<PAGE>
As filed with the Securities and Exchange Commission on December 10, 1997
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
IAT MULTIMEDIA, INC.
(Name of Registrant as Specified in Its Charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 5045 13-3920210
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
Geschaftshaus Wasserschloss
Aarestrasse 17
CH-5300 Vogelsang-Turgi, Switzerland
(011)(41)(56) 223-5022
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
---------------------
Viktor Vogt
Geschaftshaus Wasserschloss
Aarestrasse 17
CH-5300 Vogelsang-Turgi, Switzerland
(011)(41)(56) 223-5022
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
---------------------
Copies to:
John Francis Fitzpatrick, Esq. Jill M. Cohen, Esq.
Baker & McKenzie Bachner, Tally, Polevoy & Misher LLP
805 Third Avenue 380 Madison Avenue
New York, New York 10022 New York, New York 10017
(212) 751-5700 (212) 687-7000
---------------------
Approximate Date of Commencement Proposed Sale to the Public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
============================================================================================================
Proposed Proposed
Maximum Maximum
Title of Each Class of Amount to be Offering Price Aggregate Amount of
Securities to be Registered Registered Per Unit(1) Offering Price(1) Registration Fee
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10% Convertible Subordinated
Notes due 2003 ............... $11,500,000 100% $11,500,000 $3,393.00
- ------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value
issuable upon conversion of the
Convertible Subordinated Notes
(2) ........................... -- -- -- None
- ------------------------------------------------------------------------------------------------------------
Underwriters' Warrants ......... 141,593 $ .01 $ 142.00 None
- ------------------------------------------------------------------------------------------------------------
Common Stock, $0.1 par value
issuable upon exercise of the
Underwriter's Warrants (3) ... 141,593 8.83(4) $ 1,250,266 $ 369.00
- ------------------------------------------------------------------------------------------------------------
Total ........................ -- -- -- $3,762.00
============================================================================================================
</TABLE>
- -----------
(1) Estimated solely for purposes of calculating the registration fee.
(2) Such indeterminate number of shares of Common Stock as may be issuable upon
conversion of the Convertible Notes are being registered hereunder. Such
shares of Common Stock, if issued, will be issued for no additional
consideration, and therefore, pursuant to Rule 457(i), no additional
registration fee is required. Pursuant to Rule 416(a), there is also being
registered such additional shares as may be issuable pursuant to the
anti-dilution provisions of the Notes.
(3) Pursuant to Rule 416, there are also being registered such additional
shares of Common Stock as may become issuable pursuant to anti-dilution
provisions of the Underwriters' Warrants.
(4) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), based on the average of the bid and ask prices as
of December 5, 1997, as reported by the Nasdaq National Market.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION -- DATED DECEMBER 10, 1997
PROSPECTUS
[LOGO]
IAT MULTIMEDIA, INC.
$10,000,000
10% Convertible Subordinated Notes due , 2003
IAT Multimedia, Inc., a Delaware corporation ("Multimedia"), is offering
(the "Offering") $10,000,000 principal amount of its 10% Convertible
Subordinated Notes due 2003 (the "Notes"). Interest on the Notes will accrue at
10% per annum and be payable semi annually on 1, and 1, of each
year, commencing , 1998. Multimedia will use approximately $1,875,000
of the net proceeds of this Offering to purchase a portfolio of Pledged
Securities (as defined herein), consisting of Government Securities (as defined
herein), that will be pledged and escrowed for payment of interest on the Notes
through , 2000. The Notes are convertible at any time after the first
anniversary of the date of this Prospectus and prior to maturity, unless
previously redeemed or repurchased, into shares of Common Stock, par value $.01
per share (the "Common Stock"), of Multimedia, at a conversion price of
$ per share, subject to adjustment under certain circumstances. The
Common Stock is currently traded on the Nasdaq National Market under the symbol
"IATA." On December 5, 1997, the last reported sale price for the Common Stock
on the Nasdaq National Market was $7 1/16 per share.
The Notes are unsecured and subordinate to all existing and future Senior
Indebtedness (as defined herein). At November 30, 1997, Senior Indebtedness was
approximately $3.1 million. The Indenture (as defined herein) does not restrict
the incurrence of additional indebtedness by Multimedia or any of its
subsidiaries. See "Description of the Notes -- Subordination." The Notes will
mature on , 2003. Multimedia may redeem the Notes, in whole or in part,
after , 2000, at the redemption prices set forth herein, plus accrued
and unpaid interest at the date fixed for redemption. Upon a Change of Control
(as defined herein), Multimedia will offer to repurchase each holder's Notes at
a purchase price equal to 100% of the principal amount thereof, plus accrued
and unpaid interest to the date of repurchase. See "Description of the Notes --
Optional Redemption by Multimedia" and "-- Change of Control."
The Notes will be traded in the over-the-counter market in the so called
"pink sheets" or the NASD's "Electronic Bulletin Board." No assurance can be
given that a market for the Notes will develop or as to the liquidity or
sustainability of any market that may develop. See "Risk Factors -- Absence of
a Public Market for the Notes."
---------------------
The securities offered hereby involve a high degree of risk. See "Risk
Factors" beginning on page 8 for a discussion of certain matters that should
be considered by potential investors.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
================================================================================
Underwriting
Price to Discounts Proceeds to
Public(1) and Commissions(2) Company(3)
- --------------------------------------------------------------------------------
Per Note ...... $ $ $
- --------------------------------------------------------------------------------
Total(4) ...... $ $ $
================================================================================
(1) Plus accrued interest, if any, from , 1998.
(2) Does not include additional compensation to be received by Royce Investment
Group, Inc. (the "Underwriter") in the form of (i) a non-accountable
expense allowance of $ ($ if the over-allotment option is
exercised in full) and (ii) warrants to be issued to the Underwriter or
its designees, to purchase up to shares of Common Stock at $ per
share (the "Underwriter's Warrants"). In addition, Multimedia has agreed
to indemnify the Underwriter against certain liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(3) Before deducting estimated expenses of approximately $ payable by
Multimedia, including the Underwriter's non-accountable expense allowance.
(4) Multimedia has granted to the Underwriter a 30-day option to purchase up to
an additional $1,500,000 principal amount of Notes on the same terms and
conditions set forth above, solely to cover over-allotments, if any. If
the over-allotment option is exercised in full, the Price to Public,
Underwriting Discounts and Commissions and Proceeds to Multimedia will be
$ , $ and $ , respectively. See "Underwriting."
The Notes are being offered on a "firm commitment" basis by the
Underwriter when, as and if delivered and accepted by the Underwriter, subject
to its right to reject orders in whole or in part and subject to certain other
conditions. It is expected that delivery of the Notes will be made against
payment at the offices of Royce Investment Group, Inc., 199 Crossways Park
Drive, Woodbury, New York, 11797, on or about , 1998.
---------------------
ROYCE INVESTMENT GROUP, INC.
---------------------
The date of this Prospectus is , 1998
<PAGE>
---------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE MARKET PRICE OF THE NOTES AND THE
COMMON STOCK. SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF NOTES AND/OR COMMON
STOCK FOLLOWING THE PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION
IN THE NOTES OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE NOTES AND THE
COMMON STOCK AND THE IMPOSITION OF PENALTY BIDS. IN CONNECTION WITH THIS
OFFERING, THE UNDERWRITER AND CERTAIN SELLING GROUP MEMBERS (IF ANY) OR THEIR
RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN
MULTIMEDIA'S COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE
10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
---------------------
ii
<PAGE>
Multimedia is organized under the laws of the State of Delaware. Investors
in the Notes will be able to effect service of process in the United States
upon Multimedia and may be able to effect service of process upon its
directors. However, Multimedia is primarily a holding company which holds stock
in entities organized under the laws of and located in Switzerland and Germany
and all or a substantial portion of the assets of Multimedia are located
outside the United States. In addition, five of Multimedia's six directors and
all of its executive officers are residents of foreign countries and all or a
substantial portion of the assets of such directors and officers are located
outside of the United States. As a result, it may not be possible for investors
to effect service of process upon Multimedia's foreign directors and officers
or enforce judgments of U.S. courts predicated upon the civil liability
provisions of U.S. laws against Multimedia's, the foreign directors' and
officers' assets.
Multimedia has been advised by its counsel, Baker & McKenzie, that there
is doubt as to the enforceability in Switzerland of judgments of U.S. courts,
and in Germany in original actions for enforcement of judgments of U.S. courts,
of civil liabilities predicated solely upon the laws of the United States, in
each case against Multimedia's subsidiaries and against shareholders,
directors, officers and employees of Multimedia or its subsidiaries who are
domiciled in Switzerland or in Germany. In addition, awards of punitive damages
in actions brought in the United States or elsewhere may be unenforceable in
Switzerland and in Germany.
---------------------
Amounts and percentages appearing in this Prospectus may not total due to
rounding.
Trinology, Vision and Live, Moving Still Image, MSI and Wavelet - API are
trade names of the Company. All other trademarks or trade names referred to in
this Prospectus are the property of their respective owners.
---------------------
In this Prospectus, references to "U.S. Dollars" or "$" are to United
States currency, and references to "Deutsche Mark" and "Swiss Franc" are to
German and Swiss currency, respectively. Multimedia has presented its
consolidated financial statements in accordance with generally accepted
accounting principles in the United States ("U.S. GAAP") in U.S. Dollars.
Amounts originally measured in Deutsche Mark and Swiss Franc for all periods
presented have been translated into U.S. Dollars in accordance with the
methodology set forth in Statement of Financial Accounting Standards No. 52.
For the convenience of the reader, this Prospectus contains translations of
certain Deutsche Mark or Swiss Franc amounts into U.S. Dollars which should not
be construed as a representation that such Deutsche Mark or Swiss Franc amounts
actually represent such U.S. Dollar amounts or could be, or could have been,
converted into U.S. Dollars at the rates indicated or at any other rate. This
rate may differ from the actual rates in effect during the periods covered by
the financial information discussed herein. See "Exchange Rate."
iii
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
iv
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements (including the Notes thereto) appearing elsewhere in this
Prospectus. Unless the context otherwise requires, "Multimedia" refers to IAT
Multimedia, Inc. and the "Company" refers to IAT Multimedia, Inc. and its
subsidiaries, "FSE" refers to FSE Computer-Handel GmbH & Co. KG and "IAT"
refers to Multimedia and its subsidiaries other than FSE. Multimedia acquired
100% of the general partner of FSE and 80% of the outstanding limited
partnership interests of FSE in November 1997. Unless otherwise specified, all
references to the Company include FSE. The Company's functional currency is the
Swiss Franc. FSE's functional currency is the Deutsche Mark. Foreign currency
amounts in the Company's Consolidated Financial Statements (as hereinafter
defined) and elsewhere in this Prospectus have been converted into U.S.
dollars. See "Note 2 of the Consolidated Financial Statements of IAT."
Investors should consider carefully the information set forth under "Risk
Factors."
Overview
The Company, through its recent acquisition of FSE, markets in Germany
high-performance personal computers ("PCs") assembled according to customer
specifications and sold under the trade name "Trinology," as well as components
and peripherals for PCs. The Company is also engaged in developing and
marketing state-of-the-art, customizable proprietary visual communications
technology designed to enable users to participate in real time, multi-point
video communications and providing improved features and functionality over
competing technology. The Company's visual communications technology is
currently utilized in multi-functional visual communications system marketed
under the name Vision and Live ("Vision and Live"). The Company has also
developed (i) wavelet data compression and decompression software technology
for high-speed, high-quality still image transfer and (ii) a computer board and
associated software, designed for integration into PCs, which enables the user
to engage in visual communications and which contains, among other things,
portions of the Company's visual communication system technology (the
"Wonderboard"), both of which are anticipated to be available in 1998. The
Company believes that the acquisition of FSE will re-orient the Company's
principal business and provide expanded marketing and distribution channels for
the Company's video communications technology in Germany through FSE while
providing FSE with the Wonderboard and wavelet software technology for
distribution to its customers and for integration into Trinology PCs.
FSE's product line includes high-performance IBM-compatible desktop PCs
as well as components, such as motherboards, hard disks, graphic cards and
plug-in cards, and peripherals, such as printers, monitors and cabinets, to
its customers. For the year ended December 31, 1996 and the nine month period
ended September 30, 1997, FSE's net sales were approximately $41 million and
$27 million, respectively, and FSE's net income was approximately $661,000 and
$455,000, respectively. Substantially all of FSE's clients are corporate
customers, including industrial, pharmaceutical, service and trade companies,
the military and value-added resellers ("VARs"). FSE's current customers
include BASF Germany, Bayer Leverkusen Germany, Novartis Switzerland
and the North Atlantic Treaty Organization (NATO). FSE markets its products
directly through its internal sales force to dealers and end-users and
also maintains two retail showrooms and a mail-order department. FSE works
directly with a wide range of suppliers to evaluate the latest developments in
PC-related technology and engages in extensive testing to optimize the
compatibility and speed of the components which are sold and integrated into
Trinology PCs.
The Company is currently developing a third generation of its Vision and
Live systems. The third generation will utilize the TMS320C80 programmable
digital signal processor (the "C8x chip") which was developed by Texas
Instrument's ("TI") visual communications development team, of which the
Company was a part. TI and IAT have agreed that IAT will be the only source
for the products developed from the C8x chip in the field of visual
communications and that IAT will be the exclusive worldwide service provider
for the C80 base libraries and reference board. Systems using the programmable
C8x chip are easier to upgrade and customize to a user's specific requirements
than systems using hardwired chips. IAT intends
1
<PAGE>
to use the C8x chip in its Wonderboard, which the Company anticipates marketing
to original equipment manufacturers ("OEMs"), VARs and end-users for integration
into high-performance PCs, including integration into FSE's Trinology PCs. The
Company intends to customize this technology for a variety of industrial and
professional applications including tele-medicine (remote visual communications
among health care professionals to assist in the diagnosis and treatment of
patients) and tele-servicing (remote diagnosis of service problems on
equipment). The Company is focusing its initial attention in tele-medicine on
tele-microscopy and is working with Olympus Optical Co. (Europe) GmbH
("Olympus") to develop and market tele-microscopes which, among other things,
will allow health care professionals in remote locations to view and manipulate
microscope slides. To date, IAT has invested approximately $12 million in the
research and development of its visual communications technology (including
approximately $4 million in Research Participations (as defined herein) from
third parties. For the year ended December 31, 1996 and the nine month period
ended September 30, 1997, IAT net sales were approximately $1.2 million and $0.5
million, respectively with net losses of approximately $5.1 million and $4.3
million, respectively.
In addition, the Company, in conjunction with the Technical University of
Berlin, has developed wavelet data compression and decompression software
technology, which enhances the quality and speed of still images transmitted
by visual communications systems. The Company expects to begin offering its
Moving Still Image 2.0 ("MSI") software package incorporating its wavelet
technology in the first quarter of 1998 and will market MSI to OEMs for use
initially with medical images. MSI will be offered as a plug-in to
NetMeeting(TM), Microsoft's Internet conferencing software. The Company also
expects to begin offering Wavelet-API, an Active-X(R) plug-in module for
high-performance image compression and decompression, in the first quarter of
1998. The Company intends to integrate this technology into tele-microscopes
and FSE's Trinology PCs, while continuing to evaluate other uses for the
wavelet data compression and decompression software technology, including
potential Internet applications, and sales to OEMs, VARs and end-users.
Strategy
The Company's objective is to continue developing as a vertically
integrated supplier of high-end PCs and sophisticated visual communication
systems. The Company intends to achieve its objective by undertaking the
following:
o The Company intends to incorporate IAT's products into FSE's PCs and
intends to utilize FSE's sales force to market IAT's products to VARs and
retail customers. In addition, as FSE is primarily located in southern
Germany and IAT in northern Germany and Switzerland, the Company intends
to expand FSE's geographic distribution base by utilizing IAT's offices in
Bremen, Germany and Turgi, Switzerland and to utilize IAT's sales force to
enhance the marketing of FSE's PCs to OEMs.
o The Company is currently concentrating on expanding its presence in
Europe and intends to expand the distribution of its visual communications
products into the United States in 1998 by acquiring or establishing
relationships with distributors or VARs with a market presence in the
United States.
o The Company intends to expand its operations and the marketing of its PCs
and visual communications products through acquisitions of companies with
technologies related to or complementary with the Company's products and
technology or with additional distribution facilities.
o The Company intends to continue to develop and enhance the performance of
its products to maintain their technological and competitive advantages.
Corporate Information
Multimedia was incorporated in Delaware in September 1996 as a holding
company for the existing business of IAT AG ("IAT AG"), a Swiss corporation,
and IAT Deutschland GmbH Interaktive Medien
2
<PAGE>
Systeme ("IAT Germany"), a German corporation, which were organized in 1989
and 1991, respectively. Multimedia owns 100% of the outstanding capital stock
of IAT AG and IAT AG owns 74.9% of the outstanding capital stock of IAT
Germany. HIBEG, a wholly-owned subsidiary of the federal state of Bremen,
Germany, promotes business in Bremen and owns 25.1% of the outstanding capital
stock of IAT Germany. The Company and HIBEG are negotiating the potential
corporate restructuring of IAT Germany which may include the transfer of the
assets and liabilities of IAT Germany to a new German corporation. These
negotiations are ongoing and the terms of any proposed transaction have not
been finalized. There can be no assurances as to whether or on what terms the
Company and HIBEG will effect any such restructuring. In November 1997,
Multimedia acquired 100% of the shares of capital stock of the general partner
of FSE and 80% of the limited partnership interests of FSE, a German limited
partnership. The remaining 20% of the limited partnership interests of FSE are
currently owned by Dr. Alfred Simmet, the Chief Operating Officer of FSE. See
"Business -- FSE Acquisition." The Company's executive offices are located at
Geschaftshaus Wasserschloss, Aarestrasse 17, CH-5300, Vogelsang-Turgi,
Switzerland and its telephone number is (011)(41)(56) 223-5022.
3
<PAGE>
The Offering
<TABLE>
<S> <C>
Securities Offered ............... $10,000,000 aggregate principal amount of 10% Convertible
Subordinated Notes due , 2003.
Maturity Date .................. , 2003.
Interest Payment Dates ......... 1 and 1 of each year, commencing
1, 1998.
Interest ........................ 10% per annum.
Conversion ..................... The Notes are convertible at the option of the holder into
shares of Common Stock at any time after the first anniversary
of the date of this Prospectus and prior to maturity, unless
previously redeemed or repurchased by Multimedia, at a con-
version price of $ per share, subject to adjustment in
certain circumstances. See "Description of the Notes-- Con-
version of the Notes."
Redemption at the Option of Multi-
media ........................ The Notes are not redeemable prior to , 2000. There-
after, the Notes are redeemable at any time and from time to
time at the option of Multimedia, in whole or in part, at the
redemption prices set forth herein, plus accrued and unpaid
interest to the date fixed for redemption. See "Description of
the Notes-- Optional Redemption by Multimedia."
Repurchase at the Option of Hold-
ers Upon a Change of Control ... Upon a Change of Control (as defined in "Description of
Notes"), Multimedia will offer to repurchase the Notes at a
repurchase price equal to 100% of the principal amount
thereof, plus accrued and unpaid interest to the date of repur-
chase. See "Description of the Notes-- Change of Control."
Subordination .................. The Notes are unsecured and subordinate to all existing and
future Senior Indebtedness (as defined in "Description of
Notes") of Multimedia and effectively subordinated to all
indebtedness and other liabilities of the subsidiaries of Multi-
media. At November 30, 1997, Senior Indebtedness was
approximately $3.1 million. The indenture governing the
rights of holders of Notes (the "Indenture") does not restrict
the incurrence of additional indebtedness by Multimedia or
any of its subsidiaries. See "Description of the Notes-- Sub-
ordination."
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Deposit ............... At the closing for this Offering, Multimedia will use approxi-
mately $1,875,000 of the net proceeds of this Offering to pur-
chase a portfolio of securities that will be pledged and
escrowed in an account under the Trustee's exclusive domin-
ion and control for the payment of interest on the Notes
through , 2000 (the "Pledged Securities") pursuant
to a Pledge and Escrow Agreement (the "Pledge and Escrow
Agreement"). The portfolio of securities will consist only of
direct obligations of, or obligations guaranteed by, the United
States of America for the payment of which guarantee or obli-
gations the full faith and credit of the United States of
America is pledged (the "Government Securities"). See "Use
of Proceeds" and "Description of the Notes--Pledge and
Escrow Agreement."
Use of Proceeds ...... Net proceeds of the Offering are expected to be approximately
$ million. Multimedia plans to use approximately
$1,875,000 to purchase the Pledged Securities, approximately
$930,000 to fund the remaining portion of the purchase price
of FSE and the remaining approximately $ net proceeds
for working capital and general corporate purposes, including
future acquisitions. See "Use of Proceeds" and "Business --
Strategy."
Listing ............... The Notes are expected to be traded in the over-the-counter
market in the so-called "pink sheets" or the National Associa-
tion of Securities Dealers, Inc.'s (the "NASD") "Electronic
Bulletin Board." No assurance can be given that a market for
the Notes will develop or as to the liquidity or sustainability
of any market that may develop. The Common Stock trades
on the Nasdaq National Market under the symbol "IATA." See
"Risk Factors--Absence of a Public Market for the Notes."
Risk Factors ......... See "Risk Factors" for a discussion of certain matters that
should be considered by potential investors.
</TABLE>
5
<PAGE>
Summary Financial Information
The following Summary Statements of Operations information, for the year
ended December 31, 1996 and for the nine months ended September 30, 1997 has
been prepared based upon the audited historical consolidated statement of
operations for the year ended December 31, 1996 and the unaudited historical
consolidated statement of operations for the nine months ended September 30,
1997 of IAT and the audited historical statement of operations for the year
ended December 31, 1996 and the unaudited historical statement of operations for
the nine months ended September 30, 1997 of FSE and sets forth the pro forma
statement of operations information giving effect to the acquisition of FSE and
the related issuance of 146,949 shares of Common Stock, as adjusted for the sale
of $10 million aggregate principal amount of Notes offered hereby and the
application of the net proceeds of such sale as if each such transaction
occurred on January 1 of each period. The following Summary Balance Sheet
information has been prepared based upon the unaudited historical condensed
consolidated balance sheet of IAT as of September 30, 1997 and the unaudited
historical condensed balance sheet of FSE as of September 30, 1997, and sets
forth (i) the pro forma balance sheet giving effect to the consummation of the
acquisition of FSE and the related issuance of 146,949 shares of Common Stock in
November 1997 as if such transaction had occurred on September 30, 1997 and (ii)
the pro forma balance sheet as adjusted to give effect to the sale of $10
million aggregate principal amount of Notes offered hereby and the application
of the net proceeds of such sale as if each such transaction had occurred on
September 30, 1997.
The following unaudited summary pro forma condensed statement of operations
information and unaudited summary condensed balance sheet information are not
necessarily indicative of the actual results of operations or financial
position that would have been reported if the events described above had
occurred on January 1 of each period or as of September 30, 1997, nor do they
purport to indicate the results of the Company's future operations.
Furthermore, the pro forma results do not give effect to cost savings, or
incremental costs that may occur as a result of the integration and
consolidation of FSE. In the opinion of management, all adjustments necessary
to present fairly such pro forma financial information have been made. The
allocation of the FSE purchase price is preliminary, but is not expected to
differ materially from the purchase price allocation reflected herein.
The following summary consolidated pro forma financial information is
derived from, and should be read in conjunction with, the Consolidated
Financial Statements of IAT and the related Notes thereto, the Financial
Statements of FSE and the related Notes thereto and the Pro Forma Condensed
Consolidated Financial Information and the related Notes thereto included
elsewhere in this Prospectus.
6
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1996
-------------------------------------------------------
Pro Forma, As Adjusted
IAT for the FSE Acquisition
Historical FSE Historical and the Offering
------------- ---------------- -----------------------
(unaudited) (unaudited) (unaudited)
(In thousands, except per share amounts)
<S> <C> <C> <C>
Statement of Operations
Data:
Net sales ..................... $ 1,193 $40,917 $42,110
Cost of sales ............... 811 36,827 37,638
------- ------- -------
Gross margin .................. 382 4,090 4,472
------- ------- -------
Operating Expenses:
Research and development
costs, net .................. 2,331 -- 2,331
Selling, general and adminis-
trative expenses ............. 2,957 3,259 6,475
------- ------- -------
5,288 3,259 8,806
------- ------- -------
Operating income (loss) ...... $(4,906) $ 831 $(4,334)
======= ======= =======
Interest expense ............ $ 213 $ 64 $ 1,617
======= ======= =======
Net income (loss) ............ $(5,108) $ 661 $(6,288)
======= ======= =======
Net loss per common share ..... $ (0.89) $ (1.07)
======= =======
Weighted average number of
shares outstanding ......... 5,752 5,899
======= =======
Ratio of earnings to fixed
charges ..................... (1) (1)
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1997
-------------------------------------------------------
Pro Forma, As Adjusted
IAT for the FSE Acquisition
Historical FSE Historical and the Offering
------------- ---------------- -----------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Statement of Operations
Data:
Net sales ..................... $ 538 $26,983 $ 27,520
Cost of sales ............... 329 24,348 24,676
-------- ------- --------
Gross margin .................. 209 2,635 2,844
------- ------- -------
Operating Expenses:
Research and development
costs, net .................. 1,874 -- 1,874
Selling, general and adminis-
trative expenses ............. 2,848 2,195 5,245
-------- ------- --------
4,722 2,195 7,119
-------- ------- -------
Operating income (loss) ...... $ (4,513) $ 440 $ (4,275)
======== ======= ========
Interest expense ............ $ 169 $ 42 $ 1,216
======== ======= ========
Net income (loss) ............ $ (4,303) $ 455 $ (5,215)
======== ======= ========
Net loss per common share ..... $ (0.54) $ (0.64)
======== ========
Weighted average number of
shares outstanding ......... 7,971 8,118
======== =========
Ratio of earnings to fixed
charges ..................... (1) (1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
September 30, 1997
-----------------------------------------------------------------
Pro Forma Pro Forma,
IAT FSE for the FSE As Adjusted
Historical Historical Acquisition for the Offering
------------- ------------- ------------- -----------------
(unaudited) (unaudited) (unaudited) (unaudited)
(In thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Current assets ............... $11,912 $4,119 $13,014 $19,439
Working capital ............... 9,252 271 6,921 13,346
Total assets .................. 13,005 5,021 17,888 27,888
Total liabilities ............ 3,086 4,132 6,802 16,802
Minority interest ............ 261 261
Stockholders equity (2) ...... 9,919 889 10,825 10,825
</TABLE>
- ----------------
(1) Earnings, as adjusted, were inadequate to cover fixed charges by $5,108,
$6,288, $4,303 and $5,215, respectively.
(2) Includes 498,285 Escrow Shares as defined under " Principal Stockholders --
Escrow Shares." Excludes (i) 500,000 shares of Common Stock reserved for
issuance upon exercise of options under the Company's 1996 Stock Option
Plan (the "Plan"), none of which have been granted, (ii )2,683,485 shares
of Common Stock issuable upon exercise of outstanding warrants and (iii)
145,000 shares of Common Stock issuable upon exercise of outstanding
options granted outside of the Plan.
7
<PAGE>
RISK FACTORS
Prospective purchasers of the Notes offered hereby should consider
carefully the following risk factors, as well as the other information
contained in this Prospectus, before purchasing the Notes offered hereby.
Certain statements contained in this Prospectus including, without limitation,
statements containing the words "believes," "anticipates," "intends,"
"expects," "projects," and words of similar import constitute forward-looking
statements. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company or industry results to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include the risk factors set
forth below and certain factors discussed in more detail elsewhere in this
Prospectus, including, without limitation, under the captions "Summary,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." Given these uncertainties, prospective investors
are cautioned not to place undue reliance on such forward-looking statements.
The Company disclaims any obligations to update any such factors or publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
Substantial Indebtedness; Effect of Financial Leverage. In connection with
the Offering, the Company will incur significant amounts of indebtedness. As of
September 30, 1997, the Company's consolidated indebtedness would have been
approximately $13.7 million on a pro forma basis after giving effect to the
acquisition of FSE and the consummation of the Offering, representing
approximately 63.6% of the Company's total capitalization. The Indenture does
not limit the incurrence of additional debt, including debt by the Company and
its subsidiaries, senior in right of repayment to the Notes.
The Company's current indebtedness as of November 30, 1997, consists of
borrowings under bank lines of credit in the aggregate amount of approximately
$1.0 million which are due on demand and stockholder loans in the aggregate
amount of approximately $2.1 million (including FSE's partner offset account).
In the event the Company's creditors demand payment of a portion or all of the
indebtedness of the Company, the Company may not have sufficient funds available
to make such payments and failure to repay the lines of credit would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Certain Transactions -- FSE Acquisition."
The degree to which the Company is leveraged could have material
consequences to the Company and the holders of the Notes and shares of Common
Stock, including, but not limited to, the following: (i) the Company's ability
to obtain additional financing in the future for acquisitions, working capital,
capital expenditures, general corporate or other purposes may be impaired, (ii)
a substantial portion of the Company's cash flow from operations will be
dedicated to the payment of the principal and interest on the Notes, and (iii)
the Company's level of indebtedness could make it more vulnerable to economic
downturns, limit its ability to withstand competitive pressures and limit its
flexibility in reacting to changes in its industry and general economic
conditions. Certain of the Company's competitors operate on a less leveraged
basis, and have significantly greater operating and financial flexibility than
the Company.
The Company's ability to make scheduled payments of principal of, to pay
interest on or to refinance its debt and, to make repurchase or redemption
payments on the Notes, depends on its future financial performance, which, to a
certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors beyond its control, as well as the
continued profitability of FSE and the integration of FSE into the Company's
operations. While the Pledged Securities are expected to be sufficient to pay
interest on the Notes until , 2000, there can be no assurance that the
Company's business will generate sufficient cash flow from operations or that
future working capital or borrowings will be available in an amount to enable
the Company to service its debt and to make necessary capital or other
expenditures. Based upon the Company's current level of operations, management
believes that cash flow from operations, together with the net proceeds of this
Offering, will be adequate to meet the Company's anticipated future
requirements for working capital, capital expenditures and scheduled interest,
and principal payments through 1998 depending on cash requirements for
acquisitions. Although the Company is evaluating and is engaged in discussions
in connection with the potential acquisition of assets or equity of certain
businesses, the Company has no agreements or commitments relating to any
particular acquisition and there can be no assurance that any such acquisitions
will be consummated. In the event that the Company does undertake any future
acquisitions, the Company anticipates paying for such acquisitions through a
combination of cash, Common Stock and possibly through the issuance of
additional debt.
8
<PAGE>
History of Operating Losses. The Company has incurred losses since
inception, has generated limited sales to date and at September 30, 1997 had an
accumulated deficit of approximately $16.6 million. IAT's products have been
marketed for several years with several products still in the development
stage. IAT has developed and is currently marketing a third generation of its
Vision and Live system. The Company anticipates releasing the Wonderboard and
the wavelet compression and decompression software technology during 1998.
However, there can be no assurance that IAT's products will be completed, will
be released in a timely manner, can be manufactured at the anticipated costs,
will be sold at the anticipated sales price or will achieve market acceptance
and penetration. In the year ended December 31, 1996 and the nine months ended
September 30, 1997, IAT made significant net expenditures of approximately $2.3
million and $1.9 million, respectively, for product development and expects
that it will be required to continue to incur substantial expenditures related
to product development and marketing programs in order to be competitive in a
rapidly developing technology market and to capture market share in the
segments of the visual communications market in which it seeks to compete.
Although FSE has been selling its products for several years and has generated
profits, it is subject to significant price competition which adversely affects
profit margins and, there can be no assurance that it will continue to achieve
profitability or that any potential increase in sales or revenue will not be
offset by devaluations of the Deutsche Mark against the U.S. dollar.
In connection with the acquisition of FSE, the Company incurred
approximately $3.4 million of goodwill which will be amortized over 10 years,
resulting in an annual expense of approximately $336,000. The Company expects
to acquire additional companies in the future and, accordingly, may incur
further acquisition related charges including acquisition costs, goodwill and
financing charges, which will decrease the Company's net income or increase the
Company's net losses. To the extent that the Company makes such acquisitions
through its subsidiaries, the ability of such subsidiaries to pay dividends or
make other distributions to Multimedia may be limited by the impact of such
charges. See "-- Holding Company Structure; Reliance on Subsidiaries."
In addition, the Company will incur interest expense of approximately $1.0
million annually as a result of the issuance of the Notes. As a result of the
expenses related to the Notes and the amortization of goodwill incurred in
connection with the acquisition of FSE, the Company's pro forma net loss for the
nine months ended September 30, 1997 would have been $5.2 million
notwithstanding FSE's revenues and net income. Even assuming FSE's business
continues to be profitable, the Company may incur further losses in the future
and there can be no assurance that the Company will achieve profitable
operations.
Broad Discretion In Use of Proceeds; Inability of Stockholders to Evaluate
Future Acquisitions. Pursuant to the requirements of the Indenture, the Company
will use approximately $1,875,000 of the net proceeds of this Offering to
purchase the Pledged Securities which will be pledged and escrowed and will be
used for the payment of interest until , 2000 and approximately $930,000 to
fund the remaining portion of the purchase price of FSE. However, the Company
has broad discretion with respect to the use of the remaining $ million of
the net proceeds of the Offering a substantial portion of which is expected to
be used for acquisitions. Although the Company is evaluating and is engaged in
discussions in connection with the potential acquisition of assets or equity of
certain businesses, the Company has no agreements or arrangements with respect
to any particular future acquisition and, accordingly, it will have significant
flexibility in identifying and selecting prospective acquisition candidates.
The Company does not intend to seek stockholder or noteholder approval for any
acquisition, including those currently being evaluated, unless required to do
so by applicable law or regulations. Accordingly, stockholders and noteholders
will not have an opportunity to review financial or other information relating
to acquisition candidates prior to consummation of an acquisition. See "Use of
Proceeds" and "Business -- Strategy."
Holding Company Structure; Reliance on Subsidiaries. Multimedia is a
holding company and substantially all of its assets are held by its
subsidiaries and all of its operating revenues are derived from the operations
of such subsidiaries. Accordingly, Multimedia's ability to pay the principal
of, and interest when due, on the Notes is dependent upon the operating results
of its subsidiaries and the distribution of sufficient funds from its
subsidiaries. Multimedia's subsidiaries will have no obligation, contingent or
otherwise, to make any funds available to it for payment of the principal of,
and interest on the Notes. In addition, the ability of Multimedia's
subsidiaries to make such funds available to Multimedia may be restricted by
the terms of such subsidiaries' future indebtedness, the availability of such
funds and the applicable laws of the jurisdictions under which such
subsidiaries are organized. Furthermore, Multimedia's subsidiaries will be
permitted under the terms of the
9
<PAGE>
Indenture to incur additional indebtedness that may restrict or prohibit the
making of distributions, the payment of dividends or the making of loans by
such subsidiaries to Multimedia. The failure of Multimedia's subsidiaries to
pay dividends or otherwise make funds available to Multimedia could have a
material adverse effect upon Multimedia's ability to satisfy its debt service
requirements including its ability to make payments on the Notes.
Multimedia's subsidiaries are subject to German and Swiss law, which
require, among other things, that companies which incur losses have to take
appropriate measures to ensure that the claims of the company's obligees are
covered by the assets of those companies. Such measures include, among others,
increasing paid-in capital or obtaining declarations from the obligees which
subordinate their claims. If those measures are not taken, the board of
directors of the subsidiaries must notify a judge in order to commence
bankruptcy proceedings which, under Swiss and German law, usually leads to the
dissolution of the corporate existence. Between May 1992 and April 1993, in
accordance with Swiss law, IAT AG underwent a financial reorganization. IAT AG
filed and was granted an application for a stay of payment with the applicable
court in Switzerland and eventually reached a court-approved agreement with its
unsecured creditors to accept forgiveness of 90% of their claims and to be paid
the remaining 10%. In addition, IAT AG also altered its capital structure in
June 1993. Since 1993 and in compliance with Swiss law, IAT AG took steps to
safeguard the interests of its creditors and to raise capital to fund its
operations by also obtaining unsecured subordinated loans from stockholders of
Multimedia (former stockholders of IAT AG) and by obtaining additional
shareholder equity by increasing the share capital of IAT AG, which according
to Swiss law is required to be fixed. For more specific information regarding
the measures taken, see "Certain Transactions." The Company continues to
undertake measures to obtain and maintain operating funds. While IAT AG and IAT
Germany have successfully undertaken measures to obtain and maintain operating
funds in the past, there can be no assurance that such measures will not have
to be undertaken in the future or that the corporate existence of IAT AG and
IAT Germany can be maintained. Failure to maintain such corporate existence
would have a material adverse effect on the Company.
Subordination. The Notes will be unsecured and subordinated in the right
of payment to all existing and future Senior Indebtedness, including the
principal of (and any premium, if any) and interest on and all other amounts
due on or payable in connection with Senior Indebtedness. At November 30,
1997, Senior Indebtedness was approximately $3.1 million, consisting primarily
of outstanding indebtedness under lines of credit with two banks which are due
on demand and stockholder loans (including FSE's partner offset account). The
Indenture does not restrict the ability of Multimedia or its subsidiaries to
incur additional indebtedness and Multimedia may from time to time issue
additional indebtedness constituting Senior Indebtedness. By reasons of such
subordination, in the event of liquidation, reorganization, dissolution or
winding up of the Company, or upon an assignment for the benefit of creditors
or any other marshaling of Multimedia's assets and liabilities, or upon other
proceedings, the holders of the Notes and other creditors who are holders of
Senior Indebtedness must be paid in full before the holders of the Notes may
be paid. This may have the effect of reducing the amount of such proceeds paid
to the holders of the Notes. In addition, under certain circumstances, no
payments may be made with respect to the principal or interest on the Notes if
there exists (and has not been waived) a payment default or certain other
defaults with respect to Senior Indebtedness. See "Description of the Notes --
Subordination" and "Certain Transactions."
Risks Relating to Integration of FSE. Prior to the closing of the
acquisition of FSE, FSE and Multimedia operated as separate entities.
Multimedia's business is substantially different from FSE's business and
Multimedia has no experience operating a business similar to FSE's business. In
addition, the acquisition of FSE is the Company's first acquisition, and
therefore, the Company has no experience in integrating and managing a new
business. There can be no assurance that the Company will be able to
successfully integrate the operations of FSE or implement procedures necessary
to successfully manage the combined business on a profitable basis. The ability
to integrate FSE into the Company is an integral component of the Company's
growth, strategy and, accordingly, the failure of the Company to successfully
integrate FSE would have a material adverse effect on the Company's business,
financial condition and results of operations.
