
respectively 4,000 -
Preferred stock subscribed - 4,000
Preferred stock receivable - (4,000)
Common stock, no par value, 90,000,000 and 15,000,000 shares authorized and
34,108,069 and 6,922,069 outstanding as of May 31, 1996 and 1995
respectively 7,108,295 1,169,078
Common stock earned but not issued 351,187 27,389
Paid-in capital from common stock warrants 100,450 100,000
Deficit accumulated during development stage (7,306,082) (3,642,521)
-------------- -------------
257,850 (2,346,054)
-------------- -------------
$ 5,710,249 $ 606,233
============== =============
<FN>
The accompanying notes to financial statements are an integral part of these balance sheets.
</TABLE>
-1-
<PAGE>
<TABLE>
<CAPTION>
RhoMed Incorporated
(A Development Stage Company)
Statements of Operations
For the Period from Inception (January 28, 1986)
Through May 31, 1996 and
For the Nine Months Ended May 31, 1996 and 1995
Inception
(January 28, 1986)
through May 31,
--------------------------------
May 31, 1996 1996 1995
------------------ ---------------- --------------
<S> <C> <C> <C>
REVENUES:
Grants and contracts $ 2,860,512 $ - $ -
License fees and royalties 334,296 - 56,796
Sales 292,671 20,395 26,104
------------------ ---------------- --------------
Total revenues 3,487,479 20,395 82,900
------------------ ---------------- --------------
EXPENSES:
Research and development 4,205,411 678,899 518,882
General and administrative 4,665,383 1,012,765 480,086
------------------ ---------------- --------------
Total expenses 8,870,794 1,691,664 998,968
------------------ ---------------- --------------
OTHER INCOME (EXPENSES):
Other income 65,322 4,457 2,084
Interest expense (994,668) (410,790) (132,342)
Placement agent commissions and fees on
debt offering (168,970) (168,970) -
Merger costs (115,117) (115,117) -
Facility relocation costs (450,000) (450,000) -
Net intangibles write down (259,334) (259,334) -
------------------ ---------------- --------------
Total other expenses net (1,922,767) (1,399,754) (130,258)
------------------ ---------------- --------------
NET LOSS $ (7,306,082) $ (3,071,023) $ (1,046,326)
================== ================ ==============
Weighted average number of common
shares outstanding 9,943,000 6,673,000
================ ===============
Loss per common share (0.31) (0.17)
================ ===============
<FN>
The accompanying notes to financial statements are an integral part of these statements.
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
RhoMed Incorporated
(A Development Stage Company)
Statements of Shareholders' Equity (Deficit)
For the Period from Inception (January 28, 1986)
Through May 31, 1996
Common Stock
------------------------------------------------------------------------------
Paid-in
Earned but Capital from
Shares Amount not Issued Warrants
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Balance at inception - $ - $ - $ -
Issuance of shares from inception 6,562,467 1,158,883 - -
Net loss from inception - - - -
------------------ ------------------ ------------------ ------------------
Balance, August 31, 1994 6,562,467 1,158,883 - -
Issuance of shares 359,602 10,203 - -
Shares earned but not issued - - 27,389 -
Paid-in capital from common
stock warrants - - - 100,000
Preferred stock subscriptions - - - -
Net loss - - - -
------------------ ------------------ ------------------ ------------------
Balance, May 31, 1995 6,922,069 1,169,086 27,389 100,000
Shares earned but not issued - - 83,444 -
Preferred stock subscriptions - - - -
Issuance of options - 8,700 - -
Net loss - - - -
------------------ ------------------ ------------------ ------------------
Balance, August 31, 1995 6,922,069 1,177,786 110,833 100,000
Issuance of shares 27,186,000 5,930,509 - 450
Shares earned but not issued - - 240,354 -
Preferred stock subscriptions - - - -
Net loss - - - -
------------------ ------------------ ------------------ ------------------
Balance, May 31, 1996 34,108,069 $7,108,295 $ 351,187 $ 100,450
================== ================== ================== ==================
<FN>
The accompanying notes to financial statements are an integral part of these statements.
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
RhoMed Incorporated
(A Development Stage Company)
Statements of Shareholders' Equity (Deficit)
For the Period from Inception (January 28, 1986)
Through May 31, 1996
- Continued -
Deficit
Accumulated
During
Preferred Stock Development
--------------------------------------------------------
Shares Amount Subscriptions Receivable Stage Total
------------ ----------- ------------- ------------ -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance at inception - $ - $ - $ - $ - $ -
Issuance of shares from inception - - - - - 1,158,883
Net loss from inception - - - - (2,596,195) (2,596,195)
------------ ----------- ------------ ------------ -------------- ---------------
Balance, August 31, 1994 - - - - (2,596,195) (1,437,312)
Issuance of shares - - - - - 10,203
Shares earned but not issued - - - - - 27,389
Paid-in capital from common
stock warrants - - - - - 100,000
Preferred stock subscriptions 4,000 (4,000) - -
Net loss - - - - (1,146,326) (1,146,326)
------------ ----------- ------------ ------------ -------------- ---------------
Balance, May 31, 1995 - - 4,000 (4,000) (3,742,521) (2,446,046)
Shares earned but not issued - - - - - 83,444
Preferred stock subscriptions - - - - - -
Issuance of shares - - - - - 8,700
Net loss - - - - (492,538) (492,538)
------------ ----------- ------------ ------------ -------------- ---------------
Balance, August 31, 1995 - - 4,000 (4,000) (4,235,059) (2,846,440)
Issuance of shares 4,000,000 4,000 - - - 5,934,959
Shares earned but not issued - - - - - 240,354
Preferred stock subscriptions - - (4,000) 4,000 - -
Net loss - - - - (3,071,023) (3,071,023)
------------ ----------- ------------ ------------ -------------- ---------------
-
Balance, May 31, 1996 4,000,000 $ 4,000 $ - $ - $(7,306,082) $ 257,850
============= =========== ============ ============= ============== ================
<FN>
The accompanying notes to financial statements are an integral part of these statements.
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
RhoMed Incorporated
(A Development Stage Company)
Statements of Cash Flows
For the Period from Inception (January 28, 1986)
Through May 31, 1996 and
The Nine Months Ended May 31, 1996 and 1995
Inception
(January 28, 1986)
Through May 31,
--------------------------------------------
May 31, 1996 1996 1995
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (7,306,182) $ (3,071,023) $ (1,146,326)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 303,333 62,664 64,460
Interest expense on related-party debt 52,720 6,000 6,000
Accrued interest on long-term financing 766,820 264,162 232,383
Accrued interest on short-term financing 138,446 130,510 -
Write-down of intangibles 259,334 259,334
Equity and notes payable issued for expenses 93,169 - 10,195
Changes in certain operating assets and liabilities:
Accounts receivable (2,936) 1,569 (1,080)
Accounts receivable, employees - 1,121 2,388
Prepaid expenses and other (132,151) (112,399) 11,022
Intangibles (407,918) (24,895) (53,686)
Accounts payable 216,910 (88,047) 178,683
Accrued compensation owed to employees 170,039 (17,799) 3,409
Accrued expenses 480,762 339,284 (3,753)
Commissions payable 476,760 476,760 -
--------------------- --------------------- ---------------------
Net cash used for operating activities (4,890,894) (1,772,759) (696,305)
--------------------- --------------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (325,445) (16,793) (4,294)
--------------------- --------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable, related party 302,000 - 196,000
Payments on notes payable, related party (309,936) (23,286) -
Proceeds from senior bridge notes payable 1,850,000 850,000 -
Proceeds from convertible notes payable and
long-term financing 1,951,327 - 292,063
Payments on convertible notes payable and
long-term financing (170,061) (45,000) (77,384)
Proceeds from paid-in capital from common
stock warrants 100,000 - 100,000
Proceeds from common stock, stock option
issuances and preferred stock, net 6,893,798 5,934,609 -
--------------------- --------------------- ---------------------
Net cash provided by financing activities 10,617,128 6,716,323 510,679
--------------------- --------------------- ---------------------
NET INCREASE (DECREASE) IN CASH 5,400,789 4,926,771 (189,920)
CASH, beginning of period - 474,018 222,405
--------------------- --------------------- ---------------------
CASH, end of period $ 5,400,789 $ 5,400,789 $ 32,485
===================== ===================== =====================
<FN>
The accompanying notes to financial statements are an integral part of these statements.