Risks Relating to Acquisitions and Managing Growth; Need for Additional
Funds. An integral part of the Company's business strategy is growth through
acquisitions. The Company's acquisition strategy presents risks that could
materially adversely affect the Company's business and financial performance,
including the diversion of management's attention, the assimilation of the
operations and personnel of the acquired business, the contingent and latent
risks associated with the past operations of and other unanticipated problems
arising in
10
<PAGE>
the acquired business and increased competition for acquisition opportunities.
As the Company expands through acquisitions, the Company will be required to
hire and retain additional management and administrative personnel and develop
and expand operational systems to support its growth. This growth will continue
to place significant demands on the Company's management, technical, financial
and other resources. In addition, there can be no assurance that the Company
will be able to acquire additional businesses on terms favorable to the
Company, that the operations of any such businesses can be successfully
integrated into the Company's business, that any anticipated benefits of
completed acquisitions will be realized, or that there will not be substantial
unanticipated costs associated with such acquisition. The failure to manage
growth effectively could have a material adverse effect on the Company's
business, financial condition and results of operations. See "-- Broad
Discretion in Use of Proceeds; Inability of Stockholders to Evaluate Future
Acquisitions."
Based upon the Company's current level of operations, management believes
that the net proceeds from this Offering, will be adequate to meet the
Company's capital requirements through 1998 depending on cash requirements for
acquisitions. Although the Company intends to use a portion of the net
proceeds of the Offering for future acquisitions, it will require additional
funds for future acquisitions and integration and management of acquired
businesses. As the Company acquires additional businesses, the Company may
incur significant charges for depreciation and amortization and, to the extent
financed through borrowing, interest expense which could adversely affect the
Company's future results of operations and may result in net losses. The
Company is evaluating and is in various stages of discussions in connection
with the potential acquisition of assets or equity of certain related
businesses. However, the Company has no agreements or arrangements with
respect to the particular acquisitions. Accordingly, there can be no assurance
that the Company will be able to acquire the assets or capital stock of or
profitably integrate and operate any other businesses that may be acquired in
the future. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--Strategy."
Competition. The German PC industry is highly competitive, especially with
respect to pricing and the introduction of new products and features. The
Company and its competitors compete primarily on the basis of adding new
performance features without corresponding price increases. There can be no
assurance that FSE will continue to compete successfully by introducing
products or performance features on a timely basis, or by adding new features
to its products without corresponding increases in prices. Furthermore, in
recent years FSE and many of its competitors regularly have lowered prices, and
FSE expects these pricing pressures to continue. If these pricing pressures are
not mitigated by increases in revenues, cost reductions or changes in product
mix, FSE's revenues and profits could be substantially reduced. Some of FSE's
competitors have substantially greater resources than the Company and may be
able to respond more effectively to these price pressures which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The visual communications business is also highly competitive. The Company
estimates that a substantial number of companies world-wide offer products
which compete in IAT's market segments and expects that the competition will
intensify in the future. The Company believes that its ability to compete
successfully in visual communications will depend on a number of factors both
within and outside its control, including the evolution of industry standards,
the pricing policies of its competitors and suppliers, the timing of the
introduction of new systems and services by the Company and others, the
Company's ability to hire and retain employees, and industry and general
economic trends. The Company anticipates that the trend in the visual
communications market towards polarization, with certain providers focusing on
capturing the mass consumer market with lower quality and less costly
software-only products or products based on hardwired chips while other
providers, including the Company, are seeking to provide hardware and software
systems for more specialized and dedicated markets, will continue to manifest
itself. The Company intends to market its visual communications technology and
its products to professional customers, many of whom are not currently
utilizing visual communications systems, through resellers, VARs, integrators
and distributors. If the market for these products is established, competitors
of the Company may begin to manufacture products similar to the Company's
products.
Many of the Company's current and potential competitors, have
significantly longer operating histories and/or significantly greater
managerial, financial, marketing, technical and other competitive resources, as
well as greater name recognition, than the Company. As a result, the Company's
competitors may be able to adapt
11
<PAGE>
more quickly to new or emerging technologies and changes in customer
requirements and may be able to devote greater resources to the promotion and
sale of their products and services. Additionally, FSE competes with other PC
direct marketers as well as with PC manufacturers that market their products in
distribution channels in which FSE has not participated. There can be no
assurance that the Company will be able to compete successfully with existing
or new competitors. In addition, competition could increase if new companies
enter the market or if existing competitors expand their service offerings. An
increase in competition could result in material price reductions or loss of
market share by the Company and could have a material adverse effect on the
Company's business, financial condition and results of operations.
To remain competitive, IAT will need to continue to invest in research and
development and sales and marketing. There can be no assurance that the Company
will have sufficient resources to make such investments or that the Company
will be able to make the technological advances and adaptions necessary to
remain competitive. In addition, current and potential competitors have
established or may in the future establish collaborative relationships among
themselves or with third parties to increase the visibility and utility of
their products and services. Accordingly, it is possible that new competitors
or alliances may emerge and rapidly acquire significant market shares. Such an
eventuality could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Competition."
Dependence on Key Personnel. The Company's success depends upon the
contributions of its current executive officers including Dr. Viktor Vogt, the
Co-Chairman and Chief Executive Officer of Multimedia, with whom Multimedia has
entered into an employment agreement and Dr. Alfred Simmet, the Chief Operating
Officer of FSE, with whom FSE has entered into an employment agreement. In
addition, the Company's success also depends upon the contribution of Jacob
Agam, the Company's Co-Chairman who has not entered into an employment
agreement with the Company. In addition, the Company employs a number of highly
specialized computer engineers who are an integral part of the Company's
operations. There can be no assurance that these individuals, including Mr.
Agam, will continue to devote sufficient time to the Company's business. The
loss of services of, or a material reduction in the amount of time devoted to
the Company by, certain of such individuals could adversely affect the business
of the Company. The Company has obtained key-man insurance for its benefit in
the amount of $2 million on Dr. Vogt and intends to obtain key-man insurance
for its benefit in the amount of $2 million on Dr. Simmet. See "Management" and
"Certain Transactions."
Dependence on New Products and Rapidly Developing Technologies. The PC
industry is characterized by short product life cycles resulting from rapid
changes in technology and consumer preferences and declining product prices. To
maintain its competitive position in the PC industry, FSE must continue to
introduce new products and features that address the needs and preferences of
its target consumer markets. There can be no assurance that FSE will be able to
compete successfully by introducing products or features on a timely basis,
that the introduction of new products or features by FSE's competitors will not
materially and adversely affect the sale of FSE's products or that the Company
will be able to adapt to future changes in the PC industry. Although FSE does
not maintain a traditional research and development group, FSE works closely
with PC component suppliers and other technology developers to evaluate the
latest developments in PC-related technology. There can be no assurance that
FSE will continue to have access to new technology, will be successful in
incorporating such new technology in its products or will be able to deliver
commercial quantities of new products or features in a timely manner.
While IAT's products have been marketed for several years, they have
generated limited sales to date. There can be no assurance that the Wonderboard
and wavelet compression software will be completed, will be released in a
timely manner, can be manufactured at the anticipated reduced costs as compared
to IAT's previous products, will be sold at the reduced purchase price or will
achieve market acceptance and penetration. Furthermore, if the market for these
products is established, competitors of IAT may develop and manufacture
products similar to the IAT's products and may be able to manufacture
competitive products which provide higher quality than IAT's products or can be
manufactured at lower cost. The markets for IAT's products are subject to rapid
technological change and product obsolescence. IAT has primarily focused on
developing its technology and products and believes that the future success of
its visual communication products will depend in part upon its ability to
enhance its existing products and develop new products and to meet such
anticipated technological changes. To the extent products developed by IAT are
based upon
12
<PAGE>
anticipated changes, sales for such products may be adversely affected if other
technology becomes accepted in the industry. If IAT does not successfully
introduce new products or enhanced versions of its current products in a timely
manner, any competitive position IAT has or may develop could be lost and IAT's
sales would be reduced. There can be no assurance that IAT will be able to
develop and introduce enhanced or new products which satisfy a broad range of
customer needs and achieve market acceptance. See "-- Developing Market for
Visual Communications Products" and "Business--IAT".
Supply Risk. FSE requires a high volume of quality PC components and
peripherals for integration into its Trinology PCs and sale to its customers.
FSE does not maintain any supplier contracts and generally uses one or two
suppliers for certain components. Although, FSE believes that suitable
alternative suppliers are available for components and peripherals it utilizes
in its Trinology PCs and sells to its customers PC industry periodically
experiences shortages of certain components, such as memory components and
peripherals. FSE's inability to obtain key components or peripherals in a
timely manner could materially and adversely affect the Company's business,
financial condition and results of operations. See "Business -- Suppliers and
Production."
Certain critical components and parts used in IAT's products, including
the C8x, are procured from a single source. The C8x is only manufactured by TI
and IAT does not have any other source for obtaining a programmable digital
signal processor which would provide the Company with the same functions at a
similar price. IAT obtains other parts and certain components only from a
single supplier of such parts or components, even where multiple sources are
available, to maintain quality control and enhance the working relationship
with suppliers. IAT does not have supply contracts with any of its vendors and
purchases are made with purchase orders. The failure of a supplier of IAT,
including TI, to deliver on schedule, or at all, would delay or interrupt IAT's
ability to deliver its products and thereby could have a material adverse
effect on the Company's business, financial condition and results of
operations.
Risks Associated with Creating and Accessing New Distribution Channels. In
addition to marketing its products independently or jointly with certain of its
development partners, the Company's strategy is to market or license certain of
its visual communications and wavelet software technology products to OEMs,
VARs and integrators who have access to a wide range of competing products. The
Company expects that the success of its visual communications products may
depend in large part upon OEMs, VARs and integrators. The performance of those
OEMs, VARs and integrators will be outside the control of the Company, and the
Company is unable to predict the extent to which these organizations will be
successful in marketing and selling the Company's products. The Company's
failure to establish relationships with OEMs, VAR's and integrators could have
a material adverse effect on the Company's business, financial condition and
results of operations.
Developing Market for Visual Communications Products. The visual
communications market has only recently begun to develop, continues to be
defined, is evolving rapidly and is characterized by a large number of market
entrants. Moreover, IAT intends to market its visual communications technology
and products to the professional market which is not currently utilizing visual
communications systems. The Company believes that this market requires high
quality systems which provide solutions tailored to its requirements and
contain higher quality image and video transmissions, including reduced noise
and artifacts, true color representation and higher frame rates, than
traditional video conferencing communications systems. Such market includes
professional customers utilizing tele-medicine and tele-service. IAT's success
in this market will be dependent in part upon its ability to convince potential
customers that IAT's products satisfy their needs and to purchase those
products. In addition, IAT's future success will depend in large part on the
continued expansion of the visual communications market in general and the
acceptance of IAT's visual communications systems. As is typical in a rapidly
evolving industry, demand for and acceptance of products are subject to a high
level of uncertainty. Certain factors, including the incompatibility of IAT's
current visual communications systems with certain vendors' video conferencing
products, the level of technical skill required by the operator of IAT's
systems and the willingness on the consumer's part to await the next generation
of more advanced equipment may limit demand for and acceptance of the Company's
visual communications products.
In addition, sales of systems to the visual communications market require
intense marketing efforts over long periods of time. Furthermore, new customers
typically acquire a pilot system to evaluate before
13
<PAGE>
purchasing systems. In many cases, customers need to purchase a number of
systems to meet their requirements and such purchases require the approval of
the customer's senior management or board of directors prior to the purchase,
which could lead to delays in the purchase or, in some cases, eliminate
decisions to purchase IAT's visual communications products. See "-- Dependence
on New Products and Rapidly Developing Technologies."
Limited Proprietary Protection. The Company's success will be heavily
dependent upon its proprietary technology. In Germany, the Company's patent
registration on its wavelet algorithms is pending and the Company has a
copyright on the program listing of its wavelet algorithm. In addition, the
Company believes Trinology and Vision and Live which are non-registered
trademarks are important to its businesses and intends to register them as
trademarks in Germany and elsewhere and to vigorously protect those trademarks.
However, there can be no assurance that patents or trademarks will be granted
or, if granted, that such patents, trademarks or copyright will provide
protection against infringement. There can be no assurance that the steps taken
by the Company to protect its proprietary rights will be adequate to prevent
misappropriation of its technology or independent development by others of
similar technology.
Substantially all of the Company's revenues in the nine months ended
September 30, 1997 and in the years ended December 31, 1995 and 1996 were
generated from operations located in Germany and Switzerland, where the Company
believes that regardless of differences in legal systems, it enjoys
substantially equivalent protection for its proprietary protection rights as it
would in the United States. However, the laws of some foreign countries where
the Company may in the future sell its products, may not protect the Company's
proprietary rights to the same extent as do laws in the United States. There
can be no assurance that the protections afforded by the laws of such countries
will be adequate to protect the Company's proprietary rights, the
unenforceability of any of which could have a material adverse effect on the
Company's business, financial condition and results of operations. Litigation
may be necessary to enforce the Company's intellectual property rights or to
protect the Company's trade secrets. There can be no assurance that any such
litigation would be successful. Any such litigation, whether or not successful,
could result in substantial costs and diversion of resources and could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company has not been charged with infringement of any proprietary
rights of others; however, there can be no assurance that third parties will
not assert infringement and other claims against the Company or that such
claims will not be successful. From time to time, the Company may receive in
the future notice of claims of infringement of other parties' proprietary
rights. Many participants in the Company's industries have frequently
demonstrated a readiness to commence litigation based on allegations of patent
or other intellectual property infringement. Third parties may assert exclusive
patent, trademark, and other intellectual property rights to technologies that
are important to the Company. In addition, patents held by third parties in
certain countries may require the Company to obtain a license or may prevent it
from marketing certain solutions in such countries. The Company is aware of one
patent in the United States held by a third-party which has claims related to
tele-pathology, including using remote control microscopes. While the Company
does not believe that IAT's technology infringes on the U.S. patent or that
such patent will have a significant impact on the sales of the Company, there
can be no assurance that infringement claims (or claims for indemnification
resulting from infringement claims) will not be asserted or prosecuted against
the Company or that any such assertion or prosecution will not have a material
adverse effect on the Company's business, financial condition or results of
operations. Regardless of the validity or the successful assertion of any such
claims, the Company could incur significant costs and diversion of resources in
defending such claims, which could have a material adverse effect on the
Company's business, financial condition and results of operations. Furthermore,
any party making such claims could secure a judgment awarding substantial
damages, as well as injunctive or other equitable relief, which could
effectively block the Company's ability to make, use, sell, distribute or
market its products and services in the United States or abroad. Any such
judgment could have a material adverse effect on the Company's business,
financial condition and results of operations. In circumstances where claims
relating to proprietary technology or information are asserted against the
Company, the Company may be required to seek licenses to
14
<PAGE>
such intellectual property. There can be no assurance, however, that such
licenses would be available or, if available, that such licenses could be
obtained on terms that are commercially reasonable and acceptable to the
Company. The failure to obtain the necessary licenses or other rights could
preclude the sale, manufacture or distribution of the Company's products and,
therefore, could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Intellectual
Property."
Repurchase of Notes; Redemption of Other Securities. If a Change in
Control, occurs, each holder of Notes will have the right, at its option, to
require the Company to repurchase all or a portion of its Notes at a purchase
price equal to 100% of the principal amount thereof plus accrued interest to
the repurchase date. The Company's ability to repurchase Notes following a
Change in Control (i) may be limited by the terms of the Senior Indebtedness
and the subordination provisions of the Indenture and (ii) will depend on the
availability of sufficient funds and compliance with applicable securities
laws. Accordingly, no assurance can be given that the Company will be able to
repurchase Notes following a Change in Control. The term "Change in Control" is
limited to certain specified transactions and may not include other events,
such a highly leveraged business combination or reorganization not involving a
Change in Control, that might adversely affect the financial condition of the
Company or result in a downgrade of the credit rating (if any) of the Notes.
See "Description of the Notes --Change in Control."
Foreign Markets. Substantially all of the Company's revenues in the year
ended December 31, 1996 and the nine months ended September 30, 1997 were
generated from operations located in Germany and Switzerland. While these
countries have well developed economic markets, annual growth of the gross
domestic product has averaged 1.9% in 1995 and 2.9% in 1996 for Germany and
0.8% in 1995 and 0.2% in 1996 for Switzerland. Historically, all of IAT's
revenues have been denominated in Swiss Francs and Deutsche Marks and all of
FSE's revenues have been denominated in Deutsche Marks. The Company anticipates
that it will continue to generate most of its revenues in these currencies in
the foreseeable future. Any fluctuations in the value of the Swiss Franc or
Deutsche Mark against the U.S. dollar that the Company is unable to offset
through price adjustments could have a material adverse effect on the Company's
financial condition and results of operations. Conducting an international
business inherently involves a number of other difficulties and risks, such as
export restrictions, export controls relating to technology, compliance with
existing and changing regulatory requirements, tariffs and other trade
barriers, difficulties in staffing and managing international operations,
longer payment cycles, problems in collecting accounts receivable, software
piracy, political instability, seasonal reductions in business activity in
Europe during the summer months, and potentially adverse tax consequences.
There can be no assurance that one or more of these factors will not have a
material adverse effect on any international operations established by the
Company and, consequently, on the Company's business, financial condition and
results of operations. In addition, the Company intends to have operations in
the United States and in other countries. There can be no assurance that
transfers of funds to and from those countries to Germany and Switzerland will
not be taxable events for the Company. The Company's results of operations and
the market price of the Common Stock may be affected by changes in German and
Swiss policy, taxation and economic developments. See "Exchange Rates."
Enforcement of Civil Liabilities. Multimedia is organized under the laws
of the State of Delaware. Investors in the Notes and the Common Stock will be
able to effect service of process in the United States upon the Company.
However, the Company is primarily a holding company which holds stock in
entities in Switzerland and Germany and all or a substantial portion of the
assets of Multimedia are located outside the United States. In addition, five
of Multimedia's six directors and all of its executive officers are residents
of foreign countries and all or a substantial portion of the assets of such
directors and officers are located outside of the United States. As a result,
it may not be possible for investors to effect service of process upon
Multimedia's foreign directors and officers or to enforce judgments of U.S.
courts predicated upon the civil liability provisions of U.S. laws against the
Multimedia's, the foreign directors' and officers' assets.
The Company has been advised by its counsel, Baker & McKenzie, that there
is doubt as to the enforceability in Switzerland of judgments of U.S. courts,
and in Germany in original actions for enforcement of judgments of U.S. courts,
of civil liabilities predicated solely upon the laws of the United States, in
each case against
15
<PAGE>
Multimedia's subsidiaries and against shareholders, directors, officers and
employees of Multimedia or its subsidiaries who are domiciled in Switzerland
and Germany. In addition, awards of punitive damages in actions brought in the
United States or elsewhere may be unenforceable in Switzerland and in Germany.
The market price of the Notes offered hereby may be affected by the difficulty
for investors to enforce judgements of U.S. courts.
Risks Associated with Expanded Operations in the United States. As part
of its business strategy, the Company intends to seek opportunities to expand
the marketing and sale of its visual communications products into markets in
the United States where it will face substantial increased competition from
companies with substantially greater resources than the Company. Failure to
successfully expand into the United States market could have a material
adverse effect on IAT's business, financial condition and results of
operations. The Company intends to expand into the United States by acquiring
or establishing relationships with distributors or VARs with a market presence
in the United States. There can be no assurance that IAT will be successful in
consummating suitable acquisitions or establishing suitable relationships,
marketing or distributing visual communications products in this market or
that its revenue generated in the United States will be adequate to offset the
expense of establishing and maintaining operations. In addition, in connection
with its expansion, IAT may be required to make substantial expenditures for,
among other things, office space, sales and marketing personnel, suppliers and
distributors in the United States. IAT's executive officers have no experience
operating a business in the United States, and will need to hire additional
executive officers in the United States. Competition for such personnel is
intense and IAT will compete for qualified personnel with numerous other
employers, some of whom have greater financial and other resources than IAT.
There can be no assurance that IAT will be able to hire and retain qualified
employees in the United States. See "Business -- Strategy."
Risk of System Defects; Product Liability Exposure. The computers
manufactured by FSE must meet standards established by the European FCC (CE
declarations), for radio frequency emissions, and must receive appropriate
certification prior to being marketed. A delay or inability to obtain
certification may delay or prevent the FSE from introducing new products or
features and therefore could have an adverse impact upon the Company's
business, financial condition and results of operations. FSE had a return rate
of less than 1% in each of the year ended December 31, 1996 and the nine month
period ended September 30, 1997. Any substantial increase in such rate could
have a material adverse effect on the Company's business, financial condition
and results of operations.
In addition, visual communication systems developed by IAT and Trinology
PCs assembled by FSE may contain significant undetected operating errors when
first installed on the premises of a customer or as new versions are installed.
Although IAT and FSE test their respective products before installation, there
can be no assurance that operating errors will not be found after customers
begin to use the products. Any operating error in IAT's or FSE's products may
result in decreased revenue or increased expenses because of adverse publicity,
reduced orders, product returns, uncollectible accounts receivable, delays in
collecting accounts receivable, and additional and unexpected costs of further
product development to correct the errors. Sale of the Company's products
involves the inherent risk of product liability claims against the Company.
The Company currently does not maintain product liability insurance and
believes that it cannot obtain such insurance except at a substantial cost.
While no product liability claims have been made against IAT or FSE in the
past, there can be no assurance that such claims will not arise in the future.
Any substantial uninsured liability would have a material adverse effect on the
Company's business, financial condition and results of operations.
Potential Fluctuations in Quarterly Results. The PC industry generally has
been subject to seasonality and to significant quarterly and annual
fluctuations in operating results. FSE's operating results are subject to such
fluctuations. Historically, approximately 30% of FSE's yearly revenues were
generated during the fourth calendar quarter. Fluctuations in the PC industry
can be the result of a wide variety of factors, including new product
developments or introductions, availability of components and peripherals,
changes in product mix and pricing, and product reviews and other media
coverage. FSE's business is also sensitive to the spending patterns of its
customers, which in turn are subject to prevailing economic conditions.
IAT has experienced fluctuations in its quarterly results of operations
and anticipates that such fluctuations will continue and could increase. IAT's
quarterly results of operations may vary significantly depending on a
16
<PAGE>
number of factors, some of which are outside of IAT's control. These factors
include the timing of the introduction or acceptance of new products or new
generations offered by IAT or its competitors, changes in the mix of products
provided by IAT, changes in pricing strategies by IAT and its competitors,
changes in the markets served by IAT, changes in IAT's operating expenses,
capital expenditures and other costs relating to the expansion of operations,
changes in its personnel and general economic conditions. In addition,
fluctuations in exchange rates may render IAT's products less competitive
relative to local product offerings or result in foreign exchange losses. IAT
does not currently engage in hedging transactions to offset the risk in
currency fluctuations but may engage in such transactions in the future. There
can be no assurance that such hedging techniques will be successful. IAT's
revenue in the fourth quarter of each calendar year has historically been
higher due to the introduction of new visual communications products and new
generations of existing products in the second and third quarters of past
years, the extended time period required for the approval by management of a
customer for the purchase of IAT's products and perceived desire by its
customers to apply allocated budgets for IAT's products prior to the end of the
calendar year and the increase in business activity after the summer months.
Quarterly fluctuations depend, in part, on the timing of introduction of new
products by IAT and its competitors and the Company expects that IAT's revenues
for the fourth quarter of 1997 will not be higher than in the preceding quarter
due to a decrease in marketing of its existing Vision and Live products and
anticipation of IAT's third generation systems.
A significant portion of the Company's expenses are fixed and difficult to
reduce in the event that revenue does not meet the Company's expectations, thus
magnifying the adverse effect of any revenue shortfall. Furthermore,
announcements by the Company or its competitors of new products, services or
technologies could cause customers to defer or cancel purchases of the
Company's products. Any such deferral or cancellations could have a material
adverse effect on the Company's business, financial condition and results of
operations. Accordingly, revenue shortfalls can cause significant variations in
results of operations from quarter to quarter and could have a material adverse
effect on the Company's business, financial condition and results of
operations.
As a result of the foregoing factors, it is possible that in some future
quarters the Company's results of operations will be below prior results or the
expectations of public market analysts and investors. In such event, the market
price of the Notes and the Common Stock may be adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Control by Existing Stockholders; Potential Anti-takeover Provisions. The
Company's officers, directors and significant stockholders currently control
approximately 59.4% of the outstanding Common Stock of the Company. As a
result, such stockholders are able to elect all of Multimedia's directors and
otherwise control the Company's operations. Furthermore, Multimedia and
Vertical Financial Holdings ("Vertical"), the holder of approximately 15.3% of
the Company's Common Stock entered into an investor rights agreement dated
October 24, 1996 (the "Investor Rights Agreement"), which provides that so long
as Vertical holds at least 10% of the Common Stock, Vertical has the right, but
not the obligation, to nominate two persons as members of the management slate
for election to Multimedia's Board of Directors. So long as Vertical holds at
least 5% of such securities, it has the right, but not the obligation to
nominate one such person. The existence of such rights solidifies control over
the Company by its existing stockholders. Pursuant to the Investor Rights
Agreement, Vertical has nominated, and the stockholders of Multimedia have
elected, Jacob Agam as a director of the Company and may nominate a second
director in the future. Pursuant to the stock purchase agreement dated as of
October 4, 1996 (the "Stock Purchase Agreement"), Vertical nominated and Mr.
Agam was elected as the Co-Chairman of the Company. Mr. Agam is the Chairman
of the Board of Vertical.
Multimedia is subject to a Delaware statute regulating business
combinations and to a change of control covenant of the Indenture, both of
which could discourage, hinder or preclude an unsolicited acquisition of
Multimedia and could make it less likely that stockholders receive a premium
for their shares as a result of any such attempt. In addition, the Company's
Board of Directors is authorized to issue from time to time, without
stockholder approval, shares of preferred stock with such terms and conditions
as the Board of Directors may determine in its sole discretion. See "--
Repurchase of Notes; Redemption of Other Securities," "Certain Transactions,"
"Principal Stockholders," "Description of Capital Stock" and "Description of
the Notes."
17
<PAGE>
Absence of a Public Market for the Notes. The Notes will be traded in the
over-the-counter market in the so called "pink sheets" or the NASD's
"Electronic Bulletin Board." No assurance can be given that a market for the
Notes will develop, as to the liquidity or sustainability of any market that
may develop or the ability of holders to sell their Notes at any price. Future
trading prices of the Notes will depend on many factors, including, among
others, prevailing interest rates, the Company's operating results, the price
of the Common Stock and the market for similar securities.
Charge to Earnings in the Event of Release of Escrow Shares. 498,285
shares of Common Stock were deposited in escrow pursuant to an escrow agreement
(the "Escrow Shares") in connection with the Company's initial public offering
(the "IPO"). The Escrow Shares will be released from escrow if the Company
attains certain revenue levels for the years ending December 31, 1997, 1998 and
1999 or if the Common Stock trades at certain levels for any 30 consecutive
trading days, commencing April 2, 1999. For more specific information regarding
these earnings levels and trading levels, see "Principal Stockholders -- Escrow
Shares." The Escrow Shares will not be deemed to be outstanding for the purpose
of calculating earnings per share until either of such conditions is probable
of being met. The position of the Securities and Exchange Commission (the
"Commission") with respect to such escrow arrangements provides that in the
event any shares are released from escrow to the stockholders of the Company
who are officers, directors, employees or consultants of the Company, a
non-cash compensation charge will be recorded for financial reporting purposes.
Accordingly, in the event of the release of the Escrow Shares, the Company will
recognize during the period in which the earnings thresholds are probable of
being met or such stock levels achieved, a substantial non-cash charge to
operations, which will not be deductible for income tax purposes, equal to the
then fair value of such shares, which would have the effect of significantly
increasing the Company's loss or reducing or eliminating earnings, if any, at
such time. By way of example, if at the time of the release of the Escrow
Shares the market price of the Common Stock was $14.00, the Company would be
required to recognize compensation expense of approximately $2.6 million. The
recognition of such compensation expense may depress the market price of the
Company's Common Stock. Notwithstanding the foregoing discussion, there can be
no assurance that the Company's earnings or its stock price will attain the
targets that would enable the Escrow Shares to be released from escrow. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Principal Stockholders -- Escrow Shares."
Possible Delisting of Common Stock from the Nasdaq National Market. While
the Common Stock currently meets the continued listing requirements of the
Nasdaq National Market where the Common Stock is quoted, there can be no
assurance that the Company will meet the criteria for continued listing.
Continued inclusion on Nasdaq National Market generally requires that (i) the
Company maintain at least $4,000,000 in "net tangible assets" (total assets
less total liabilities and goodwill), (ii) the minimum bid price of the Common
Stock be $1.00 per share, (iii) there be at least 750,000 shares in the public
float valued at $5,000,000 or more, (iv) the Common Stock have at least two
active market makers and (v) the Common Stock be held by at least 400 holders.
If the Company is unable to satisfy the Nasdaq National Market's
maintenance requirements, the Common Stock may be delisted from the Nasdaq
National Market. In such event, trading, if any, in the Common Stock would
thereafter be conducted on the Nasdaq SmallCap Market, subject to meeting the
requirements for listing on the Nasdaq SmallCap Market, or in the
over-the-counter market in the so-called "pink sheets" or the NASD's
"Electronic Bulletin Board." Consequently, the liquidity of the Company's
securities could be impaired, not only in the number of securities which could
be bought and sold, but also through delays in the timing of transactions,
reduction in security analysts and the news media's coverage of the Company and
lower prices for the Common Stock than might otherwise be attained. In
addition, the Conversion Price of the Notes is subject to adjustment as set
forth in the Indenture upon the occurrence of, among other things, the failure
of the Company to maintain the listing of the Common Stock on the Nasdaq
National Market, New York Stock Exchange or American Stock Exchange. See
"Description of the Notes -- Conversion of the Notes."
Risks of Low-Priced Stock. If the Company's Common Stock was delisted from
Nasdaq National Market and could not be quoted on Nasdaq SmallCap Market (see
"-- Possible Delisting of Securities from the Nasdaq National Market"), it
could become subject to Rule 15g-9 under the Exchange Act of 1934, as amended
(the "Exchange Act"), which imposes additional sales practice requirements on
broker-dealers which sell such securities to persons other than established
customers and "accredited investors" (generally, individuals with net
18
<PAGE>
worth in excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000
together with their spouses). For transactions covered by this rule, a
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
sale. Consequently, such rule may adversely affect the ability of
broker-dealers to sell the Common Stock and may adversely affect the ability of
stockholders to sell any of the shares of Common Stock in the secondary market.
Commission regulations define a "penny stock" to be, among others, any
non-exchange listed equity security that has a Market Price (as therein
defined) of less than $5.00 per share or with an exercise price of less than
$5.00 per share, subject to certain exceptions. For any transaction involving a
penny stock, unless exempt, the rules require delivery, prior to any
transaction in a penny stock, of a disclosure schedule prepared by the
Commission relating to the penny stock market. Disclosure is also required to
be made about commissions payable to both the broker-dealer and the registered
representative and current quotations for the securities. Finally, monthly
statements are required to be sent disclosing recent price information for the
penny stock held in the account and information on the limited market in penny
stocks.
The foregoing required penny stock restrictions will not apply to the
Common Stock if such securities are quoted on the Nasdaq National Market or the
Nasdaq SmallCap Market and have certain price and volume information provided
on a current and continuing basis or meet certain minimum net tangible assets
or average revenue criteria. There can be no assurance that the Common Stock
will qualify for exemption from these restrictions. In any event, even if the
Common Stock was exempt from such restrictions, it would remain subject to
Section 15(b)(6) of the Exchange Act, which gives the Commission the authority
to prohibit any person that is engaged in unlawful conduct while participating
in a distribution of a penny stock from associating with a broker-dealer or
participating in a distribution of a penny stock, if the Commission finds that
such a restriction would be in the public interest. If the Common Stock were
subject to the rules on penny stocks, the market liquidity for the Common Stock
could be severely adversely affected.
Shares Eligible for Future Sale; Effect of Outstanding Options and
Warrants. Future sales of shares of Common Stock by existing stockholders
pursuant to Rule 144 under the Securities Act ("Rule 144") could have an
adverse effect on the price of the Common Stock. Of the 9,701,949 shares of
Common Stock outstanding, 498,285 are Escrow Shares and 5,732,357 are held by
officers, directors and other affiliates whose resales are subject to volume
limitations of Rule 144. In addition, all of the Company's officers and
directors and certain stockholders who hold, in the aggregate, approximately
65.1% of the outstanding Common Stock, entered into lock-up agreements (the
"Lock-Up Agreements") with the underwriters in the Company's initial public
offering (the "IPO Underwriters") wherein they agreed not to sell or otherwise
dispose of any shares of Common Stock (other than shares of Common Stock
acquired in the public market) or to exercise registration rights without the
prior written consent of the Royce Investment Group, Inc. until March 27, 1999;
provided, however, that the stockholders of the Company subject to the Lock-Up
Agreements (other than officers and directors of the Company) may sell or
otherwise dispose of shares of Common Stock in one or more private sales
without such consent if the acquirors (and any subsequent acquirors) of such
shares enter into a Lock-Up Agreement with the IPO Underwriters restricting the
transferability of such shares for the remainder of period between March 26,
1997 and March 26, 1999; and provided further that certain stockholders whose
Common Stock was issued upon the automatic conversion of the Series A Preferred
Stock may not enter into such private sales without such consent prior to
October 24, 1998. In connection with the acquisition of FSE, the Company issued
146,949 shares of Common Stock to Dr. Simmet who has agreed not to sell or
transfer such shares until November 13, 1998.
In addition, the Company has outstanding warrants to purchase an aggregate
of 2,683,485 shares of Common Stock issued to the IPO Underwriters, certain
investors in connection with the Company's formation and certain stockholders
of the Company's predecessor in connection with the Company's formation. The
Company has also reserved for issuance 500,000 shares of Common Stock in
connection with the Plan, none of which have been granted, 145,000 shares of
Common Stock issuable upon exercise of options granted outside of the Plan and
shares of Common Stock issuable upon exercise of warrants to be issued to
the Underwriter in this Offering. The existence of these securities could have
an adverse effect on the price of the Company's outstanding securities. If any
of these warrants or options are exercised, the value of the Common Stock held
by public investors will be diluted if the value of such stock immediately
prior to the exercise of such warrants or options exceeds the exercise price
thereof, with the extent of such dilution depending upon such excess. Warrants
and
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<PAGE>
options afford the holders thereof the opportunity, at nominal cost, to profit
from a rise in the market price of the Common Stock, which may adversely affect
the terms upon which the Company could issue additional Common Stock during the
term thereof. In addition, holders of such warrants and options are likely to
exercise them when, in all likelihood, the Company could obtain additional
capital on terms more favorable than those provided by the warrants and
options. Further, while these warrants and options are outstanding, the
Company's ability to obtain additional financing on favorable terms may be
adversely affected. See "Description of Capital Stock" and "Underwriting."
The IPO Underwriters have and the Underwriter in this Offering will
receive demand and piggy-back registration rights covering the securities
underlying their respective warrants and Vertical, Walther Glas, and Messrs.
Vogt and Sippel have demand and piggy-back registration rights with respect to
their respective securities. The holders of such registration rights have
waived their rights to have their securities registered on the Registration
Statement of which this Prospectus is a part to the registration of the
securities offered hereby. Sales of Common Stock or the possibility of such
sales, in the public market may adversely affect the market price of the
securities offered hereby. See "--Shares Eligible for Future Sale; Effect of
Outstanding Options and Warrants."
20
<PAGE>
USE OF PROCEEDS
The net proceeds of this Offering to the Company, after deducting
underwriting discounts and commissions and other estimated expenses of this
Offering payable by the Company, are estimated at approximately $8.3 million
($9.6 million if the Underwriters' over-allotment option is exercised in full).
Multimedia intends to use approximately $1,875,000 of the net proceeds of this
Offering to purchase the Pledged Securities which will be pledged and escrowed
in an account under the Trustee's exclusive dominion and control for the
payment of interest on the Notes through , 2000, approximately $930,000 to
fund the remaining portion of the purchase price of FSE and the remaining net
proceeds of approximately $5.5 million for working capital and general
corporate purposes, including future acquisitions. The Company also intends to
expand its marketing efforts, both by expanding its sales and marketing staff
for PCs and visual communications products in Europe as well as establishing an
office and a sales and marketing staff for visual communications products in
the United States sometime in the future.
An integral part of the Company's business strategy is growth through
acquisitions. The Company is evaluating and is engaged in discussions in
connection with the potential acquisition of assets or equity of certain
businesses. However, the Company has no agreements or commitments relating to
any particular acquisition and there can be no assurance that any such
acquisitions will be consummated. See "Business -- Strategy and Business --
Trend Plus."
The foregoing represents the Company's best estimate of the allocation of
the net proceeds of this Offering based on the current status of its business.
Future events, including the terms of any particular acquisition, changes in
competitive conditions and the status of the Company's business from time to
time, may make changes in the allocation of the net proceeds of this Offering
necessary or desirable. The Company anticipates that the net proceeds of this
Offering, together with its existing resources and anticipated cash flows, will
be sufficient to fund its operations through 1998 although the Company's
capital requirements are subject to numerous contingencies associated with the
timing, size and terms of future acquisitions, if any. Pending application, the
net proceeds will be invested in short-term, interest-bearing investments.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and does not
anticipate or intend paying cash dividends in the foreseeable future on its
Common Stock.
EXCHANGE RATE
The following table sets forth, for the periods indicated, the noon
exchange rate as certified for customs purposes by the Federal Reserve Bank of
New York for the Deutsche Mark and the Swiss Franc, respectively, per U.S.
dollar. On December 8, 1997, such rate was DM 1.7868 = $1.00 and SF 1.4525 =
$1.00, respectively.
<TABLE>
<CAPTION>
Nine Months
ended
September 30, Year Ended December 31
------------------- --------------------------------------------------------------
1997 1996 1995 1994
------------------- ------------------- ------------------- ------------------
DM SF DM SF DM SF DM SF
-------- -------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exchange rate at end of period ......... 1.7431 1.4590 1.5411 1.3427 1.4345 1.1540 1.5495 1.3100
Average exchange rate during
period(a) ........................... 1.6964 1.4484 1.5044 1.2358 1.4371 1.1820 1.6216 1.3367
Highest exchange rate during
period .............................. 1.7428 1.4890 1.5665 1.3505 1.5591 1.3141 1.7658 1.4861
Lowest exchange rate during period . 1.5418 1.3432 1.4313 1.1507 1.3543 1.1670 1.4921 1.2441
</TABLE>
- ------------
(a) The average of the exchange rates on the last day of each month during the
applicable period.
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<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock began trading on the Nasdaq National Market on
March 26, 1997 and is quoted for trading under the symbol "IATA." Prior to that
date, there was no public market for the Company's Common Stock. The following
table sets forth the range of high and low sales price per share for the Common
Stock for the periods indicated.