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
RhoMed Incorporated
(A Development Stage Company)
Statements of Cash Flows
for the Period from Inception (January 28, 1986)
Through May 31, 1996 and
the Nine Months Ended May 31, 1996 and 1995
- Continued -
Inception
(January 28, 1986)
through May 31,
-----------------------------
May 31, 1996 1996 1995
------------------ --------------- -------------
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 28,029 $ - $ 28,029
================== =============== =============
NON-CASH TRANSACTION:
Settlement of accounts payable with equipment $ 900 $ - $ -
================== =============== =============
NON-CASH STOCK ACTIVITY:
Conversion of loans from employees to common stock $ 74,187 $ - $ -
================== =============== =============
Conversion of note payable to common stock $ 16,000 $ - $ -
================== =============== =============
Common stock issued for equipment $ 2,327 $ - $ -
================== =============== =============
Common stock issued for expenses (included above) $ 111,185 $ - $ 10,195
================== =============== =============
Common stock issued for accrued salaries and bonuses $ 16,548 $ - $ -
================== =============== =============
Accrued interest payable in common stock $ 351,187 $ 242,004 $ 27,389
================== =============== =============
<FN>
The accompanying notes to financial statements are an integral part of these statements.
</TABLE>
-6-
<PAGE>
RHOMED INCORPORATED
(A Development Stage Company)
Notes to Financial Statements (Unaudited)
For the Nine Months Ended May 31, 1996 and 1995
(1) NATURE OF BUSINESS:
RhoMed Incorporated (the "Company" or "RhoMed") is a development
stage company developing products and technologies for diagnostic imaging,
cancer therapy and ethical drug development based upon its monoclonal
antibody, radiolabeling and enabling peptide platform technologies.
(2) BASIS OF PRESENTATION:
The accompanying financial statements have been prepared by the
Company without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission (the "Commission"). In the opinion of the Company,
these financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position of
the Company as of May 31, 1996 and 1995, and the results of operations and its
cash flows for the nine months ended May 31, 1996 and 1995, and for the period
from inception (January 28, 1986) to May 31, 1996. The results of operations for
the nine months ended May 31, 1996, are not necessarily indicative of results
to be expected for the full year.
The accompanying financial statements and the related notes should
be read in conjunction with the Company's audited financial statements for the
fiscal years ended August 31, 1995, 1994 and 1993 filed with the Interfilm,
Inc. Form 8-K bearing a Date of Report of June 25, 1996.
- 7 -
<PAGE>
(3) INTANGIBLES:
The Company wrote off the net book value of certain patents
($259,334) which the Company is currently not utilizing in its development
projects because the patents had no demonstrated future value.
(4) SENIOR "B" BRIDGE NOTES:
On January 25, 1996, the Board of Directors increased the Company's
offering of $100,000 units from 7.5 units to 8.5 units, with each unit
consisting of a $100,000 face amount Series B Senior Bridge Note and a Warrant
to purchase 100,000 shares of common stock, no par value, of the Company at an
exercise price of the lesser of (a) $.25 per share and (b) 50% of the price
per share of common stock in a subsequent equity offering of the Company's
common stock in which gross proceeds exceed $2,500,000. On February 15, 1996,
the purchase of units was completed. The Company issued warrants to purchase
850,000 shares of common stock, no par value, to unit purchasers, and is
obligated to issue placement agent's warrants for 42,500 shares of common
stock, no par value. On June 28, 1996, the Series B Senior Bridge Notes with
accrued interest were paid in full.
(5) ACCRUED EXPENSES:
At May 31, 1996, the Company had established a facility relocation
reserve of $450,000. The facility relocation reserve represents mainly
severance costs, facility closing expenses and recruiting fees. Included in
accrued expenses at May 31, 1996, is $293,213 of the restructuring reserve.
- 8 -
<PAGE>
(6) COMMON STOCK PLACEMENT:
On March 4, 1996, the Board of Directors authorized an offering of
up to 40 units at $100,000 per unit, with each unit consisting of 400,000
shares of common stock, no par value, of the Company at a purchase price of
$.25 per share (the "Offering"). On May 14, 1996, the Board of Directors
authorized an increase in the Offering of up to 100 units. At May 31, 1996,
the Company had received subscriptions for 67.95 units. Paramount Capital,
Inc., served as placement agent for the Offering. As placement agent,
Paramount Capital, Inc., received a cash commission equal to 9% of the gross
proceeds from the sale of the units, a non-accountable expense allowance equal
to 4% of gross proceeds and placement agent's warrants, at an exercise price
of $.30 per share and which terminate ten years from the date of issuance,
equal to 10% of the common stock issued in the Offering.
(7) INCREASE IN COMMON STOCK:
By Articles of Amendment approved by the shareholders on April 4,
1996 and filed April 10, 1996, the Company amended its Articles of Incorporation
to increase its authorized capital from 40,000,000 to 60,000,000
common stock shares with no par value. By Articles of Amendment approved by
the shareholders on May 24, 1996 and filed June 7, 1996, the Company amended
its Articles of Incorporation to increase its authorized capital to 90,000,000
common stock shares with no par value.
(8) STOCK OPTION PLANS:
During the nine months ended May 31, 1996, options for 2,939,611
shares under the 1995 Employee Incentive Stock Option Plan were granted and
outstanding, at option prices ranging from $.01 to $.25 per share, expiring at
various dates through February 1, 2006, and options for 475,000 shares under
the 1995 Nonqualified Stock Option Plan were granted and outstanding, at an
option price of $.25 per share, expiring at various dates through February 16,
2006. Options as to
- 9 -
<PAGE>
389,935 shares under the 1995 Employee Incentive Stock Option Plan were
exercisable at May 31, 1996. No options under any plan were exercised or
terminated during the nine months ended May 31, 1996.
Effective April 15, 1996, and ratified by the shareholders on May
24, 1995, the Company increased the shares reserved for its 1995 Employee
Incentive Stock Option Plan to 7,500,000 shares of common stock.
(9) SUBSEQUENT EVENTS:
Aberlyn Transaction -- On June 24, 1996, the Company entered into
an agreement with Aberlyn Capital Management Limited Partnership and Aberlyn
Holding Company, Inc. (collectively "Aberlyn"), pursuant to which designees of
Aberlyn received 930,023 shares of common stock, no par value, of the Company
in payment of accrued interest through April 30, 1996 in the amount of
$324,546. Under the agreement, Aberlyn's outstanding right to purchase 930,023
shares of the Company's common stock was terminated.
Common Stock Placement -- On June 24, 1996, the Company completed
its private placement of common stock pursuant to the Offering (see Note 6).
The Company sold 96.454 units with gross proceeds of $9,645,400, and is
obligated to issue placement agent's warrants for 3,858,160 shares of common
stock, no par value.
Stock Option Plans -- Subsequent to May 31, 1996, options for
4,457,593 shares under the 1995 Employee Incentive Stock Option Plan were
granted at an option price of $.25 per share, expiring at various dates
through June 21, 2006, and options for 1,235,123 shares under the 1995
Nonqualified Stock Option Plan were granted at an option price of $.25 per
share, expiring on June 21, 2006.