<TABLE>
<CAPTION>
High Low
------- ------
<S> <C> <C>
1997 Fourth Quarter (through December 8, 1997) ...... 7 3/8 7
Third Quarter .................................... 6 3/4 4
Second Quarter .................................... 7 3/4 6
First Quarter (from March 26, 1997) ............... 8 7/8 8 1/2
</TABLE>
On December 4, 1997, the closing price of the Common Stock on the Nasdaq
National Market was $7 1/16 per share. As of November 28, 1997, there were 50
record holders and the Company believes there were approximately 1,500
beneficial holders of the Common Stock.
CAPITALIZATION
The following table sets forth, as of September 30, 1997, (i) the actual
capitalization of the Company, (ii) the pro forma capitalization, giving effect
to the consummation of the acquisition of FSE and the related issuance of
146,949 shares of Common Stock in November 1997, and (iii) the pro forma
capitalization, as adjusted to give effect to the receipt of the net proceeds
from the sale of $10 million aggregate principal amount of Notes offered
hereby, and the application of net proceeds therefrom.
<TABLE>
<CAPTION>
September 30, 1997
-----------------------------------------------------------
Pro Forma for the Pro Forma as
Actual FSE Acquisition Adjusted
---------------- ------------------- ------------------
<S> <C> <C> <C>
Long-Term Debt:
Loans payable - stockholders ........................... $ 448,276 $ 709,491 $ 709,491
Convertible Notes .................................... -- -- 10,000,000
------------- ------------- -------------
Total long-term debt ................................. 448,276 709,491 10,709,491
------------- ------------- -------------
Stockholders' equity:
Preferred stock, $.01 par value authorized 500,000
shares, none issued ................................. -- -- --
Common stock, par value $.01 per share; 20,000,000
shares authorized, 9,605,000 shares issued actual and
9,751,949 shares issues pro forma and pro forma as
adjusted(1) ....................................... 96,050 97,519(2) 97,519(2)
Capital in excess of par value ........................ 26,194,723 27,098,795 27,098,795
Accumulated deficit .................................... (16,647,906) (16,647,906) (16,647,906)
Treasury Stock at cost, 50,000 shares .................. (206,260) (206,260) (206,260)
Cumulative translation adjustments ..................... 482,688 482,688 482,688
------------- -------------- --------------
Total stockholders' equity ........................... 9,919,295 10,824,836 10,824,836
------------- -------------- --------------
Total capitalization ................................. $ 10,367,571 $ 11,534,327 $ 21,534,327
============= ============== ==============
</TABLE>
- ------------
(1) Includes 498,285 Escrow Shares. See "Principal Stockholders -- Escrow
Shares." Excludes (i) 500,000 shares of Common Stock reserved for issuance
upon exercise of stock options under the Plan, none of which have been
granted, (ii) 2,683,485 shares of Common Stock issuable upon exercise of
certain outstanding warrants and (iii) 145,000 shares of Common Stock
issuable upon exercise of outstanding options granted outside of the Plan.
See "Certain Transactions."
(2) In addition to (1) above includes 146,949 shares issued in connection with
the FSE acquisition.
22
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following Pro Forma Condensed Consolidated Balance Sheet information
has been prepared based upon the unaudited historical condensed consolidated
balance sheet of IAT as of September 30, 1997 and the unaudited historical
condensed balance sheet of FSE as of September 30, 1997, and sets forth (i)
the pro forma balance sheet giving effect to the consummation of the
acquisition of FSE and the related issuance of 146,949 shares of Common Stock
in November 1997 as if such transaction had occurred on September 30, 1997 and
(ii) the pro forma balance sheet as adjusted to give effect to the sale of $10
million aggregate principal amount of Notes offered hereby and the application
of net proceeds of such sale as if each such transaction had occurred on
September 30, 1997. The following Unaudited Pro Forma Condensed Consolidated
Statements of Operations information for the nine months ended September 30,
1997 and for the year ended December 31, 1996 has been prepared based upon the
unaudited historical consolidated statement of operations for the nine months
ended September 30, 1997 and the audited historical consolidated statement of
operations for the year ended December 31, 1996 of IAT and the unaudited
historical statement of operations for the nine months ended September 30,
1997 and the audited historical statement of operations for the year ended
December 31, 1996 of FSE and sets forth (i) the pro forma statements of
operations information giving effect to the acquisition of FSE and the related
issuance of 146,949 shares of Common Stock and (ii) the pro forma statement of
operations information, as adjusted for the acquisition of FSE and the sale of
$10 million aggregate principal amount of Notes offered hereby and the
application of the net proceeds of such sale as if each such transaction had
occurred on January 1 of each period.
The following Unaudited Pro Forma Condensed Consolidated Balance Sheet
information and Unaudited Pro Forma Condensed Consolidated Statements of
Operations Information are not necessarily indicative of the actual financial
position or results of operations that would have been reported if the events
described above had occurred as of September 30, 1997 or on January 1 of each
period, nor do they purport to indicate the results of the Company's future
operations. Furthermore, the pro forma results do not give effect to all cost
savings, or incremental costs that may occur as a result of the integration and
consolidation of FSE. In the opinion of management, all adjustments necessary
to present fairly such pro forma financial information have been made. The
allocation of the FSE purchase price is preliminary, but is not expected to
differ materially from the purchase price allocation reflected herein.
The Unaudited Pro Forma Condensed Consolidated Financial Information
should be read in conjunction with "Capitalization" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
with the Financial Statements and the Notes thereto included elsewhere in this
Prospectus.
23
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
IAT FSE
------------- ------------
<S> <C> <C>
Assets
Cash and cash equivalents ........................ $ 7,938,344 $ 821,715
Marketable securities ........................... 3,177,570 507,110
Accounts receivable, net ........................ 127,305 1,508,857
Inventories .................................... 348,566 1,269,006
Other current assets ........................... 319,875 12,098
----------- ----------
Total current assets ........................ 11,911,660 4,118,786
Equipment and improvements, net .................. 655,644 418,044
Goodwill, net .................................... -- 483,881
Other assets .................................... 438,030 --
----------- ----------
Total assets ................................. $13,005,334 $5,020,711
=========== ==========
Liabilities and Stockholders' Equity
Notes payable, banks ........................... $ 1,460,726 $ --
Accounts payable and other current liabilities . 751,347 2,360,540
Loans payable, stockholders, current portion . 448,276 1,487,473
----------- ----------
Total current liabilities ..................... 2,660,349 3,848,013
=========== ==========
Loans payable stockholders, net of current
portion .......................................... 425,690 283,801
Notes payable .................................... -- --
Minority interest ..............................
Stockholders' equity ........................... 9,919,295 888,897
----------- ----------
Total liabilities and stockholders' equity . $13,005,334 $5,020,711
=========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA FOR THE FSA
PRO FORMA FOR THE FSE ACQUISITION
ADJUSTMENTS ACQUISITION AS ADJUSTED
------------------- ------------- ---------------
<S> <C> <C> <C>
Assets
Cash and cash equivalents ........................ $ (3,016,623)A $ 5,743,436 $12,168,436F,G
Marketable securities ........................... -- 3,684,680 3,684,680
Accounts receivable, net ........................ -- 1,636,162 1,636,162
Inventories .................................... -- 1,617,572 1,617,572
Other current assets ........................... -- 331,973 331,973
------------- ----------- --------------
Total current assets ........................ (3,016,623) 13,013,823 19,438,823
Equipment and improvements, net .................. -- 1,073,688 1,073,688
Goodwill, net .................................... 2,879,046B 3,362,927 3,362,927
Other assets .................................... -- 438,030 4,013,030F,G
------------- ----------- --------------
Total assets ................................. $ (137,577) $17,888,468 $ 27,888,468
============= =========== ==============
Liabilities and Stockholders' Equity
Notes payable, banks ........................... $ -- $ 1,460,726 $ 1,460,726
Accounts payable and other current liabilities . -- 3,111,887 3,111,887
Loans payable, stockholders, current portion . (415,000)C 1,520,749 1,520,749
------------- ----------- --------------
Total current liabilities ..................... (415,000) 6,093,362 6,093,362
============= =========== ==============
Loans payable stockholders, net of current
portion .......................................... -- 709,491 709,491
Notes payable .................................... -- -- 10,000,000F
Minority interest .............................. 260,779D 260,779 260,779
Stockholders' equity ........................... 16,644E 10,824,836 10,824,836
------------- ----------- --------------
Total liabilities and stockholders' equity . $ (137,577) $17,888,468 $ 27,888,468
============= =========== ==============
</TABLE>
See accompanying notes to unaudited pro forma
condensed consolidated financial statements.
24
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
IAT FSE
----------------- ---------------
<S> <C> <C>
Net sales ................................. $ 1,193,302 $40,916,520
Cost of sales ........................... 811,771 36,826,635
------------- -----------
Gross margin .............................. 381,531 4,089,885
------------- -----------
Operating expenses:
Research & development costs, net ...... 2,330,638 --
Selling expenses ..................... 1,462,191 2,114,086
General & administrative expenses ...... 1,494,858 1,144,448
------------- -----------
5,287,687 3,258,534
------------- -----------
Operating income (loss) .................. (4,906,156) 831,351
Other income (expense):
Interest expense ..................... (213,136) (63,673)
Other income ........................... 10,814 87,287
Minority interest ..................... -- --
------------- -----------
Income (loss) before income taxes ......... (5,108,478) 854,965
Provision for income taxes ............... -- 193,983
------------- -----------
Net income (loss) ........................ $ (5,108,478) $ 660,982
============= ===========
Net loss per share of common stock ...... $ (0.89) --
=============
Weighted average number of common
shares outstanding ..................... 5,751,715 --
=============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA FOR THE FSE
PRO FORMA FOR THE FSE ACQUISITION
ADJUSTMENTS ACQUISITION AS ADJUSTED
---------------- ----------------- -----------------
<S> <C> <C> <C>
Net sales ................................. $ -- $ 42,109,822 $ 42,109,822
Cost of sales ........................... -- 37,638,406 37,638,406
---------- ------------- ------------
Gross margin .............................. -- 4,471,416 4,471,416
---------- ------------- ------------
Operating expenses:
Research & development costs, net . -- 2,330,638 2,330,638
Selling expenses ..................... -- 3,576,277 3,576,277
General & administrative expenses . 259,304 H 2,898,610 2,898,610
---------- ------------- ------------
259,304 8,805,525 8,805,525
---------- ------------- ------------
Operating income (loss) .................. (259,304) (4,334,109) (4,334,109)
Other income (expense):
Interest expense ..................... (301,662)I (578,471) (1,616,809)L
Other income ........................... -- 98,101 98,101
Minority interest ..................... (132,196)J (132,196) (132,196)
---------- ------------- ------------
Income (loss) before income taxes ......... (693,162) (4,946,675) (5,985,013)
Provision for income taxes ............... 108,825 K 302,808 302,808
---------- ------------- ------------
Net income (loss) ........................ $ 801,987 $ (5,249,483) $ (6,287,821)
========== ============= ============
Net loss per share of common stock ...... -- $ (0.89) $ (1.07)
============= ============
Weighted average number of common
shares outstanding ..................... -- 5,898,664 5,898,664
============= ============
</TABLE>
See accompanying notes to unaudited pro forma
condensed consolidated financial statements.
25
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
IAT FSE
----------------- ---------------
<S> <C> <C>
Net sales ................................. $ 537,561 $26,982,763
Cost of sales .............................. 328,613 24,347,850
------------- -----------
Gross margin .............................. 208,948 2,634,913
------------- -----------
Operating expenses:
Research & development costs, net ...... 1,873,534 --
Selling expenses ........................ 1,474,334 1,345,682
General & administrative expenses ...... 1,374,210 849,687
------------- -----------
4,722,078 2,195,369
------------- -----------
Operating income (loss) .................. (4,513,130) 439,544
Other income (expense):
Interest expense ........................ (169,454) (41,921)
Interest income ........................ 362,322 --
Other income ........................... 17,428 190,446
Minority interest ..................... -- --
------------- -----------
Income (loss) before income taxes ......... (4,302,834) 588,069
Provision for income taxes ............... -- 132,633
------------- -----------
Net income (loss) ........................ $ (4,302,834) $ 455,436
============= ===========
Net loss per share of common stock ......... $ (0.54) --
=============
Weighted average number of common shares
outstanding .............................. 7,970,762 --
=============
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA FOR THE FSE
PRO FORMA FOR THE FSE ACQUISITION
ADJUSTMENTS ACQUISITION AS ADJUSTED
--------------- ----------------- -----------------
<S> <C> <C> <C>
Net sales ................................. $ -- $ 27,520,324 $ 27,520,324
Cost of sales .............................. -- 24,676,463 24,676,463
---------- ------------- ------------
Gross margin .............................. -- 2,843,861 2,843,861
---------- ------------- ------------
Operating expenses:
Research & development costs, net ...... -- 1,873,534 1,873,534
Selling expenses ........................ -- 2,820,016 2,820,016
General & administrative expenses ...... 201,580 2,425,477 2,425,477
---------- ------------- ------------
201,580 7,119,027 7,119,027
---------- ------------- ------------
Operating income (loss) .................. (201,580) (4,275,166) (4,275,166)
Other income (expense):
Interest expense ........................ -- (211,375) (1,216,375)L
Interest income ........................ (124,436)I 237,886 362,322 L
Other income ........................... -- 207,874 207,874
Minority interest ..................... (91,087)J (91,087) (91,087)
---------- ------------- ------------
Income (loss) before income taxes ......... (417,103) (4,131,868) (5,012,432)
Provision for income taxes ............... 69,554 K 202,187 202,187
---------- ------------- ------------
Net income (loss) ........................ $ (486,657) $ (4,334,055) $ (5,214,619)
========== ============= ============
Net loss per share of common stock ......... -- $ (0.53) $ (0.64)
============= ============
Weighted average number of common shares
outstanding .............................. -- 8,117,711 8,117,711
============= ============
</TABLE>
See accompanying notes to unaudited pro forma
condensed consolidated financial statements.
26
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated financial statements give
effect to the acquisition of FSE and the Offering as if each had occurred on
September 30, 1997 for the purposes of the unaudited pro forma condensed
consolidated balance sheet and on January 1 of each period presented for
purposes of the unaudited pro forma condensed consolidated statements of
operations. The acquisition was accounted for using the purchase method of
accounting. Accordingly, the aggregate consideration to be paid in connection
with the proposed acquisition of FSE, will be allocated to FSE's assets
purchased and liabilities assumed based on their fair market values, and any
excess will be treated as goodwill. The purchase price was paid with the
issuance of 146,949 shares of Multimedia's Common Stock and approximately
$3,016,000 in cash including closing costs.
Balance Sheet
(A) Adjustment reflects the cash paid to the prior shareholders of FSE and
anticipated closing costs paid in connection with the transaction.
(B) Goodwill recorded on the acquisition was calculated as follows:
Fair market value of assets received ......... $ 5,020,711
Fair market value of liabilities assumed ...... 3,716,814
-----------
Net assets ................................. 1,303,897
Percentage of the company acquired ............ 80%
-----------
Fair value of net assets acquired ............ 1,043,118
Purchase price ................................. 3,922,164
-----------
Incremental goodwill ........................... 2,879,046
Existing goodwill .............................. 483,881
-----------
Total goodwill on acquisition .................. $ 3,362,927
===========
(C) Represents the amount the limited partner of FSE will be contributing to
capital of FSE, at closing, pursuant to the purchase agreement between FSE
and IAT.
(D) IAT acquired 80% of the outstanding limited partnership interests of FSE;
therefore, minority interest is recorded on the remaining 20% calculated
as follows:
Net assets of FSE acquired ......... $ 1,303,897
Minority interest percentage ...... 20%
-----------
Minority interest .................. $ 260,779
===========
(E) Represents the elimination of stockholders' equity of FSE and the issuance
of 146,949 shares of Common Stock of Multimedia to the FSE shareholder
valued at approximately $905,000 which represented the fair market value
on the date of closing.
(F) The as adjusted unaudited pro forma condensed consolidated balance sheet
has been adjusted for the application of the net proceeds of the Notes as
follows:
Notes .................. $10,000,000
Offering costs ......... 1,700,000
Net cash received ...... 8,300,000
(G) The Indenture and the Pledge and Escrow Agreement requires the Company to
place in escrow an amount equal to two years of interest payments;
therefore, the as adjusted amounts include a $1,875,000 reclassification
of cash to other assets.
Statements of Operations
(H) Adjustment reflects the amortization of the goodwill recorded on the FSE
acquisition over a 10 year life. In addition, FSE has recorded historical
amortization of goodwill from prior acquisitions which is eliminated as
follows:
27
<PAGE>
<TABLE>
<CAPTION>
Year ended Nine months ended
December 31, 1996 September 30, 1997
------------------- -------------------
<S> <C> <C>
Amortization of goodwill -- IAT ........................... $ 336,293 $ 252,220
Historical amortization of goodwill recorded by FSE ...... (76,989) (50,640)
--------- ---------
$ 259,304 $ 201,580
========= =========
</TABLE>
(I) Adjustment reflects additional interest expense at 10% per annum on
additional borrowings which would have been necessary during 1996 in order
to fund the cash portion of the FSE acquisition or a reduction of interest
income during 1997 for the cash used in the FSE acquisition, at a rate of
5.5% which represents the average current earnings on the Company's cash
equivalents and investments in marketable securities.
(J) Adjustment reflects the minority stockholders' equity interest (20%) in
earnings of FSE.
(K) Adjustment reflects the difference between the German corporate tax on FSE
income, which will be payable by IAT, and the German partnership tax
payable by FSE.
(L) The as adjusted unaudited pro forma condensed consolidated statements of
operations have been adjusted for the issuance of the Notes as follows:
<TABLE>
<CAPTION>
Year ended Nine months ended
December 31, 1996 September 30, 1997
------------------- -------------------
<S> <C> <C>
Interest expense:
Interest expense resulting from Notes .................. $1,000,000 $ 750,000
Amortization of costs related to the issuance of the
Notes ................................................ 340,000 255,000
Elimination of pro forma interest expense for borrowings
used for FSE acquisition ........................... (301,662)
---------- ----------
Total ................................................ $1,038,338 $1,005,000
========== ==========
Interest income:
Elimination of pro forma interest income for cash used
for FSE acquisition ................................. -- $ 124,436
========== ==========
</TABLE>
28
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below as of and for the years ended
December 31, 1993, 1994, 1995 and 1996 have been derived from historical
consolidated financial statements of IAT that have been audited by Rothstein,
Kass & Company, independent auditors (the "Audited IAT Consolidated Financial
Statements"). The selected financial data for the year ended December 31, 1992
and as of and for the nine months ended September 30, 1996 and 1997 (the
"Unaudited IAT Consolidated Financial Statements") were derived from the
unaudited consolidated financial statements of IAT. In the opinion of
management, the selected financial data presented below as of the year ended
December 31, 1992 and as of and for the nine months ended September 30, 1996
and 1997 include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial position and
results of operations for these periods. The nine month results are not
necessarily indicative of the results to be expected for the full year.
The selected financial data presented below for the year ended December
31, 1996 have been derived from historical financial statements of FSE that
have been audited by Rothstein, Kass & Company, independent auditors (the
"Audited FSE Financial Statements"). The selected financial data as of and for
the nine months ended September 30, 1996 and 1997 (the "Unaudited FSE Financial
Statements") were derived from the unaudited financial statements of FSE. In
the opinion of management, the selected financial data presented below as of
and for the nine months ended September 30, 1996 and 1997 include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations for these
periods. The nine month results are not necessarily indicative of the results
to be expected for the full year.
"Consolidated Financial Statements" refers to the Audited IAT Consolidated
Financial Statements, the Unaudited IAT Consolidated Financial Statements, the
Audited FSE Financial Statements and the Unaudited FSE Financial Statements.
This information should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Plan of Operations" and the historical
Consolidated Financial Statements of IAT and FSE, including the Notes thereto,
appearing elsewhere in this Prospectus.
Multimedia was formed in September 1996 as a holding company for the
existing business of IAT AG and IAT Germany. In November 1997, Multimedia
acquired 100% of the general partner of FSE and 80% of the limited partnership
interests of FSE, a German limited partnership.
29
<PAGE>
SELECTED FINANCIAL DATA
IAT
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------
1992 1993 1994 1995 1996
--------------- -------------- -------------- -------------- --------------
(unaudited) (In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales ........................ $ 1,216 $ 1,963 $ 1,053 $ 1,510 $ 1,193
Cost of sales ..................... 903 1,171 700 968 811
-------- ------- ------- ------- -------
Gross margin ..................... 313 792 353 542 382
-------- ------- ------- ------- -------
Operating Expenses:
Research and development costs ... 434 1,828 2,269 2,531 2,729
Less participations received ...... -- (962) (2,207) (868) (398)
-------- ------- ------- ------- -------
Research and development
expenses, net ..................... 434 866 62 1,663 2,331
Selling, general and administrative
expenses ........................ 2,009 1,193 1,538 2,640 2,957
-------- ------- ------- ------- -------
2,443 2,059 1,600 4,303 5,288
-------- ------- ------- ------- -------
Operating loss ..................... $ (2,130) $(1,267) $(1,247) $(3,761) $(4,906)
======== ======= ======= ======= =======
Extraordinary item ............... $ 4,838(1) $ -- $ -- $ -- $ --
======== ======= ======= ======= =======
Net Income (loss) .................. $ 2,639 $(1,324) $(1,335) $(3,730) $(5,108)
======== ======= ======= ======= =======
Net income (loss) per common
share ........................... $ 0.74 $ (0.36) $ (0.33) $ (0.77) $ (0.89)
======== ======= ======= ======= =======
Weighted average number of shares
outstanding ..................... 3,564 3,649 4,002 4,839 5,752
======== ======= ======= ======= =======
Ratio of earnings to fixed charges (2) (2) (2) (2) (2)
========= ======= ======= ======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September
30,
-----------------------------
1996 1997
------------- --------------
(unaudited) (unaudited)
<S> <C> <C>
Statement of Operations Data:
Net sales ........................ $ 961 $ 538
Cost of sales ..................... 690 329
------- -------
Gross margin ..................... 271 209
------- -------
Operating Expenses:
Research and development costs ... 1,952 1,968
Less participations received ...... (272) (94)
------- -------
Research and development
expenses, net ..................... 1,680 1,874
Selling, general and administrative
expenses ........................ 2,198 2,848
------- -------
3,878 4,722
------- -------
Operating loss ..................... $(3,607) $(4,513)
======= =======
Extraordinary item ............... $ -- $ --
======= =======
Net Income (loss) .................. $(3,733) $(4,303)
======= =======
Net income (loss) per common
share ........................... $ (0.65) $ (0.54)
======= =======
Weighted average number of shares
outstanding ..................... 5,752 7,971
======= =======
Ratio of earnings to fixed charges (2) (2)
======= =======
</TABLE>
- ------------
(1) Represents gain on restructuring.
(2) Earnings, as adjusted, were inadequate to cover fixed charges by $2,639 in
1992, $1,324 in 1993, $1,335 in 1994, $3,730 in 1995, $5,108 in 1996,
$3,733 for the nine months ended September 30, 1996, and $4,303 for the
nine months ended September 30, 1997.
<PAGE>
FSE
<TABLE>
<CAPTION>
Year Ended December 31, Nine Months ended September 30,
1996 1996 1997
-------------------- ---------------------------- ---------------------------
(In thousands)
DM $ DM $ DM $
-------- ---------- ------------- ------------- ------------- ------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net Sales ........................ 61,649 $ 40,917 43,292 $29,341 $46,356 $26,983
Cost of Sales ..................... 55,487 36,827 39,634 26,862 41,830 24,348
------ -------- ------ ------- ------- -------
Gross Margin ..................... 6,162 4,090 3,658 2,479 4,526 2,635
Operating expenses:
Selling, general and administrative
expenses ........................ 4,910 3,259 3,327 2,255 3,771 2,195
------ -------- ------ ------- ------- -------
Operating income (loss) ......... 1,252 $ 831 331 $ 224 755 $ 440
====== ======== ====== ======= ======= =======
Net income ........................ 996 $ 661 311 $ 221 782 $ 455
====== ======== ====== ======= ======= =======
</TABLE>
30
<PAGE>
IAT
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------------------------------
1992 1993 1994 1995 1996
------------- --------- ----------- ----------- -----------
(unaudited) (In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Current assets ........................ $ 527 $ 1,671 $ 1,308 $ 1,489 $ 1,204
Working capital (deficiency) ......... (1,125) 274 (865) (1,106) (2,728)
Total assets ........................ 974 2,065 1,771 2,056 2,216
Current liabilities .................. 1,652 1,397 2,173 2,595 3,932
Loans payable - stockholders, net of
current portion ..................... -- -- 336 349 964
Total liabilities ..................... 1,764 1,488 2,509 2,944 4,896
Series A Preferred Stock ............ -- -- -- -- 1,400
Accumulated deficit .................. 796 2,120 3,455 7,185 12,293
Stockholders equity (deficiency)(1) . (790) 577 (738) (888) (4,080)
<CAPTION>
As of September 30,
---------------------------
1996 1997
------------- ------------
(unaudited) (unaudited)
<S> <C> <C>
Balance Sheet Data:
Current assets ........................ $ 1,006 $ 11,912
Working capital (deficiency) ......... (3,052) 9,252
Total assets ........................ 1,695 13,005
Current liabilities .................. 4,058 2,660
Loans payable - stockholders, net of
current portion ..................... 492 426
Total liabilities ..................... 4,550 3,086
Series A Preferred Stock ............ -- --
Accumulated deficit .................. 10,918 16,648
Stockholders equity (deficiency)(1) . (2,855) 9,919
</TABLE>
- ------------
(1) Includes 498,285 Escrow Shares. See "Principal Stockholders--Escrow
Shares." Excludes (i) 500,000 shares of Common Stock reserved for issuance
upon exercise of stock options under the Plan, none of which have been
granted, (ii) 2,683,485 shares of Common Stock issuable upon exercise of
outstanding warrants and (iii) 145,000 shares of Common Stock issuable
upon exercise of outstanding options granted outside of the Plan.
FSE
<TABLE>
<CAPTION>
As of December 31, As of September 30,
1996 1997
------------------- ------------------
In thousands (unaudited)
DM $ DM $
------- --------- ------- --------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Current assets ....................................... 6,335 $ 4,073 7,256 $ 4,119
Working capital ....................................... 473 304 477 271
Total assets .......................................... 7,928 5,098 8,845 5,021
Current liabilities .................................... 5,862 3,769 6,779 3,848
Loans payable -- partner, net of current portion ...... 500 322 500 284
Total liabilities .................................... 6,362 4,091 7,279 4,132
Partner's Capital .................................... 1,566 1,007 1,566 889
</TABLE>
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the historical consolidated financial
condition and results of operations of IAT and FSE and the pro forma condensed
consolidated financial statements and results of operations of the Company
should be read in conjunction with the Consolidated Financial Statements and
the Unaudited Pro Forma Financial Statements and Notes to such financial
statements included elsewhere in this Prospectus. This Prospectus contains
forward-looking statements which involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in "Risk Factors."
Overview
The Company, through its recent acquisition of FSE, markets in Germany
high-performance PCs assembled according to customer specifications and sold
under the trade name "Trinology," as well as components and peripherals for PCs.
The Company is also engaged in developing and marketing state-of-the-art,
customizable proprietary visual communications technology designed to enable
users to participate in real time, multi-point video communications and
providing improved features and functionality over competing technology. The
Company's visual communications technology is currently utilized in
multi-functional visual communications system marketed under the name Vision and
Live. The Company has also developed (i) wavelet data compression and
decompression software technology for high-speed, high-quality still image
transfer and (ii) the Wonderboard; both of which are anticipated to be available
in 1998. The Company believes that the acquisition of FSE will re-orient the
Company's principal business and provide expanded marketing and distribution
channels for the Company's video communications technology in Germany through
FSE while providing FSE with the Wonderboard and wavelet software technology for
distribution to its customers and for integration into Trinology PCs.
Multimedia was formed in September 1996 as a holding company for the
existing business of IAT AG and IAT Germany. Since then, Multimedia has been
engaged in developing products for the visual communications industry. In
November 1997, Multimedia acquired 100% of the shares of capital stock of the
general partner of FSE and 80% of the outstanding limited partnership
interests of FSE, a German limited partnership. FSE assembles and sells
high-performance PCs and sells components and peripherals for PCs in Germany.
The acquisition of FSE will result in substantial differences in the business
and results of operations of the Company. Accordingly, results of operations
of the Company prior to the acquisition of FSE will not be indicative of the
Company's results of operations after such acquisition.
The Company and HIBEG are negotiating the potential restructuring of IAT
Germany which may include the transfer of the assets and liabilities of IAT
Germany to a new German corporation. These negotiations are ongoing and the
terms of any proposed transaction have not been finalized. There can be no
assurances as to whether or on what terms the Company and HIBEG will effect
such restructurings.
The Company's sales are made to customers principally in Switzerland and
Germany with revenues created in Deutsche Marks and Swiss Francs. Multimedia's
functional currency is the Swiss Franc. FSE's functional currency is the
Deutsche Mark. The Company currently engages in limited hedging transactions,
which are not material to its operations, to offset the risk of currency
fluctuations. The Company may increase or discontinue these hedging activities
in the future.
In the following discussions, most percentages and dollar amounts have
been rounded to aid presentation. As a result, all such figures are
approximations. References to such approximations have generally been omitted.
IAT Results of Operations
Nine Month Period Ended September 30, 1997 compared to Nine Month Period Ended
September 30, 1996
The average exchange rate for the U.S. dollar increased by 20.8% as
compared to the Swiss Franc, for the nine month period ended September 30, 1997
as compared to the nine month period ended September 30, 1996
32
<PAGE>
resulting in a decrease in all revenue and expense accounts in the nine month
period ended September 30, 1997 by this same percentage. The average Swiss
Franc to U.S. dollar exchange rate was SF 1.45 = $1.00 in the nine month period
ended September 30, 1997 as compared to SF 1.20 = $1.00 in the nine month
period ended September 30, 1996.
Revenues. IAT's revenues for the nine month period ended September 30, 1997
decreased by 44.1% to $538,000 from $961,000 for the nine month period ended
September 30, 1996. Sales for the nine month period ended September 30, 1996
resulted from the introduction of IAT's second generation systems. Sales for the
nine month period ended September 30, 1997 decreased as a result of a decrease
in orders for such systems in anticipation of the release of IAT's third
generation systems. Pro forma sales for the nine month period ended September
30, 1997 giving effect to the FSE acquisition would have been $27,520,000.
Cost of Sales. IAT's cost of sales for the nine month period ended
September 30, 1997 decreased by 52.4% to $329,000 from $690,000 for the nine
month period ended September 30, 1996. The cost of sales as a percentage of
sales decreased to 61.1% from 71.8% primarily a result of proportionately
higher royalty income from various customers generating high profit margins
partially offset by sales of second generation Vision and Live systems
generating lower gross margins at the end of their life-cycle. Pro forma cost
of sales for the nine month period ended September 30, 1997 giving effect to
the FSE acquisition would have been $24,676,000 and 89.7% as a percentage of
sales.
Research and development costs. IAT's research and development costs for
the nine month period ended September 30, 1997 increased by 0.8% to $1,968,000
from $1,952,000 for the nine month period ended September 30, 1996. These costs
increased primarily due to (i) an increase in the number of employees in the
product development area to complete IAT's third generation Vision and Live
products in the first six months of 1997 partially offset by a decrease in the
three month period ended September 30, 1997, (ii) additional development costs
by third parties in connection with the development of the wavelet compression
technology performed by the Technical University of Berlin and (iii) software
and product licenses acquired in connection with the development of the third
generation products. Pro forma research and development costs for the nine
month period ended September 30, 1997 giving effect to the FSE acquisition
would have been unchanged because FSE does not incur research and development
costs.
IAT received research participations which are reimbursements from third
parties for research and development projects in which each party retains
certain legal rights for the products developed during such projects
("Research Participations"). Research Participations for the nine month period
ended September 30, 1997 have decreased by 65.4% to $94,000 from $272,000 for
the nine month period ended September 30, 1996. This decrease was primarily a
result of the completion of all of IAT's joint development projects with
Deutsche Telekom ("DT"). During the nine month period ended September 30,
1997, $81,000 of the total of $94,000 in Research Participations received by
IAT came from government subsidy granted by the state government of Berlin.
The subsidy was granted for 35%-40% of the actual expenditures incurred in
Berlin in connection with the development of the wavelet compression
technology by the Technical University of Berlin.
Selling expenses. IAT's selling expenses for the nine month period ended
September 30, 1997 increased by 27.5% to $1,474,000 from $1,156,000 for the
nine month period ended September 30, 1996. This increase was a result of
expenses incurred in connection with the production of product brochures, an
increase in trade fair expenses, an increase in the number of sales and
marketing personnel and costs related to the marketing agreement entered into
between the Company and General Capital on October 26, 1996 (the "Marketing
Agreement"). See "Certain Relationships and Related Transactions -- Private
Placement and Related Transactions." Effective as of September 30, 1997 the
Company reduced marketing expenses in IAT Germany primarily by terminating
approximately 15 of 45 employees resulting in expected aggregate severance
payments of $40,000. The Company believes that the long-term effect of this
reduction will be a reduction in expenses for the Company. Pro forma selling
expenses for the nine month period ended September 30, 1997 giving effect to
the FSE acquisition would have been $2,820,000.
General and administrative expenses. IAT's general and administrative
expenses for the nine month period ended September 30, 1997 increased by 31.9%
to $1,374,000 from $1,042,000 for nine month period
33
<PAGE>
ended September 30, 1996. The increase was primarily a result of Multimedia
becoming a public company in April 1997, resulting in D&O liability and life
insurance premiums and investor relations services not incurred in the nine
month period ended September 30, 1996 and in an increase of board member fees,
legal and auditing expenses and other corporate overhead. Pro forma general and
administrative expenses for the nine month period ended September 30, 1997
giving effect tot he FSE acquisition would have been $2,425,000.
Interest. IAT's interest expense increased by 22.0% to $169,000 for the
nine month period ended September 30, 1997 from $139,000 for the nine month
period ended September 30, 1996. This increase was principally due to an
increase in stockholders' loans in the first quarter of 1997, a portion of
which were repaid in April 1997, partially offset by a reduction of outstanding
bank loans in the second and third quarters of 1997. Interest income increased
to $362,000 for the nine month period September 30, 1997 from zero in the nine
month period ended September 30, 1996 as a result of the investment of the IPO
proceeds in investments bearing interest at an average of 5.5%. Pro forma
interest expense and interest income for the nine month period ended September
30, 1997 giving effect to the FSE acquisition would have been $211,000 and
$238,000, respectively.
Net loss. IAT's net loss for the nine month period ended September 30,
1997 increased by 15.3% to $4,303,000 from $3,733,000 for the nine month period
ended September 30, 1996. The loss increased primarily as a result of IAT's
increase in operating expenses and a decrease in Research Participations. This
loss was partially offset by an increase in interest income. Pro forma net loss
for the nine month period ended September 30, 1997 giving effect to the FSE
acquisition would have been $4,334,000.
Year ended December 31, 1996 compared to Year Ended December 31, 1995
The average exchange rate for the U.S. dollar increased 5.1% as compared
to the Swiss Franc resulting in a decrease in all revenue and expense accounts
in 1996 by this same percentage. The average Swiss Franc to U.S. dollar
exchange rate was SF 1.24 = $1.00 in 1996 as compared to SF 1.18 = $1.00 in
1995.
Revenues. IAT's revenues from the sale of Vision and Live products for the
year ended December 31, 1996 decreased by 21.0% to $1,193,000 from $1,510,000
for the year ended December 31, 1995. Although there was a 60.0% increase in
the number of Vision and Live systems sold in the year ended December 31, 1996,
the increase was more than offset by a decrease in the price per system,
resulting in decreased revenues. Pro forma revenues for the year ended December
31, 1996 giving effect to the FSE acquisition would have been $42,110,000.
Cost of sales. IAT's cost of sales for the year ended December 31, 1996
decreased by 16.1% to $811,000 from $968,000 for the year ended December 31,
1995. The cost of sales as a percentage of sales increased to 68.0% for the
year ended December 31, 1996 from 64.1% for the year ended December 31, 1995.
Although IAT realized savings from purchasing economies for the additional
units produced, the savings were more than offset due to a lower gross margin
concept for Vision and Live products resulting in a higher cost of sales
percentage in 1996. Pro forma cost of sales for the year ended December 31,
1996 giving effect to the FSE acquisition would have been $37,638,000.
Research and development costs. IAT's research and development costs for
the year ended December 31, 1996 increased by 7.8% to $2,729,000 from
$2,531,000 for the year ended December 31, 1995. IAT increased the number of
employees involved in research and development to complete its third
generation Vision and Live products resulting in increased payroll costs
during 1996. Research Participations decreased by 54.1% to $398,000 for the
year ended December 31, 1996 compared to $868,000 for the year ended December
31, 1995. The decrease in Research Participations was primarily a result of
the completion of certain development projects for DT. Pro forma research and
development costs incurred for the year ended December 31, 1996 giving effect
to the FSE acquisition would have been $2,729,000.
Selling expenses. Selling expenses for the year ended December 31, 1996
increased by 15.5% to $1,462,000 from approximately $1,266,000 for the year
ended December 31, 1995. This is primarily a result of an increase in the
number of personnel in sales and marketing in an effort to create the demand
for IAT's product as well as help expand the product base of applications for
the Company's products. Pro forma selling expenses for the year ended December
31, 1996 giving effect to the FSE acquisition would have been $3,576,000.
General and administrative expenses. IAT's general and administrative
expenses for the year ended December 31, 1996 increased by 8.8% to $1,495,000
from $1,374,000 for the year ended December 31, 1995 principally due to
additional ancillary costs associated with the IPO. Pro forma general and
administrative expenses for the year ended December 31, 1996 giving effect to
the FSE acquisition would have been $2,899,000.
34
<PAGE>
Interest. IAT's interest expense for the year ended December 31, 1996
increased by 65.5% to $213,000, from $129,000 for the year ended December 31,
1995, principally due to an increase in stockholder and bank loans. Pro forma
interest expense for the year ended December 31, 1996 giving effect to the FSE
acquisition would have been $578,000.
Net Loss. IAT's net loss for the year ended December 31, 1996 increased by
36.9% to $5,108,000 from $3,730,000 for the year ended December 31, 1995. The
loss primarily increased as a result of the Company's decrease in the unit
sales price, the increase in sales and marketing expenses related to the
potential introduction of the third generation Vision and Live products, and a
decrease in Research Participations. Pro forma net loss for the year ended
December 31, 1996 giving effect to the FSE acquisition would have been
$5,249,000.
Year Ended December 31, 1995 compared to Year Ended December 31, 1994
The average exchange rate for the U.S. dollar declined 13.2% as compared
to the Swiss Franc resulting in an increase in all revenue and expense accounts
in 1995 by this same percentage. The average Swiss Franc to U.S. dollar
exchange rate was SF 1.18 = $1.00 in 1995 as opposed to SF 1.36 = $1.00 in
1994.
Revenues. IAT's revenues for the year ended December 31, 1995 increased by
43.4% to $1,510,000 from $1,053,000 for the year ended December 31, 1994, an
increase of $457,000. $139,000 of the increase was a result of the weakening of
the U.S. Dollar against the Swiss Franc. The remaining increase of $318,000 was
primarily a result of an increase in the unit sales resulting from the
introduction of the second generation Vision and Live products.
Cost of sales. IAT's cost of sales for the year ended December 31, 1995
increased by 38.3% to $968,000 from $700,000 for the year ended December 31,
1994. The cost of sales as a percentage of sales decreased to 64.1% for the
year ended December 31, 1995 from 66.4% for the year ended December 31, 1994 as
a result of purchase price savings due to larger quantities purchased in 1995.
Additionally IAT's fixed costs for plant and indirect labor and other costs
decreased as a percentage of sales.
Research and development. IAT's research and development costs for the
year ended December 31, 1995 increased by 11.5% to $2,531,000 from $2,269,000
for the year ended December 31, 1994. The increase was caused principally by
the weakening in the U.S. Dollar versus the Swiss Franc. The number of
personnel engaged in research activities during the two years remained
constant. Research Participations received decreased to $868,000 during the
year ended December 31, 1995 from $2,207,000 received for the year ended
December 31, 1994 due to a lower number of joint projects in progress during
1995 and the completion of certain large projects in 1994 with DT.
Selling expenses. IAT's selling expenses for the year ended December 31,
1995 increased by 71.3% to $1,266,000 from $739,000 for the year ended
December 31, 1994, an increase of $527,000. $100,000 of this increase is due
to the weakening of the U.S. Dollar compared to the Swiss Franc. The remainder
of the increase was due to an increase in personnel costs, trade shows,
advertising and other selling expenses.
General and administrative expenses. IAT's general and administrative
expenses for the year ended December 31, 1995 increased by 72.0% to $1,374,000
from $799,000 for the year ended December 31, 1994, an increase of $575,000.
$106,000 of this increase is a result of the weakening of the U.S. Dollar
compared to the Swiss Franc. Personnel costs were increased by $220,000 with
the remaining increase resulting from an increase in professional fees, rents
and other fixed costs in addition to an increase in the capital stock tax paid
in Switzerland.
Interest. IAT's interest expense for the year ended December 31, 1995
increased by 3.2% to $129,000 from $125,000 for the year ended December 31,
1994, principally due to the increase in bank loans.
Net Loss. IAT's net loss for the year ended December 31, 1995 increased by
179.4% to $3,730,000 from $1,335,000 for the year ended December 31, 1994. The
loss increased principally due to the decrease in Research Participations
received in 1995, and the increase in the selling, general and administrative
expenses previously discussed.
35
<PAGE>
FSE
Results of Operations
Nine Month Period Ended September 30, 1997 compared to Nine Month Period ended
September 30, 1996
The average exchange rate for the U.S. Dollar increased by 16.2% as
compared to the Deutsche Mark, resulting in a decrease in all revenue and
expense accounts in the nine month period ended September 30, 1997 by this same
percentage. The average DM to U.S. Dollar exchange rate was DM 1.72 = $1.00 in
the nine month period ended September 30, 1997 as compared to SF 1.48 = $1.00
in the nine month period ended September 30, 1996.
Revenues. FSE's revenues for the nine month period ended September 30,
1997 decreased by 8.0% to $26,983,000 from $29,341,000 for the nine month
period ended September 30, 1996 compared to the revenues in Deutsche Marks,
the functional currency of FSE which increased by 7.1% from DM 43,292,000 to
DM 46,356,000 for the same period. The decrease in U.S. dollar revenues
resulted from a decrease in the value of the Deutsche Mark and such decrease
in the exchange rate was partially offset by a higher volume of sales to large
accounts and to an increase in retail sales through the Company's showrooms in
Kaiserslautern and Pirmasens.
Cost of Sales. FSE cost of sales for the nine month period ended September
30, 1997 decreased by 9.4% to $24,348,000 from $26,862,000 for the nine month
period ended September 30, 1996. The decrease was due in part to the inclusion
of the revaluation of inventory from the application of push-down accounting in
cost of goods sold in the first quarter of 1996 and to the decrease in sales.
FSE's gross margin for the nine month period ended September 30, 1997 increased
by 6.3% to $2,635,000 from $2,479,000 for the nine month period ended September
30, 1996. Gross margins as a percentage of sales for the nine month period
ended September 30, 1997 increased to 9.8% from 8.5% for the nine month period
ended September 30, 1996. The increase in the gross margin as a percentage of
sales is primarily a result of an increase in retail sales through the
Company's showrooms and the proportionally higher sales of higher-margin
products.
Selling expenses. FSE's selling expenses for the nine month period ended
September 30, 1997 decreased by 6.4% to $1,346,000 from $1,438,000 for the nine
month period ended September 30, 1996. Selling expense in U.S. dollars
primarily decreased as a result of the decrease in the Deutsche Mark. This
decrease was partially offset by (i) increased expenses associated with the
increased sales volume and (ii) increased absolute costs (wages and salaries,
etc.) and increased marketing expenditures.
General and Administrative expenses. FSE's general and administrative
expenses for the nine month period ended September 30, 1997 increased by 3.9%
to $850,000 from $817,000 for the nine month period ended September 30, 1996 as
a result of increased wages and salary expense.
Other income. FSE's other income for the nine month period ended September
30, 1997 increased by 68.3% to $190,000 from $113,000 for the nine month period
ended September 30, 1996 primarily as a result of realized foreign exchange
gains from purchases of components priced in foreign currencies.
Net income. FSE's net income for the nine month period ended September 30,
1997 increased by 115.9% to $455,000 from $211,000 for the nine month period
ended September 30, 1996 primarily due to the increased gross margin, which
resulted from increased sales, versus the lower increases in absolute selling
and administration expenses.
Year Ended December 31, 1996 compared to Year Ended December 31, 1995
The average exchange rate for the U.S. dollar increased by 4.9% as
compared to the Deutsche Mark, resulting in a decrease in all revenue and
expense accounts in the year ended December 31, 1996 by this same percentage.
The average Deutsche Mark to U.S. dollar exchange rate was DM 1.50 = $1.00 in
the year ended December 31, 1996 as compared to DM 1.43 = $1.00 in the year
ended December 31, 1995.
Revenues. FSE's revenues for the year ended December 31, 1996 decreased by
8.9% to $40,917,000 from $44,895,000 for the year ended December 31, 1995. The
decreased revenues were primarily the result of FSE's reorganization of its
product and sales program and of a decrease in market prices in general and of
the strengthening of the U.S. dollar against the Deutsche Mark.
36
<PAGE>
Cost of Sales. FSE's cost of sales for the year ended December 31, 1996
decreased by 9.0% to $36,827,000 from $40,471,000 for the year ended December
31, 1995. The decrease is primarily due to a decrease in sales which was
partially offset by an increase in the price of component parts. FSE's gross
margin for the year ended December 31, 1996 decreased by 7.6% to $4,090,000 from
$4,424,000 for the year ended December 31, 1995. Gross margins as a percentage
of sales increased to 10.0% for the year ended December 31, 1996 from 9.9% for
the year ended December 31, 1995. The inclusion of the revaluation of inventory
from the application of push-down accounting in cost of goods sold within the
first few months of 1996 was offset by the sale of higher-margin products in the
last quarter.
Selling expenses. FSE's selling expenses for the year ended December 31,
1996 decreased by 5.8% to $2,114,000 from $2,244,00 for the year ended
December 31, 1995. The selling expenses remained fairly steady, despite the
decreased sales volume and the reallocation of a portion of the managing
director's salary from selling to administration to reflect the change in the
emphasis of his work, because of increased marketing expenses incurred.
General and administrative expenses. FSE's general and administrative
expenses for the year ended December 31, 1996 increased by 54.9% to $1,144,000
from $739,000 for the year ended December 31, 1995. The increase was due to an
increase in the managing director's compensation and the reallocation of a
portion of the managing director's salary, as well as increased depreciation of
leasehold improvements resulting from the step-up of costs from the application
of push-down accounting at the end of 1995.
Other income. FSE's other income for the year ended December 31, 1996
increased by $87,000 from $8,000 for the year ended December 31, 1996 primarily
as a result of realized foreign exchange gains from purchases of components
priced in foreign currencies.
Net income. FSE's net income for the year ended December 31, 1996
decreased by 28.2% to $661,000 from $921,000 for the year ended December 31,
1996. This decrease was primarily due to the increase in administration
expenses.
Liquidity and Capital Resources
IAT
IAT's cash and cash equivalents and investments in marketable securities
increased to $7,938,000 and $3,178,000, respectively, at September 30, 1997.
The increase is the result of the completion of Multimedia's IPO and the
receipt of net proceeds of $16,822,000. The proceeds of the IPO were used for
the repayment of stockholder loans in the amount of $1,821,000, repayment of
bank loans in the amount of $417,000, the payment of fees in connection with
the Marketing Agreement in the amount of $400,000, for the purchase of
machinery and equipment in the amount of $230,000, for research and
development in the amount of $1,300,000 and the remainder for working capital,
including the repurchase of 50,000 shares of the Company's common stock (in an
open market transaction at $4.13 per share) in the amount of $206,000. As of
September 30, 1997, $11,000,000 of the proceeds remain unused.
Net cash used by IAT in operating activities totaled $4,523,000 during the
nine month period ended September 30, 1997 compared to $3,252,000 during the
nine month period ended September 30, 1996. The increase was primarily due to
prepaid insurance premiums and marketing agreement expenses and an increase of
the net loss for the nine month period ended September 30, 1997.
IAT's accumulated deficit increased by $4,355,000 to $16,648,000 as of
September 30, 1997 from $12,293,000 as of December 31, 1996 due to IAT's
continued losses.
IAT's net cash used in investing activities totaled $3,473,000 during the
nine month period ended September 30, 1997 compared to $169,000 during the nine
month period ended September 30, 1996. The increase was primarily a result of
the investment of a portion of the IPO proceeds in marketable securities.
IAT's net cash provided by financing activities totaled $15,560,000 during
the nine month period ended September 30, 1997 as compared to $3,180,000 during
the nine month period ended September 30, 1996. During the nine month period
ended September 30, 1997, $17,098,000 of cash was provided primarily by net
proceeds of the IPO. Cash from financing activities was partially offset by the
repayment of loans from stockholders and short-term bank loans, by the payment
of a preferred stock dividend and of repurchases of Common Stock on the open
market pursuant. In the nine month period ended September 30, 1996 cash was
provided by loans from stockholders ($1,118,000), an increase of short term
bank loans ($682,000) and net proceeds from issuance of Common Stock
($1,540,000).
37
<PAGE>
IAT has lines of credit and loans with Swiss Bank Corporation and
Volksbank Sottrum in the aggregate principal amount of $1,500,000 which
currently bear interest at 8.5% and 10.5%, respectively. The loans under the
credit lines are due on demand. As of September 30, 1997, the outstanding
principal amount under the line of credit from Swiss Bank Corporation was
$977,000. On October 31, 1997, the Company made its first monthly installment
of $140,000 to repay the line of credit from Swiss Bank Corporation. As of
September 30, 1997, the outstanding principal amount under the line of credit
with Volksbank Sottrum was $483,000.
IAT's expenditures are currently exceeding its revenues by $480,000 per
month, principally as a result of continued research and development related
to new products. Beginning with the third quarter of 1997, certain of IAT's
product development projects were completed, resulting in a decrease in
product development expenditures. In addition, the Company is restructuring
its workforce to reduce potential future duplication of cost, in particular in
the sales and marketing. Effective as of September 30, 1997, the Company
reduced marketing and administrative expenses in IAT Germany primarily by
terminating 15 of 45 employees. While these terminations require certain
severance payments under German Labor Law expected to aggregate to $40,000
resulting in short-term increases in expenses. However, the Company believes
that the long-term effect will be a reduction in selling expenses for the
Company. The Company continues to evaluate the acquisition of potential
strategic partners as well as additional applications and broader marketing of
its technology. IAT's ability to become profitable is dependent on the
completion of the development of its third generation of Vision and Live
products and its wavelet technology, a timely release of the products and
market penetration.
In November 1997, Multimedia acquired 100% of the general partner of FSE
and 80% of the limited partnership interests of FSE, a German limited
partnership for an aggregate purchase price of DM 6.4 million (U.S.
$3,711,360). The first installment in the amount of DM 3.2 million (U.S.
$1,855,680) in cash was paid on November 18, 1997 with a portion of the
proceeds from the IPO. In addition, 146,949 shares of Common Stock were issued
valued at fair market value on the date of issuance at DM 1.6 million (U.S.
$927,840). The second installment of DM 1.6 million (U.S. $927,840) is payable
in cash on March 13, 1998. As collateral for the payment of the second
installment of the purchase price, Multimedia issued a bank guaranty. This
guaranty has been secured by Multimedia through the establishment of a letter
of credit facility with The Citibank Private Bank.
FSE
As at September 30, 1997 FSE's cash balance and investment in marketable
securities were $822,000 and $507,000, respectively.
FSE's cash decreased by $14,000 during the nine month period September 30,
1997. Net cash provided by operating activities totaled $825,000 during the
nine month period ended September 30, 1997 compared to $714,000 during the nine
month period ended September 30, 1996. The increase was primarily due to the
increase in net income and change in accounts payable as well as the decrease
in the change to accounts receivable. This was partially offset by the increase
in the change to merchandise inventory.
FSE's net cash used for financing activities was $170,000 for the nine
month period ended September 30, 1997 compared to net cash from financing
activities totaling $99,000 for the nine month period ended September 30, 1996.
The increase was caused principally by the repayment of loans to the limited
partner of FSE prior to the acquisition of FSE by Multimedia.
FSE net cash used in investing activities totaled $550,000 for the nine
month period ended September 30, 1997 compared to $826,000 used for the nine
month period ended September 30, 1996. The decrease was caused by increased
purchases of equipment and marketable securities which were partially offset
for the proceeds from sale of marketable securities.
At September 30, 1997 FSE had approximately $1,771,000 of loans payable to
its partners, of which $415,000 was contributed to Partners' Capital prior to
Multimedia's acquisition of FSE in November 1997. In addition, on November 15,
1997 Multimedia repaid $285,000 to a certain partner of FSE. In addition, FSE
guaranteed a loan in the amount of DM 1,233,330 (approximately $690,000) from a
German financial institution made to Dr. Simmet in December 1995 to allow Dr.
Simmet to purchase FSE. FSE's guarantee was secured by a pledge of FSE's
merchandise, inventory, trade accounts receivables, leasehold improvements,
operating and office equipment (including automobiles), furniture and fixtures.
The loan was repaid and the guarantee and pledge terminated in connection with
the acquisition of FSE by IAT in November 1997. See "Certain Transactions."
The Company
Based upon the Company's current and anticipated level of operations,
management believes that cash flow from operations, together with the net
proceeds of this Offering, will be adequate to meet the Company's anticipated
future requirements for working capital, capital expenditures and scheduled
interest and principal payments through 1998 depending on cash requirements for
acquisitions, if any.
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At the closing of this Offering, Multimedia will use $1,875,000 of the net
proceeds of this Offering to purchase the Pledged Securities pursuant to the
Pledge and Escrow Agreement. While the Pledged Securities are expected to be
sufficient to pay interest on the Notes until , 2000, there can be no
assurance that the Company's business will generate sufficient cash flow from
operations or that future working capital borrowings will be available in an
amount to enable the Company to service its debt and to make necessary capital
or other expenditures.
The Company and HIBEG are negotiating the potential restructuring of IAT
Germany which may include the transfer of the assets and liabilities of IAT
Germany to a new German corporation. These negotiations are ongoing and the
terms of any proposed transaction have not been finalized. There can be no
assurances as to whether or on what terms the Company and HIBEG will effect
such restructurings.
An integral part of the Company's business strategy is growth through
acquisitions. The Company is evaluating and is engaged in discussions in
connection with the potential acquisition of assets or equity of certain
businesses. However, the Company has no agreements or arrangements with
respect to any particular acquisition and there can be no assurance that any
such acquisitions will be consummated. In the event that the Company does
undertake any future acquisitions, the Company anticipates paying for such
acquisitions through a combination of cash, Common Stock and possibly through
the issuance of additional debt.
Escrow Shares
The Company contemplates that the release of Escrow Shares, should it
occur, will result in a substantial non-cash compensation charge to operations,
based on the then fair market value of such shares. Such charge could
substantially increase the Company's loss or reduce or eliminate the Company's
net income, if any, for financial reporting purposes for the period during
which shares are or become probable of being released from escrow. Although the
amount of compensation expense recognized by the Company will not affect the
Company's total stockholders equity, it may depress the market price of the
Company's securities. See "Principal Stockholders -- Escrow Shares."
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BUSINESS
General
The Company, through its recent acquisition of FSE, markets in Germany
high-performance PCs assembled according to customer specifications and sold
under the trade name "Trinology," as well as components and peripherals for PCs.
The Company is also engaged in developing and marketing state-of-the-art,
customizable proprietary visual communications technology designed to enable
users to participate in real time, multi-point video communications and
providing improved features and functionality over competing technology. The
Company's visual communications technology is currently utilized in
multi-functional visual communications system marketed under the name Vision and
Live. The Company has also developed (i) wavelet data compression and
decompression software technology for high-speed, high-quality still image
transfer and (ii) the Wonderboard, both of which are anticipated to be available
in 1998. The Company believes that the acquisition of FSE will re-orient the
Company's principal business and provide expanded marketing and distribution
channels for the Company's video communications technology in Germany through
FSE while providing FSE with the Wonderboard and wavelet software technology for
distribution to its customers and for integration into Trinology PCs.
FSE's product line includes high-performance IBM-compatible desktop PCs
as well as components, such as motherboards, hard disks, graphic cards and
plug-in cards, and peripherals, such as printers, monitors and cabinets, to
its customers. For the year ended December 31, 1996 and the nine month period
ended September 30, 1997, FSE's net sales were approximately $41 million and
$27 million, respectively, and FSE's net income was approximately $661,000 and
$455,000, respectively. Substantially all of FSE's clients are corporate
customers, including industrial, pharmaceutical, service and trade companies,
the military and VARs. FSE's current customers include, among others, BASF
Germany, Bayer Leverkusen Germany, Novartis Switzerland and the North Atlantic
Treaty Organization (NATO). FSE markets its products directly through its
internal sales force to dealers and end-users and also maintains two retail
showrooms and a mail-order department. FSE works directly with a wide range of
suppliers to evaluate the latest developments in PC-related technology and
engages in extensive testing to optimize the compatibility and speed of the
components which are sold and integrated into Trinology PCs.
The Company is currently developing a third generation of its Vision and
Live systems. The third generation will utilize the C8x chip which was developed
by TI's visual communications development team, of which the Company was a part.
TI and IAT have agreed that IAT will be the only source for the products
developed from the C8x chip in the field of visual communications and that IAT
will be the exclusive worldwide service provider for the C80 base libraries and
reference board. Systems using the programmable C8x chip are easier to upgrade
and customize to a user's specific requirements than systems using hardwired
chips. IAT intends to use the C8x chip in its Wonderboard, which the Company
anticipates marketing to OEMs, VARs and end-users for integration into
high-performance PCs, including integration into FSE's Trinology PCs. The
Company intends to customize this technology for a variety of industrial and
professional applications including tele-medicine (remote visual communications
among health care professionals to assist in the diagnosis and treatment of
patients) and tele-servicing (remote diagnosis of service problems on
equipment). The Company is focusing its initial attention in tele-medicine on
tele-microscopy and is working with Olympus to develop and market
tele-microscopes which, among other things, will allow health care professionals
in remote locations to view and manipulate microscope slides. To date, IAT has
invested approximately $12 million in the research and development of its visual
communications technology (including approximately $4 million in Research
Participations (as defined herein) from third parties. For the year ended
December 31, 1996 and the nine month period ended September 30, 1997, IAT net
sales were approximately $1.2 million and $0.5 million, respectively with net
losses of approximately $5.1 million and $4.3 million, respectively.
In addition, the Company, in conjunction with the Technical University of
Berlin, has developed wavelet data compression and decompression software
technology, which enhances the quality and speed of still images transmitted
by visual communications systems. The Company expects to begin offering its
MSI software package incorporating its wavelet technology in the first quarter
of 1998 and will market MSI to OEMs for use initially with medical images. MSI
will be offered as a plug-in to NetMeeting(TM), Microsoft's Internet
conferencing software. The Company also expects to begin offering Wavelet-API,
an Active-X(R) plug-in module for high-performance image compression and
decompression, in the first quarter of 1998. The Company intends to integrate
this technology into tele-microscopes and FSE's Trinology PCs, while
continuing to evaluate other uses for the wavelet data compression and
decompression software technology, including potential Internet applications,
and sales to OEMs, VARs and end-users.
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Strategy
The Company's objective is to continue developing as a vertically
integrated supplier of high-end PCs and sophisticated visual communication
systems. The Company intends to achieve its objective by undertaking the
following:
o The Company intends to incorporate IAT's products into FSE's PCs and
intends to utilize FSE's sales force to market IAT's products to VARs and
retail customers. In addition, as FSE is primarily located in southern
Germany and IAT in northern Germany and Switzerland, the Company intends
to expand FSE's geographic distribution base by utilizing IAT's offices in
Bremen, Germany and Turgi, Switzerland and to utilize IAT's sales force to
enhance the marketing of FSE's PCs to OEMs.
o The Company is currently concentrating on expanding its presence in
Europe and intends to expand the distribution of its visual communications
products into the United States in 1998 by acquiring or establishing
relationships with distributors or VARs with a market presence in the
United States.
o The Company intends to expand its operations and the marketing of its PCs
and visual communications products through acquisitions of companies with
technologies related to or complementary with the Company's products and
technology or with additional distribution facilities.
o The Company intends to continue to develop and enhance the performance of
its products to maintain their technological and competitive advantages.
Industry Background
PC Industry. During the past decade, significant advances in computer
technology have led to the development of smaller, more powerful PCs available
to the public at progressively lower prices. These developments have stimulated
rapid growth in the demand for PC products. Growth has been particularly strong
in international markets in recent years. According to the International Data
Group ("IDG") approximately 16 million PCs were sold in Europe in 1996 and 18
million PCs are expected to be sold in Europe in 1997. As a percentage of the
overall market for PCs in Europe in 1996, sales of computers in Germany
accounted for approximately 34% of the home PC market, 24% of the business and
technological market, 14% of the government market and 16% of the educational
market according to IDG.
Historically, internal sales forces and subsequently retail computer
dealers were the primary source of purchasing information and support for
computer buyers. However, as the PC market has matured it has become more
segmented, with customers now being offered distribution channels more closely
tailored to their specific needs. Users who require high-quality and
high-performance PCs that are capable of performing complex functions may
purchase computers directly from manufacturers which can customize a PC to the
customer's needs as well as provide system design services and specialized
software.
Video Conferencing. The driving force behind the growth of the video
conferencing market has been the desire to achieve the effectiveness of
face-to-face meetings with the cost and convenience of the telephone.
Historically, the multimedia communications market has been dominated by
systems using hardwired chips. The Company believes that mass market solutions
do not meet the needs of certain professional customers who demand better image
clarity than is currently available using software-only products, such as
health care professionals who will use visual communication systems to review
microscope slides or other diagnostic images. Depending on the application,
these customers may demand full-frame video, reduced noise and artifacts, truer
color
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representation and/or higher frame rates. In addition, many of these customers
need solutions which allow for data sharing and full remote operation of
applications. Software-only video conferencing solutions require such a large
portion of the central processing unit's ("CPU") processing capacity that they
have difficulty in efficiently integrating these additional functions on their
customers, existing desktop computers.
In addition, many customers, especially OEMs, VARs and integrators, are
concerned that their investment in visual communications technology will become
obsolete. Systems using programmable digital signal processors, such as the C8x
chip utilized by the Company, may be attractive to OEMs, VARs and integrators
because these systems are relatively easy to reprogram to handle new algorithms
and standards as technology improves or to be customized to meet specialized
customer needs. Hardwired chips have limited lives as upgrades or other changes
require that a new chip be engineered and fabricated. Digital signal processors
also substantially reduce the burden on the CPU of the host computer allowing
other applications to run uninterrupted.
FSE
With the recent acquisition of FSE, the Company has expanded its business
to include the assembly and sale of high-performance PCs and the sale of
components and peripherals for PCs in Germany. FSE's PCs are assembled
according to individual customer specifications and sold in Germany under the
trade name "Trinology." The Company believes that Trinology computers have a
reputation in Germany for high quality and performance. FSE tests and selects
compatible components from various vendors for integration into its PCs to
maximize the speed and reliability of Trinology PCs. FSE believes that its
extensive testing and selection gives Trinology PCs an advantage over PCs
built by FSE's competitors. In addition, FSE sells components, such as hard
disks, graphics cards, various plug-in cards, and peripherals, such as
printers, monitors and cabinets, to retail and wholesale customers in Germany
which are purchased directly from manufacturers in Germany, the United States
and parts of Asia.
FSE believes that its volume of component purchases, for both its
component business and its PC business, and its extensive testing of components
in order to select components for integration into its high-performance PCs
enable FSE to remain well-informed about new developments in the PC industry
and to obtain attractive volume pricing. FSE is one of a limited number of
Intel Rabbit Partners in Germany. Intel Rabbit Partners enter into a
confidentiality agreement with Intel which provides them an early opportunity
to evaluate new Intel products and technologies prior to non-Intel Rabbit
Partner computer companies. Intel Rabbit Partners are typically producers who
demand cutting edge technology and can evaluate competing technologies.
FSE's sale of customized high-quality PCs in the upper price and
performance categories is a customer-focused business which promotes direct,
comprehensive customer relationships, and service and support programs tailored
to customer needs. FSE markets its products directly through its internal sales
staff, its two retail showrooms and its mail-order department to dealers and
end-users. The Company believes that the marketing and distribution system
utilized by FSE provides several advantages over traditional retail channels.
First, FSE gains access to end-users without having to compete for limited
shelf space at traditional retail outlets. Second, FSE reduces obsolescence
risk and delays in the introduction of new PCs because it does not need to
support an extensive pipeline of dealer inventory. Third, direct customer
service contact provides valuable input that is used to shape future product
offerings as well as post-sale service and support. Fourth, direct customer
contact allows FSE to maintain, monitor and update a database of information
about customers and their current and future product service needs which can be
used to shape future product offerings as well as post-sale service and support
programs. FSE currently maintains a customer database of approximately 9,000
customers and approximately 70% of its sales of PCs in the first nine months of
1997 was to repeat customers.
Information received directly from its customers is the most significant
factor in FSE's determination to develop a newer line of Trinology PCs
providing new technology and features. New lines of Trinology PCs are designed
to incorporate the most recent technology in order to maintain FSE's reputation
as a producer of high quality and high performance PCs. Customers for the
Trinology PCs are typically users who need systems with a high processing speed
and high reliability for use in professional applications. As such,
approximately 90% of FSE's clients are corporate customers from the industrial
and trade sectors, service industries, the military and computer resellers,
which comprise both wholesalers and retailers. The relationship with these
customers often begins prior to sale, when FSE works with each individual
customer to plan a strategy to meet that customer's
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current and future technological needs. Once the customer's needs are
established, FSE begins the process of assembling the customer's Trinology PCs.
Components and other technical parts are ordered from distributors in Germany,
as well as in the United States and parts of Asia. Included among FSE's main
component manufacturers are companies such as Actebis Computer Handels GmbG
("Actebis"), Peacock AG ("Peacock"), CTX Computer GmbH ("CTX"), Ingram Micro
GmbH ("Ingram"), Diamond Multimedia Systems ("Diamond"), Yoku Computer Systems
("Yoku"), Krystaltech ("Krystaltech"), Matrox Electronic Systems ("Matrox") and
US Robotics ("US Robotics").
With each custom PC sold, FSE offers a comprehensive service and support
program directly to the end-user. All Trinology PCs are sold with two year
warranties, that cover service, repair and replacement of non-functioning
components, except if the problem relates to misuse and accidents. In
addition, components which are integrated into, and peripherals which are
delivered with Trinology PCs carry replacement warranties from the
manufacturer which range from 12 months to 5 years depending on the particular
component and peripheral. FSE also maintains (i) a free service hotline to
answer questions concerning the basic operation of their PCs and to address
any technical support questions and (ii) a "support mailbox" for its
customers, through which they may send inquiries to technical support
personnel via computer. FSE's objective is to provide repairs or replacement
of defective components in its Trinology PCs within 36 hours.
The Company intends to incorporate Multimedia's products into FSE's PCs
and can use FSE's sales force to market Multimedia's products to VARs and
retail customers. The Company plans to use Multimedia's sales force to help
market FSE's high-end computers to OEMs. In addition, the Company intends to
utilize FSE's purchasing power to reduce the cost of the components utilized in
the Vision and Live systems.
IAT
Vision and Live. The Company's Vision and Live visual communications
systems include both proprietary and third-party software and hardware, are
inter-operable with products from certain vendors and fully comply with all
relevant international tele-conferencing standards, including H.320. The
software includes compression algorithms and routines to control
video-conferencing, data transfer, transmission of still and moving video
images, remote control of other applications and customizable features to meet
the specific needs of customers. The hardware, consisting of one or more boards
for insertion into a host desktop computer includes a codec (a combination of a
coder and decoder for compressing the number of bytes representing audio or
video information and recovering the original bytes from the compressed bytes
after they have been transmitted), a video inlay or overlay, a video switch and
audio mixer. Compression algorithms and codecs reduce the number of bytes
necessary to represent a specific piece of information in order to reduce the
cost and time of transmitting data. However, the process of compression and
decompression results in the loss of some of the original data and can
introduce artifacts into the resulting image. The Company believes that its
proprietary combination of software and hardware offer high image quality,
including reduced noise and artifacts, truer color representation and high
frame rates while still allowing simultaneous transmission of other data and
audio signals. Use of fully programmable digital signal processors, such as the
C8x chip, allows for easier upgrades and customization than systems using
hardwired processors. The Company believes that the combination of the tele-
conferencing and additional functions performed by its Vision and Live systems
provide features not generally available in existing tele-conferencing systems
and is intended to meet the requirements of the professional users the Company
intends to target.
IAT currently offers its third generation Vision and Live 384 technology
which permits tele-conferencing and simultaneous full screen video with
picture-in-picture and audio and data communications on a desktop computer with
the ability to view two video full screen windows simultaneously. This
technology is embodied in software and four to seven computer boards. Vision
and Live 384 systems communicate at speeds of up to 384 kbps depending on the
communications needs of its customers. IAT developed its Vision and Live
systems jointly with DT. The Company expects that in 1999 its existing third
generation Vision and Live 384 systems will be replaced by an improved version
of the Company's Wonderboard which will offer reduced costs and will be easier
to fit into PCs because all of the capabilities are fitted on a single board.
While the Company's Vision and Live technology has applications in many
industrial and professional fields, the Company has decided to initially focus
its efforts on tele-medicine and tele-service. In the field of
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tele-medicine, Vision and Live systems can be utilized by health care
professionals for a variety of purposes including diagnosing patients or
consulting with colleagues in different locations. In the field of
tele-servicing, Vision and Live systems can be utilized by service technicians
to view equipment, such as printing presses, as an aid to diagnosis of service
problems.
The Company is currently focusing its initial attention in tele-medicine
on tele-microscopy. The Company is working with Olympus to develop and sell
tele-microscopes which, among other things, will allow manipulation of the
microscope slides by health care professionals in remote locations through the
use of the Company's visual telecommunications technology. Information, such as
images of microscope slides, can be transmitted to receiving PCs equipped with
Vision and Live in a remote location. The Vision and Live system provides true
color and detail sufficient to allow the health care professional at the
receiving system to diagnose the patient's condition. This system can reduce
the cost of patient care by allowing many hospitals to share the expertise of
one specialist, avoiding travel by the health care professional to the hospital
and allowing faster diagnoses. In addition to the central tele-microscope, each
health care professional using the system needs a Vision and Live system in the
office. While the cost of the central tele-microscope may be high, capital
costs for systems in individual offices can be much lower due to the use of
less expensive Vision and Live systems such as Wonderboard and the lack of the
need for the expensive microscope optics and remote controls.
Wonderboard. The Company is in late stage development of the Wonderboard, a
computer board and associated software designed for insertion in PCs which
enables the user to engage in visual communications and which contains, among
other things, portions of the Company's visual communications system
technology. The Wonderboard can be installed by an OEM, VAR or an end-user in
high-performance PCs. The Company expects to begin offering the Wonderboard to
OEMs in the second quarter of 1998. The Wonderboard is a fully integrated board
containing the C8x chip and proprietary software which does not require
additional digital signal processors or computer board. The Wonderboard can
also be expanded with additional features such as adaption of algorithms to
customer needs. Initially the Wonderboard will be capable of communications at
speed up to 128 kbps.
The Wonderboard incorporates the Company's third generation visual
communications technology and replaces the second generation Vision and Live
128 systems. The second generation Vision and Live 128 system required two to
four computer boards and cost approximately $3,500 per system kit. Compared to
the second generation Vision and Live 128 system, the Wonderboard offers
improved capabilities on a single board. As a result of the single board
configuration, the Wonderboard is easier to install in PCs and has an
anticipated retail price of $1,500 per system kit. The Company's system kit
consists of the Wonderboard, the related software and a PC video camera. The
Company intends to offer Wonderboards as an option on FSE's computers and
believes that this may be an attractive option for FSE's customers. In
addition, FSE will distribute the Wonderboard to retailers and retail
customers while IAT will market the Wonderboard to OEMs.
Wavelet Compression and Decompression. The Company is developing wavelet
data compression and decompression technology which permits high-speed exchange
of compressed electronic images across a variety of networks. The Company's
wavelet technology offers the choice of compression modes with no loss of image
quality or additional compression with scalable image degradation. The Company
believes this technology will reduce the time delay in viewing still images
which are transmitted by visual communications systems. Details in images are
progressively built up at the receiving end from an initial impression to a
high-resolution image (unlike the line-by-line reconstruction of images used by
most current image transfer systems). This technology can also be used to
conserve PC storage capacity for archived images.
The Company expects to begin offering its MSI software package
incorporating its wavelet technology in the first quarter of 1998 and will
initially market MSI to OEMs for use initially with medical images. MSI will
be offered as a plug-in to NetMeeting(TM), Microsoft's Internet conferencing
software. The Company also expects to begin offering Wavelet-API, an
Active-X(R) plug-in module for high-performance image compression and
decompression, in the first quarter of 1998. The Company intends to integrate
its wavelet technology into tele-microscopes and FSE's Trinology PCs, while
continuing to evaluate other uses for the wavelet data compression and
decompression software technology, including potential Internet applications,
and sales to OEMs, VARs and end-users.
The Company is jointly developing its proprietary wavelet data compression
and decompression technology with Professor R. Seiler of the Technical
University of Berlin. In order to allow Professor Seiler to share in
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the financial benefit which the Company expects to derive from its wavelet
technology and to secure the Dr. Seiler's future services for the Company, the
Company intends to enter into an agreement with Professor Seiler pursuant to
which the sales of products incorporating the wavelet technology will result in
royalties of 10% of the sales price. The Company and Professor Seiler will
receive 90% and 10% of these royalties, respectively.
Other Products. The Company is continually working to improve its
technology, including systems for use with mobile communications services and
the Internet. The Company is working to develop versions of Vision and Live
available as pure software products to take advantage of Intel's Pentium MMX
software interface. In addition, the Company is conducting research on applying
its technology to digital television area as well as providing intranet
capabilities for its systems and integration of wavelet technology in consumer
electronics (i.e. digital cameras). There can be no assurance of when the
Company will be able to develop its business in these areas, if at all.
In addition, the MIKS Interactive Kiosk was jointly developed with DT and
IBM Germany. The MIKS Interactive Kiosk consists of consumer electronic kiosks,
tele-consultant stations, an authoring system and related proprietary software.
The Company is no longer pursuing development of the MIKS Interactive Kiosk as
a primary product line but intends to continue servicing its existing customers
and provide integrators of kiosk solutions with components for visual
communications. See "-- Development Partners."
Marketing and Customers
FSE
FSE's customers consist of corporate customers, including industrial,
pharmaceutical, service and trade companies, the military and VARs. The
Company markets its Trinology PCs to these customers through advertisements in
trade journals, weekly fax messages to approximately 3,000 dealers, industry
trade fairs, its two showrooms located in Pirmasens and Kaiserslautern,
Germany and holding dealer days, during which dealers may view FSE's new
product lines. Components and peripherals are primarily marketed to VARs,
retailers and end-users. FSE maintains a customer database of approximately
9,000 customers which are contacted by FSE periodically via mailings.
Moreover, reports in trade journals and general distributions of news items
highlighting FSE increase its visibility and the marketability of its
products. FSE provides its customers with knowledgeable sales assistance,
custom configuration and service and support.
FSE's current customers include, among others, BASF Germany, Bayer
Leverkuser Germany, Novartis Switzerland and the North Atlantic Treaty
Organization (NATO). These corporate customers are located primarily in
Germany and are in the industrial, pharmaceutical, service and trade industries
as well as the military and VARs. None of FSE's customers accounted for more
than 3.5% of its revenues in the years ended December 31, 1995 and 1996 or the
first nine month period of 1997.
IAT
IAT targets professional users who need the highest available
visual-communications quality for demanding applications such as tele-medicine
and tele-service. The Company believes that these markets require high quality
systems which provide solutions tailored to their needs and contain higher
quality image and video transmissions and other features than traditional video
conferencing communications systems. The Company's systems are designed to
provide such high quality features and the Company actively promotes its
products to this market through VARs.
In addition, IAT markets its visual communications products to OEMs and
VARs and offers these customers products with a range of compatibilities and
prices. IAT's use of programmable digital signal processors and proprietary
software offers full implementation of relevant industry standards and allows
customers to preserve their investment in visual communications technology.
Systems using programmable digital signal processors, such as the C8x used in
the Company's third-generation systems, are attractive to OEMs and VARs because
these systems are relatively easy to reprogram to handle new algorithms and
standards as technology improves or to be customized to meet specialized
customer needs. Hardwired chips are not as flexible as programmable digital
signal processors because upgrades or other changes require that a new chip be
engineered and fabricated.