- 10 -
<PAGE>
Merger -- On June 25, 1996, pursuant to the terms and conditions of
the Agreement and Plan of Reorganization dated as of April 12, 1996
("Reorganization Agreement") by and between Interfilm, Inc. ("Interfilm"),
Interfilm Acquisition Corp. ("InSub"), and RhoMed, InSub merged with and into
RhoMed (the "Merger"). Pursuant to the Merger, all of RhoMed's capital stock
was acquired by Interfilm in exchange for Interfilm preferred stock, which
upon the filing of an Amended Certificate of Incorporation will automatically
convert into shares of Interfilm common stock. Additionally, all warrants and
options to purchase RhoMed common stock outstanding immediately prior to the
Merger were converted into rights upon exercise to receive Interfilm capital
stock in the same manner in which shares of RhoMed common stock were
converted. As a result of the Merger, RhoMed has become a wholly-owned
subsidiary of Interfilm, and the former shareholders of RhoMed have acquired
an approximately 96% interest in the equity securities of Interfilm on a
fully-diluted basis. Pursuant to the Reorganization Agreement, immediately
prior to the closing of the Merger certain stockholders of Interfilm and third
parties purchased 3,000,000 shares of RhoMed's common stock, no par value, at
a purchase price of $.25 per share. In addition, pursuant to the
Reorganization Agreement warrants to purchase 1,500,000 shares of RhoMed's
common stock, no par value, at an exercise price of $.40 were issued. The
warrants terminate four years from the date of issuance, have certain
registration rights, contain a call provision, and are subject to adjustment
in certain circumstances. The directors and officers of RhoMed became the
directors and officers of Interfilm upon the closing of the Merger.
Interfilm gave notice, in an Information Statement filed pursuant to
Section 14(c) of the Securities Exchange Act of 1934 and dated June 25, 1996,
that Interfilm will amend its Certificate of Incorporation to (a) increase the
total number of shares of authorized common stock from 10,000,000 to
25,000,000, (b) effect a 1-for-10 reverse stock split and (c) change its name
to Palatin Technologies, Inc. ("Palatin Technologies"). The amendment to
Interfilm's Certificate of Incorporation will be effective on or about July
19, 1996. As a result of the Merger and the amendment to Interfilm's
Certificate of Incorporation, each share of RhoMed common stock will convert
into .184332593 shares of Palatin Technologies common stock, and each share of
RhoMed preferred stock will convert into .46695404349 shares of Palatin
Technologies common stock.
- 11 -
<PAGE>
Immediately upon all conversions pursuant to the Merger and the
amendment to Interfilm's Certificate of Incorporation, the issued and
outstanding RhoMed preferred stock and common stock, 4,000,000 and 49,558,217
shares respectively, will convert into an aggregate total of approximately
11,003,000 shares of Palatin Technologies common stock, representing
approximately 95.4% of the approximate total of 11,538,700 shares of Palatin
Technologies common stock then issued and outstanding. There will be no shares
of Palatin Technology preferred stock outstanding. All outstanding RhoMed
warrants, options and convertible securities, representing rights to acquire
20,715,815 shares of RhoMed common stock, will convert into rights to acquire
approximately 3,818,600 shares of Palatin Technologies common stock.
(10) PRO FORMA FINANCIAL INFORMATION:
As stated above, on June 25, 1996, Interfilm, a public shell,
acquired all of the outstanding capital stock of RhoMed. For accounting
purposes, the acquisition has been treated as a recapitalization of RhoMed
with RhoMed as the acquirer (reverse acquisition). Pro forma information
is not presented since the Merger is not a business combination.
- 12 -
<PAGE>
RHOMED INCORPORATED
FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
---- ---- ----
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
Report of Independent Public Accountants
To the Board of Directors and Shareholders of
RhoMed Incorporated:
We have audited the accompanying balance sheets of RHOMED INCORPORATED (a New
Mexico corporation in the development stage) as of August 31, 1995 and 1994,
and the related statements of operations, shareholders' deficit and cash flows
for each of the three years in the period ended August 31, 1995, and for the
period from inception (January 28, 1986) to August 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of RhoMed Incorporated as of
August 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the three years in the period ended August 31, 1995, and for the
period from inception to August 31, 1995, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company was organized and
commenced operations in 1986 and remains in the development stage with
government grants representing the majority of its revenues to date. As
discussed in Note 1, the Company has experienced operating losses in each year
since its inception and, as of August 31, 1995, had a deficit accumulated
during the development stage of $4,235,059. The Company expects to incur
<PAGE>
additional operating losses over the next several years and expects cumulative
losses to increase as the Company's research and development and clinical
testing efforts continue and expand. In view of the fact that research and
development, clinical testing and regulatory approvals will take a significant
period of time, the Company will require substantial additional financing.
These factors raise substantial doubt about the Company's ability to continue
as a going concern. Realization of the investment in property, equipment and
intangibles is dependent upon the success of future operations and the
Company's ability to raise additional capital. Ultimately, the Company's
ability to achieve profitable operations is dependent in large part on
regulatory approvals of its products, entering into agreements for product
development and commercialization and making the transition to a manufacturing
or licensing company. Management's plans with regard to these matters are also
discussed in Note 1. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
the amounts and classification of liabilities that might be necessary should
the Company be unable to continue as going concern.
/s/ Authur Andersen LLP
Albuquerque, New Mexico
October 30, 1995
(except with respect to the matters discussed
in Note 14 as to which the date is November 27, 1995)
<PAGE>
RHOMED INCORPORATED
(A Development Stage Company)
Balance Sheets
August 31, 1995 and 1994
1995 1994
----- ----
ASSETS
------
CURRENT ASSETS:
Cash $ 474,018 $ 222,405
Accounts receivable 4,505 5,795
Accounts receivable, employees 1,121 2,388
Prepaid expenses and other 19,752 14,546
---------- ---------
Total current assets 499,396 245,134
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $176,611 and $114,447 as of August 31,
1995 and 1994, respectively (Notes 2 and 4) 134,368 192,238
INTANGIBLES, net of accumulated amortization of $68,938
and $45,155 as of August 31, 1995 and 1994,
respectively (Notes 5 and 6) 319,965 277,596
---------- ---------
$ 953,729 $ 714,968
========== =========
The accompanying notes to financial statements are an integral part of these
balance sheets.
- 3 -
<PAGE>
RHOMED INCORPORATED
(A Development Stage Company)
Balance Sheets
August 31, 1995 and 1994
-Continued-
LIABILITIES AND SHAREHOLDERS' DEFICIT 1995 1994
- -------------------------------------
----------- -----------
CURRENT LIABILITIES:
Accounts payable $ 305,857 $ 141,113
Accrued compensation owed to employees (Note 3) 171,290 170,597
Accrued expenses 112,747 72,786
Notes payable, related party (Note 3) 23,286 -
Current portion of long-term financing (Note 6) 105,000 123,545
Senior bridge notes, including related party
transactions of $100,000 as of August 31, 1995
(Note 7) 1,000,000 -
----------- -----------
Total current liabilities 1,718,180 508,041
LONG-TERM FINANCING, including accrued interest of
$285,614 and $166,472 as of August 31, 1995 and
1994, respectively (Note 6) 1,972,677 1,542,927
CONVERTIBLE NOTES PAYABLE TO SHAREHOLDERS,
including accrued interest of $29,312 and $21,312
as ofAugust 31, 1995 and 1994, respectively (Note 8) 109,312 101,312
----------- -----------
3,800,169 2,152,280
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDERS' DEFICIT (Notes 1, 3, 6, 7, 8, 9 and 10):
Preferred stock, no par value, 10,000,000 and
5,000,000 shares authorized as of August 31, 1995
and 1994, respectively; 4,000,000 shares
subscribed as of August 31, 1995 - -
Preferred stock subscribed (Note 3) 4,000 -
Preferred stock receivable (4,000) -
Common stock, no par value, 40,000,000 and
15,000,000 shares authorized as of
August 31, 1995 and 1994,respectively;
issued and outstanding 6,922,069 and
6,562,467 shares as of August 31, 1995 and
1994, respectively 1,177,786 1,158,883
Common stock earned but not issued 110,833 -
Paid-in capital from common stock warrants 100,000 -
Deficit accumulated during development stage (4,235,059) (2,596,195)
----------- -----------
(2,846,440) (1,437,312)
----------- -----------
$ 953,729 $ 714,968
=========== ===========
The accompanying notes to financial statements are an integral part of these
balance sheets.
- 4 -
<PAGE>
RHOMED INCORPORATED
(A Development Stage Company)
Statements of Operations
For the Period from Inception (January 28, 1986)
Through August 31, 1995 and for the Years Ended
August 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Inception
through
1995 1995 1994 1993
---------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
REVENUES:
Grants and contracts (Note 11) $2,860,512 $ - $ 50,289 $ 329,976
License fees and royalties (Note 12) 334,296 64,296 50,000 187,000
Sales 272,276 33,606 47,559 67,390
----------- ----------- ------------ ----------
Total revenues 3,467,084 97,902 147,848 584,366
----------- ----------- ------------ ----------
EXPENSES:
Research and development
(Notes 2 and 11) 3,526,512 619,354 584,941 524,312
General and administrative (Note 9) 3,652,618 776,291 939,155 607,621
----------- ----------- ------------ ----------
Total expenses 7,179,130 1,395,645 1,524,096 1,131,933
----------- ----------- ------------ ----------
OTHER INCOME (EXPENSES):
Other income 60,865 2,744 16,561 21,461
Interest expense (583,878) (343,865) (185,268) (27,753)
----------- ----------- ------------ ----------
Total other expenses, net (523,013) (341,121) (168,707) (6,292)
----------- ----------- ------------ ----------
NET LOSS $(4,235,059) $(1,638,864) $ (1,544,955) $ (553,859)
=========== =========== ============ ==========
Weighted average number of common
shares outstanding 5,356,560 6,717,161 6,540,445 5,943,300
=========== =========== ============ ==========
LOSS PER COMMON SHARE $ (0.79) $ (0.24) $ (0.24) $ (0.09)
=========== =========== ============ ==========
The accompanying notes to financial statements are an
integral part of these statements.
- 5 -
<PAGE>
RHOMED INCORPORATED
(A Development Stage Company)
Statements of Shareholders' Deficit
For the Period from Inception (January 28, 1986)
Through August 31, 1995
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------
Common Stock
-------------------------------------
Paid-in Deficit
Capital from Accumulated
Common Preferred Stock During
Earned but Stock --------------- Development
Shares Amount not Issued Warrants Subscriptions Receivable Stage Total
--------- ------------ ---------- ------------ -------------- --------- ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at inception - $ - $ - $ - $ - $ - $ - $ -
Issuance of shares from
inception 5,670,747 326,647 - - - - - 326,647
Net loss from inception - - - - - - (497,381) (497,381)
--------- ------------ ---------- ----------- ---------- --------- ------------- -----------
Balance, August 31, 1992 5,670,747 326,647 - - - - (497,381) (170,734)
Issuance of shares 658,634 576,370 - - - - - 576,370
Shares earned but not issued - - 28,125 - - - - 28,125
Issuance of options - 17,089 - - - - - 17,089
Net loss - - - - - - (553,859) (553,859)
--------- ------------ ---------- ----------- ---------- --------- ------------- -----------
Balance, August 31, 1993 6,329,381 920,106 28,125 - - - (1,051,240) (103,009)
Issuance of shares 233,086 223,327 (28,125) - - - - 195,202
Issuance of options - 15,450 - - - - - 15,450
Net loss - - - - - - (1,544,955) (1,544,955)
--------- ------------ ---------- ----------- ---------- --------- ------------- -----------
Balance, August 31, 1994 6,562,467 1,158,883 - - - - (2,596,195) (1,437,312)
Issuance of shares 359,602 10,203 - - - - - 10,203
Common stock earned but not
issued - - 110,833 - - - - 110,833
Issuance of options - 8,700 - - - - - 8,700
Paid-in capital from common
stock warrants - - - 100,000 - - - 100,000
Preferred stock subscriptions - - - - 4,000 (4,000) - -
Net loss - - - - - - (1,638,864) (1,638,864)
--------- ------------ ---------- ----------- ---------- --------- ------------- ------------
Balance, August 31, 1995 6,922,069 $1,177,786 $ 110,833 $ 100,000 $ 4,000 $ (4,000) $(4,235,059) $ (2,846,440)
========= ============ ========== =========== ========== ========= ============= ===========
</TABLE>
-6-
<PAGE>
RHOMED INCORPORATED
(A Development Stage Company)
Statements of Cash Flows
For the Period from Inception (January 28, 1986)
Through August 31, 1995 and for the
Years Ended August 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Inception
through
1995 1995 1994 1993
--------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,235,059) $(1,638,864) $(1,544,955) $ (553,859)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization 240,569 85,947 80,523 28,183
Interest expense on related-party debt 46,720 8,000 8,000 8,000
Accrued interest on long-term financing 502,658 320,709 169,438 12,511
Accrued interest on short-term financing 7,936 7,936 - -
Equity and notes payable issued for expenses 121,900 10,350 15,450 49,894
Settlement with consultant (28,731) - - -
Changes in certain operating assets and liabilities:
Accounts receivable (4,505) 1,290 1,190 71,183
Accounts receivable, employees (1,121) 1,267 (2,388) -
Prepaid expenses and other (19,752) (5,206) 13,257 (16,292)
Intangibles (383,023) (66,152) (73,383) (95,730)
Accounts payable 304,957 164,744 67,269 8,893
Accrued expenses owed to employees 187,838 10,551 (4,444) (28,773)
Accrued expenses 141,478 39,961 9,825 4,234
Unearned revenue - - - (17,700)
Other payables - - - (4,000)
----------- ----------- ----------- -----------
Net cash used for operating activities (3,118,135) (1,059,467) (1,260,218) (533,456)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (308,652) (4,294) (133,714) (116,283)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable, related party (286,650) (286,650) - -
Payments on convertible notes payable and
long-term financing (125,061) (92,384) (15,477) -
Proceeds from notes payable, related party 302,000 302,000 - -
Proceeds from senior bridge notes payable 1,000,000 1,000,000 - -
Proceeds from convertible notes payable and
long-term financing 1,951,327 292,063 500,000 1,000,000
Proceeds from paid-in capital from common stock warrants 100,000 100,000 - -
Proceeds from common stock and stock option issuances,
net 959,189 345 191,812 568,390
----------- ----------- ----------- -----------
Net cash provided by financing activities 3,900,805 1,315,374 676,335 1,568,390
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 474,018 251,613 (717,597) 918,651
CASH, beginning of period - 222,405 940,002 21,351
----------- ----------- ----------- -----------
CASH, end of period $474,018 $474,018 $ 222,405 $ 940,002
=========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
- 7 -
<PAGE>
RHOMED INCORPORATED
(A Development Stage Company)
Statements of Cash Flows - Continued
For the Period from Inception (January 28, 1986)
Through August 31, 1995 and for the
Years Ended August 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Inception
through
1995 1995 1994 1993
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 28,029 $ 28,029 $ - $ -
============ ============= ============= =============
NON-CASH TRANSACTION:
Settlement of accounts payable with equipment $ 900 $ - $ 900 $ -
============ ============= ============= =============
NON-CASH STOCK ACTIVITY:
Conversion of loans from employees to common stock $ 74,187 $ - $ - $ -
============ ============= ============= =============
Conversion of note payable to common stock $ 16,000 $ - $ - $ -
============ ============= ============= =============
Common stock issued for equipment $ 2,327 $ - $ - $ -
============ ============= ============= =============
Common stock issued for expenses (included above) $ 111,185 $ 10,350 $ 15,450 $ 49,894
============ ============= ============= =============
Common stock issued for accrued salaries and bonuses $ 16,548 $ 9,858 $ 3,390 $ 3,300
============ ============= ============= =============
Accrued interest payable in common stock $ 109,183 $ 109,183 $ - $ -
============ ============= ============= =============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
- 8 -
<PAGE>
RHOMED INCORPORATED
(A Development Stage Company)
Notes to Financial Statements
For the Period from Inception (January 28, 1986)
Through August 31, 1995 and for the Years Ended
August 31, 1995, 1994 and 1993
(1) ORGANIZATION ACTIVITIES AND RISK FACTORS:
RhoMed Incorporated (the "Company" or "RhoMed") was incorporated
under the laws of the State of New Mexico on January 28, 1986, for the
purposes of conducting research, development, manufacture and marketing of
pharmaceuticals, diagnostic devices and diagnostic agents and related
substances.
During fiscal year 1995, the Company encountered serious liquidity
and working capital deficiencies and, as a result, effective April 1995, the
Company sold for nominal consideration a majority ownership to The Castle
Group Ltd. ("Castle") in exchange for financing (see Note 3).