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Currently, purchase decision cycles for IAT's products are relatively long
because the technology is new and costs are relatively high. New customers
typically acquire a pilot system or systems to evaluate before purchasing a
number of systems. While IAT sells these pilot units in most cases, it may lend
evaluation systems to certain customers. In many cases, the customer requires
the approval of its senior management or the board of directors before
purchasing a number of IAT's systems. IAT is not aware of other companies which
offer similar customized complete systems at comparable prices. IAT believes
that the market for high end visual communications systems will expand and
purchase decision cycles will shorten once the price of introductory systems
decrease.
While the Company believes its Vision and Live technology has applications
in many industrial and professional fields, the Company has decided to
initially target tele-medicine and tele-service. Vision and Live systems are
currently used in Germany and Switzerland by DT for administrative tasks; by
customers of DeTeSystems, an integrator and affiliate of DT, for a variety of
tasks in different industries; by MAN Roland for tele-servicing of large,
high-speed printing presses; by Dieffenbacher for tele-servicing the
manufacturing process of wood pressing machines; and by hospitals for pilot
projects in tele-microscopy. In addition to complete systems, the Company began
offering to OEMs and VARs Vision and Live kits utilizing its third generation
technology at the end of 1997 to integrate in their own systems.
IAT and FSE both target professional users who need high quality and high
performance products in each of their respective markets. The Company intends
to incorporate IAT's products into FSE's Trinology PCs in order to reach a
broader customer base and intends to target OEMs for its wavelet software
technology.
For the year ended December 31, 1996, and the nine month period ended
September 30, 1997 sales by IAT to DT and its affiliates represented
approximately 77% and 2%, respectively, of IAT's revenues.
The Company is currently concentrating on expanding its presence in Europe
and intends to expand distribution of its visual communications products to the
United States in 1998. The Company expects that it will expand into the United
States by acquisition of or entering into relationships with distributors or
VARs with a market presence in the United States.
Development Partners
IAT's visual communications technology has been developed with several
companies at substantial cost pursuant to various contracts. These companies
have played an important role in the development of IAT's visual communications
technology and products and, in some cases, have been substantial customers of
IAT's products. Cooperation with these strategic partners has historically
enabled IAT to utilize its partners' knowledge, technology and resources. See
"Business -- Marketing and Customers."
Texas Instruments. IAT jointly developed base hardware and software with
TI for its third generation Vision and Live system incorporating the C8x chip.
IAT believes that the C8x chip offers the best price to value ratio for high
quality multimedia systems. In addition, the Company, which was part of the
development team for the C8x-based visual communication libraries, has agreed
with TI to become the worldwide service provider for the C8x base libraries and
reference board. The Company currently markets its third generation Vision and
Live system incorporating the C8x chip and expects to offer the single board
Wonderboard in the second quarter of 1998. While both parties have the right to
sell and license the board, IAT will be the only source for the products
developed from the C8x chip in the field of visual communications.
Olympus. In 1995, IAT began to collaborate with Olympus to combine its
Vision and Live technology with Olympus' expertise in microscopes to produce
systems for tele-microscopy and tele-endoscopy. Olympus intends to market the
Vision and Live- based tele-microscopy system jointly with IAT. See "Business
- -- IAT -- Wavelet Compression and Decompression."
Suppliers and Production
FSE mainly uses components manufactured by Gigabyte Computer GmbH,
Actebis, Peacock, Ingram, Diamond, Yoku and Krystaltech and peripherals
include Actebis, Peacock, CTX, Ingram, Diamond, Yoku and
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Krystaltech. In most cases, FSE acquires these components and peripherals
through manufacturers and primary distributors. FSE does not maintain any
supplier contracts with these suppliers and believes that suitable alternative
suppliers are available for each of its existing suppliers. FSE works directly
with a wide range of suppliers and manufacturers to evaluate the latest
developments in PC-related technology and, prior to distributing its products,
tests and optimizes the compatibility and speed of the components which are
sold by FSE and which are integrated into its Trinology PCs.
FSE's assembly process is designed to provide custom-configured products
to its customers, and includes assembling components, loading software and
performing quality control tests. FSE assembles approximately one-third of its
Trinology PCs in house and relies on outside assemblers for the rest of its
production. FSE's production teams perform quality control tests on each PC,
and the quality department inspects samples of all completed Trinology PCs to
ensure that quality specifications have been met. Once completed, each PC is
shipped ready for use with the requested software applications already
installed. The Company believes that it can increase its level of production
without material cost to the Company.
IAT does not have supply contracts with any of its vendors and purchases
are made with purchase orders. Certain critical components and parts used in
the Company's systems, including the C8x, are procured from a single source.
The Company believes that the C8x will substantially decrease the cost of the
hardware the Company uses in its third generation products and is necessary to
permit the Company's systems to be sold at prices which create the potential
for market penetration. The C8x is only manufactured by TI and the Company does
not have any other source for obtaining a programmable digital signal processor
which would provide the Company with the same functions at a similar price. The
Company obtains other parts and certain components only from a single supplier
of such parts or components, even where multiple sources are available, to
maintain quality control and enhance the working relationship with suppliers.
There can be no assurance that the Company will be able to continue to obtain
these parts from these sources or that it can obtain alternatives from other
sources on terms acceptable to the Company. Any interruption in the supply of
such parts could have a short-term material adverse effect on the business and
results of operations of the Company.
Currently, IAT relies on third-party manufacturers located in Germany,
Switzerland and Finland to produce its products. To insure the quality of the
Company's systems, all of IAT's manufacturers have the demanding ISO 9000
quality certification. IAT contracts with such suppliers to manufacture batches
of products and does not have long-term contracts with these companies. These
manufacturers supply services to a variety of other companies some of whom may
be competitors of the Company. IAT's current manufacturers specialize in
relatively small batches of products. The Company intends to utilize FSE's
purchasing power to obtain better pricing for the components of the Vision and
Live system. If the Company's sales increase, it anticipates entering into
agreements with other manufacturers of chips and boards who specialize in
larger batches. The Company has identified one such manufacturer and is in the
process of testing its facilities and manufacturing processes. The Company
believes that it can reach an agreement with this or other manufacturers in
time to fulfill the Company's potential demands. However, there can be no
assurance that the Company will be able to reach an agreement with this or
other manufacturers on terms acceptable to the Company, or at all, continue to
obtain the services of its existing manufacturers on terms acceptable to the
Company or that it can obtain alternatives from other terms on terms acceptable
to the Company. Any interruption in the supply of such parts could have a
short-term material adverse effect on the business and results of operations of
the Company. However, the Company believes that it could identify and qualify
alternate parts, with the exception of C8x chips.
Intellectual Property
The Company's success will be heavily dependent upon its proprietary
technology. In Germany, the Company's patent registration on its wavelet
algorithms is pending and the Company has a copyright on the program listing of
its wavelet algorithm. FSE does not have, and does not rely upon, patentable
technology. FSE has trade secrets regarding its component evaluation, assembly
procedures, marketing and other areas. In addition, the Company believes
Trinology and Vision and Live which are non-registered trademarks are important
to its businesses and intends to register them as trademarks in Germany, if
possible,
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and elsewhere and to vigorously protect those trademarks. However, there can be
no assurance that patents or trademarks will be granted or, if granted, that
such patents, trademarks or copyright will provide protection against
infringement. There can be no assurance that the steps taken by the Company to
protect its proprietary rights will be adequate to prevent misappropriation of
its technology or independent development by others of similar technology.
Substantially all of the Company's revenues, on a pro forma basis for the
FSE acquisition, in the years ended December 31, 1995 and 1996, and the nine
months ended September 30, 1997 were generated from operations located in
Germany and Switzerland, where the Company believes that regardless of
differences in legal systems, it enjoys substantially equivalent protection for
its proprietary rights as it would in the United States. However, the laws of
some foreign countries where the Company may in the future sell its products
may not protect the Company's proprietary rights to the same extent as do laws
in the United States. There can be no assurance that the protections afforded
by the laws of such countries will be adequate to protect the Company's
proprietary rights, the unenforceability of any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Litigation may be necessary to enforce the Company's intellectual property
rights or to protect the Company's trade secrets. There can be no assurance
that any such litigation would be successful. Any such litigation, even if
successful, could result in substantial costs and diversion of resources and
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company has not been charged with infringement of any proprietary
rights of others; however, there can be no assurance that third parties will
not assert infringement and other claims against the Company or that such
claims will not be successful. From time to time, the Company may receive in
the future notice of claims of infringement of other parties' proprietary
rights. Many participants in the Company's industries have frequently
demonstrated a readiness to commence litigation based on allegations of patent
or other intellectual property infringement. Third parties may assert exclusive
patent, trademark, and other intellectual property rights to technologies that
are important to the Company. In addition, patents held by third parties in
certain countries may require the Company to obtain a license or may prevent it
from marketing certain solutions in such countries. The Company is aware of one
patent in the United States held by a third-party which has claims related to
tele-pathology including using remote control microscopes. While the Company
does not believe that IAT's technology infringes on the U.S. patent or that
such patent will have a significant impact on the sales of the Company, there
can be no assurance that infringement claims (or claims for indemnification
resulting from infringement claims) will not be asserted or prosecuted against
the Company or that any such assertion or prosecution will not have a material
adverse effect on the Company's business, financial condition or results of
operations. Regardless of the validity or the successful assertion of any such
claims, the Company could incur significant costs and diversion of resources in
defending such claims, which could have a material adverse effect on the
Company's business, financial condition and results of operations. Furthermore,
any party making such claims could secure a judgment awarding substantial
damages, as well as injunctive or other equitable relief, which could
effectively block the Company's ability to make, use, sell, distribute or
market its products and services in the United States or abroad. Any such
judgment could have a material adverse effect on the Company's business,
financial condition and results of operations. In circumstances where claims
relating to proprietary technology or information are asserted against the
Company, the Company may seek licenses to such intellectual property. There can
be no assurance, however, that such licenses would be available or, if
available, that such licenses could be obtained on terms that are commercially
reasonable and acceptable to the Company. The failure to obtain the necessary
licenses or other rights could preclude the sale, manufacture or distribution
of the Company's products and, therefore, could have a material adverse effect
on the Company's business, financial condition and results of operations.
Competition
The German PC industry is highly competitive, especially with respect to
pricing and the introduction of new products and features. FSE and its
competitors compete on these bases by adding new performance features to
products without corresponding price increases. There can be no assurance that
FSE will continue to compete successfully by introducing products or
performance features of on a timely basis, or by adding new features to its
products without corresponding increases in prices. Furthermore, in recent
years FSE and many of its competitors regularly have lowered prices, and FSE
expects these pricing pressures to continue. If these pricing
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pressures are not mitigated by increases in revenues, cost reductions or
changes in product mix, FSE's profits could be substantially reduced. Some of
FSE's competitors have substantially greater resources than the Company and may
be able to respond more effectively to these price pressures which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The visual communications business is also highly competitive. The Company
estimates that a substantial amount of companies world-wide offer products
which compete in its market segments and expects that whether or not the
Company is successful in capturing market share, the competition will intensify
in the future. The Company believes that the majority of its competitors focus
on low-cost products or closed device solutions such as video-phones. The
Company believes that the principal competitive factors in the visual
communications industry are price, video and audio quality, the ability to
connect auxiliary devices such as video diskplayers, reliability, service and
support, and vendor and product reputation. The Company believes that its
ability to compete successfully will depend on a number of factors both within
and outside its control, including the evolution of industry standards, the
pricing policies of its competitors and suppliers, the timing of the
introduction of new systems and services by the Company and others, the
Company's ability to hire and retain employees, and industry and general
economic trends. The Company anticipates that the trend in the visual
communications market towards polarization, with certain providers focusing on
capturing the mass consumer market with lower quality and less costly
software-only products or products based on hardwired chips while other
providers, including the Company, are seeking to provide hardware and software
systems for more specialized and dedicated markets, will continue to manifest
itself. The Company intends to market its visual communications technology and
its products to professional customers, many of whom are not currently
utilizing visual communications systems, through resellers, VARs, integrators
and distributors. If the market for these products is established, competitors
of the Company may begin to manufacture products similar to the Company's
products. In addition, while the Company believes that it has created
proprietary technology and advantages in manufacturing its products and that a
competitor would require significant investment and the efforts of a
highly-skilled team, there are no barriers restricting competitors from
entering into the market in which the Company's intends to sell its products.
While the Company believes the mass market solutions do not meet the needs of
its customers, the availability of these products may have an adverse effect on
the pricing of the Company's products.
Many of the Company's current and potential competitors, have
significantly longer operating histories and/or significantly greater
managerial, financial, marketing, technical and other competitive resources, as
well as greater name recognition, than the Company. As a result, the Company's
competitors may be able to adapt more quickly to new or emerging technologies
and changes in customer requirements and may be able to devote greater
resources to the promotion and sale of their products and services.
Additionally, the Company's FSE subsidiary competes with other PC direct
marketers as well as with PC manufacturers that market their products in
distribution channels in which FSE has not participated. There can be no
assurance that the Company will be able to compete successfully with existing
or new competitors. In addition, competition could increase if new companies
enter the market or if existing competitors expand their service offerings. An
increase in competition could result in material price reductions or loss of
market share by the Company and could have a material adverse effect on the
Company's business, financial condition and results of operations.
To remain competitive, the Company will need to continue to invest in
research and development and sales and marketing. There can be no assurance
that the Company will have sufficient resources to make such investments or
that the Company will be able to make the technological advances and adaptions
necessary to remain competitive. In addition, current and potential competitors
have established or may in the future establish collaborative relationships
among themselves or with third parties to increase the visibility and utility
of their products and services. Accordingly, it is possible that new
competitors or alliances may emerge and rapidly acquire significant market
shares. Such an eventuality could have a material adverse effect on the
Company's business, financial condition and results of operations.
FSE Acquisition
On November 13, 1997, Multimedia and Dr. Alfred Simmet, the only limited
partner of FSE and the only shareholder of FSE Computer-Handel Verwaltungs GmbH
("FSE GmbH"), a limited liability company which is the only general partner of
FSE, entered into a Purchase Agreement (the "Purchase Agreement"), pursuant to
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which Multimedia purchased 80% of Dr. Simmet's limited partnership interests in
FSE and 100% of his shares in FSE GmbH for an aggregate purchase price of DM
6.4 million (approximately $3,711,360), payable in cash and in shares of Common
Stock. The Purchase Agreement provides for the payment of the purchase price in
two installments. The first installment, in the amount of DM 3.2 million
(approximately $1,855,680) in cash was paid on November 18, 1997 and an
aggregate of 146,949 shares of Common Stock, were issued to Dr. Simmet. The
Purchase Agreement further provides that the shares of Common Stock issued to
Dr. Simmet shall not be sold or transferred by him prior to November 13, 1998.
Pursuant to the Purchase Agreement, if Dr. Simmet sells his shares of Common
Stock after November 13, 1998 and prior to November 13, 2000 at the prevailing
market price which, when such price is multiplied by the shares of Common Stock
granted pursuant to the Purchase Agreement, yield an amount less than DM 1.6
million (approximately $927,840) at the average foreign exchange rate as of
November 13, 1997, the Company has agreed to issue to Dr. Simmet such
additional number of shares as are required to ensure that the sale of his
shares of Common Stock yield sale proceeds of DM 1.6 million. The second
installment of DM 1.6 million (approximately $927,840) is payable in cash to
Dr. Simmet on or before March 13, 1998. As collateral for the payment of the
second installment of the purchase price, Multimedia has issued a bank guaranty
to Dr. Simmet. This guaranty has been secured by Multimedia through the
establishment of a letter of credit facility with Citibank, N.A.
The Purchase Agreement also grants Multimedia the right to acquire an
additional 10% of the shares of FSE from Dr. Simmet for a purchase price of DM
1.0 million (approximately $579,900), subject to adjustment. Multimedia has the
right to exercise this option at any time upon presentment of a written
statement of its intent to do so, subject to a right of first refusal of Dr.
Simmet's son. Additionally, commencing March 31, 1999 and ending on March 31,
2001, Dr. Simmet has the right, under certain conditions, to sell such shares
in FSE to Multimedia, provided that FSE's earnings before interest, corporate
income taxes and depreciation ("EBITA") as calculated for the fiscal year prior
to the fiscal year in which such shares are sold, exceeds DM 3.25 million
(approximately $1,884,675), at a purchase price equal to the product of 10% of
FSE's EBITA, multiplied by a factor of 3.5. Until the time that either of these
respective options are exercised, however, both Multimedia and Dr. Simmet have
agreed to grant certain of FSE's managers the ability to purchase shares in FSE
(the "Management Option"). Pursuant to the Management Option, certain managers,
to be chosen by Dr. Simmet and the Company, may purchase up to an aggregate of
10% of the shares of FSE for an aggregate purchase price of DM 800,000
(approximately $463,920) during the six month period following the
determination by Dr. Simmet and the Company of the conditions to be met by such
managers. In the event that management does not exercise such options or
exercises only a portion thereof, Multimedia has the option to purchase such
remaining shares of FSE at the same purchase price originally offered to the
managers. In the event that neither Multimedia nor the managers of FSE exercise
these options, Dr. Simmet has the right, within two weeks upon termination of
his employment agreement with FSE, to sell his remaining shares to Multimedia
for a purchase price per 100 Deutsche Marks nominal value of limited
partnership interests equal to the product of .04% of FSE's EBITA, as
calculated for the year in which such shares are sold, multiplied by a factor
of 3.5.
The Purchase Agreement further provides that Dr. Simmet shall be entitled
to distributions of the credit balance in the partner's account which contains
net income from FSE at November 18, 1997 in the amount of approximately
$1,030,000 (the "Partner Offset Account"). Such distributions, however, are
dependent upon FSE maintaining a liquidity level of at least DM 700,000
(approximately $405,930) enabling FSE to finance its ongoing business without
incurring indebtedness from a third party or from Multimedia). Provided that
such liquidity levels are met, Dr. Simmet shall be entitled to an advance
payment of DM 500,000 (approximately $289,950) on November 28, 1997. To date,
this target has not been met and Dr. Simmet has not withdrawn such advance
payment. Dr. Simmet may thereafter request a payment on the remaining credit
balance in the Partner Offset Account.
Pursuant to the Purchase Agreement, Dr. Simmet also warrants that the
EBITA for FSE for the fiscal year ended December 31, 1998 shall exceed DM 2.5
million (approximately $1,449,750). This warranty shall not apply, however, if
Multimedia makes any decisions which serve to cause significant changes to the
business and activities of FSE. The Purchase Agreement also provides that, for
purposes of this warranty, a one-time charge for any excess of expenses over
income incurred in connection with the acquisition of products which are either
manufactured or distributed by Multimedia and which shall also be distributed
by FSE shall be taken against EBITA. In the event that EBITA for fiscal year
1998 is less than DM 2.5 million, the Purchase Agreement provides that
Multimedia, as conclusive damages, shall be entitled to (i) a payment from Dr.
Simmet equal to the
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difference between FSE's actual EBITA for fiscal year 1998 and DM 2.5 million
or (ii) Multimedia may either demand compensation for the damages sustained in
the future from Dr. Simmet or claim a reduction in the purchase price paid for
its interests in FSE equal to the reduction in assets incurred by Multimedia.
Pursuant to, the Purchase Agreement Dr. Simmet is prohibited until
December 31, 2001 from, either directly or indirectly, competing with the
Company and FSE's current operations in those territories in which the Company
and FSE are currently active. Dr. Simmet is, however, allowed to make
investments in publicly-traded companies, provided that such investments do not
exceed 2% of the capital stock of such companies.
Agreements with Development Partners
Texas Instruments. The Company's relationship with TI is evidenced by,
among others, the MVP Cross License Agreement (the "MVP Cross License
Agreement") between IAT AG and Application Specific Product Group of Texas
Instruments France in 1994. The MVP Cross License Agreement expires in 2004 and
can be extended for one year periods by written agreement. Pursuant to the MVP
Cross License Agreement, the Company was granted a worldwide, non-transferable,
non-assignable, non-exclusive, fully paid license to use, modify, compile or
otherwise develop as applicable certain software programs relating to encoding
and decoding pursuant to H.320, JPEG, H.261, G.728 and G.722 standards and to
make, have made, use, sell or otherwise dispose of hardware and software
products incorporating object code versions of such software programs. TI was
granted a worldwide, non-transferable, non-assignable, non-exclusive, fully
paid license to use, modify, compile or otherwise develop as applicable certain
software programs relating to encoding and decoding pursuant to H.221, H.242,
H.230 standards and to make, have made, use, sell or otherwise dispose of
hardware and software products incorporating object code versions of such
software programs. The Company has the obligation to keep the source code of
these programs confidential but may sublicense these programs provided that it
enters into a sublicense agreement on substantially the same terms as the MVP
Cross License Agreement. Either party to the MVP Cross License Agreement may
terminate this agreement upon written notice upon the occurrence of certain
events of default including the other party having a substantial change in
ownership such as to create a material conflict of interest.
On June 12, 1996, IAT AG and TI entered into the Joint Development and
Cross License Agreement (the "TI Agreement") to reflect the changes in
technology and to determine the parties rights and obligations in light
thereof. Pursuant to the TI Agreement, which expires on April 1, 1999, TI and
IAT AG agreed to develop or acquire and deliver software and hardware products
to each other and to provide engineering support to each other. Subject to
completing its obligations, IAT AG is to receive a non-transferable,
non-assignable, non-exclusive license under TI' s and associated trade secrets,
solely to use, modify, compile or otherwise develop as applicable software
programs to provide quality Windows 95 video conferencing implementation for
personal computers and to make, have made, use and sublicense use of object
code versions of such software programs solely for operation on the C8x. The
license is fully paid except for T.123 Databeam software which is royalty
bearing and for which TI negotiates the royalty payable by IAT on a case by
case basis and on a most favored nations status. IAT AG may sublicense the
programs it develops jointly with TI pursuant to the TI Agreement but has the
obligation to keep the source code confidential. If TI licenses the use of its
H.320 software library to a third party, it will pay IAT AG the greater of 50%
of the license fee or $20,000, provided, however, that if TI grants licenses to
existing users of IAT AG's systems, no royalty will be due to IAT AG. If TI
licenses to third parties the use of the reference design produced by IAT AG,
TI will pay IAT AG the greater of 35% of the license fee or $7,000. If TI sells
evaluator kits defined as bundled hardware and software as produced by IAT, TI
has to pay to IAT 10% of the kit fee provided, however, that TI has the right
to provide the kit free of charge or as part of a package and in such event no
fees are due to IAT AG. The TI Agreement may be terminated by either party upon
the same terms and conditions as stated in the MVP Cross License Agreement
described above.
The TI Agreement has been amended (the "Amendment") to provide that the
license rights granted to IAT AG for VC Development Software, Reference Design
Transfer, Internode Message Manager, Direct Draw Client Driver- WIN95 and B
Channel Network Driver (the "Exclusive Products") shall be exclusive. The
worldwide transferable, non-assignable, non-exclusive license granted to TI by
IAT AG to use, modify, compile or otherwise develop software programs
terminated upon execution of this Amendment, however the Amendment provided
that termination of such license shall not effect the rights of TI's current
sublicensees. TI also agreed
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that it would not continue to exercise its right to license to third parties
with respect to the Exclusive Products. In turn, IAT AG agreed that it will
provide to TI, upon TI's request, maintenance and support services at a level
no less than that currently offered to its other customers with respect to the
Exclusive Products, and under terms and conditions no less favorable than IAT
AG than currently offered to its customers similarly situated.
On May 21, 1997, IAT AG and TI entered into a License Agreement (the
"License Agreement") for the purpose of assisting IAT AG in its development of
products for use with TI's TMS 320C8x product family. Pursuant to the License
Agreement, TI has agreed to grant to IAT AG, under its copyrights and trade
secrets, a non-transferable, non-assignable and non-exclusive license to use,
modify compile or develop a software program based on TI's DataBeam T.123
Transport Stack C++ for Win 16/32 bit software product (the "Licensed
Product"), for the exclusive purpose of combining the developed program with a
video telephony platform designed by IAT AG to operate with one or more of TI's
320C8x line of products. In exchange for this license, IAT AG has agreed to pay
to TI royalty fees of $5.00 for each copy of the Licensed Product, or any
portion thereof, delivered to the end-users or sublicensees thereof and $5.00
for each copy of the Licensed Product or any portion thereof made by any
sublicensee. Pursuant to the License Agreement, IAT is permitted to create a
clone of the Licensed Product (the "Cloned Product") during the term of the
License Agreement. IAT, however, is required to take measures to insure that
there is no sharing of the Cloned Product developed from the Licensed Product
or any sharing of laboratory or research facilities containing the Licensed
Product. IAT is also prohibited form using any TI trademarks in association
with the Cloned Product. The License Agreement is scheduled to run for a term
of five years, but terminable at a time prior thereto by TI, in its sole
discretion and upon 45 days written notice, in the event of breach by IAT AG
which IAT AG has failed to cure in a timely manner.
Olympus Optical Co. (Europe) GmbH. In March 1996, IAT Germany entered into
a Cooperation Agreement with Olympus pursuant to which IAT Germany agreed to
provide Olympus with IAT Germany's resale price list and to allow Olympus to
resell IAT Germany's products to its customers. In addition, IAT Germany may
procure Olympus microscopes, including any and all accessories, at a resale
discount of 20% of the retail cost. IAT Germany and Olympus agree to provide
initial training for their respective employees in the use of their products
and to consider a long-term partnership.
On November 18, 1997, IAT Germany and Olympus entered into a Letter of
Intent (the "Letter of Intent") pursuant to which Olympus has agreed to market
the Company's tele-medicine and tele-service systems. The letter of intent
provides that, subject to the execution by the parties of a definitive
marketing and distribution partnership, the Company will offer the following
systems to Olympus for marketing: (i) its basic system tele-service; (ii) its
high-end system tele-service; (iii) its basic system tele-medicine; and (iv)
its high end system tele-medicine. In addition, the Company has also agreed to
provide Olympus with supplementary products for its basic and high-end systems
as well as upgrade kits for its tele-medicine and tele-service systems. The
Letter of Intent also provides that the Company will provide Olympus's
marketing and support staff with the training necessary to market these
systems. Olympus, in turn, will purchase the demo systems from the Company and
will have discretion in pricing these systems to its customers. The Letter of
Intent additionally provides that both parties anticipate entering into a
definitive agreement in December 1997, but the Company anticipates that such
definitive agreement may be entered into in 1998.
While the Company has continued its relationship with TI and Olympus, it
believes that some of the relationships it had previously maintained with
certain of its other partners, including DT and IBM Germany, have reached their
beneficial end and, as such, have been discontinued by mutual consent.
Precision Digital Images Corporation. On June 12, 1997, Multimedia and
Precision Digital Images Corporation ("PDI") entered into a License Agreement
for the joint development of the application specific integrated circuit chip
(the "ASIC"), designed by PDI and for use in the Wonderboard and products
manufactured by Multimedia. Pursuant to the License Agreement, PDI granted to
Multimedia a non-exclusive, non-transferable, non-assignable, fully paid up,
perpetual, worldwide, terminable right and license to use and apply all PDI
files, test modules, information and data of PDI (the "Licensed Technology"),
related intellectual property rights, together with any and all improvements,
additions and changes developed by PDI during the term of the agreement in
connection with the design, manufacture, use, sale, lease and distribution of
ASIC products, ASIC derivatives and other devices incorporating the Licensed
Technology and to receive all documentation
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necessary for exploitation, sales, marketing, maintenance and repair of such
technology by Multimedia. In exchange therefore, Multimedia paid a sign up fee
of $50,000 and will pay a royalty fee amounting to $4.00 per ASIC chip
manufactured by Multimedia in the event that Multimedia produces ASICs while
PDI is also manufacturing the chip.
On June 20, 1997, PDI and Multimedia entered into a Development Agreement
for the purpose of further developing the ASIC. Pursuant to the Development
Agreement, Multimedia has engaged PDI to perform certain services related to
the development of the ASICs which are to be tested on the Wonderboard. In
exchange for these services, Multimedia paid development fees in the aggregate
amount of $35,000 and has agreed to pay $15,000 upon the acceptance by
Multimedia of PDI's notice of completion of the contracted for services.
In June 1997, Multimedia entered into a letter agreement (the "Guarantee
Agreement") with PDI and OKI Semiconductor ("OKI"), whereby Multimedia agreed
to guarantee the payment of PDI under PDI's Gate Array, Standard Cell,
Macrocell Products Development and Purchase Agreement with OKI (the "Products
Development Agreement"). Pursuant to the Guarantee Agreement, IAT has
guaranteed the payment to OKI of development charges in connection with the
development of ASIC chips in the amount of $80,000 on standard credit terms,
upon the presentment of an invoice from PDI to Multimedia. Of such amount,
$40,000 has been paid by Multimedia. In addition, Multimedia has also
guaranteed PDI's payment on the first 5,000 ASIC chips produced by OKI under
the Products Development Agreement, subject to the conditions that (i) the
delivery address on the first 100 ASIC chips is PDI, (ii) the delivery address
on the remaining 4,900 ASIC chips is Multimedia, (iii) the price per ASIC chip
payable by Multimedia is equivalent to the cost price which would be payable by
PDI, and (iv) the ASIC chip is tested and running according to its
specifications. The Guarantee Agreement also provides that, in the event that
PDI is unable to deliver the ASIC chips to Multimedia or should PDI become
bankrupt, Multimedia will be permitted to purchase ASIC chips directly from OKI
on the same terms and conditions as stipulated in the Products Development
Agreement.
PROTON Communications Technologies Inc. On July 2, 1997, PROTON
Communications Technologies Inc. ("PROTON") and IAT AG entered into a License
Agreement for the purpose of assisting PROTON in its evaluation, development or
production of certain applications based on the C8x chip. Pursuant to the
License Agreement, IAT AG has granted to PROTON a non-exclusive,
non-transferable, non-assignable license to use IAT's H.324 Development Release
for the C8x chip, solely in conjunction with systems designed exclusively for
one of the TMS 320 product families and for the exclusive purposes of
evaluating, developing and producing the C8x chip-based application by PROTON
and demonstration thereof to third parties. In exchange for such a license,
PROTON paid an upfront fee to Multimedia in the amount of $16,000 and agreed to
pay a royalty fee equal to 0.008% per unit sold, payable after delivery of the
applications by PROTON. The license agreement is scheduled for a term of three
years and shall be automatically extended for successive one year periods after
3 years. Following the initial term, either party may terminate upon 30 days
prior written notice.
The License Agreements also grants PROTON the right to sublicense the
modified source code, which contains IAT AG's original H.324 source code, to
its customers. PROTON, however, is required to immediately report any such
sublicense to IAT AG. In addition, for each sublicense granted, PROTON (or its
sublicensee) must pay to IAT AG an up-front fee of $14,000, payable within 30
days of delivery of the sublicense through PROTON and a royalty fee of 0.008%
for each modified products delivered to the sublicensee.
Sony Electronics Inc. On July 23, 1997, Sony Electronics Inc. ("Sony") and
IAT AG entered into a license agreement for the purpose of assisting Sony in
its evaluation, development and production of an application based on the C8x
chip, known as the "Mini 1000", a PC monitor which contains a C80-based video
conferencing board and is capable of being switched to television viewing.
Pursuant to the license agreement, IAT AG has agreed to grant to Sony a
non-exclusive, non-transferable, non-assignable license to use IAT's H.221/
H.242/ H.230 - library, running on TMS 320 C80/50 MHz for the exclusive
purposes of evaluating, developing and producing the Mini 1000 by Sony for sale
to third parties. In exchange for such license, Sony has agreed to deliver two
Mini 1000s to IAT AG, free of charge. The license agreement has a term of three
years and shall be automatically extended for successive one year periods.
Following the initial term, either party may terminate upon 30 days prior
written notice. The license agreement permits Sony to distribute any modified
program or hardware provided it first obtains a distribution license from IAT
AG. In connection with such distributions, Sony is required to insure that all
restrictions on duplications are observed.
53
<PAGE>
Employees
As of September 30, 1997, the Company had a total of 50 full-time
employees of which 35 and 15 are located in Germany and in Switzerland
respectively. Of these employees, 28 are employed in engineering and product
development, 12 in sales and marketing, and 10 in managerial and administrative
functions. In connection with the acquisition of FSE, the Company added 51
employees, of which 7 are students working part-time. The Company's employees
are not party to any collective bargaining agreements or labor unions. The
Company has not experienced any work stoppages and believes that its relations
with its employees are good.
Property
The Company leases approximately 6,500 square feet of office space and
approximately 350 square feet of storage space in Turgi, Switzerland and
approximately 11,900 square feet of office and work space in Bremen, Germany.
The acquisition of real property in Switzerland by the Company or any of its
subsidiaries is severely restricted under Swiss law. However, the Company does
not intend to acquire real property in Switzerland and believes that none of
its facilities are material to its operations and believes that it could find
alternative space with minimal interruption to its operations.
FSE's leases approximately 27,000 square feet of office, showroom, assembly
and warehouse space in Pirmasens, Germany. This lease terminates in 1999 and has
an annual rental cost of DM 0.09 per square foot. This low rent is subject to
the condition that FSE continues to employ at least 35 persons in Pirmasens. The
Company believes that it can obtain additional leased space and renew its
existing leases at similar rates. While the Company does not believe that these
spaces are material to its operations, finding alternative space at market rates
could have an adverse impact on its results of operations. In addition, FSE
leases approximately 1,100 square feet of showroom and office space in
Kaiserslautern, Germany. These leases expire in November 1998. The Company
believes that these additional spaces are not material to its operation and
believes that it could find alternative space with minimal interruption to its
operations.
Litigation
The Company's subsidiaries are parties to certain legal proceedings. The
Company believes that none of these proceedings is likely to have a material
adverse effect on the Company's financial position, results of operation, or
cash flows.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth the names, ages and positions of the
executive officers and directors of IAT:
<TABLE>
<CAPTION>
Name Age Position
- ---------------------------------- ------ ----------------------------------------------------------------
<S> <C> <C>
Viktor Vogt ..................... 49 Co-Chairman of the Board, Chief Executive Officer and President
Jacob Agam ..................... 41 Co-Chairman of the Board
Klaus Grissemann (2) ............ 53 Chief Financial Officer and Director
Reiner Hallauer (1)(2) ......... 58 Managing Director, IAT Germany, Bremen and Director
Volker Walther (1)(2) ............ 35 Director
Arnold J. Wasserman (1)(2) ...... 59 Director
Franz Muller ..................... 45 Chief Technical Officer
Dr. Alfred Simmet ............... 51 Chief Operating Officer of FSE
</TABLE>
- ------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Dr. Viktor Vogt has served as the Co-Chairman of the Board, Chief
Executive Officer and President of Multimedia since its organization in October
1996. Dr. Vogt is a co-founder and has served as Chief Executive Officer and
director of IAT AG and Managing Director of IAT Germany since their formations
in 1989 and 1990, respectively. He has also served as Chairman of the Board of
IAT AG since October 1996. Prior to 1988, Dr. Vogt was Professor for
mathematics and computer-science at the University of Erlangen-Nurnberg,
Germany. He was a pioneer scientist at the Academy for Economics and
Administration in Nurnberg in the implementation of computer science in
education and published several works in the fields of multimedia, authoring
and computer aided instruction (CAI) systems. Dr. Vogt received his degree in
Mathematics and Physics (Dr. rer. nat.) from Friedrich-Alexander University in
Erlangen in 1980.
Jacob Agam has served as the Co-Chairman of the Board of Multimedia since
its organization in October 1996. Mr. Agam is a founder and the Chairman of the
Board of Orida Capital Ltd. ("Orida"), a merchant banking and venture capital
firm, since its inception in 1993, and the Chairman [and a director] of
Vertical, a principal stockholder of the Company, since 1995. Mr. Agam, in his
capacity as Chairman of Orida, spends a portion of his business time providing
services to companies other than IAT. Orida provides services for Vertical
pursuant to an agreement between Orida and Vertical. Mr. Agam received a law
degree from Tel Aviv University in 1984 and an LLM degree in Securities and
Corporate Finance from the University of Pennsylvania in 1986.
Klaus Grissemann has served as Chief Financial Officer of Multimedia since
the organization of Multimedia in October 1996 and was elected to serve as a
director in December 1996. Mr. Grissemann joined IAT AG in 1989 as Chief
Financial Officer and was elected as a Director of IAT AG in 1993. From 1979
until 1988, Mr. Grissemann was Chief Financial Officer of Jaeger Le Coultre AG,
a Swiss watch manufacturer. Mr. Grissemann graduated from Kantonale
Handelsschule (Business School) in Zurich.
Volker Walther was elected to serve as a director of Multimedia in
December 1996. In 1996, Mr. Walther became Chief Executive Officer and majority
shareholder of Walther Glas, a glass manufacturing company in Germany which
produces car lights, household glassware and gift items, where he was general
manager from 1993 to 1996 and buying manager from 1991 to 1993. Mr. Walther
holds a degree in Economics from Ludwig Maximilian-University in Munich.
Arnold J. Wasserman was appointed to serve as a director of Multimedia in
July 1997 and currently serves as a consultant to the Company pursuant to a
consulting agreement which expires on July 18, 2000. Since 1971, Mr. Wasserman
has served as Managing Partner of P&A Associates, an equipment leasing and
consulting company. Mr. Wasserman currently serves as a director of Stratasys,
Inc., a publicly held company engaged in development and marketing of rapid
prototyping equipment, where he also serves as Chairman of the Audit Committee
and as a member of the Compensation Committee. Mr. Wasserman also serves as a
director of
55
<PAGE>
On-site Sourcing Inc., a publicly held company engaged in outsourcing of
documentation reproduction and retrieval as well as facility management to
legal firms and large corporations. Mr. Wasserman holds a Bachelor's degree in
Electrical Engineering from New York University.
Reiner Hallauer was appointed to serve as a director of Multimedia in
August 1997. In addition, Mr Hallauer serves as the temporary Managing Director
of IAT, Germany, Bremen pursuant to a retainment agreement which expires on
February 28, 1998. Since July 1996 Mr. Hallauer has served as an independent
marketing consultant for the computer and tele-communications industry in
Germany. From April 1992 to April 1996, Mr. Hallauer was the Chief Executive
Officer of Siemens Nixdorf Information Systems Pty (Ltd.), Johannesburg, South
Africa. Mr. Hallauer holds a Master's degree in Economics from the University
of Gottingen, Germany.
Franz Muller joined IAT AG in 1991 to head its Research and Development
department and has been its Chief Technical Officer since 1994. From 1977 until
1991, Mr. Muller was employed by Siemens Germany where he was head of research
and development for mainframe computer systems from 1987 until 1991. Mr. Muller
holds a degree as graduate communications engineer from Technical University,
Osnabruck.
Dr. Alfred Simmet joined the Company upon the completion of the
acquisition of FSE in November 1997 as Chief Operating Officer of FSE. From
December 1995 until November 1997, Dr. Simmet served as the Managing Director
of FSE. From 1986 through 1995, Dr. Simmet was the Marketing Manager of Hitachi
Data Systems (Germany). From 1976 through 1985, he held several management
positions with IBM Germany. Dr. Simmet holds a doctorate in informatics from
Hamburg University.