The Company has funded its research and development activities to
date primarily from the proceeds of equity and debt offerings, loans from
shareholders, financing involving sale and license back of intellectual
property, and from research and development grants and contracts with agencies
of the Federal government and the New Mexico Research and Development
Institute (see Note 11). Although incorporated in January, 1986, the Company
remains in the development stage, as it does not yet derive any significant
revenues from the sale of products.
Since its inception, RhoMed has devoted substantially all of its
efforts and resources to research and development of its technology. The
Company has experienced operating losses in each year since its inception and,
as of August 31, 1995, had a deficit accumulated during the development stage
of $4,235,059. The Company expects to incur additional operating losses over
the next several years and expects cumulative losses to increase as the
Company's research and development and clinical testing efforts continue and
expand. In view of the fact that research and development, clinical testing
and regulatory approvals will take a significant period of time, the Company
will require
-9-
<PAGE>
substantial additional financing. Realization of the investment in property
and equipment and patents is dependent upon the success of future operations
and the Company's ability to raise additional capital. The accompanying
financial statements do not include any adjustment that might result from the
outcome of this uncertainty.
While the Company has been substantially funded in its development
work through grants and contracts with agencies of the Federal government and
State of New Mexico, and intends to continue to pursue such grants and
contracts in the future, the Company anticipates additional capital will be
raised through stock sales and financing arrangements. Ultimately, the
Company's ability to achieve profitable operations is dependent in large part
on entering into agreements for product development and commercialization,
obtaining regulatory approvals of its products, and making the transition to a
manufacturing or licensing company.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Accounting Basis -- The financial books and records of the Company
are maintained on the accrual basis of accounting. As a development stage
enterprise, cumulative results of operations from inception are presented.
Cash -- For purposes of presenting cash flows, the Company considers
cash as amounts on hand, on deposit in financial institutions and overnight
investments.
Property and Equipment -- Equipment and office furniture are stated
at cost, net of accumulated depreciation. Depreciation is recognized using an
accelerated method over the estimated useful lives of 5 years for equipment, 7
years for office furniture, and over the term of the lease for leasehold
improvements. Maintenance and repairs are expensed as incurred while
expenditures that extend the useful life of an asset are capitalized. Assets
purchased or leased for use on certain grants and contracts which revert to
the granting or contracting entity are not capitalized by the Company.
Patents -- Patents represent the external costs capitalized to
successfully obtain a patent registration. All internal costs to obtain and
develop the patents have been expensed. Patents are included as intangible
assets in the accompanying financial statements and are stated at cost, net of
- 10 -
<PAGE>
accumulated amortization. Amortization is recognized using the straight-line
method over the estimated patent lives ranging up to 17 years. Unsuccessful
patent costs are expensed when so determined by management.
Research and Development Costs -- The costs of research and
development activities are expensed as incurred.
Stock Options and Warrants -- Most common stock options have been
issued at exercise prices greater than, or equal to, their fair market value
at the date granted. Accordingly, no value has been assigned to these
instruments. Certain stock options were issued in fiscal years 1995, 1994 and
1993 under the nonqualified stock option plan (see Note 10) at an exercise
price below market value. Stock warrants have been issued with nominal
exercise prices (see Notes 6, 7 and 10). The difference between the exercise
price and the market value of these securities has been included in general
and administrative expense in fiscal years 1995, 1994 and 1993, and as an
addition to equity.
Income Taxes -- On September 1, 1993, the Company adopted Statement
of Financial Accounting Standards No. 109 (FAS 109), "Accounting for Income
Taxes." The adoption of FAS 109 changed the Company's method of accounting for
income taxes from the deferred method (APB 11) to an asset and liability
approach. Previously the Company deferred the past tax effects of timing
differences between financial reporting and taxable income. The asset and
liability approach requires the recognition of deferred tax liabilities and
assets for the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of other assets and
liabilities. The effect of the adoption of FAS 109 was minimal due to net
operating loss carryforwards.
Loss per Common Share -- Loss per common share is calculated based
upon the weighted average number of shares of common stock outstanding during
each year. All options and warrants were excluded in the calculation of
weighted average shares outstanding since their inclusion would have had an
antidilutive effect.
Financial Statement Presentation -- Certain amounts in the
accompanying financial statements and notes have been reclassified to conform
to the 1995 presentation.
- 11 -
<PAGE>
(3) RELATED PARTY TRANSACTIONS:
Accrued Compensation -- At August 31, 1995 and 1994, the Company
owed employees approximately $171,000 for accrued and unpaid compensation and
related benefits. These amounts do not accrue interest and are included in
accrued compensation in the accompanying financial statements. Such amounts
are to be paid when the Company generates adequate liquidity to do so. During
fiscal years 1995, 1994 and 1993, $9,858, $3,390 and $3,300, respectively, of
accrued salaries and bonuses were converted to common stock at $.70, $1.00 and
$.75 per share, respectively.
Castle Transaction -- During fiscal year 1995, the Company
encountered serious liquidity and working capital deficiencies and, as a
result, effective April 1995, the Company entered into a letter of intent with
Castle, pursuant to which Castle agreed to arrange for a line of credit of up
to $300,000 to finance ongoing operations, Castle agreed to arrange for future
financings, and the Company agreed to sell to Castle, for nominal
consideration, 4,000,000 shares of Series A Preferred Stock convertible to a
maximum of 10,132,859 shares of common stock, which represents a majority
ownership of the Company. Pursuant to the letter of intent, the Company
entered into a line of credit agreement with Castle, effective April 20, 1995,
under which Castle provided a line of credit of up to $300,000 to fund
ordinary research and operating expenses of the Company, which agreement
expires on the earlier of the raising of $750,000 of additional financing or
April 20, 1996. All amounts borrowed under the line of credit agreement
accrued interest at the Prime Rate of NatWest Bank USA plus 2% (10.75% at
August 31, 1995). The Company had borrowed up to the maximum under the line of
credit, and at August 31, 1995, had $23,286 outstanding. The average interest
rate for the period was 10.90%, and the average balance outstanding was
$191,549. All amounts under the line of credit were repaid effective September
15, 1995 from the proceeds of the Senior Bridge Note and Class A Warrant
offering (see Note 7).
On July 28, 1995, the Corporation's Board of Directors, consisting
of Buck A. Rhodes, Michael S. Weiss and Carl Spana, approved an offering of
Senior Bridge Notes and Class A Warrants (the "Offering") (see Note 7).
Because two of the directors, Michael S. Weiss and Carl Spana (the "Interested
Directors"), could be deemed to have a direct or indirect interest in a
transaction (the "Conflict Of Interest Transaction") contemplated under
certain terms of the Offering, and therefore a conflict of interest with the
Company, the transaction was ratified by disinterested shareholders on
- 12 -
<PAGE>
August 15, 1995. Michael S. Weiss is Vice President of the placement agent for
the offering, and General Counsel of Castle, an entity with a principal having
ownership in the placement agent. Carl Spana is Vice President of Castle.
These Interested Directors may benefit from the payment of commissions and
expenses, and the issuance of warrants, to the placement agent. To the extent
that the Company sold Units to affiliates and/or customers of the placement
agent, the Interested Directors could benefit indirectly.
On October 25, 1995, the purchase of Series A Preferred Stock by
designees of Castle was completed. The majority holder of Series A Preferred
Stock and Buck A. Rhodes, President of the Company, have agreed to enter into
a voting agreement, incorporating provisions of the letter of intent relating
to election of directors, and providing that each will vote such that of the
three directors of the Company, two directors designated by the majority
holder of Series A Preferred Stock and one designated by Buck A. Rhodes will
be elected. The voting agreement continues, unless terminated by mutual
agreement, until the earlier of completion of an underwriting in which gross
proceeds are anticipated to exceed $5,000,000, common stock of the Company (or
securities received in exchange for Common Stock of the Company) trades on a
national securities exchange or on the National Association of Securities
Dealers, Inc. Automated Quotations System ("NASDAQ") or on the OTC Electronic
Bulletin Board, or until the common stock obtainable upon conversion of the
Series A Preferred Stock is less than 40% of the total of issued common stock
and common stock obtainable upon conversion.