Directors serve until the next annual meeting or until their successors
are elected and qualified subject to the provisions of the Investor Rights
Agreement (as defined herein) which provides that so long as Vertical holds at
least 10% of the Common Stock, Vertical has the right, but not the obligation,
to nominate two persons as members of the management state for election to
Multimedia's Board of Directors. So long as Vertical holds at least 5% of such
securities, it has the right, but not the obligation to nominate one such
person. Mr. Agam, the Co-Chairman of the Board, is the person designated by
Vertical and elected to the Board of Directors. Vertical intends to nominate a
second director and the Board of Directors has determined that it will nominate
such person for election to the Board of Directors. The existence of such
rights solidified the control over the Company by its existing stockholders.
See "Certain Transactions -- Private Placement and Related Transactions."
Officers serve at the discretion of the Board of Directors, subject to rights,
if any, under contracts of employment with the Company.
Board Committees
Multimedia has established an Audit Committee and a Compensation
Committee. The Audit Committee currently consists of Messrs. Wasserman, Walther
and Hallauer. The primary functions of the Audit Committee are to recommend
engagement of Multimedia's independent public accountants and to maintain
communications among such independent accountants, the Board of Directors and
Multimedia's internal accounting staff with respect to accounting and audit
procedures, the implementation of recommendations by such independent public
accountants, the adequacy of Multimedia's internal controls and related
matters.
The Compensation Committee currently consists of Messrs. Hallauer,
Wasserman, Walther and Grisseman. The principal functions of the Compensation
Committee are to review the management organization and development, review
significant employee benefit programs, including bonus plans, stock option and
other equity-based programs, deferred compensation plans and any other cash or
stock incentive programs and advise the Board of Directors accordingly.
The Board of Directors has appointed Mr. Agam, Dr. Vogt and Mr. Grissemann
to the Underwriting Committee. Pursuant to the provisions of the Stock Purchase
Agreement (as defined herein), the Underwriting Committee shall consist of four
members with two members appointed by each of Vertical and Multimedia. Pending
the nomination of a second director by Vertical, Vertical has waived its right
to name a second member to the Underwriting Committee. Mr. Agam, as designated
by Vertical, serves as the Chairman of the Underwriting Committee. The
Underwriting Committee is vested with full and exclusive responsibility and
authority on behalf of Multimedia to select an underwriter and to negotiate all
of the terms and conditions of any underwriting including, without limitation,
this Offering. In the event that the Underwriting Committee is unable to
produce a majority vote on any particular issue, such issue shall be decided by
a vote of the Board of Directors of Multimedia provided that the resolution of
any such issue by the Board of Directors shall not be effectuated without the
written consent of Vertical.
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<PAGE>
Executive Compensation
The following summary compensation table sets forth the aggregate
compensation paid or accrued by the Company to Dr. Vogt, the Co-Chairman and
Chief Executive Officer of Multimedia and the two most highly compensated
executive officers other than Dr. Vogt whose annual salary and bonus exceeds
$100,000 (the "Named Executive Officers"), during the fiscal year ended
December 31, 1996:
SUMMARY COMPENSATION TABLE
for the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Long-Term Compensation
-------------------------------------------------
Annual Compensation(1) Awards Payouts
------------------------------------------ ----------------------- ------------------------
Restricted
Other Annual Stock Options/ LTIP All Other
Name and Salary Bonus Compensation Award(s) SARs Payouts Compensation
Principal Position Year ($) ($) ($) ($) (#) ($) ($)
- ------------------------- ------ ---------------- -------- -------------- ----------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Viktor Vogt ............ 1996 128,888(2) -- 16,189(3) -- -- -- --
Co-Chairman and 9,946(4)
Chief Executive Officer 1995 128,888(2) 7,407 14,885(3) -- -- -- --
9,946(4)
1994 128,888(2) 11,111 14,889(3) -- -- -- --
9,342(4)
Klaus Grissemann(5) ... 1996 145,241 -- 9,377(4) -- -- -- --
Chief Financial Officer 1995 122,278 -- 3,908(4) -- -- -- --
1994 110,630 -- -- -- -- -- --
Franz Muller ............ 1996 93,119 -- 8,244(3) -- -- -- --
9,209(4)
Chief Technical Officer 1995 93,119 -- 5,732(3) -- -- -- --
9,209(4)
1994 86,378 -- 5,592(3) -- -- -- --
9,209(4)
</TABLE>
- ------------
(1) Compensation is paid in Swiss Francs and is converted into U.S. dollars at
the exchange rate of $1.00 = 1.35 SF on December 31, 1996.
(2) Includes a non-accountable expense allowance of SF 12,000 (approximately
$8,888).
(3) Pursuant to the pension system in existence in Switzerland, the Company
contributes these amounts to pension funds selected by the executive
officer from among several independent pension funds chartered by the
government to collect pension contributions and to make pension payments
upon retirement.
(4) Represents payments made by the Company for automobile leases for the Named
Executive Officers.
(5) Mr. Grissemann is not an employee of the Company. His services are provided
on a per diem basis by Grissemann Consulting S.A. See "--Employment,
Consulting and Settlement Agreements."
<PAGE>
Compensation of Directors
Directors of Multimedia currently do not receive any compensation but the
Company reimburses Messrs. Hallauer and Wasserman for expenses incurred in
connection with their service on the Board of Directors and may establish
compensation policies in the future. Pursuant to the provisions of the Stock
Purchase Agreement, Vertical currently receives a monthly payment of $12,000,
as compensation for the services of the Co-Chairman of Multimedia nominated by
Vertical. Jacob Agam is the current nominee of Vertical.
Employment, Consulting and Settlement Agreements
The Company and Dr. Vogt have entered into an employment agreement
effective as of March 1, 1997 and governed by Swiss law pursuant to which Dr.
Vogt has agreed to serve as the Company's Co-Chairman, Chief Executive Officer
and President for a three year term subject to extension. The employment
agreement provides
57
<PAGE>
that Dr. Vogt will receive approximately $140,000 in annual salary (based upon
a fixed exchange rate of SF 1.35 = $1.00), a non-accountable expense allowance
in the amount of SF 12,000 (approximately $8,888) and pension fund
contributions, as well as a cash bonus in the amount of one half of one percent
of the Company's net sales in excess of $5.0 million provided that such cash
bonus will not be less than $10,000, and other customary fringe benefits. In
addition, Dr. Vogt is eligible to receive stock options for a number of shares
of the Company's Common Stock to be determined by the Stock Option Committee.
The employment agreement with Dr. Vogt also contains a provision prohibiting
Dr. Vogt from competing with the Company for a period of two years from the
date of expiration of his employment. During the two year non-competition
period, the Company is required to compensate Dr. Vogt for the difference
between his salary at the Company during the year prior to commencement of the
non-competition period and any compensation he may receive from a third party
during such period, if any, and to make payments of pension fund contributions
on such compensation. In the event the Company subsequently waives its rights
under the non-competition provision, no compensation will be due to Dr. Vogt
upon termination. Additionally, the employment agreement provides that during
its three year term each party may only terminate the employment agreement for
gross misconduct of the other party without notice. However, Dr. Vogt may be
relieved by the Company of his functions and duties at any time provided that
all compensation continues to be paid until the expiration of the employment
agreement.
Mr. Grissemann is not an employee of the Company. His services are
provided on a per diem basis by Grissemann Consulting S.A. pursuant to an
agreement (the "Grissemann Agreement") dated September 1, 1992 and amended on
December 19, 1994 between IAT AG and Grissemann Consulting S.A. The Grissemann
Agreement has an indefinite term and provides that Mr. Grissemann is
responsible for the administration and accounting of IAT AG and that the amount
of his business time which he is to devote to IAT AG's affairs is to be agreed
among the parties but will in no event be less than thirty percent of Mr.
Grissemann's business time. Grissemann Consulting S.A. is paid a per diem fee
of SF 775 (approximately $574) to be amended yearly in line with increases in
salary of IAT AG's other executive officers. In addition, the Grissemann
Agreement provides that Mr. Grissemann will be provided with an automobile at
IAT AG's expense.
The Company has entered into a retainment agreement with Mr. Hallauer,
effective as of August 25, 1997, whereby Mr, Hallauer has agreed to become
Managing Director of IAT Germany, Bremen for a period of six months, commencing
on August 25, 1997. In exchange for his services, the Company has agreed to pay
Mr. Hallauer a retainment fee of DM 5,000 (approximately US$2,900) for each
full business week which he works on behalf of the Company, as well as provide
Mr. Hallauer with a company car and an apartment in Bremen. In addition, the
Company has also granted Mr. Hallauer 75,000 non-transferable options to
purchase common stock as compensation for his services. See "-- Stock Option
Agreements with Messrs. Wasserman and Hallauer."
The Company and Mr. Wasserman have entered into a consulting agreement,
effective as of July 18, 1997, pursuant to which Mr. Wasserman has agreed to
provide marketing and business related services to the Company until July 18,
2000. In exchange for these consulting services, the Company has granted to Mr.
Wasserman 70,000 non-transferable options to purchase common stock. See "--
Stock Option Agreements with Messrs. Wasserman and Hallauer." In addition, Mr.
Wasserman has agreed to provide consulting services with respect to the
Company's potential operations in the U.S. In exchange for these services, the
Company has agreed to pay Mr. Wasserman a fee of $5,000 for five days of such
services per month, payable quarterly, plus expenses commencing on October 1,
1997. The Company has further agreed to pay Mr. Wasserman an additional fee of
$800 per day for any additional services requested by the Company.
IAT AG and Franz Muller entered into an employment agreement on March 1,
1991 (the "Muller Agreement") pursuant to which Mr. Muller was appointed
Director of Product Development (Hardware), Technical Support of IAT AG. The
Muller Agreement has an indefinite term and provides for an annual salary of SF
110,110 (approximately $81,500), subject to increases in the Company's
discretion, which have been made from time to time, and may be terminated by
either party upon six months notice at the end of the calendar year. In
addition, the Muller Agreement contains a confidentiality provision which
extends beyond termination of the employment relationship. The Muller Agreement
was amended effective as of July 1, 1993 to provide that Mr. Muller assigns to
IAT AG any and all rights to work and computer programs which he develops
singly or in cooperation with others during the performance of his duties.
On November 12, 1997, FSE entered into an employment agreement with Dr.
Simmet pursuant to which Dr. Simmet agreed to become the Chief Operating
Officer of FSE. The employment agreement provides that Dr.
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<PAGE>
Simmet shall manage the business of FSE. In consideration thereof, FSE shall pay
him a gross monthly salary of DM 25,000 (approximately $14,498) as well as
reimburse him for all travel and other business-related expenses. In addition,
FSE agreed to provide Dr. Simmet with a company car. The employment agreement
also provides that, in the event Dr. Simmet is temporarily prevented from
performing his managerial duties through no fault of his own, FSE shall pay his
full salary for up to a period of six months. The employment agreement is for a
term of two years and may be terminated by either party upon six months notice,
effective at the end of the calender year. Upon expiration of its original term,
the employment agreement may be extended for an additional year upon the mutual
agreement of the parties. The Purchase Agreement contains a non-competition
clause which prohibits Dr. Simmet from, either directly or indirectly competing
with the Company and FSE's current operations in those territories in which the
Company and FSE are currently active until December 31, 2001. See "Business --
FSE Acquisitions."
On September 9, 1997, Multimedia and IAT Germany entered into a settlement
agreement with Wilhelm Gudauski (the "Settlement Agreement"). Mr. Gudauski was
removed from his position as Managing Director of IAT Germany on August 27,
1997. Pursuant to the Settlement Agreement, Mr. Gudauski's current employment
relationship with IAT Germany will terminate on March 9, 1998 and, until that
time, IAT Germany has irrevocably released Mr. Gudauski from performing his
managerial duties. Mr. Gudauski, however, has agreed to make himself available
to Multimedia for two days during the interim period for the purpose of
performing certain duties related to the Settlement Agreement.
In exchange therefor, Multimedia has granted Mr. Gudauski, in lieu of a
severance payment, the right to sell 130,682 of the shares of Common Stock he
owns to a third party at a price to be negotiated by mutual consent. The
procedure for such a sale is to be stipulated in a separate stock purchase
agreement. However, if the sale of such shares is not effectuated, through no
fault of Mr. Gudauski, the Settlement Agreement provides that the respective
parties thereto will then negotiate an adequate severance package. Under the
terms of the Settlement Agreement, the shareholders of IAT Germany have also
waived their right to assert any claims against Mr. Gudauski arising from any
act, known or unknown, which may have occurred during his tenure as Managing
Director until August 27, 1997. This waiver, however, does not apply to damages
arising from grossly negligent or intentional acts on the part of Mr. Gudauski.
In addition, IAT issued to Mr. Gudauski, on October 31, 1997, a legally binding
declaration of the Volksbank Sottrum pursuant to which Volksbank Sottrum
irrevocably waived its right to any and all claims against Mr. Gudauski arising
from an absolute guarantee assumed by Mr. Gudauski on behalf of Multimedia
relating to the Company's line of credit with Volksbank Sottrum. Moreover, IAT
Germany has also revoked the prohibition against competition binding against Mr.
Gudauski pursuant to his employment agreement. In addition, IAT Germany has
granted Mr. Gudauski continued use of a company car for private purposes until
the term of his original employment contract ends.
Stock Option Agreements with Messrs. Wasserman and Hallauer
The Company has entered into Stock Option Agreements with Messrs.
Wasserman and Hallauer, with respect to the options granted by the Company
pursuant to the Company's consulting agreement with Mr. Wasserman and its
retainment agreement with Mr. Hallauer.
The Stock Option Agreement with Mr. Wasserman provides for the terms of
Mr. Wasserman's non-transferable option to purchase up to an aggregate of
70,000 shares of the Company's Common Stock at a purchase price of $5.00 per
share, the closing price of the Common Stock on the date of the grant. These
options vest in three installments. The right to purchase the first 40,000
shares vested on July 18, 1997, while the right to purchase the remaining
shares of common stock vest in equal installments of 15,000 shares each, on
July 18, 1998 and July 17, 1999, respectively. The Stock Option Agreement with
Mr. Wasserman allows for the exercise of previously vested options by Mr.
Wasserman, or his heirs, devises or legatees, for a period of up to three
months after the termination of the Company's consulting agreement with Mr.
Wasserman, or by virtue of his death or disability. The stock options also
carry piggy-back registration rights which grant Mr. Wasserman, subject to
certain conditions, the right to have any common stock which he has acquired
pursuant to the exercise of options registered along with any securities for
which the company is seeking registration under the Securities Act of 1933, as
amended.
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<PAGE>
The Stock Option Agreement with Mr. Hallauer provides for the terms of Mr.
Hallauer's non-transferable option to purchase up to an aggregate of 75,000
shares of the Company's Common Stock at a purchase price of $6.00 per share,
the closing price of the Common Stock on the date of the grant. These options
vest in three installments. The right to purchase the first 25,000 shares
vested on August 25, 1997 while the right to purchase the next 25,000 shares
will vest on February 25, 1998. The right to purchase the remaining 25,000
shares will vest at a time, as determined by the Company's Compensation
Committee (excluding Mr. Hallauer), but in no event after August 25, 2007, the
expiration date for all outstanding options. The Stock Option Agreement allows
for the exercise of previously vested options by Mr. Hallauer, his heirs,
devises or legatees, for a period of up to one year after the termination of
the Company's consulting agreement with Mr. Hallauer, or by virtue of his death
or disability. The stock options also carry piggy-back registration rights
which grant Mr. Hallauer, subject to certain conditions, the right to have any
common stock which he has acquired pursuant to the exercise of options
registered along with any securities for which the company is seeking
registration under the Securities Act. Mr. Wasserman has waived the exercise of
such rights.
60
<PAGE>
CERTAIN TRANSACTIONS
Transactions Undertaken Prior to Organization and Formation of the Company
Multimedia was formed in September 1996 as a holding company for the
existing business of IAT AG and IAT Germany which were organized in 1989 and
1991, respectively. IAT AG and IAT Germany incurred operating losses since
their inception. As a result, between May 1992 and April 1993, in compliance
with Swiss law, IAT AG underwent a financial reorganization. IAT AG filed and
was granted an application for a stay of payment with the applicable court in
Switzerland and eventually reached a court-approved agreement with its
unsecured creditors to accept forgiveness of 90% of their claims and to be paid
the remaining 10%. In addition, IAT AG also altered its capital structure in
June 1993. Unless otherwise indicated, exchange rates in this section are
historical.
Since 1993 and in compliance with Swiss law, IAT AG took steps to
safeguard the interests of its creditors and to raise capital to fund its
operations by obtaining unsecured subordinated loans not bearing interest and
having no specific maturity date from former stockholders of IAT AG (current
stockholders of Multimedia) and by obtaining additional shareholders equity by
increasing the share capital of IAT AG, which according to Swiss law is
required to be fixed. The share capital was increased in various steps from SF
3,000,000 to SF 10,000,000 between 1993 and 1996 and, except for one instance
where Robert Klein Handel & Co. GmbH was issued 1,500 shares of IAT AG for cash
consideration of SF 1.875 million (approximately $1.49 million), and one
instance in June 1993 where shareholders made their capital contribution of SF
0.3 million by transfer of the rights to certain proprietary licenses instead
of by cash consideration, the 7,000 additional shares were either paid for in
cash on the basis of one share for a cash payment of SF 1,000 or by converting
loans into share capital on the basis of one share for each SF 1,000 in loan
forgiveness. In October 1996, in connection with the formation of Multimedia,
all of the 10,000 shares of IAT AG for which the shareholders of IAT AG had
contributed SF 10.375 million (approximately $8.05 million at historic exchange
rates) were exchanged (the "Exchange") for 4,375,000 shares of Common Stock of
Multimedia and warrants to each of Messrs. Sippel, Suter and Holthuisen to
purchase 198,864, 198,864 and 75,757 shares of Common Stock, at a purchase
price equivalent to approximately $1.84 per share of Common Stock of
Multimedia.
In connection with the increase in share capital in July 1996, whereby IAT
AG issued 900 shares to Volker Walther, a director and stockholder of
Multimedia, for total consideration of SF 900,000 (approximately $714,300) at
historic exchange rates, bmp Management Consultants, also a stockholder of
Multimedia, was paid a finders fee by the Company of approximately $60,000.
During the period from August to October 1996, Walther Glas, a company
controlled by Volker Walther, made several unsecured subordinated loans to IAT
AG in the aggregate amounts of SF 900,000 (approximately $666,700) and DM
700,000 (approximately $440,700). These loans had an annual interest rate of
10% and were repaid on June 30, 1997 with a portion of net proceeds of the IPO.
On November 6, 1996, Klaus-Dirk Sippel, a principal stockholder of
Multimedia, made an unsecured subordinated loan to IAT AG in the amount of SF
650,000 (approximately $481,500). A portion of this loan was used to repay an
unsecured non-interest bearing loan in the amount of SF 150,000 (approximately
$111,000) made in February 1996 to IAT AG by Telefutura, a company controlled
by Klaus-Dirk Sippel. This loan has an annual interest rate of 8% and principal
and accrued interest are due and payable on January 1, 1998. In December 1996,
Vertical transferred 200,000 of the warrants it had purchased in the Private
Placement (as defined herein) to Mr. Sippel.
The Company obtained an aggregate of approximately $764,000 in stockholder
loans in February and March 1997 from Vertical, Walther Glas and Messrs. Vogt
and Sippel. These loans had an annual interest at 8% and were repaid, together
with accrued interest, from the proceeds of the Company's IPO in April, 1997.
In connection with these loans, the Company granted registration rights to
Walther Glas and Messrs. Vogt and Sippel evidenced by registration rights
agreements (the "Registration Rights Agreements"). Pursuant to these
agreements, each of these three stockholders have one demand and unlimited
piggy-back registration rights for all of the shares of Common Stock owned by
such stockholder except for Dr. Vogt whose registration rights are limited to
250,000 of his shares of Common Stock. The Registration Rights Agreements
further provide that any
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demand registration at a minimum will include an amount of shares of Common
Stock equal to 25% of the demanding stockholder's share ownership at the time
of this Offering. In addition, the Registration Rights Agreements provide that
any exercise of registration rights in such agreements is subject to Vertical's
approval. The holders of such registration rights have waived their rights to
have their securities registered on the Registration Statement of which this
Prospectus is a part. Walther Glas and Messrs. Vogt and Sippel have also
entered into the Stockholders Agreement (as defined herein) in which they have
agreed not to sell or otherwise dispose of any shares of Common Stock or
exercise any registration rights, or seek the consent of Royce Investment
Group, Inc. ("Royce") for such sale, disposition or exercise, without
Vertical's prior written consent until April 1, 1999.
In connection with the operations of IAT Germany, the capital was
increased in 1993 and 1995 from the initial DM 100,000 (approximately $64,300)
to the current DM 700,000 (approximately $450,000). In addition, on December
19, 1995, HIBEG, the 25.1% shareholder of IAT Germany, made an unsecured
subordinated loan to IAT Germany in the amount of approximately DM 500,000
(approximately $321,467) which was increased in June 1996 to DM 750,000
(approximately $482,200) (the "HIBEG Loan"). The HIBEG Loan bears interest at
5% per annum payable semi-annually and will be increased to 10% per annum
during the year when the retained earnings of IAT Germany exceeds DM 87,500
(approximately $56,300). IAT Germany will be required to make semi-annual
payments of 10% of the principal starting on June 30, 2000 until the principal
is repaid in full.
In addition to the transactions listed above, Messrs. Sippel and Suter
have jointly and severally guaranteed two loans each in the amount of SF
600,000 (approximately $444,400) and each of Messrs. Sippel, Suter and
Holthuisen have jointly and severally guaranteed IAT AG's credit line in the
amount of SF 700,000 (approximately $518,500) under IAT AG's credit agreement
with Swiss Bank Corporation for SF 1,900,000 (approximately $1.41 million). The
Company's line of credit with the Swiss Bank Corporation was reduced to the
aggregate principal amount of SF1,300,000 (approximately $900,000), which will
be repaid in monthly installments of approximately $140,000, the first
installment of which was made on October 31, 1997. IAT Germany entered into a
line of credit with Volksbank Sottrum in the amount of DM 1,050,000
(approximately $675,000). IAT AG, HIBEG and Dr. Vogt have each guaranteed the
amount of DM 350,000 (approximately $225,000) of this line of credit. These
guarantees are offset by a lien on accounts receivables. In addition, IAT AG
has agreed with Volksbank Sottrum that IAT AG will insure that IAT Germany has
sufficient capital to ensure that IAT Germany will be able to meet all of its
obligations, including its obligations under its loan agreement to Volksbank
Sottrum.
Private Placement and Related Transactions
Simultaneously with the Exchange, pursuant to the Stock Purchase Agreement
between the Company, IAT AG, IAT Germany and Vertical dated October 4, 1996,
the Company completed a private placement (the "Private Placement") and issued
an aggregate of 1,980,000 shares of Series A Preferred Stock (which was
subsequently adjusted in the Company's recapitalization) and the warrants to
Vertical, Behala Anstalt, Lupin Investments Services Ltd., Henilia Financial
Ltd. and Avi Suriel for an aggregate gross purchase price of $1.5 million or
$.76 per share of Series A Preferred Stock of Multimedia (the "Private
Placement"). See "Principal Stockholders."
Upon consummation of the Company's IPO in April 1997 all outstanding
shares of the Series A Preferred Stock were converted into shares of Common
Stock.
The Stock Purchase Agreement contains certain continuing obligations of
the Company. Pursuant to the Stock Purchase Agreement, Vertical has the right
to designate the Chairman of the underwriting committee which is vested with
full and exclusive responsibility and authority on behalf of Multimedia to
select an underwriter and to negotiate all of the terms and conditions of any
such underwriting including, without limitation, this Offering. In the event
that the underwriting committee is unable to produce a majority vote on any
particular issue, such issue shall be decided by a vote of the Board of
Directors of Multimedia, provided, that the resolution of any such issue by the
Board of Directors shall not be effectuated without the written consent of
Vertical.
The Stock Purchase Agreement further provides that until October 24, 1999
Multimedia shall pay to Vertical monthly compensation of $12,000 for the
services of the Co-Chairman of the Company nominated by Vertical. Jacob Agam is
the current nominee of Vertical. Multimedia further agreed that, for so long as
Vertical shall
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hold the Series A Preferred Stock (or Common Stock issued upon conversion of
its Series A Preferred Stock or upon exercise of the Investor Warrant), without
Vertical's consent, the composition of the Board of Directors of IAT AG and IAT
Germany shall be identical to the composition of the Board of Directors of
Multimedia; provided, that consent shall not be withheld if required to comply
with Swiss law.
Multimedia has further agreed that it will cause IAT AG and IAT Germany
not to issue, and will not permit the issuance of, any shares of capital stock
(or any security convertible into shares of capital stock) of IAT AG or IAT
Germany, it being the intention of Multimedia and Vertical that IAT AG shall
remain a direct or indirect wholly-owned subsidiary of Multimedia and IAT
Germany shall remain a direct or indirect subsidiary of Multimedia.
Amendment No. 1 to the Stock Purchase Agreement provides that Vertical
shall not enter into an agreement or make any investment in an entity engaged
in the video conferencing business prior to January 1, 1998 and that subsequent
to January 1, 1998, Vertical, prior to entering into an agreement or making any
investment in an entity engaged in the video conferencing business will provide
the Company the opportunity to enter into such agreement or make such
investment instead of Vertical.
In connection with the Private Placement, the Company also entered into
the Investor Rights Agreement with Vertical which provides that Vertical has
the right, but not the obligation, to nominate as a member of the management
slate for election to the Company's Board of Directors one or two persons for
so long as Vertical will hold at least 5% or 10%, respectively, of the Series A
Preferred Stock (or at least 5% or 10%, respectively, of the Common Stock
issuable upon conversion of the Series A Preferred Stock or upon exercise of
the Investor Warrants). The Company agreed that one such person shall be
elected Co-Chairman of the Board of Directors of the Company. The Investor
Rights Agreement further provides for one demand and two piggy-back
registration rights with respect to the Common Stock issuable upon conversion
of the Series A Preferred Stock and the exercise of the Investor Warrants.
In addition, also in connection with the Private Placement, the Company
entered into the Marketing Agreement with General Capital, an affiliate of
Vertical. The Marketing Agreement provides that General Capital will assist the
Company in connection with marketing its products worldwide, arranging debt or
equity financing for the Company's products to be purchased by its customers,
and arranging financing for the Company's operations, leasing programs, joint
ventures and distribution arrangements, in each case for the further
enhancement of the Company's marketing strategy. The Marketing Agreement has a
five year term expiring on October 26, 2001. Pursuant to the Marketing
Agreement, the Company paid $100,000 at the closing of the Private Placement
and the remaining $400,000 in connection with the IPO, which payment was made
with a portion of the proceeds of the IPO. The Marketing Agreement further
provides that Multimedia will provide General Capital with certain technical
and other information relating to its business and operations as is reasonable
and necessary for General Capital to market the Company's products. In
addition, Multimedia will provide General Capital with the necessary sales
promotion materials to market the Company's products and Multimedia shall make
its management available to General Capital and prospective customers at such
reasonable times and locations as is necessary for General Capital to market
Multimedia's products. In connection with these provisions, General Capital
agreed that, during the term of the Marketing Agreement and for a period of
five years following such term, it shall not disclose to any third party any
trade secrets or other confidential information for any purpose other than the
performance of its duties under the Marketing Agreement and upon the prior
written approval of Multimedia. General Capital further agreed in Amendment No.
1 to the Marketing Agreement, that during the term of the Marketing Agreement
and for a period of three years thereafter it shall not directly or indirectly
own, manage, control, participate in, consult with, render services for, or in
any manner engage in the video conferencing business without any geographical
limitation.
Stockholders' Agreement
Certain stockholders of the Company have entered into a stockholders'
agreement (the "Stockholders' Agreement") dated as of February 27, 1997.
Pursuant to the Stockholders' Agreement, Walther Glas and Messrs. Vogt and
Sippel (the "Registration Rights Group") have agreed not to sell or otherwise
dispose of any shares of Common Stock or exercise any registration rights, or
seek the consent of Royce, one of the IPO Underwriters
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and the underwriter of this Offering for such sale, disposition or exercise,
without Vertical's prior written consent until April 1, 1999. In addition,
pursuant to the Stockholders' Agreement, all of the existing stockholders of
the Company other than Vertical and the Registration Rights Group, have agreed
not to sell or otherwise dispose of any shares of Common Stock or seek the
consent of Royce for such sale or disposition, without the prior written
consent of each member of the Registration Rights Group and Vertical until
April 1, 1999. The holders of such registration rights have waived their rights
to have their securities registered on the Registration Statement of which this
Prospectus is a part. In addition, the Stockholders' Agreement prohibits any
sale or other disposition of shares of Common Stock until April 1, 1999 unless
the acquiror (and any subsequent acquirors) of such shares becomes a party to
the Stockholders' Agreement.
Escrow Shares
In connection with the Company's IPO, its existing stockholders prior to
the IPO deposited 498,285 shares of Common Stock into escrow. See "Principal
Stockholders -- Escrow Shares."
Employment, Consulting and Settlement Agreements
IAT AG entered into written employment and consulting agreements with
Grissemann Consulting S.A. and Franz Muller and the Company has entered into a
written employment agreement with Dr. Vogt and into consulting agreements with
Reiner Hallauer and Arnold Wasserman. FSE has entered into an employment
agreement with Dr. Simmet. See "Management -- Employment, Consulting and
Settlement Agreements."
On September 9, 1997, Multimedia and IAT Germany entered into the
Settlement Agreement with Mr. Gudauski. See "Management -- Employment,
Consulting and Settlement Agreements."
The Company believes that all of the transactions set forth above were
made on terms no less favorable to the Company than could have been obtained
from unaffiliated third parties. All further transactions, including loans,
between the Company and its officers, directors and principal stockholders and
their affiliates will be subject to approval by a majority of the Board of
Directors, including a majority of the independent and disinterested outside
directors of the Board of Directors.
FSE Acquisition
In November 1997 Multimedia acquired 100% of the general partner of FSE
and 80% of the limited liability company shares of FSE. Pursuant to the
provisions of the Purchase Agreement, Dr. Simmet has the right, under certain
circumstances, to make withdrawals in the aggregate amount of $1,030,000 from
the Partner Offset Account. See "Business -- FSE Acquisition."
In December 1995, Dr. Simmet made a loan to FSE in the aggregate principal
amount of approximately DM 252,000 (approximately $150,000) bearing interest at
6% per annum and maturing in December 1996. The outstanding principal amount of
the loan plus interest was transferred to the Partner Offset Account and
subsequently repaid to Dr. Simmet through a withdrawal from the Partner Offset
Account. In connection with the purchase of FSE by Dr. Simmet in December 1995,
Dr. Simmet received a loan in the aggregate principal amount of DM 1,233,330
(approximately $690,000) which was guaranteed by FSE and secured by a pledge of
FSE's merchandise inventory, trade accounts receivables, leasehold improvements,
operating and office equipment (including automobiles), furniture and fixtures.
The principal amount of the loan plus interest, approximately DM 1,600,000
(approximately $900,000), was repaid by Dr. Simmet in November 1997 with a
portion of the proceeds received by Dr. Simmet in connection with the sale of
FSE to the Company.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding ownership of
Common Stock by (i) each director of Multimedia, (ii) each of the Named
Executive Officers, (iii) each person known by the Company to own beneficially
more than five percent of the outstanding Common Stock, and (iv) all executive
officers and directors of the Company as a group.
<TABLE>
<CAPTION>
Name and Address Number of Shares Beneficially Percentage of Shares
of Beneficial Owner(1) Owned Beneficially Owned
- ----------------------------------------------------------- ------------------------------- ---------------------
<S> <C> <C>
Executive Officers and Directors
Viktor Vogt(2) .......................................... 870,079(3) 8.98%
Jacob Agam(4) ............................................. -- --
Klaus Grissemann(2) ....................................... 189,395(5) 1.95%
Volker Walther(6) ....................................... 943,250(7) 9.72%
Franz Muller(2) .......................................... 94,697(8) *%
Reiner Hallauer(2) ....................................... 27,000(9) *%
Arnold Wasserman(2) ....................................... 40,000(10) *%
Alfred Simmet(2) .......................................... 146,949 1.51%
Significant Shareholders Vertical Financial Holdings Estab-
lishment(4)(11) .......................................... 1,580,304(12) 15.21%
Behala Anstalt(13) ....................................... 592,804(14) 5.93%
Lupin Investments Services Ltd.(15) ..................... 592,804(16) 5.93%
Henilia Financial Ltd.(17) .............................. 594,694(18) 5.95%
Klaus-Dirk Sippel(19) .................................... 1,105,923(20) 10.95%
Richard Suter(21) ....................................... 771,551(22) 7.79%
Robert Klein Handel GmbH & Co. KG(21) ..................... 455,438 4.69%
All executive officers and directors of the Company as a
group (8 persons) ....................................... 2,258,870 23.28%
</TABLE>
- ------------
* Less than 1%
(1) Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them. See "Certain Transactions."
(2) The address of these directors and officers is c/o IAT Multimedia, Inc.,
Geschaftshaus Wasserschloss, Aarestrasse 17, CH-5300 Vogelsang-Turgi,
Switzerland.
(3) Includes 69,605 shares of Common Stock which are held in escrow but in
respect of which Dr. Vogt retains the power to vote. See "--Escrow
Shares."
(4) Jacob Agam, the Co-Chairman of the Company, is the Chairman of the Board of
Vertical. Pursuant to an agreement between Orida and Vertical, Orida has
the right to receive a portion of the profits from the sale of the shares
held by Vertical. Mr. Agam is the Chairman and a significant owner of
Orida. Mr. Agam disclaims beneficial ownership of the shares held by
Vertical.
(5) Includes 15,151 shares of Common Stock which are held in escrow but in
respect of which Mr. Grissemann retains the power to vote. See "--Escrow
Shares."
(6) Volker Walther's address is Pestalozziweg 8, D-34439, Willebadessen,
Germany. B&M Draft of Sunday, December 7, 8:00 pm
(7) Includes 156,188 shares held by Walther Glas GmbH of which Mr. Walther is
a majority shareholder. Also includes 58,765 and 12,495 shares of Common
Stock which are held in escrow but in respect of which Mr. Walther and
Walther Glas GmbH, respectively, retain the power to vote. See "--Escrow
Shares."
(8) Includes 7,575 shares of Common Stock which are held in escrow but in
respect of which Mr. Muller retains the power to vote. See "--Escrow
Shares."
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(9) Includes 25,000 shares of Common Stock issuable upon exercise of options
which are currently exercisable.
(10) Represents 40,000 shares of Common Stock issuable upon exercise of options
which are currently exercisable.
(11) The address of Vertical Financial Holdings Establishment is
Hombrechtikerstrasse 61, CH-8640 Rapperswil, Switzerland.
(12) Includes 690,152 shares of Common Stock issuable upon exercise of warrants
beneficially owned by Vertical and exercisable within 60 days. Also
includes 71,212 shares of Common Stock which are held in escrow but in
respect of which Vertical retains the power to vote. See "-- Escrow
Shares."
(13) The address of Behala Anstalt is Heiligkreuz 6, PL-9490 Vaduz,
Liechtenstein.
(14) Includes 296,402 shares of Common Stock issuable upon exercise of warrants
beneficially owned by Behala Anstalt and exercisable within 60 days. Also
includes 23,712 shares of Common Stock which are held in escrow but in
respect of which Behala Anstalt retains the power to vote. See "-- Escrow
Shares."
(15) The address of Lupin Investments Services Ltd. is P.O. Box 3186,
Tortola/BVI, Road Town, Tortola, British Virgin Islands.
(16) Includes 296,402 shares of Common Stock issuable upon exercise of warrants
beneficially owned by Lupin Investments Services Ltd. and exercisable
within 60 days. Also includes 23,712 shares of Common Stock which are held
in escrow but in respect of which Lupin Investments Services Ltd. retains
the power to vote. See "--Escrow Shares."
(17) The address of Henilia Financial Ltd. is 35A Regent Street, Belize City,
Belize.
(18) Includes 297,347 shares of Common Stock issuable upon exercise of warrants
beneficially owned by Henilia Financial Ltd. and exercisable within 60
days. Also includes 23,788 shares of Common Stock which are held in escrow
but in respect of which Henilia Financial Ltd. retains the power to vote.
See "-- Escrow Shares."
(19) The address of Klaus-Dirk Sippel is Tannenweg 2, CH-5415 Nussbaumen,
Switzerland. [Excludes] 76,941 shares sold in October 1996 by Mr. Sippel
to Mr. Jurgen Henning. While Mr. Sippel does not have any voting or
dispositive power with respect to these shares, the agreement between
Messrs. Sippel and Henning provides that Mr. Sippel will share in the
proceeds of the sale of Mr. Henning's shares.
<PAGE>
(20) Includes 398,864 shares of Common Stock issuable upon exercise of
Shareholder Warrants beneficially owned by Klaus-Dirk Sippel and
exercisable within 60 days. Also includes 56,565 shares of Common Stock
which are held in escrow but in respect of which Mr. Sippel retains the
power to vote. See "-- Escrow Shares."
(21) Richard Suter's address is Lendikerstrasse 25, CH-8484 Weisslingen,
Switzerland.
(22) Includes 198,864 shares of Common Stock issuable upon exercise of
Shareholder Warrants beneficially owned by Richard Suter and exercisable
within 60 days. Also includes 45,815 shares of Common Stock which are held
in escrow but in respect of which Mr. Suter retains the power to vote. See
"-- Escrow Shares."
(23) Robert Klein Handel GmbH & Co. KG's address is Perlengraben 2, D-50676
Cologne, Germany.
Escrow Shares
The existing stockholders of the Company immediately prior to the IPO
deposited an aggregate of 498,285 shares of Common Stock into escrow in
connection with the IPO. The Escrow Shares are not assignable or transferable.
Of the Escrow Shares,
(i) 166,095 shall be released from escrow if, for the fiscal year ending
December 31, 1997, the Company's minimum revenues (the "Minimum Revenues")
equals or exceeds $5.5 million;
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(ii) 166,095 Escrow Shares (or, if the conditions set forth in (i) above
was not met, 332,190 Escrow Shares) shall be released, if, for the fiscal
year ending December 31, 1998, the Minimum Revenues equals or exceeds $8.0
million;
(iii) 166,095 Escrow Shares (or, if the conditions set forth in either
(i) or (ii) were not met, the remaining Escrow Shares) shall be released
if, for the fiscal year ending December 31, 1999, the Minimum Revenues
equals or exceeds $12.0 million and the Company's income before provision
for taxes (the "Minimum Pretax Income") equals or exceeds $1.0 million; and
(iv) all of the Escrow Shares will be released from escrow if one or
more of the following conditions is/are met:
(a) the average of the closing bid prices of the Company's Common
Stock for any 30 consecutive trading days commencing March 26, 1999
exceeds $13.00 per share; or
(b) the Company is acquired by or merged into another entity
commencing on the date set forth in (a) above in a transaction in which
the value of the per share consideration received by the stockholders of
the Company (after giving effect to the release of shares from escrow)
on the date of such transaction exceeds $13.00 per share.
The Minimum Revenues and Minimum Pretax Income Amounts set forth above
shall be (i) derived solely from the business owned and operated by the Company
at the time of the IPO and shall not give effect to any operations relating to
business or assets acquired after April 1, 1997; (ii) calculated exclusive of
any extraordinary earnings including, but not limited to, any charge to income
resulting from the release of the Escrow Shares and (iii) audited by the
Company's independent public accountants.
Any money, securities, rights or property distributed in respect of the
Escrow Shares shall be received by the escrow agent, including any property
distributed as dividends or pursuant to any stock split, merger,
recapitalization, dissolution or total or partial liquidation of the Company
(the "Escrow Property"). On March 31, 2000, any remaining Escrow Shares, as
well as any dividends or other distributions made with respect thereto, will be
canceled and contributed to the capital of the Company. The Company expects
that the release of the Escrow Shares to officers, directors, employees and
consultants of the Company will be deemed compensatory and, accordingly, will
result in a substantial charge to operations, which would equal the then fair
market value of such shares. Such charges could substantially increase the loss
or reduce or eliminate the Company's net income for financial reporting
purposes for the period during which such shares are, or become probable of
being, released from escrow. Although the amount of compensation expense
recognized by the Company will not affect the Company's total stockholder's
equity, it may have a negative effect on the market price of the Common Stock.
See "Risk Factors -- Charge to Earnings in the Event of Release of Escrow
Shares", "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 4 -- Consolidated Financial Statements of IAT.
The Minimum Revenues and Minimum Pretax Income amounts and closing bid
price levels set forth above were determined by negotiation between the Company
and the IPO Underwriters and should not be construed to imply or predict any
future earnings by the Company or any increase in the market price of the
Common Stock.
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DESCRIPTION OF THE NOTES
The Notes will be issued under an Indenture, as amended or supplemented
from time to time (the "Indenture") to be entered into between Multimedia and
as Trustee (the "Trustee") which will become effective upon the
consummation of this Offering, a copy of the form of which has been filed as an
Exhibit to the Registration Statement on Form S-l (the "Registration Statement")
of which this Prospectus forms a part. The following are summaries of certain
terms applicable to the Notes and do not purport to be complete. The summaries
are subject to, and qualified in their entirety by reference to, the provisions
of the Indenture, including the definitions of certain terms. Whenever reference
is made to defined terms of the Indenture, such defined terms are incorporated
herein by reference.
General
The Notes will be unsecured general obligations of Multimedia, subordinate
in right of payment to certain obligations of the Company as described under
"-- Subordination" and convertible into Common Stock as described under "
Conversion of the Notes." The Notes will be limited to an aggregate principal
amount of $10,000,000 ($11,500,000 if the Underwriters' over-allotment option
is exercised in full), and will mature on , 2003 (the "Maturity Date").
Interest on the Notes shall accrue from the date of original issuance, or from
the most recent interest payment date to which interest has been paid or duly
provided for, and shall be payable in U.S. Dollars semi-annually in arrears on
, 1 and , 1 of each year, commencing , 1998 (each, an "Interest
Payment Date"), or, if any such day is not a business day, on the next
succeeding business day, at the rate per annum stated on the front cover of
this Prospectus. Interest will be payable to the person in whose name the Notes
are registered ("Holders") on 15 and 15 preceding each Interest
Payment Date (each, a "Regular Record Date"). Interest will be computed on the
basis of a 360-day year consisting of twelve 30-day months.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be presented for conversion, registration of transfer and
exchange at the office or agency of Multimedia maintained for that purpose in
New York, New York. In addition, payment of interest may, at the option of
Multimedia, be made by check mailed to the address of the person entitled
thereto as it appears in the register of holders of Notes (the "Note
Register").
The Notes will be issued in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple thereof. No service charge
will be made for any transfer or exchange of Notes, but, subject to certain
exceptions set forth in the Indenture, Multimedia may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
The Indenture does not contain any restrictions on the payment of
dividends or on the repurchase of securities by Multimedia or any financial
covenants, nor does the Indenture require Multimedia to maintain any sinking
fund or, except as described under "--Pledge and Escrow Agreement," other
reserve for the payment of the Notes. Multimedia will be required, however, to
use approximately $1,875,000 of the net proceeds of this Offering to be
deposited and applied to purchase a portfolio of Pledged Securities that will
be pledged and escrowed for payment of interest on the Notes through ,
2000. See "-- Pledge and Escrow Agreement."
Conversion of The Notes
The Notes are convertible into shares of Common Stock, at the option of
the Holder, at any time after the first anniversary of the date of original
issuance and prior to the Maturity Date (subject to earlier redemption or
repurchase, as described below) initially at the conversion price of $ ,
subject to adjustment under certain circumstances as described below (the
"Conversion Price"). The right to convert Notes called for redemption will
terminate at the close of business on the business day immediately preceding
the date fixed for redemption, and unless Multimedia shall default in payment
of the redemption price and accrued interest, the Notes shall cease to bear
interest on the date fixed for redemption. If any Note called for redemption
shall not be paid upon surrender thereof for redemption, the principal amount
of such Note shall continue to bear interest. A Holder who surrenders a Note
(or portion thereof) for conversion between the close of business on a Regular
Record Date and the next Interest Payment Date will receive interest on such
Interest Payment Date with respect to the
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Note (or portion thereof) so converted through such Interest Payment Date.
Except as provided above, no payment of interest on converted Notes will be
payable by Multimedia on any Interest Payment Date subsequent to the date of
conversion, and no adjustment will be made upon conversion of any Note for
interest accrued thereon or dividends paid on Common Stock issued.
The Conversion Price is subject to adjustment as set forth in the
Indenture upon the occurrence of certain events, including: (i) the issuance of
Common Stock as a dividend or other distribution on any class of capital stock
of Multimedia; (ii) a subdivision or combination of outstanding shares of
Common Stock; (iii) the issuance or distribution of capital stock of Multimedia
or the issuance or distribution of options, rights, warrants or convertible or
exchangeable securities entitling the holder thereof to subscribe for,
purchase, convert into or exchange for capital stock of Multimedia at less than
the current market price of such capital stock on the date of such issuance or
distribution; (iv) the failure of the Company to maintain the listing of the
Common Stock on the NASDAQ National Market, New York Stock Exchange or American
Stock Exchange, (v) the dividend or other distribution to holders of Common
Stock, or of a class or series of capital stock convertible into or
exchangeable or exercisable for Common Stock, of evidences of indebtedness of
Multimedia or assets (including securities, but excluding issuances, dividends
and distributions referred to above, dividends and distributions in connection
with the liquidation, dissolution or winding up of Multimedia and distributions
of cash referred to below); and (vi) distributions of cash (other than in
connection with the liquidation or dissolution of Multimedia) to holders of
Common Stock, or of a class or series of capital stock convertible into or
exchangeable or exercisable for Common Stock, generally to the extent the
amount of such cash, combined with all such cash distributions made within the
preceding 12 months with respect to which no adjustment has been made exceeds
10% of Multimedia's market capitalization (being the product of the current
market price of the Common Stock on the date of such distribution multiplied by
the number of shares of Common Stock outstanding on such date) on the record
date for such distribution.
Notwithstanding the foregoing, (a) if the options, rights or warrants or
convertible or exchangeable securities described in clause (iii) of the
preceding paragraph are exercisable only upon the occurrence of certain
triggering events, then the Conversion Price will not be adjusted until such
triggering events occur and (b) if such options, rights or warrants or
convertible or exchangeable securities expire unexercised, the Conversion Price
will be readjusted to take into account only the actual number of such options,
rights or warrants or convertible or exchangeable securities which were
exercised. In addition, the provisions of the preceding paragraph will not
apply to the issuance of Common Stock upon (i) the exercise of the Company's
outstanding stock options under any stock-based employee compensation plan now
existing or hereafter adopted, so long as the exercise price for such options
equals or exceeds the fair market value of the securities underlying such
options on the date of grant, unless the exercise or conversion price thereof
is changed after the date of the Indenture (other than solely by operation of
the anti-dilution provisions thereof), (ii) conversion of the Notes in
accordance with their terms, or (iii) exercise or conversion of warrants,
options or convertible notes issued by the Company prior to the date of the
original issuance of the Notes unless the exercise or conversion price thereof
is changed after the date of the Indenture (other than solely by operation of
the anti-dilution provisions thereto).
No adjustment will be made to the Conversion Price until cumulative
adjustments to the Conversion Price amount to at least 1% of the Conversion
Price, as last adjusted. Except as stated above, the Conversion Price will not
be adjusted for the issuance of Common Stock or any securities convertible into
or exchangeable for Common Stock or carrying the right to purchase any of the
foregoing, or the payment of dividends on the Common Stock. Multimedia from
time to time may reduce the Conversion Price if the Board of Directors of
Multimedia has made a determination that such reduction would be in the best
interests of Multimedia, which determination shall be conclusive.
In the event of (i) any reclassification or change of the Common Stock or
(ii) a consolidation, merger or combination to which Multimedia is a party or a
sale or conveyance to another entity of the property and assets of Multimedia
as an entirety or substantially as an entirety, in each case as a result of
which holders of Common Stock will be entitled to receive stock, other
securities, other property or assets (including cash) with respect to or in
exchange for such Common Stock, each Holder will have the right thereafter to
convert such Holder's Notes into the kind and amount of shares of stock, other
securities or other property or assets which the Holder would have owned or
have been entitled to receive immediately upon such consolidation, merger,
combination,
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sale or conveyance had such Note been converted into Common Stock immediately
prior to the effective date of such reclassification, change, consolidation,
merger, combination, sale or conveyance. Certain of the foregoing events may
also constitute or result in a Change of Control requiring Multimedia to offer
to repurchase the Notes. See " Certain Events Requiring Repurchase at the
Option of Holders."
Fractional shares of Common Stock will not be issued upon conversion. A
person otherwise entitled to a fractional share of Common Stock upon conversion
will receive cash equal to the equivalent fraction of the current market price
of a share of Common Stock on the business day prior to conversion.
Pledge and Escrow Agreement
The Pledge and Escrow Agreement will provide that upon the consummation of
this Offering (the "Closing"), Multimedia must either (i) deposit cash with the
Trustee or (ii) purchase and pledge to the Trustee for the benefit of the
Holders of the Notes the Pledged Securities in such amount as will be
sufficient upon receipt of scheduled interest and principal payments of such
securities, in the opinion of nationally recognized firm of independent public
accountants selected by the Company, to provide for payment in full of the
first four scheduled interest payments due on the Notes. Multimedia expects to
use approximately $1,875,000 of the net proceeds of this Offering to make such
deposit or acquire the Pledged Securities; however, the precise amount of
securities to be acquired will depend upon the interest rates on Government
Securities prevailing at the time of the Closing. The Pledged Securities and
all other amounts deposited with the Trustee pursuant to the Pledge Escrow
Agreement will be pledged by Multimedia to the Trustee for the benefit of the
Holders of Notes pursuant to the Pledge and Escrow Agreement and will be held
by the Trustee in the Pledge Account. Pursuant to the Pledge and Escrow
Agreement, immediately prior to an interest payment date on the Notes,
Multimedia may either (i) deposit with the Trustee from funds otherwise
available to Multimedia cash sufficient to pay the interest scheduled to be
paid on such date or, (ii) may direct the Trustee to liquidate Pledged
Securities in an amount adequate to release from the Pledge Account proceeds
sufficient to pay interest then due or (iii) may deposit cash sufficient to pay
a portion of the interest scheduled to be paid on such date, may direct the
Trustee to liquidate Pledged Securities in an amount adequate to release from
the Pledge Account proceeds sufficient to pay the remaining portion of the
interest then due. In the event that Multimedia exercises the first or third
option, Multimedia may thereafter direct the Trustee to release to Multimedia
proceeds or Pledged Securities from the Pledge Account in like amount.
Interest earned on the Pledged Securities will be added to the Pledge
Account. In the event that the funds or Pledged Securities held in the Pledge
Account exceed the amount sufficient, in the opinion of a nationally recognized
firm of independent public accountants selected by Multimedia, to provide for
payment in full of the first four scheduled interest payments due on the Notes
(or in the event an interest payment or payments have been made, an amount
sufficient to provide for payment in full of any interest payments remaining,
up to and including the fourth scheduled interest payment) the Trustee will be
permitted to release to the Multimedia, at Multimedia's request, any such
excess amount.
Under the Pledge and Escrow Agreement, if Multimedia makes the first four
scheduled interest payments on the Notes in a timely manner, all of the
remaining Pledged Securities and all other amounts on deposit in the Pledge
Account, if any, will be released to Multimedia from the Pledge Account.
Optional Redemption by Multimedia
Multimedia may, at its option, redeem the Notes, in whole or from time to
time in part, at any time after , 2000, upon not less than 30 days' nor
more than 60 days' prior notice of redemption to each Holder at such Holder's
last address as it appears in the Note Register, at the redemption prices
established for the Notes, together with accrued but unpaid interest, if any,
to the date fixed for redemption. The redemption prices for the Notes
(expressed as percentages of principal amount) are as follows:
FOR THE REDEMPTION
12 MONTHS AFTER PRICE
- --------------------------- -----------
2000 ..................... 105.00%
2001 ..................... 102.50%
2002 and thereafter ...... 100.00%
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If less than all the Notes are to be redeemed, the Trustee will select the
Notes to be redeemed in compliance with the requirements of the principal
national securities exchange, if any, on which the Notes are quoted or listed,
or if not quoted or listed, by lot or such other method that complies with
applicable legal requirements and that the Trustee shall deem fair and
appropriate. The Trustee may select for redemption portions of the principal
amount of Notes that have a denomination larger than $1,000. Notes and portions
thereof will be redeemed in the amount of $1,000 or integral multiples of
$1,000. The Trustee will make the selection from Notes outstanding and not
previously called for redemption.
Change in Control
Upon a Change of Control (as defined below), Multimedia will offer to
repurchase each Holder's Notes pursuant to an offer (the "Repurchase Offer") at
a purchase price equal to 100% of the principal amount of such Holder's Notes,
plus accrued but unpaid interest, if any, to the date of repurchase.
A "Change of Control" means the occurrence of any of the following events
after the date of the Indenture: (i) any person (including, without limitation,
any "person" within the meaning of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) becomes the direct or
indirect beneficial owner of shares of capital stock of Multimedia representing
greater than 50% of the combined voting power of all outstanding shares of
capital stock of Multimedia entitled to vote in the election of directors under
ordinary circumstances; (ii) the Company consolidates with or merges into any
other entity and the outstanding Common Stock is changed or exchanged as a
result; (iii) the Company sells, conveys, transfers or otherwise disposes of,
in one transaction or a series of related transactions, all or substantially
all of its assets to any Person or related group of Persons; (iv) at any time
Continuing Directors do not constitute a majority of the Board of Directors of
Multimedia then in office; (v) on any day (a "Calculation Date") the Company
makes any distribution or distributions of cash, property, or securities (other
than regular quarterly dividends, Common Stock, preferred stock which is
substantially equivalent to Common Stock or rights to acquire Common Stock or
preferred stock which is substantially equivalent to Common Stock) to holders
of Common Stock, or the Company or any of its subsidiaries purchases or
otherwise acquires Common Stock, and the sum of the fair market value of such
distribution or purchase on the Calculation Date, plus the fair market value,
when made, of all other such distributions and purchases which have occurred
during the 12-month period ending on the Calculation Date, in each case
expressed as a percentage of the aggregate market price of all of the shares of
Common Stock outstanding at the close of business on the last day prior to the
date of each such distribution or purchase, exceeds 50%. "Continuing Director"
means at any date a member of Multimedia's Board of Directors (i) who is a
member of such board on the date of the Indenture or (ii) who was nominated or
elected by at least two-thirds of the directors who were Continuing Directors
at the time of such nomination or election. If the present Board of Directors
were to approve a new director or directors and then resign, no Change of
Control would occur even though the present Board of Directors would thereafter
cease to be in office.
Failure by Multimedia (i) to provide timely notice of a Change of Control,
as provided for below, or (ii) to repurchase the Notes when required will
result in an Event of Default under the Indenture whether or not that
repurchase is permitted by the subordination provisions of the Indenture.
Within 30 days after a Change of Control, unless Multimedia has previously
given a notice of optional redemption by Multimedia of all of the Notes,
Multimedia will give a notice of the Change of Control to each Holder at such
Holder's last address as it appears on the Note Register which will include:
(i) a statement that a Change of Control has occurred and that Multimedia is
offering to repurchase all of such Holder's Notes (ii) a brief description of
such Change of Control; (iii) the repurchase price (the "Change of Control
Payment"); (iv) the expiration date of the Change of Control Offer, which must
be no earlier than 30 days nor later than 60 days from the date such notice is
given; (v) the date such purchase will be effected, which must be no later than
30 days after expiration date of the Change of Control Offer; (vi) a statement
that unless Multimedia defaults in the payment of the Change of Control
Payment, all Notes accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest after the Change of Control Payment Date; (vii)
the Conversion Price; (viii) the name and address of the paying agent and
conversion agent; (ix) a statement that Notes must be surrendered to the paying
agent to collect the Change of Control Payment; and (x) any other information
required by law and any other procedures that a Holder must follow in order to
have such Notes repurchased.
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In the event Multimedia is required to make a Change of Control Offer,
Multimedia will comply with any applicable securities laws and regulations,
including, to the extent applicable, Section 14(e) of, and Rule 14e-1 and any
other tender offer rules under, the Exchange Act which may then be applicable
in connection with any offer by Multimedia to purchase Notes at the option of
the Holders.
Multimedia, could, in the future, enter into certain transactions,
including certain recapitalizations of Multimedia, that would not constitute a
Change of Control, but that would increase the amount of Senior Indebtedness
(or any other indebtedness) outstanding at such time. The incurrence of
significant amounts of additional indebtedness could have an adverse effect on
Multimedia's ability to service its indebtedness, including the Notes. If a
Change of Control were to occur, there can be no assurance that Multimedia
would have sufficient funds at the time of such event to pay the Change of
Control Payment for all Notes tendered by the Holders.
Certain of Multimedia's future agreements relating to its indebtedness
could prohibit the repurchase by Multimedia of the Notes pursuant to the
exercise by a Holder of the foregoing option, depending on the financial
circumstances of Multimedia at the time any such repurchase may occur, because
such repurchase could cause a breach of certain covenants contained in such
agreements. Such a breach may constitute an event of default under such
indebtedness and thereby restrict Multimedia's ability to repurchase the Notes.
See "-- Subordination."
The foregoing provisions (i) may not afford Holders protection in the
event of highly leveraged or other transactions involving Multimedia which may
adversely affect Holders and (ii) may discourage open market purchases of the
Common Stock or a non-negotiated tender or exchange offer for such stock and,
accordingly, may limit a stockholder's ability to realize a premium over the
market price of the Common Stock in connection with any such transaction.
Subordination
The payment of the principal of, premium, if any, and interest on the
Notes will be, to the extent set forth in the Indenture, subordinated in right
of payment to the prior payment in full of all Senior Indebtedness (as defined
below). Upon any payment or distribution of assets or securities of Multimedia
to creditors upon any dissolution, winding up, liquidation, reorganization or
upon an assignment for the benefit of creditors or any other marshaling of the
assets and liabilities of Multimedia or upon other proceedings, the holders of
all Senior Indebtedness will first be entitled to receive payment in full of
all amounts due or to become due thereon before a Holder will be entitled to
(i) receive any payment in respect of the principal of or interest on the Notes
or (ii) retain any assets so paid or distributed in respect thereof. In the
event that notwithstanding the foregoing, the Trustee or a Holder is entitled
to receive any payment or distribution of assets or securities of Multimedia of
any kind or character (excluding securities of Multimedia as reorganized or
readjusted or securities of Multimedia or any other corporation provided for by
a plan of reorganization or readjustment, which, in each case, are subordinate
in right of payment to all Senior Indebtedness at least to the same extent as
the Notes), then such payment or distribution shall be received and held in
trust for the benefit of, and shall be required to be paid over or delivered
forthwith directly to the holders of Senior Indebtedness or their
representative(s) or the trustee(s) under any indenture pursuant to which any
instruments evidencing any Senior Indebtedness may have been issued, for
application to the payment of all Senior Indebtedness remaining unpaid, to the
extent necessary to pay the Senior Indebtedness then due in full.
Multimedia also may not make any payment upon or in respect of the Notes
(except in such subordinated securities) if (a) a default in the payment of the
principal of, premium, if any, or interest on Designated Senior Debt (as herein
defined) occurs and is continuing beyond any applicable grace period (a
"Payment Default"), or (b) the Trustee has received a written notice (a
"Payment Blockage Notice") that a nonpayment default has occurred and is
continuing with respect to such Designated Senior Debt that permits such
holders to accelerate the maturity of such Designated Senior Debt. In the event
a Payment Default occurs, no payment may be made in respect of the Notes until
such Payment Default is either cured or waived. In the event a Payment Blockage
Notice is given, no payment may be made in respect of the Notes for a period (a
"Payment Blockage Period") commencing upon receipt by the Company and Trustee
of a Payment Blockage Notice and ending on the earliest of (i) 120 days
thereafter (or earlier if such Payment Blockage Notice is terminated by written
notice to the
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Trustee and the Company from the holders of such Designated Senior Debt or any
trustee, agent or other representative acting on behalf of such holders), (ii)
the date of discharge or repayment in full in cash of such Designated Senior
Debt or (iii) the date on which the default or event of the default giving rise
to such Payment Blockage Notice has been cured or waived or has ceased to
exist). Not more than one Payment Blockage Period may be commenced during any
period of 360 consecutive days. No nonpayment default that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice unless such default shall have been cured or waived for a period of not
less than 180 consecutive days. "Designated Senior Debt" as defined in the
Indenture means indebtedness under the lines of credit with Swiss Bank
Corporation and Volksbank Sottrum as well as stockholder loans from Mr. Sippel,
and (iii) any other Senior Indebtedness the principal amount of which is
$10.0 million or more and which has been designated by the Company as
"Designated Senior Debt."
Because of these subordination provisions, in the event of an insolvency
of Multimedia, funds which would otherwise be payable to Holders will be paid
to holders of Senior Indebtedness to the extent necessary to repay such Senior
Indebtedness in full and Multimedia may be unable to meet fully its obligations
with respect to the Notes.
"Senior Indebtedness" as defined in the Indenture means the principal of,
premium, if any, and interest (including interest accruing on or after the
filing of any petition in bankruptcy or for reorganization relating to
Multimedia, whether or not such claim for post-petition interest is allowed in
such proceeding) on and all fees and other amounts payable in connection with,
the following, whether absolute or contingent, secured or unsecured, due or to
become due, outstanding on the date of the Indenture or thereafter created,
incurred or assumed: (i) indebtedness of the Company (other than the Notes) to
institutional lenders evidenced by credit or loan agreements, notes or other
written obligations, (ii) all other indebtedness of the Company other than the
Notes, which is (1) for money borrowed or (2) evidenced by a note, security,
debenture, bond or similar instrument or guarantee thereof, (iii) obligations
of the Company as lessee under capitalized leases and leases of Property made
as part of any sale and leaseback transactions; (iv) indebtedness of others of
any of the kinds described in the preceding clauses (i), (ii) and (iii) assumed
or guaranteed by the Company, including the amounts guaranteed by the Company
under the Guarantee Agreement; (v) obligations of the Company under interest
rate and currency swaps, caps, floors, collars or similar agreements or
arrangements, (vi) all obligations of the Company issued or assumed as the
deferred purchase price of Property (but excluding any portion thereof
constituting trade accounts payable arising in the ordinary course of
business), (vii) all obligations of the Company for reimbursement under any
letters of credit to the extent the obligations underlying such letters of
credit are Senior Indebtedness under any of clause (i) through (v) above; and
(viii) renewals, extensions, modifications, restatements and refundings of, or
amendments or supplements to, and indebtedness and obligations of a successor
corporation issued in exchange for or in replacement of, indebtedness or
obligations of the kinds described in the preceding clauses (i) through (vii).
Notwithstanding the foregoing, Senior Indebtedness shall not include (a) any
future indebtedness of the kind described in clause (i) or (ii) above if and to
the extent such indebtedness is convertible into shares of Common Stock or
other equity securities of the Company, and the Notes shall rank pari passu
with any such convertible indebtedness unless the instrument creating or
evidencing such convertible indebtedness provides that such convertible
indebtedness is junior in right of payment to the Notes, (b) indebtedness or
amounts owed (except to banks and other financial institutions) for
compensation to employees, or for goods or materials purchased, or services
utilized, in the ordinary course of business of Multimedia or of any other
person from whom such indebtedness or amount was assumed or for whom such
indebtedness was guaranteed, (c) indebtedness to a Subsidiary or other
Affiliate of the Company or (d) indebtedness which by its terms (or the terms
of the instrument pursuant to which it is issued) expressly provides that such
indebtedness shall not be senior in right of payment to the Notes.
The Notes are unsecured obligations of Multimedia, and, accordingly, will
rank pari passu with all unsecured obligations of Multimedia, including those
arising by operation of law or imposed by any judicial or governmental
authority. The Notes are obligations exclusively of Multimedia, and
accordingly, will be effectively subordinated to all indebtedness and other
liabilities and commitments (including trade payables and lease obligations) of
its subsidiaries. The right of Multimedia, and, therefore the right of
creditors of Multimedia (including Holders) to receive assets of any such
subsidiary upon the liquidation or reorganization of such subsidiary or
otherwise, as a practical matter, will be effectively subordinated to the
claims of such subsidiary's creditors,
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except to the extent Multimedia is itself recognized as a creditor of such
subsidiary or such other creditors have agreed to subordinate their claims to
the payment of the Notes, in which case the claims of Multimedia would still be
effectively subordinate to any secured claim on the assets of such subsidiary
and any indebtedness of such subsidiary senior to that held by Multimedia.
At November 30, 1997, Senior Indebtedness was approximately $3.1 million.
Multimedia may from time to time incur additional indebtedness constituting
Senior Indebtedness. The Indenture does not restrict the incurrence of
additional Senior Indebtedness by Multimedia or its subsidiaries.
Merger and Consolidation
Multimedia may not consolidate with or merge into any other entity or
lease, convey or transfer all or substantially all of its properties and assets
to, another Person unless (i) the successor or transferee is a corporation
organized and existing under the laws of the United States, any state thereof
or the District of Columbia, (ii) the successor expressly assumes the due and
punctual payment of the principal of and interest on all the Notes and the
performance of every covenant by Multimedia in the Indenture, (iii) after such
transaction no Event of Default exists, and no event has occurred and is
continuing which after notice or lapse of time or both, would become an Event
of Default, (iv) after such transaction, the Notes and the Indenture constitute
the valid and enforceable obligations of the successor and (v) Multimedia has
delivered to the Trustee an officers' certificate and an opinion of counsel as
set forth in the Indenture.
Defeasance
The Indenture will provide that, on or after , 2002 or at any time
after a notice of redemption has been delivered to Holders, Multimedia, at its
option, (a) will be discharged from any and all obligations with respect to the
Notes (except for, among other things, certain obligations which include the
rights of Holders of Outstanding Notes to (i) convert the Notes into Common
Stock, (ii) receive payments out of amounts deposited in trust with the Trustee
in respect of the principal of, premium, if any, and interest on such Notes
when such payments are due, (iii) receive replacement of stolen, lost or
mutilated Notes, (iv) require Multimedia to maintain paying agencies and office
or agencies for holding monies for payment in trust) or (b) need not comply
with certain restrictive covenants of the Indenture (as described above under
"Merger and Consolidation" and "Change of Control", in each case upon the
deposit with the Trustee, in trust, of money, or U.S. Government Obligations,
or a combination thereof, which through the payment of interest thereon and
principal thereof in accordance with their terms will provide money in an
amount sufficient to pay all the principal of, premium, if any, and interest on
the Notes on the dates such payments are due in accordance with the terms of
the Notes to their stated maturities or to and including a redemption date
which has been irrevocably designated by Multimedia for redemption of the
Notes. To exercise any such option, Multimedia is required to meet certain
conditions, including delivering to the Trustee an opinion of counsel to the
effect that the deposit and related defeasance would not cause the Holders to
recognize income, gain or loss for Federal income tax purposes.
Events of Default
The following will be Events of Default under the Indenture: (i) failure
to pay principal, or premium, if any, of the Notes when due and payable at
maturity, upon redemption or otherwise, whether or not such payment is
prohibited by the subordination provisions of the Indenture; (ii) failure to
pay any interest on any Notes when it becomes due and payable, continued for
ten Business Days, whether or not such payment is prohibited by the
subordination provisions of the Indenture; (iii) failure to provide timely
notice of a Change of Control as required by the Indenture; (iv) failure to
perform any other covenant or restriction of Multimedia in the Indenture,
continued for 30 days after written notice to Multimedia as provided in the
Indenture; (v) certain events of bankruptcy, insolvency or reorganization of
Multimedia or any Significant Subsidiary (as defined herein) of Multimedia;
(vi) failure to perform any covenant or restriction of Multimedia or its
subsidiaries under any bond, debenture, note or other indebtedness for borrowed
money or any mortgage, indenture or instrument under which there may be issued,
secured or evidenced any indebtedness for borrowed money, which failure shall
have resulted in such indebtedness in an aggregate amount exceeding $10.0
million becoming or being declared due or payable prior to the date on which it
would otherwise have become due and payable or such obligations being
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accelerated, without such acceleration having been rescinded or annulled within
a period of 30 days after notice of such failure shall have been given to
Multimedia, or (vii) a judgment or order for the payment of an amount equal to
at least $10.0 million is rendered against Multimedia or any subsidiary of
Multimedia and is not vacated, discharged, stayed or bonded pending appeal
within 30 days thereof.
If an Event of Default occurs and is continuing, either the Trustee or
Holders of at least 25% in aggregate principal amount of the outstanding Notes
may accelerate the maturity of all Notes; provided, however, that if an Event
of Default under clause (v) of the definition of Event of Default occurs, all
unpaid principal of, premium, if any, and interest on all outstanding Notes
will automatically become due and payable without declaration or other act on
the part of the Trustee or any Holders. After acceleration, but before a
judgment or decree based on acceleration, Holders of a majority in aggregate
principal amount of outstanding Notes may, under certain circumstances, rescind
and annul the acceleration if all Events of Default, other than the nonpayment
of principal amounts which became due by acceleration, have been cured or
waived, and certain other payments have been made by Multimedia, as provided in
the Indenture.
No Holder will have any right to institute any proceeding with respect to
the Indenture or for the appointment of a receiver or trustee, or for any
remedy under the Indenture unless such holder previously has given to the
Trustee written notice of a continuing Event of Default and unless Holders of
at least 25% in aggregate principal amount of the outstanding Notes have made
written requests and offered reasonable indemnity to the Trustee, to institute
proceedings as trustee, and the Trustee has not received from the Holders of a
majority in aggregate principal amount of the outstanding Notes a direction
inconsistent with the request, and the Trustee has failed to institute such
proceedings, within 60 days. However, these limitations do not apply to a suit
instituted by a Holder for the enforcement of payment of the principal or
interest on such Notes on or after the respective due dates expressed in such
Notes. Holders of a majority in aggregate principal amount of the outstanding
Notes will have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred to the Trustee (subject to certain exceptions).
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Holders, unless such
Holders shall have offered to the Trustee reasonable security or indemnity.
The Trustee will, within 90 days after the occurrence of a default, mail
to all Holders notice of all defaults known to it, but except in the case of a
default in the payment of the principal of or interest on any of the Notes, the
Trustee shall be protected in withholding such notice if it in good faith
determines that the withholding of such notice is in the interests of such
Holders. Multimedia will be required to furnish to the Trustee annually a
statement of the performance by Multimedia of certain of its obligations under
the Indenture and as to any default in the performance of the obligations.
Modifications, Amendments and Waivers
Modifications and amendments of the Indenture may be made by Multimedia
and the Trustee with the consent of the Holders of a majority in aggregate
principal amount of the then outstanding Notes held by persons other than
affiliates of Multimedia; provided, however, that no such modification or
amendment may, without the consent of the Holder of each outstanding Note
affected thereby, (i) change the stated maturity of the principal of, or any
installment of interest on, any Note, or reduce the principal amount thereof or
the rate of interest thereon; (ii) change the place of payment where, or the
coin or currency in which, any Note or the interest thereon is payable; (iii)
impair the right to institute suit for the enforcement of any such payment on
or after the stated maturity thereof; (iv) modify the provisions of the
Indenture with respect to the subordination of the Notes in a manner adverse to
the Holders; (v) reduce the percentage in principal amount of the Outstanding
Notes, the consent of whose Holders is required for any supplement or waiver;
(vi) reduce the vote of Holders necessary to waive certain defaults or
compliance with certain provisions of the Indenture; (vii) following the making
of an offer, modify the provisions of the Indenture with respect to
Multimedia's obligations to repurchase the Notes in a manner adverse to the
Holders; or (viii) modify the provisions of the Indenture with respect to a
Holder's right to exchange or convert the Notes in a manner adverse to such
Holder.
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Amendments and supplements to the Indenture may be made by Multimedia and
the Trustee without the consent of any Holder, in part, (i) to evidence the
succession of another corporation to the Company and the assumption by any such
successor of the covenants of the Company herein and in the Notes; or (ii) to
add to the covenants of the Company for the benefit of the Holders, or to
surrender any right or power herein conferred upon the Company; or (iii) to
cure any ambiguity, to correct or supplement any provision herein which may be
inconsistent with any other provision herein, or to make any other provisions
with respect to matters or questions arising under this Indenture which shall
not be inconsistent with the provisions of this Indenture, provided such action
shall not adversely affect the interests of the Holders in any material
respect.
Holders of a majority in aggregate principal amount of Outstanding Notes
may on behalf of the Holders waive any past defaults, other than a default (i)
in payment of the principal, premium, if any, or interest on any Notes or (ii)
in respect of a covenant or provision in the Indenture which pursuant to the
Indenture cannot be modified or amended without the consent of the Holder of
each Outstanding Note affected.
Book-Entry
The Notes will be issued in the form of a global note or notes (together,
the "Global Note") deposited with, or on behalf of, The Depository Trust
Company ("DTC") and registered in the name of Cede & Co. as DTC's nominee.
Owners of beneficial interests in the Notes represented by the Global Note will
hold such interests pursuant to the procedures and practices of DTC and must
exercise any rights in respect of their interests (including any right to
convert or require repurchase of their interests) in accordance with those
procedures and practices. Such beneficial owners will not be Holders, and will
not be entitled to any rights under the Global Note or the Indenture, with
respect to the Global Note and the Company and the Trustee, and any of their
respective agents, may treat DTC as the sole Holder and owner of the Global
Note.
DTC has advised Multimedia as follows: DTC is a limited-purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the provisions
of Section 17A of the Exchange Act. DTC holds securities that its participants
deposit with DTC. DTC also facilitates the settlement among participants of
securities transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in participants' accounts,
thereby eliminating the need for physical movement of securities certificates.
Direct participants include securities brokers and dealers, banks, trust
companies, clearing corporations, and certain other organizations. DTC is owned
by a number of its direct participants and by the New York Stock Exchange,
Inc., the American Stock Exchange, Inc., and the National Association of
Securities Dealers, Inc. Access to the DTC system is also available to others
such as securities brokers and dealers, banks, and trust companies that clear
through or maintain a custodial relationship with a direct participant, either
directly or indirectly. The rules applicable to DTC and its participants are on
file with the Securities and Exchange Commission.
Unless and until they are exchanged in whole or in part for certificated
Notes in definitive form as set forth below, the Global Note may not be
transferred except as a whole by DTC to a nominee of DTC, or by a nominee of
DTC to DTC or another nominee of DTC.
The Notes represented by the Global Note will not be exchangeable for
certificated Notes, provided that if (i) DTC is at any time unwilling, unable
or ineligible to continue as depositary or (ii) there shall have occurred and
be continuing an Event of Default with respect to the Notes represented by the
Global Note, Multimedia will issue individual Notes in definitive form in
exchange for the Global Note. In addition, Multimedia may at any time and in
its sole discretion determine not to have a Global Note, and, in such event,
will issue individual Notes in definitive form in exchange for the Global Note
previously representing all such Notes. In such instances, an owner of a
beneficial interest in a Global Note will be entitled to physical delivery of
Notes in definitive form equal in principal amount to such beneficial interest
and to have such Notes registered in its name. Individual Notes so issued in
definitive form will be issued in denominations of $1,000 and any larger amount
that is an integral multiple of $1,000 and will be issued in registered form
only, without coupons.
Payments of principal of and interest on the Notes will be made by
Multimedia through the Trustee to DTC or its nominee, as the case may be, as
the registered owner of the Global Note. Neither Multimedia nor the
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Trustee will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests of
the Global Note or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests. Multimedia expects that DTC,
upon receipt of any payment of principal or interest in respect of the Global
Note, will credit the accounts of the related participants with payment in
amounts proportionate to their respective holdings in principal amount of
beneficial interest in the Global Note as shown on the records of DTC.
Multimedia also expects that payments by participants to owners of beneficial
interests in the Global Note will be governed by standing customer instructions
and customary practices, as is now the case with securities held for the
accounts of customers in bearer form or registered in "street name," and will
be the responsibility of such participants.
So long as the Notes are represented by a Global Note, DTC or its nominee
will be the only entity that can exercise a right to repayment pursuant to the
Holder's option to elect repayment of its Notes or the right of conversion of
the Notes. Notice by participants or by owners of beneficial interests in a
Global Note held through such participants of the exercise of the option to
elect repayment, or the right of conversion, of beneficial interests in Notes
represented by the Global Note must be transmitted to DTC in accordance with
its procedures on a form required by DTC and provided to participants. In order
to ensure that DTC's nominee will timely exercise a right to repayment, or the
right of conversion, with respect to a particular Note, the beneficial owner of
such Notes must instruct the broker or other participant through which it holds
an interest in such Notes to notify DTC of its desire to exercise a right to
repayment, or the right of conversion. Different firms have different cut-off
times for accepting instructions from their customers and, accordingly, each
beneficial owner should consult the broker or other participant through which
it holds an interest in a Note in order to ascertain the cut-off time by which
such an instruction must be given in order for timely notice to be delivered to
DTC. Multimedia will not be liable for any delay in delivery of such notice to
DTC.
Governing Law
The Indenture and the Notes will be governed by, and construed in
accordance with, the laws of the State of New York, without giving effect to
such State's conflict of law principles.