Other Transactions -- On July 28, 1995 the Company authorized the
issuance of options for 1,000 shares of common stock, at the then fair market
value, for each month commencing May 1, 1995 in which the salary of any
officer was accrued or unpaid. At August 31, 1995, the Company was obligated
to issue options to purchase an aggregate of 12,000 shares.
On March 29, 1995, the Company issued 337,590 shares of common stock
to Robert A. Stern, Vice President Corporate Finance of the Company, in
consideration of services rendered to the Company.
On September 15, 1992, the Company entered into a consulting
agreement with an individual for six months of part-time services relating to
corporate partnering and funding, and for
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<PAGE>
serving as a corporate officer for the same period. Compensation was
contingent on the completion of certain transactions, one of which was
completed on November 2, 1992. Pursuant to this agreement, the individual was
paid $5,000 during fiscal year 1993 and received 37,500 shares of Company
common stock subsequent to August 31, 1993. These amounts were recorded as
general and administrative expenses in fiscal year 1993; the stock is included
in the accompanying financial statements as earned but not issued, at August
31, 1993. During fiscal year 1994, shares were issued in settlement of this
agreement. After the agreement terminated, the individual remained as an
officer of the Company.
The President and major shareholder of the Company had loaned the
Company various sums under loan agreements, some of which provided for
conversion of the loan amounts, including accrued interest, to common stock of
the Company. Pursuant to a loan conversion agreement effective August 31,
1991, outstanding loan balances of $33,847, including accrued interest, were
converted to 169,236 shares of common stock at a rate of $.20 per share. In
addition, the President of the Company purchased 13,660 common stock shares at
$.50 per share in fiscal 1991.
In May 1987, the mother of the President of the Company loaned the
Company $20,000. Effective August 31, 1991, under the terms of the loan
agreement, the principal amount due together with accrued interest of $8,255
were converted to common stock of the Company at $.05 per share.
There have been certain transactions between the Company and certain
related parties which have resulted in the exchange of assets or services for
equity securities.
- 14 -
<PAGE>
(4) PROPERTY AND EQUIPMENT:
Property and equipment consists of the following at August 31:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Office equipment $ 183,322 $ 182,213
Laboratory equipment 69,989 66,804
Leasehold improvements 57,668 57,668
------------- -------------
Property and equipment at cost 310,979 306,685
Less: Accumulated depreciation 176,611 114,447
------------- -------------
$ 134,368 $ 192,238
============= =============
</TABLE>
(5) INTANGIBLES:
The Company has obtained certain United States (U.S.) patents and
corresponding international applications have been issued or are pending on a
majority of issued U.S. patents. The Company has applications pending for 18
additional U.S. patents, the majority of which have pending international
counterparts in selected countries.
- 15 -
<PAGE>
The following table presents the Company's patents including, as
noted, certain patents licensed by the Company:
<TABLE>
<CAPTION>
U.S. Patent
No. Date Issued Title
- ----------- ----------- -----
<S> <C> <C>
4,424,200 Licensed Method for Radiolabeling Proteins with Technetium-99m (interest of
University of New Mexico licensed)
4,940,670 July 10, 1990 Method for Compounding and Testing Patient Specific Monoclonal Antibodies
and Monoclonal Antibody Fragments for In Vivo Use
5,078,985 January 7, 1992 Radiolabeling Antibodies and Other Proteins with Technetium or Rhenium by
Regulated Reduction
5,102,990 April 7, 1992 Direct Radiolabeling of Antibodies and Other Proteins with Technetium or
Rhenium
5,250,417 October 5, 1993 Method for Acrosome Reaction Assay
5,277,893 January 11, 1994 Direct Radiolabeling of Substrates Containing Monosulfides or Disulfide
Bonds with Radionuclides
5,277,892 January 11, 1994 In Vivo Lymphocyte Tagging
5,346,687 September 13, 1994 Direct Radiolabeling of Antibody Against Stage Specific Embryonic Antigen
for Diagnostic Imaging
5,399,338 March 21, 1995 Enhancement of Abnormal Tissue Uptake of Antibodies, Tumor-Specific Agents
or Conjugates Thereof for Diagnostic Imaging or Therapy (jointly owned with
the University of New Mexico)
5,443,816 August 22, 1995 Peptide-Metal Ion Pharmaceutical Preparation and Method
5,460,785 October 24, 1995 Direct Labeling of Antibodies and Other Protein with Metal Ions
</TABLE>
The Company has assigned its interest in several patents to secure
long-term financing (see Note 6).
A certain European patent is the subject of opposition proceedings.
The Company's license to a certain issued U.S. patent is subject to a
non-competition agreement in the area of abscess imaging; the Company's
President receives royalties from the University of New Mexico related to this
patent.
Effective June 7, 1995, a settlement regarding an interference
between the Company's U.S. radiolabeling process patents Nos. 5,078,985 and
5,102,990 and a third party's application for a patent was approved by the
Board of Patent Appeals and Interferences of the United States Patent and
Trademark Office. Pursuant to the settlement, judgment was entered on the
ground of no interference- in-fact, with a declaration that the Company is
entitled to certain claims in reissue applications
- 16 -
<PAGE>
corresponding to the Company's process patents at issue, and declaring that
the third party is entitled to certain claims in its patent application.
(6) LONG-TERM FINANCING:
The Company has a long-term financing agreement with Aberlyn Holding
Co., Inc., and its affiliates (collectively "Aberlyn"). Aberlyn has, in a
series of transactions, loaned to the Company approximately $1,800,000 secured
by certain of the Company's patents, property and equipment. Certain accrued
interest has been included as principal in refinancings. Certain fees and
costs related to the borrowings have been deferred as intangible assets and
are being amortized over the remaining terms of the arrangement using the
effective interest method.
The Company is obligated, at August 31, 1995, to monthly payments of
$5,000 from September 1, 1995 through May 1, 1996; $20,000 from June 1, 1996
through May 1, 1997; and $91,695 from June 1, 1997 through May 1, 1999 to
Aberlyn. Payments through May 1, 1997 will be applied to principal only;
interest will be accrued during this period at an annual effective rate of 15%
and paid in the Company's common stock, with certain registration rights, at a
price per share to be negotiated. The agreement requires the accrual of
certain interest as payable before it is earned; therefore, at any time before
the scheduled payoff, the recorded long-term liability will be less than the
total amount payable to settle the obligation.
- 17 -
<PAGE>
Scheduled principal payments on the long-term financing through
fiscal year 1999 at August 31, 1995 are as follows:
Years ending August 31,
1996 $ 105,000
1997 340,680
1998 718,043
1999 628,340
------------
Total principal payments 1,792,063
Accrued interest 285,614
$ 2,077,677
Aberlyn also has the right to receive warrants with certain
registration rights to purchase 730,023 shares of the Company's common stock
at initial exercise prices from $.75 to $1.45 per share, which exercise prices
are subject to adjustment on each sale of common stock at a price lower than
the initial exercise price, and to purchase 200,000 shares at an exercise
price to be negotiated. The warrants expire at various dates from July 15,
2000 through November 16, 2001.
(7) SENIOR BRIDGE NOTES:
As discussed further in Note 3, "Castle Transaction," the Company
encountered serious liquidity and working capital deficiencies in fiscal year
1995 which resulted in the Company entering into financing transactions with
Castle. One such transaction included a placement, for which an affiliate of
Castle served as placement agent, with certain capital investors. On July 28,
1995, the Board of Directors authorized an offering of up to 40 units at
$25,000 per unit, with each unit consisting of a $25,000 face amount Senior
Bridge Note and a Class A Warrant to purchase 75,000 shares of common stock,
no par value, of the Company at an exercise price of $.01 per share. The
nominal exercise price for the warrants reflects the seriously troubled
financial condition of the Company on the date of the transaction. The Senior
Bridge Notes bear interest at 1% per month, and are payable one year from the
date of issuance. The warrants terminate ten years from the date of issuance,
have certain registration rights, and are subject to adjustment in certain
circumstances,
- 18 -
<PAGE>
including a stock split of, stock dividend on, or a subdivision, combination
or recapitalization of, the common stock. Four units were purchased by
investment funds for which an officer and principal of Castle have investment
authority.
Paramount Capital, Inc., an entity with a principal having an
ownership interest in Castle (see Note 3), served as placement agent for the
offering. As placement agent, Paramount Capital, Inc. received a cash
commission equal to 6% of the gross proceeds from the sale of the units, a
non-accountable expense allowance equal to 3% of gross proceeds, and
underwriter's warrants, at an exercise price of $.01 per share, equal to 15%
of the warrants issued in the offering. The nominal exercise price for the
warrants reflects the seriously troubled financial condition of the Company on
the date of the transaction. As of September 22, 1995, all units had been
sold, and the offering was terminated. Net proceeds to the Company were
approximately $907,000 after payment of the placement agent's fees and
expenses ($90,000) and offering expenses (approximately $3,000).
(8) CONVERTIBLE NOTES PAYABLE TO SHAREHOLDERS:
At August 31, 1995 and 1994, convertible notes payable to
shareholders consist of four ten-year convertible notes totaling $80,000 with
interest accrued thereon. These notes were issued as part of a combined stock
and debt offering during fiscal year 1992 (see Note 10). Each convertible note
is a promissory note from the Company to the purchaser in the face amount of
$20,000, bearing interest at 10% per year, accruing annually. Principal and
interest on the convertible notes becomes due and payable on the earlier of
(a) July 31, 2002, or (b) 30 days after the Company receives net proceeds from
a public offering of its common stock of at least $5,000,000, or (c) 30 days
after the end of a fiscal year in which, as reflected on the Company's audited
financial statements, the Company has net assets of at least $5,000,000 or net
income of at least $5,000,000. For a period of five years from closing, the
convertible notes may be converted into common stock on the basis of one share
of stock for each $1.50 of principal and accrued interest. Conversion may be
accelerated, and is lost if not exercised, in the event of notice of
prepayment or notice of consolidation, merger or sale of the assets of the
Company.
- 19 -
<PAGE>
(9) COMMITMENTS AND CONTINGENCIES:
Leases -- The Company leases its facilities and the majority of its
equipment under noncancellable operating leases. The lease on the current
facility expires June 30, 1996, with an option to renew for a three-year term.
Minimum future annual lease payments at August 31, 1995, for all
noncancellable operating lease agreements, are approximately $58,000 in fiscal
year 1996. Certain of these leases have been personally guaranteed by one or
more officers of the Company.
Product Liability -- The testing, marketing and sale of human health
care products entails an inherent risk of allegations of product liability.
The Company does not currently have product liability insurance coverage. The
Company intends to seek product liability insurance if, and when, its products
are commercialized.
Commitments -- On October 1, 1993, the Company entered into a
one-year employment contract with Jeffrey Garwin, Ph.D., M.D., for which a
portion of the compensation was 250 shares of stock per month, and options for
3,000 shares of Company common stock at $.85, with 250 options vesting each
month of employment. On January 6, 1995, the Company extended the contract for
one year on similar terms, with options at $.60 per share. Effective January
1, 1995, the Company entered into a consulting agreement with James E. Smith,
Ph.D., a consultant in the radiopharmaceutical industry. Under this agreement,
70% of the compensation is paid in common stock at an agreed valuation of $.70
per share.
Warrants -- At August 31, 1995, a common stock purchase warrant was
outstanding, which was issued to a consulting firm as payment for services
rendered, for 6,000 shares of common stock at a price of $.50 per share which
expires June 30, 1997.
(10) SHAREHOLDERS' DEFICIT:
Authorized Shares -- The original authorized capital of the Company,
500,000 common stock shares with a $.01 par value, was increased by Articles
of Amendment filed October 29, 1987 to 10,000,000 common stock shares with no
par value. With the increase in authorized capital, issued common stock of the
Company was split on an eight-for-one basis. On February 23, 1994, the
- 20 -
<PAGE>
shareholders approved the authorization of 5,000,000 additional shares of
common stock, to 15,000,000 total, and 5,000,000 shares of preferred stock,
with no par value. The Board of Directors was given the authority to set the
terms (callability, convertibility, voting, cumulative dividend rate) of any
preferred stock issue.
Pursuant to the Castle transaction (see Note 3), on April 20, 1995,
the Company filed an Amended Certificate of Designation setting forth the
voting powers, preferences and rights of the series of preferred stock
designated as Series A Preferred Stock. The Amended Certificate of Designation
designates 4,000,000 shares of preferred stock as Series A Preferred Stock,
provides dividends at the rate declared for common stock, provides limited
liquidation rights, grants voting rights with common stock on an as-if
converted basis and provides for conversion to common stock.
By Articles of Amendment approved by the shareholders on August 15,
1995 and filed September 12, 1995, the Company amended its Articles of
Incorporation to increase its authorized capital to 40,000,000 common stock
shares with no par value, and 10,000,000 preferred stock shares with no par
value.
Stock Transactions (see Note 3) -- The Company commenced a private
offering of preferred stock in fiscal year 1994, and a private offering of
units consisting of common stock and common stock warrants in fiscal year
1995, both of which were terminated without having raised the minimum required
for closing. Stock issuance costs incurred in connection with both offerings
were expensed to operations in the fiscal year in which such costs were
incurred.
On February 26, 1993, the Company issued a private offering
memorandum for the sale of securities, consisting of units of 10,000 shares of
the Company's no par value common stock for $10,000 per unit ($1.00 per
share). These securities, which were not registered and on which no sales
commissions or fees were paid, were offered under the exemptions provided by
Section 3(b) and Rules 501-503 and 505 of the Act. The Company sold 58.4 units
for approximately $577,000, net of offering costs. This offering ended
November 9, 1993.
On September 10, 1992, the Company commenced a private offering of
20 units to be sold for $25,000 per unit. Each unit consisted of 33,333 shares
of the Company's no par value common
- 21 -
<PAGE>
stock ($.75 per share). These securities were offered by a private offering
memorandum under the exemption provided by Section 3(b) and Rules 501-503 and
505 of the Act, and were not registered under the Act. This offering, on which
no sales commissions or fees were paid, ended during February 1993. The
Company sold eight units for approximately $191,000, net of offering costs.
On December 9, 1991, the Company issued a private offering
memorandum for the sale of units consisting of 26,289 shares of common stock
and a $20,000 note convertible into the Company's common stock (see Note 8).
Four units were sold for $25,000 per unit. These securities were not
registered under the Securities Act of 1933 ("Act") and were offered under the
exemption provided by Section 3(b) and Rules 501-504 of that Act. This
offering ended July 31, 1992.
Stock Option Plans -- Prior to August 15, 1995 the Company had two
stock option plans: (1) an employee incentive stock option plan, for which, at
August 31, 1995, 750,000 shares were reserved, and for which options for
654,750 shares were granted and outstanding at August 31, 1995, at option
prices ranging from $.35 to $1.00 per share, expiring at various dates through
March 29, 2005; and (2) a nonqualified stock option plan, for which, at August
31, 1995, 1,250,000 shares of stock were reserved, and for which options for
1,247,079 shares were granted and outstanding at August 31, 1995, at option
prices ranging from $.30 to $1.00 per share, expiring at various dates through
June 30, 2005. No options have been exercised since inception.
- 22 -
<PAGE>
Information related to stock option activity under these plans for
the period from inception to August 31, 1995 is as follows:
<TABLE>
<CAPTION>
Incentive Stock Options Nonqualified Stock Options
------------------------------- --------------------------------
Number Number
of Shares Price per Share of Shares Price per Share
----------- ------------------ ----------- -----------------
<S> <C> <C> <C> <C>
Balance at inception - $ - - $ -
Granted 193,000 .50 597,100 .425- .50
Terminated 20,000 .50 - -
------------ ------------- ----------- -------------
Outstanding, August 31, 1992 173,000 .50 597,100 .425- .50
Granted - - 142,229 .85- 1.00
------------ ------------- ----------- -------------
Outstanding, August 31, 1993 173,000 .50 739,329 .425- 1.00
Granted 455,750 1.00 313,850 .85- 1.00
Terminated 37,000 1.00 2,500 1.00
------------ ------------- ----------- -------------
Outstanding, August 31, 1994 591,750 .50- 1.00 1,050,679 .425- 1.00
Granted 99,000 .35 196,400 .30- 1.00
Terminated 36,000 1.00 - -
------------ ------------- ----------- -------------
Outstanding, August 31, 1995 654,750 $ .35- $ 1.00 1,247,079 $ .30- $1.00
============ ============= =========== =============
Exercisable, August 31, 1995 484,563 $ .35- $ 1.00 1,187,079 $ .30- $1.00
============ ============= =========== =============
</TABLE>
Effective July 28, 1995, and ratified by the shareholders on August
15, 1995, the Company adopted two new stock option plans, the 1995 Employee
Incentive Stock Option Plan and the 1995 Nonqualified Stock Option Plan
(together, the "1995 Stock Option Plans"). The 1995 Employee Incentive Stock
Option Plan is a qualifying "incentive stock option" plan under the Internal
Revenue Code. There are 2,000,000 shares of common stock reserved for each of
the 1995 Stock Option Plans. At August 31, 1995, no options have been granted
under the 1995 Stock Option Plans, but the Company was obligated to issue
options to officers to purchase 12,000 shares (see Note 3).
During fiscal year 1993, a policy was adopted, subject to annual
review by the Board of Directors, to annually grant outside directors and the
Chairman of the Scientific Advisory Board options to purchase 15,000 shares of
Company common stock and to annually grant members of the Scientific Advisory
Board options to purchase 5,000 shares of Company common stock.
- 23 -
<PAGE>
(11) GRANTS, CONTRACTS AND ROYALTIES:
Under a contract with the New Mexico Research and Development
Institute to develop products for medical research and diagnostic imaging, the
State of New Mexico earns a 2% royalty on gross revenues for products
developed under the contract and manufactured in New Mexico, and a 5% royalty
on products manufactured outside New Mexico, subject to maximum repayment
limits over specified time frames. Royalty expense for all agreements for the
years ended August 31, 1995, 1994 and 1993, was $8,502, $33,094 and $25,271,
respectively. These amounts are included in research and development expenses.
Under Federal grants and contracts, there are no royalties or other forms of
repayment; however, in certain limited circumstances the government can
acquire rights to technology which is not being commercially exploited.
The Company applies for and has received grants and contracts under
the Small Business Innovative Research (SBIR) program, and for other
appropriate Federally funded grants and contracts. Since the Company's
inception, Federally or state funded grants and contracts revenue have
approximated $2,526,000. Most contract costs, including indirect costs, are
subject to audit and adjustment by negotiation between the Company and
government representatives.
The Company also engages in contract development work with private
sector companies, both foreign and domestic. From inception to August 31,
1995, contract revenues from private sector companies have approximated
$335,000.
(12) LICENSING AGREEMENTS:
The Company entered into a letter of intent, effective December 20,
1994, with Sorin Biomedica S.p.A. of Italy ("Sorin") regarding European
manufacturing, marketing and distribution of the Company's LeuTec-M product
for diagnostic imaging of infections and inflammation ("the product").
Pursuant to the letter of intent, the Company will grant Sorin an exclusive
license to make and sell the product in certain European countries, and Sorin
will pay the Company a royalty on net sales of the product. In addition, Sorin
will serve as an alternate contract manufacturing site for the product.
- 24 -
<PAGE>
The Company entered into a license agreement effective November 2,
1992, with Sterling Winthrop, Inc., a major pharmaceutical company, under
which the Company granted a non-exclusive license to certain patented
radiolabeling technology for imaging uses, and granted an option to acquire a
license on similar terms for therapeutic uses. The license agreement is
renewable annually and provides for certain license fee payments to the
Company, together with milestone payments on product development, and
percentage of sales production royalties. During fiscal years 1995, 1994 and
1993, the Company received $50,000, $50,000 and $125,000, respectively, in
royalties and option payments. During fiscal year 1994, this license agreement
was assigned to Burroughs Wellcome Co., a major pharmaceutical company, in
conjunction with the purchase of certain assets of Sterling Winthrop, Inc. by
Burroughs Wellcome Co. Concurrently with entering into the license agreement,
the Company entered into a development agreement, which expired December 31,
1993, with Sterling Winthrop, Inc., under which the Company performed
specified product development services for $125,000, of which $25,000 and
$100,000 are included in grant and contract revenues for fiscal years 1994 and
1993, respectively.
The Company entered into a license agreement effective May 1, 1992,
with Rougier Bio-Tech Limited, a foreign biotechnology concern, under which
the Company has granted an exclusive license to certain patented radiolabeling
technology for a defined field-of-use. The agreement, which is for the life of
the patents and is renewable annually, provides for license fee payments to
the Company, and percentage of sales production royalties with a minimum
annual royalty. Under this agreement, $7,500 and $12,000 of royalties and fees
were received in fiscal years 1995 and 1993, respectively.
(13) INCOME TAXES:
The Company has had no income tax expense or benefit since inception
because of operating losses. Prior to the change in ownership (see Note 3),
the Company had approximately $4,203,000 of net operating loss available for
carryforward to potentially offset any future taxable income. However, under
provisions of the Internal Revenue Code, the change in majority ownership may
severely limit or eliminate any net operating loss carryforwards after the
date of ownership change. Thus, the Company may not be able to utilize any or
all net operating loss carryforwards in any given year and may not be able to
realize the benefit of any or all of the Company's net operating
- 25 -
<PAGE>
loss carryforwards in the future. Income tax returns for the year ended August
31, 1994 have not been filed as of October 30, 1995; however, management
believes that since there is no tax liability there will be no material
adverse effect on the Company.
(14) SUBSEQUENT EVENTS:
On November 27, 1995, the Board of Directors ratified an employment
agreement (the "Agreement") with Edward J. Quilty ("Quilty") to serve as Chief
Executive Officer of the Company. Pursuant to the Agreement, the Company
agreed to grant Quilty an option to acquire such number of shares of common
stock as equal a 10% fully diluted equity interest in the Company at an
exercise price of $0.01 per share, which option vests in 36 equal increments
on each of the first 36 monthly anniversaries of the commencement of Quilty's
employment with the Company, and may be accelerated or terminated in part on
the happening of certain events (the "Initial Option"). The Agreement further
provides an anti-dilutive option, pursuant to which Quilty will be issued an
option to acquire the number of shares that, when aggregated with the shares
issuable pursuant to the Initial Option, equal not less than 3.75% of the
shares of common stock of the Company. The Agreement is for an initial period
of one year, with automatic one year extensions, and provides that, on certain
termination events, shares that would otherwise have vested in the
twelve-month period following termination vest and are exercisable upon
termination, and also provides for specified termination pay.
On November 27, 1995, the Board of Directors authorized an offering
of up to 7.5 units at $100,000 per unit, with each unit consisting of a
$100,000 face amount Series B Senior Bridge Note and a Class B Warrant to
purchase 100,000 shares of common stock, no par value, of the Company at an
exercise price of the lesser of (a) $.25 per share and (b) 50% of the price
per share of common stock in a subsequent equity offering of the Company's
common stock in which gross proceeds exceed $2,500,000. The Series B Senior
Bridge Notes bear interest at 1% per month, and are payable at the earlier of
(a) five days following the closing of an equity offering of the Company's
securities in which gross proceeds exceed $2,500,000 and (b) twelve months
from the date of issuance. The warrants terminate five years from the date of
issuance, have certain registration rights, and are subject to adjustment in
certain circumstances, including a stock split of, stock dividend on, or a
subdivision, combination or recapitalization of, the common stock. Paramount
Capital, Inc., an entity with a principal having an ownership interest in
Castle (see Note 3), will serve as placement agent for the
- 26 -
<PAGE>
offering. As placement agent, Paramount Capital, Inc. will receive a cash
commission equal to 9% of the gross proceeds from the sale of the units, a
non-accountable expense allowance equal to 4% of gross proceeds, and
underwriter's warrants, at an exercise price of $.30 per share, equal to 5% of
the warrants issued in the offering.
- 27 -