Trustee
The Bank of New York will be the Trustee under the Indenture and the
paying agent and registrar for the Notes. The Indenture will provide that
Multimedia will indemnify the Trustee against any loss, liability or expense
incurred without negligence or willful misconduct on the part of the Trustee in
connection with the acceptance or administration of the trust created by the
Indenture. Multimedia and its subsidiaries may maintain deposit accounts and
conduct other banking transactions with the Trustee or its affiliates in the
ordinary course of business, and the Trustee and its affiliates may from time
to time in the future provide Multimedia and its subsidiaries with banking and
financial services in the ordinary course of their business.
Limited Market for the Notes
The Notes will be traded in the over-the-counter market in the so-called
"pink sheets" or the NASD's "Electronic Bulletin Board." No assurance can be
given that a market for the Notes will develop, as to the liquidity or
sustainability of any market that may develop, or the ability of Holders to
sell their Notes at any price. Future trading prices of the Notes will depend
on many factors, including, among others, prevailing interest rates, the
Company's operating results, the price of the Common Stock and the market for
similar securities.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Multimedia consists of 20,000,000 shares
of Common Stock, par value $.01 per share, and 500,000 shares of Blank Check
Preferred Stock. Multimedia currently has issued 9,751,949 shares and has
outstanding an aggregate of 9,701,949 shares of its Common Stock.
Common Stock
Holders of Common Stock have the right to cast one vote for each share
held of record on all matters submitted to a vote of the stockholders,
including the election of directors. Holders of Common Stock are entitled to
receive such dividends, pro rata, based on the number of shares held, when, as
and if declared by the Board of Directors, from funds legally available
therefor, subject to the rights of holders of any outstanding preferred stock.
Multimedia has never paid cash dividends on its Common Stock and does not
anticipate or intend paying cash dividends in the foreseeable future on its
Common Stock. In the event of the liquidation, dissolution or winding up of the
affairs of Multimedia, all assets and funds of Multimedia remaining after the
payment of all debts and other liabilities, subject to the rights of the
holders of any outstanding Preferred Stock, shall be distributed to the
holders, pro rata on a per share basis, among the holders of the Common Stock.
Holders of Common Stock are not entitled to preemptive, subscription,
cumulative voting or conversion rights, and there are no redemption or sinking
fund provisions applicable to the Common Stock. All outstanding shares of
Common Stock are, and the shares of Common Stock offered hereby will be, when
issued, fully paid and non-assessable.
Preferred Stock
Blank Check Preferred Stock
The Company is authorized to issue up to 500,000 shares of Blank Check
Preferred Stock. The Board of Directors has the authority to issue this Blank
Check Preferred Stock in one or more series and to fix the number of shares and
the relative rights, conversion rights, voting rights and terms of redemption
(including sinking fund provisions) and liquidation preferences, without
further vote or action by the stockholders. If shares of Blank Check Preferred
Stock with voting rights are issued, such issuance could affect the voting
rights of the holders of the Company's Common Stock by increasing the number of
outstanding shares having voting rights, and by the creation of class or series
voting rights. If the Board of Directors authorizes the issuance of shares of
Blank Check Preferred Stock with conversion rights, the number of shares of
Common Stock outstanding could potentially be increased by up to the authorized
amount. Issuances of Blank Check Preferred Stock could, under certain
circumstances, have the effect of delaying or preventing a change in control of
the Company and may adversely affect the rights of holders of Common Stock.
Also, Blank Check Preferred Stock could have preferences over the Common Stock
(and other series of preferred stock) with respect to dividend and liquidation
rights. The Company currently has no plans to issue any Blank Check Preferred
Stock.
Investor Warrants and Stockholders Warrants
Each of the warrants granted to certain investors and stockholders of the
Company prior to the IPO entitle the holder to purchase one share of Common
Stock at an exercise price per share equal to $7.80 at any time or from time to
time, but not later than 5:00 P.M., New York City time, on December 31, 2006.
Each of these warrants provides for adjustment of the exercise price and for a
change in the number of shares issuable upon exercise to protect holders
against dilution in the event of a stock dividend, stock split, combination or
reclassification of the Common Stock or upon issuances of shares of Common
Stock at prices lower than the market price of the Common Stock, with certain
exceptions. In addition, the warrants issued to certain investors of the
Company prior to the IPO also contain a cashless exercise option provision.
Each of these warrants may be exercised upon surrender of the certificate
evidencing the warrants on or prior to its expiration date at the offices of
the Company or the Transfer Agent (as defined below), with the form of
"Election to Purchase" on the reverse side of the Warrant certificate completed
and executed as indicated, accompanied by payment of the full exercise price
(by certified or bank check payable to the order of the Company) for the number
of shares with respect to which the Investor Warrant or Shareholder Warrant is
being exercised. Shares issued upon exercise of these warrants and payment in
accordance with the terms of these warrants
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will be fully paid and non-assessable. These warrants do not confer upon the
holders of these warrants any voting or other rights of a stockholder of the
Company. Upon exercise of these warrants, the holders of the Common Stock
issued upon such exercise will have registration rights as set forth in the
Investor's Rights Agreement. See "Certain Transactions -- Private Placement and
Related Transactions."
Underwriters' Warrants
The Company sold to the IPO Underwriters, for nominal consideration, the
IPO Underwriters' Warrants to purchase up to an aggregate of 335,000 shares of
Common Stock. The IPO Underwriters' Warrants are exercisable commencing April
1, 1998 through April 1, 2002 at an exercise price equal to $9.90 per share,
subject to adjustment in certain events, and are not transferable until March
26, 1998 except to officers of the IPO Underwriters or to members of the
selling group. The IPO Underwriters' Warrants also contain a cashless exercise
provision. The Company has agreed to register under the Securities Act during
the four-year period commencing on March 26, 1998, on two separate occasions,
the securities issuable upon exercise of the IPO Underwriters' Warrants. The
initial such registration shall be at the Company's expense and the second at
the expense of the holders.
The Company has agreed to sell to the Underwriter of this Offering or its
designee, for nominal consideration, Underwriter's Warrants to purchase up to
an aggregate of shares of Common Stock. The Underwriter's Warrants are
exercisable during the four-year period commencing . 1999 at an exercise
price equal to $ per share, subject to adjustment in certain events, and are
not transferable until , 1999 except to officers of the Underwriter or to
members of the selling group. The Underwriter's Warrants also contain a
cashless exercise provision. The Company has agreed to register under the
Securities Act during the four-year period commencing on , 1999, on two
separate occasions, the securities issuable upon exercise thereof. The initial
such registration shall be at the Company's expense and the second at the
expense of the holders.
Business Combination Provisions
The Company is subject to the "business combination" statute of the
Delaware Law, an anti-takeover law enacted in 1988. In general, Section 203 of
the Delaware Law prohibits a publicly-held Delaware corporation from engaging
in a "business combination" with an "interested stockholder" for a period of
three years after the date of the transaction in which the person became an
"interested stockholder," unless (a) prior to such date the board of directors
of the corporation approved either the "business combination" or the
transaction which resulted in the stockholder becoming an "interested
stockholder," (b) upon consummation of the transaction which resulted in the
stockholder becoming an "interested stockholder," the "interested stockholder"
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned (i) by persons who are
directors and also officers and (ii) employee stock plans in which employee
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer, or (c)
on or subsequent to such date the "business combination" is approved by the
board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66 2/3% of the outstanding
voting stock which is not owned by the "interested stockholder." A "business
combination" includes mergers, stock or asset sales and other transactions
resulting in a financial benefit to the "interested stockholders." An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock. Although Section 203 permits the Company to elect
not to be governed by its provisions, the Company to date has not made this
election. Upon closing of this Offering and the registration of its shares of
Common Stock under the Exchange Act, the restrictions imposed by such statute
will apply to the Company and, as a result of the application of Section 203,
potential acquirors of the Company may be discouraged from attempting to effect
an acquisition transaction with the Company, thereby possibly depriving holders
of the Company's securities of certain opportunities to sell or otherwise
dispose of such securities at above-market prices pursuant to such
transactions.
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SHARES ELIGIBLE FOR FUTURE SALE
Multimedia currently has 9,701,949 shares of Common Stock outstanding. Of
these shares outstanding, 3,350,000 shares of Common Stock are freely
transferable without restriction or further registration under the Securities
Act, unless purchased by affiliates of Multimedia as that term is defined in
Rule 144 under the Securities Act ("Rule 144") described below.
Of the 9,701,949 shares of Common Stock outstanding, 498,285 are Escrow
Shares, 5,732,357 are held by affiliates whose resales are subject to volume
limitations. In addition, all of the Company's officers, directors and certain
stockholders who hold, in the aggregate, approximately 65.4% of the outstanding
Common Stock, have entered into the Lock-Up Agreements with the IPO
Underwriters wherein they agreed not to sell or otherwise dispose of any shares
of Common Stock (other than shares of Common Stock acquired in the public
market) or to exercise registration rights without the prior written consent of
the Royce until March 27, 1999; provided, however, that the stockholders of the
Company subject to the Lock-Up Agreements (other than officers and directors of
the Company) may sell or otherwise dispose of shares of Common Stock in one or
more private sales without such consent if the acquirors (and any subsequent
acquirors) of such shares enter into a Lock-Up Agreement with the IPO
Underwriters restricting the transferability of such shares for the remainder
of period between March 26, 1997 and March 26, 1999; and provided further that
certain stockholders whose Common Stock was issued upon the automatic
conversion of the Series A Preferred Stock may not enter into such private
sales without such consent prior to October 24, 1998. Royce Investment Group,
Inc. has indicated that it will not consent to any sale or other disposition of
such shares of Common Stock which were issued upon the automatic conversion of
the Series A Preferred Stock prior to October 24, 1998, except in the event of
a tender offer. In connection with the acquisition of FSE, the Company issued
146,949 shares of Common Stock to Dr. Simmet who has agreed with the Company
not to sell or transfer such shares until November 13, 1998. Future sales of
shares of Common Stock by existing stockholders pursuant to Rule 144 under the
Securities Act could have an adverse effect on the price of the Common Stock.
In addition, the Company has outstanding warrants to purchase an aggregate
of 2,683,485 shares of Common Stock issued to the IPO Underwriters, certain
investors in connection with the Company's formation and certain stockholders
of the Company's predecessor in connection with the Company's formation. The
Company has also reserved for issuance 500,000 shares of Common Stock in
connection with the 1996 Stock Option Plan, none of which have been granted ,
70,000 shares of Common Stock issuable upon exercise of options issued to
Arnold J. Wasserman, 75,000 shares of Common Stock issuable upon exercise of
options to Reiner Hallauer and shares of Common Stock issuable upon exercise
of warrants to be issued to the Underwriter in this Offering. The existence of
these securities could have an adverse effect on the price of the Company's
outstanding securities. If any of these warrants or options are exercised, the
value of the Common Stock held by public investors will be diluted if the value
of such stock immediately prior to the exercise of such warrants or options
exceeds the exercise price thereof, with the extent of such dilution depending
upon such excess. These warrants or options afford the holders thereof the
opportunity, at nominal cost, to profit from a rise in the market price of the
Common Stock, which may adversely affect the terms upon which the Company could
issue additional Common Stock during the term thereof. In addition, holders of
such warrants and options are likely to exercise them when, in all likelihood,
the Company could obtain additional capital on terms more favorable than those
provided by the warrants and options. Further, while these warrants and options
are outstanding, the Company's ability to obtain additional financing on
favorable terms may be adversely affected. See "Description of Securities" and
"Underwriting."
In general under Rule 144, a person (or persons whose shares are
aggregated), including persons who may be deemed to be "affiliates" of the
Company as that term is defined under the Securities Act, is entitled to sell
within any three-month period a number of restricted shares beneficially owned
for at least one year that does not exceed the greater of (i) 1% of the then
outstanding shares of Common Stock or (ii) the average weekly trading volume in
the Common Stock during the four calendar weeks preceding such sale. Sales
under Rule 144 are also subject to certain requirements as to the manner of
sale, notice and the availability of current public information about the
Company. However, a person who is not an affiliate of Multimedia and has
beneficially owned such shares for at least two years is entitled to sell such
shares without regard to the volume or other resale requirements.
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Vertical, Walther Glas and Messrs. Vogt, Sippel, Wasserman, Hallauer and
certain other holders of Common Stock and warrants have certain demand and
piggy-back registration rights covering their respective securities. Walther
Glas and Messrs. Vogt and Sippel have also entered into the Stockholders
Agreement (as defined herein) in which they have agreed not to sell or
otherwise dispose of any shares of Common Stock or exercise any registration
rights, or seek the consent of Royce Investment Group, Inc. for such sale,
disposition or exercise, without Vertical's prior written consent until April
1, 1999. The holders of such registration rights have waived their rights to
have their securities registered on the Registration Statement of which this
Prospectus is a part. See "Certain Transactions." In addition, the IPO
Underwriters and the Underwriter in this Offering also have demand and
piggy-back registration rights with respect to the securities underlying their
respective warrants.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
considerations relating to the purchase, ownership and disposition of the Notes
and the Common Stock into which Notes may be converted, but does not purport to
be a complete analysis of all the potential tax considerations relating
thereto. This summary is based on laws, regulations, ruling and decisions now
in effect, all of which are subject to change. This summary deals only with
initial investors who will hold Notes and Common Stock as capital assets and
does not address tax considerations applicable to investors that may be subject
to special tax rules, such as banks, tax-exempt organizations, insurance
companies, dealers in securities or currencies, persons that will hold the
Notes or Common Stock as part of a position in a "straddle" for tax purposes,
persons other than United States Holders or holders of Notes that did not
acquire the Notes in the initial distribution thereof.
INVESTORS CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT WITH THEIR OWN
TAX ADVISORS REGARDING THE APPLICATION OF THE UNITED STATES FEDERAL INCOME TAX
AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL, OR FOREIGN TAXING
JURISDICTION.
United States Holder
As used herein, the term "United States Holder" means a holder of a Note
that is a citizen or resident of the United States, or that is a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, an estate the income of
which is subject to United States federal income taxation regardless of its
source, or a trust subject to the primary supervision of a United States court
and the control of one or more United States persons, and the term "United
States" means the United States of America (including the States and District
of Columbia).
Payment of Interest
Interest on a Note generally will be includible in the income of a United
States Holder as ordinary income at the time such interest is received or
accrued, in accordance with such Holder's method of accounting for United
States federal income tax purposes.
Sale, Exchange or Redemption of the Notes
Upon the sale, exchange or redemption of a Note, a United States Holder
generally will recognize capital gain or loss equal to the difference between
(i) the amount of cash proceeds and the fair market value of any property
received on the sale, exchange or redemption (except to the extent such amount
is attributable to accrued interest income, which is taxable as ordinary
income) and (ii) such Holder's adjusted basis in the Note. A United States
Holder's adjusted basis in a Note generally will equal the cost of the Note to
such holder. Such capital gain or loss will be long-term capital gain or loss
if the Note was held for more than one year, at the time of sale, exchange or
redemption. A United States Holder who is an individual is subject to tax at a
maximum rate of 28% in respect of property held for more than one year and at a
maximum rate of 20% in respect of property held in excess of 18 months.
Conversion of the Notes
A United States Holder generally will not recognize any income, gain, or
loss upon conversion of a Note into Common Stock except with respect to cash
received in lieu of a fractional share of Common Stock. Such United States
Holder's basis in the Common Stock received on conversion of a Note will be the
same as such United States Holder's adjusted basis in the Note at the time of
conversion (reduced by any basis allocable to a fractional share interest), and
the holding period for the Common Stock received on conversion will generally
include the holding period of the Note converted.
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Cash received in lieu of a fractional share of Common Stock upon
conversion will be treated as a payment in exchange for the fractional share of
Common Stock. Accordingly, the receipt of cash in lieu of a fractional share of
Common Stock generally will result in capital gain or loss (measured by the
difference between the cash received for the fractional share and the United
States Holder's adjusted basis in the fractional share).
Adjustment of Conversion Price
The conversion price of the Notes is subject to adjustment in certain
circumstances. Under Section 305(c) of the United States Internal Revenue Code
of 1986 (the "Code"), adjustments that have the effect of increasing the
proportionate interest of holders of the Notes in the assets or earnings of the
Company (for example, an adjustment following a distribution of property by the
Company to its stockholders) may in some circumstances give rise to deemed
dividend income to holders of the Notes; similarly, a failure to adjust the
conversion price of the Notes to reflect a stock dividend or other event
increasing the proportionate interest of the holders of outstanding Company
Common Stock can in some circumstances give rise to deemed dividend income to
holders of such Common Stock.
Dividends on the Common Stock
Dividends paid on the Common Stock will be taxable as ordinary income to
the extent of the Company's current or accumulated earnings and profits for
federal income tax purposes. To the extent that the amount of the distributions
paid on the Common Stock exceeds the Company's current or accumulated earnings
and profits for federal income tax purposes, such distributions will be treated
first as a return of capital and will be applied against and reduce the
adjusted tax basis of the Common Stock in the hands of a stockholder. Any
remaining amount after the holder's basis has been reduced to zero will be
taxed as capital gain, and will be long-term capital gain if the holder's
holding period for the common stock exceeds one year. For individual United
States Holders, long-term capital gain is subject to the tax rates described in
"-- Sale, Exchange or Redemption of Notes." The deduction of capital losses is
subject to limitations for U.S. federal income tax purposes. For purposes of
the remainder of this discussion, the term "dividend" refers to a distribution
taxed as ordinary income as described above unless the context indicates
otherwise.
Dividends received by United States Holders that are corporations will be
eligible for the 70% dividends-received deduction under Section 243 of the
Code, subject to the limitations contained in Sections 246 and 246A of the
Code. A corporate stockholder's liability for alternative minimum tax may be
affected by the portion of the dividends received which such corporate
stockholder deducts in computing taxable income.
Section 1059 of the Code requires a corporate stockholder to reduce its
basis (but not below zero) in the Common Stock by the "nontaxed portion" of any
"extraordinary dividend" if the holder has not held its Common Stock for more
than two years as of the date the amount or payment of such dividend is agreed
to, announced or declared. Generally, the nontaxed portion of an extraordinary
dividend is the amount excluded from income under Section 243 of the Code
(relating to the dividends-received deduction). If any part of the nontaxed
portion of an extraordinary dividend has not been applied to reduce basis as a
result of the limitation on reducing basis below zero, Section 1059 requires
immediate recognition of such amount as gain from the sale or exchange of such
stock.
Sale or Other Disposition of Common Stock
Upon the sale or other disposition of shares of Common Stock, a United
States Holder generally will recognize capital gain or loss equal to the
difference between the amount realized on the sale and such holder's tax basis
in the Common Stock. Gain or loss upon the disposition of the Common Stock will
be capital gain or loss and will be long-term capital gain if, at the time of
the disposition, the Common Stock has been held for more than one year (which,
in the case of Common Stock acquired upon conversion of a Note, would include
the period during which the converted Note was held). For individual United
States Holders, long-term capital gain is subject to the tax rates described in
"-- Sale, Exchange or Redemption of Notes." The deduction of capital losses is
subject to limitations for U.S. federal income tax purposes.
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Information Reporting and Backup Withholding Tax
In general, information reporting requirements will apply to payments of
principal, premium, if any, and interest on a Note, payments of dividends on
Common Stock, and payments of the proceeds of the sale of a Note or Common
Stock to certain non-corporate United States Holders, and a 31% backup
withholding tax may apply to such payments if the United States Holder (i)
fails to furnish or certify his correct taxpayer identification number to the
payor in the manner required, (ii) is notified by the Internal Revenue Service
(the "IRS") that he has failed to report payments of interest and dividends
properly, or (iii) under certain circumstances, fails to certify that he has
not been notified by the IRS that he is subject to backup withholding for
failure to report interest and dividend payments. Any amounts withheld under
the backup withholding rules from a payment to a United States Holder will be
allowed as a credit against such holder's United States federal income tax
liability and may entitle the holder to a refund.
UNDERWRITING
Royce Investment Group, Inc. (the "Underwriter"), has agreed, subject to
the terms and conditions of the Underwriting Agreement between Multimedia and
the Underwriter (the "Underwriting Agreement"), to purchase from Multimedia,
and Multimedia has agreed to sell to the Underwriter, $10,000,000 principal
amount of Notes.
The Underwriter has advised Multimedia that it proposes to offer the Notes
to the public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers who are members of the National Association
of Securities Dealers, Inc. (the "NASD"), at such price less a concession of
not in excess of $ , of which a sum not in excess of $ may in turn be
reallowed to other dealers who are members of the NASD. After the commencement
of the Offering, the public offering price, the concession and the reallowance
may be changed by the Underwriter. The Underwriter is committed to purchase all
of the Notes offered hereby if any are purchased.
Multimedia has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act. Multimedia has
also agreed to pay to the Underwriter a non-accountable expense allowance equal
to 3.0% of the gross proceeds derived from the sale of the Notes offered
hereby, including any Notes purchased pursuant to the Underwriter's
over-allotment option, $70,000 of which has been paid to date.
Multimedia has granted to the Underwriter an option exercisable during the
30-day period commencing on the date of this Prospectus, to purchase from
Multimedia at the public offering price set forth on the cover page of this
Prospectus less underwriting discounts and commissions, up to $1,500,000
additional principal amount of Notes for the purpose of covering
over-allotments, if any, made in connection with the sale of the Notes offered
hereby.
All of Multimedia's officers and directors and certain stockholders who
hold, in the aggregate, approximately 65.4% of the outstanding Common Stock
have entered into the Lock-Up Agreements wherein they agreed not to sell or
otherwise dispose of any shares of Common Stock (other than shares of Common
Stock acquired in the public market) or to exercise any registration rights
without the prior written consent of the Underwriter until March 27, 1999;
provided, however, that the stockholders of Multimedia subject to the Lock-up
Agreements (other than officers and directors of Multimedia) may sell or
otherwise dispose of shares of Common Stock in one or more private sales
without such consent if the acquirors (and any subsequent acquirors) of such
shares enter into a Lock-Up Agreement with the Underwriter restricting the
transferability of such shares for the remainder of the period between March
26, 1997 and March 26, 1999; and provided further that the participants in the
Private Placement may not sell or otherwise dispose of their shares of Common
Stock in such private sales without such consent prior to October 24, 1998.
Multimedia has agreed to sell to the Underwriter or its designees, for
nominal consideration, the Underwriter's Warrants to purchase up to an
aggregate of shares of Common Stock. The Underwriter's Warrants are
exercisable during the four-year period commencing one year from the date of
this Prospectus at an exercise price equal to $ , subject to adjustments in
certain events, and are not transferable for a period of one year from the date
of this Prospectus except to officers of the Underwriters or to members of the
selling
84
<PAGE>
group. The Underwriter's Warrants also contain a cashless exercise provision.
Multimedia has agreed to register under the Securities Act during the four-year
period commencing , 1999, on two separate occasions, the securities
issuable upon exercise thereof. The initial such registration shall be at
Multimedia's expense and the second at the expense of the holders.
During the five-year period from the date of this Prospectus, in the event
the Underwriter originates a financing or a merger, acquisition, joint venture,
strategic introduction or other similar transaction to which Multimedia is a
party, the Underwriter will be entitled to receive a finder's fee in
consideration of the origination of such transaction. The fee is based upon a
percentage of the consideration paid in the transaction.
The Notes will be traded in the over-the-counter market in the so-called
"pink sheets" or the NASD's "Electronic Bulletin Board." No assurance can be
given that a market for the Notes will develop, as to the liquidity or
sustainability of any market that may develop, or the ability of Holders to
sell their Notes at any price. Future trading prices of the Notes will depend
on many factors, including, among others, prevailing interest rates,
Multimedia's operating results, the price of the Common Stock and the market
for similar securities.
In connection with the Offering, the Underwriter and certain selling group
members may engage in certain transactions that stabilize, maintain or
otherwise affect the market price of the Notes and the Common Stock. Such
transactions may include stabilization transactions effected in accordance with
Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase the Notes and Common Stock for the purpose of pegging, fixing or
maintaining the market price of such securities. The Underwriter may also
create a short position in the Notes by selling more Notes in connection with
the Offering than it is committed to purchase from Multimedia, and in such case
the Underwriter may reduce all or a portion of that short position by
purchasing the Notes in the open market. The Underwriter also may elect to
reduce any short position by exercising all or any portion of the
over-allotment option described herein. In addition, the Underwriter may impose
"penalty bids" on certain selling group members. This means that if the
Underwriter purchases Notes or shares of Common Stock in the open market to
reduce such short position or to stabilize the price of the Note or the Common
Stock, it may reclaim the amount of the selling concession from selling group
members who sold those Notes as part of the Offering. Any of the transactions
described in this paragraph may stabilize or maintain the market price of the
Notes and the Common Stock at a level above that which might otherwise prevail
in the open market.
Neither Multimedia nor the Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Notes or the Common Stock. In
addition, neither Multimedia nor the Underwriter makes any representation that
the Underwriter or any selling group members will engage in such transactions
or that such transactions, once commenced, will not be discontinued without
notice.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Baker & McKenzie, New York, New York. Certain legal matters related
to this Offering will be passed upon for the Underwriter by Bachner, Tally,
Polevoy & Misher LLP, New York, New York. Baker & McKenzie, New York will rely,
without independent verification, on the opinion of Baker & McKenzie, Zurich
and Baker & McKenzie, Munich as to matters of Swiss and German law,
respectively.
EXPERTS
The consolidated financial statements of IAT Multimedia, Inc. as of
December 31, 1995 and 1996 and for each of the three years in the period ended
December 31, 1996 included in this Prospectus and Registration Statement have
been included herein in reliance on the report of Rothstein, Kass & Company,
P.C., independent certified public accountants, given on the authority of said
firm as experts in accounting and auditing.
The financial statements of FSE Computer-Handel GmbH & Co. KG, Pirmasens
as of December 31, 1995 and 1996 and for each of the three years in the period
ended December 31, 1996 included in this Prospectus and Registration Statement
have been included in reliance on the report of Rothstein, Kass & Company,
P.C., independent certified public accountants, given on the authority of said
firm as experts in accounting and auditing.
85
<PAGE>
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith will file reports and other information with
the Commission. The Company has filed a Registration Statement on Form S-1
under the Securities Act with the Commission in Washington, D.C. with respect
to the Notes offered hereby. This Prospectus, which is part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement and the exhibits thereto. For further information with
respect to the Company and the Notes offered hereby, reference is hereby made
to the Registration Statement and such exhibits, which may be inspected without
charge at the office of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission located at Seven World
Trade Center, 13th Floor, New York, New York 10048 and at 500 West Madison
(Suite 1400), Chicago, Illinois 60661. Copies of such material may also be
obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a Web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission. Statements contained in this Prospectus as
to the contents of any contract or other document referred to are not
necessarily complete and in each instance reference is made to the copy of such
contract or document filed as an exhibit to the Registration Statement, each
such statement being qualified in all respects by such reference.
86
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
------------
<S> <C>
IAT Multimedia, Inc. and Subsidiaries
Independent Auditors' Report .................................... F-2
Consolidated Financial Statements
Consolidated Balance Sheets .................................... F-3
Consolidated Statements of Operations ........................ F-4
Consolidated Statements of Stockholders' Equity (Deficit) ...... F-5
Consolidated Statements of Cash Flows ........................ F-6
Notes to Consolidated Financial Statements ..................... F-7 -- F-13
FSE Computer-Handel GmbH & Co. KG
Independent Auditors' Report .................................... F-14
Financial Statements:
Balance Sheets as of December 31, 1995 and 1996 ............... F-15
Income Statements for the years ended December 31, 1994, 1995
and 1996 ...................................................... F-16
Statements of Partners Capital for the years ended
December 31, 1994, 1995 and 1996 .............................. F-17
Statements of Cash Flows for the years ended December 31, 1994,
1995 and 1996 ................................................ F-18 - F-19
Notes to Financial Statements ................................. F-20 - F-27
Unaudited Financial Statements:
Balance Sheets as of September 30, 1996 and 1997 ............... F-28
Income Statements for the Nine Months ended September 30,
1996 and 1997 ................................................ F-29
Statements of Partners Capital for the Nine Months ended
September 30, 1996 and 1997 ................................. F-30
Statements of Cash Flows for the Nine Months ended September
30, 1996 and 1997 ............................................. F-31 - F-32
Notes to the Unaudited Financial Statements .................. F-33 - F-38
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
IAT Multimedia, Inc.
We have audited the accompanying consolidated balance sheets of IAT Multimedia,
Inc. and Subsidiaries as of December 31, 1995 and 1996, and the related
consolidated statements of operations, changes in stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of IAT Multimedia,
Inc. and Subsidiaries as of December 31, 1995 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
Roseland, New Jersey
January 31, 1997, except for Note 13 as to which
the date is April 1, 1997
F-2
<PAGE>
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
---------------------------------- ----------------
1995 1996 1997
--------------- ---------------- ----------------
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash ................................................ $ 198,879 $ 264,661 $ 7,938,344
Marketable securities .............................. 3,177,570
Accounts receivable, less allowance for doubtful
accounts of $0 in 1995, $20,000 in 1996 and
$46,520 in 1997 .................................... 600,904 309,133 127,305
Inventories .......................................... 476,487 437,128 348,566
Other current assets ................................. 212,330 192,996 319,875
------------ ------------- -------------
Total current assets .............................. 1,488,600 1,203,918 11,911,660
Equipment and improvements, less accumulated
depreciation and amortization ........................ 567,806 638,955 655,644
Other assets:
Other assets ....................................... 96,667 438,030
Deferred registration costs ........................ 276,525
------------ ------------- -------------
$ 2,056,406 $ 2,216,065 $ 13,005,334
============ ============= =============
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Notes payable, banks ................................. $ 1,616,669 $ 1,811,837 $ 1,460,726
Accounts payable and other current liabilities . 978,480 1,013,400 751,347
Loans payable, stockholders ........................ 1,107,407 448,276
------------ ------------- -------------
Total current liabilities ........................ 2,595,149 3,932,644 2,660,349
------------ ------------- -------------
Loans payable, stockholders, net of current portion . 348,913 963,704 425,690
------------ ------------- -------------
Series A convertible preferred stock, $.01 par value,
redeemable, authorized, issued and outstanding ......... 1,400,000
------------ ------------- -------------
Commitments and contingencies Stockholders'
equity (deficit):
Preferred stock, $.01 par value, authorized
500,000 shares, none issued Common stock,
$.01 par value, authorized 20,000,000 shares,
issued 3,500,000, 4,375,000 and 9,605,000
shares, respectively .............................. 35,000 43,750 96,050
Capital in excess of par value ..................... 6,472,051 8,002,884 26,194,723
Accumulated deficit ................................. (7,184,969) (12,293,447) (16,647,906)
Treasury stock (50,000 shares) ..................... (206,260)
Cumulative translation adjustment .................. (209,738) 166,530 482,688
------------ ------------- -------------
Total stockholders' equity (deficit) ............ (887,656) (4,080,283) 9,919,295
------------ ------------- -------------
$ 2,056,406 $ 2,216,065 $ 13,005,334
============ ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
------------------------------------------------- --------------------------------
1994 1995 1996 1996 1997
--------------- --------------- --------------- --------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales ................................. $ 1,053,148 $ 1,510,076 $ 1,193,302 $ 961,257 $ 537,561
Cost of sales ........................... 699,701 967,909 811,771 689,952 328,613
------------ ------------ ------------ ------------ ------------
Gross margin .............................. 353,447 542,167 381,531 271,305 208,948
------------ ------------ ------------ ------------ ------------
Operating expenses:
Research and development costs:
Expenses incurred .................. 2,269,191 2,531,093 2,728,815 1,952,079 1,967,604
Less participations received ...... 2,206,888 868,335 398,177 272,071 94,070
------------ ------------ ------------ ------------ ------------
Research and development costs,
net .............................. 62,303 1,662,758 2,330,638 1,680,008 1,873,534
Selling expenses ..................... 739,385 1,265,697 1,462,191 1,156,324 1,474,334
General and administrative expenses . 798,766 1,374,379 1,494,858 1,041,894 1,374,210
------------ ------------ ------------ ------------ ------------
1,600,454 4,302,834 5,287,687 3,878,226 4,722,078
------------ ------------ ------------ ------------ ------------
Operating loss ........................... (1,247,007) (3,760,667) (4,906,156) (3,606,921) (4,513,130)
------------ ------------ ------------ ------------ ------------
Other income (expense):
Interest income ........................ 362,322
Interest expense ..................... (124,776) (128,804) (213,136) (138,922) (169,454)
Other income ........................... 36,586 30,127 10,814 12,862 17,428
Minority interest in net loss of
subsidiaries ........................... 129,167
------------ ------------ ------------ ------------ ------------
(88,190) 30,490 (202,322) (126,060) 210,296
------------ ------------ ------------ ------------ ------------
Net loss ................................. $ (1,335,197) $ (3,730,177) $ (5,108,478) $ (3,732,981) $ (4,302,834)
============ ============ ============ ============ ============
Loss per share of common stock ............ $ (.33) $ (.77) $ (.89) $ (.65) $ (.54)
============ ============ ============ ============ ============
Weighted average number of common
shares outstanding ..................... 4,001,715 4,838,958 5,751,715 5,751,715 7,970,762
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock
----------------------- Capital in
Common Excess of Par
Shares Stock Value
----------- ---------- ---------------
<S> <C> <C> <C>
Balances, January 1, 1994 ...... 1,750,000 $ 17,500 $ 2,685,203
Change in cumulative
translation adjustment ......
Net loss .....................
Balances, December 31,
1994 ........................ 1,750,000 17,500 2,685,203
Issuance of common stock ....... 1,750,000 17,500 3,786,848
Change in cumulative
translation adjustment ......
Net loss .....................
Balances, December 31, --------- --------- ----------
1995 ........................ 3,500,000 35,000 6,472,051
Issuance of common stock ....... 875,000 8,750 1,530,833
Change in cumulative
translation adjustment ......
Net loss .....................
Balances, December 31, --------- --------- ----------
1996 ........................ 4,375,000 43,750 8,002,884
Issuance of common stock
(unaudited) .................. 5,230,000 52,300 18,191,839
Change in cumulative
translation adjustment
(unaudited) ..................
Dividends (unaudited) .........
Acquisition of treasury
stock (unaudited) ............
Net loss (unaudited) .........
Balances, September 30, --------- --------- ----------
1997 (unaudited) ............ 9,605,000 $ 96,050 $26,194,723
========= ======== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Cumulative
Accumulated Translation Treasury
Deficit Adjustment Stock Total
---------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Balances, January 1, 1994 ...... $ (2,119,595) $ (6,330) $ -- $ 576,778
Change in cumulative
translation adjustment ...... 20,204 20,204
Net loss ..................... (1,335,197) (1,335,197)
------------- ---------- ---------- ------------
Balances, December 31,
1994 ........................ (3,454,792) 13,874 -- (738,215)
Issuance of common stock ....... 3,804,348
Change in cumulative
translation adjustment ...... (223,612) (223,612)
Net loss ..................... (3,730,177) (3,730,177)
------------- ---------- ---------- ------------
Balances, December 31,
1995 ........................ (7,184,969) (209,738) -- (887,656)
Issuance of common stock ....... 1,539,583
Change in cumulative
translation adjustment ...... 376,268 376,268
Net loss ..................... (5,108,478) (5,108,478)
------------- ---------- ---------- ------------
Balances, December 31,
1996 ........................ (12,293,447) 166,530 -- (4,080,283)
Issuance of common stock
(unaudited) .................. 18,244,139
Change in cumulative
translation adjustment
(unaudited) .................. 316,158 316,158
Dividends (unaudited) ......... (51,625) (51,625)
Acquisition of treasury
stock (unaudited) ............ (206,260) (206,260)
Net loss (unaudited) ......... (4,302,834) (4,302,834)
------------- ---------- ---------- ------------
Balances, September 30,
1997 (unaudited) ............ $ (16,647,906) $ 482,688 $ (206,260) $ 9,919,295
============= ========== ========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------
1994 1995 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ....................................... $ (1,335,197) $ (3,730,177) $ (5,108,478)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization .................. 152,413 194,274 230,134
Common stock issued for services ...............
Minority interest .............................. (129,167)
(Increase) decrease in cash attributable to
changes in assets and liabilities:
Accounts receivable ........................... 448,460 291,512 216,016
Inventories .................................... (23,611) (111,089) (34,002)
Other current assets ........................... 18,282 (409) (8,480)
Other assets .................................... (96,667)
Accounts payable and other current
liabilities .................................... (13,116) 253,707 194,949
------------- ------------- -------------
Net cash used in operating activities ......... (752,769) (3,231,349) (4,606,528)
------------- ------------- -------------
Cash flows from investing activities:
Purchases of equipment and improvements ......... (169,435) (243,706) (370,780)
Purchase of marketable securities ............... ------------- ------------- -------------
Net cash used in investing activities ............ (169,435) (243,706) (370,780)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from (repayments of) loans
payable, stockholders ........................... 321,124 (130,524) 1,931,250
Deferred registration costs ..................... (276,525)
Payment of preferred stock dividends ............
Proceeds from issuance of common stock ......... 3,804,348 1,539,583
Proceeds from issuance of preferred stock ...... 1,400,000
Issuance of common stock of a subsidiary to
a minority interest ........................... 129,167
Purchase of treasury stock .....................
Proceeds from (repayments of) short-term
bank loan ....................................... 501,507 (39,475) 473,235
------------- ------------- -------------
Net cash provided by financing activities ......... 822,631 3,763,516 5,067,543
------------- ------------- -------------
Effect of exchange rate changes on cash ......... (4,261) (103,403) (24,453)
------------- ------------- -------------
Net increase (decrease) in cash .................. (103,834) 185,058 65,782
Cash, beginning of period ........................ 117,655 13,821 198,879
------------- ------------- -------------
Cash, end of period .............................. $ 13,821 $ 198,879 $ 264,661
============= ============= =============
Supplemental disclosures of cash flow
information, cash paid during the period for
interest ....................................... $ 124,776 $ 128,804 $ 162,473
============= ============= =============
Supplemental schedule of non-cash operating
activities, common stock issued for services .....
Supplemental schedule of non-cash financing
activities, deferred registration cost paid
included in other assets and proceeds from
issuance of common stock ........................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------------
1996 1997
----------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss ....................................... $ (3,732,981) $ (4,302,834)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization .................. 166,659 212,410
Common stock issued for services ............... 22,500
Minority interest ..............................
(Increase) decrease in cash attributable to
changes in assets and liabilities:
Accounts receivable ........................... 491,199 189,068
Inventories .................................... (279,871) 58,415
Other current assets ........................... (15,859) (168,748)
Other assets .................................... (341,363)
Accounts payable and other current
liabilities .................................... 118,475 (192,852)
------------- -------------
Net cash used in operating activities ......... (3,252,378) (4,523,404)
------------- -------------
Cash flows from investing activities:
Purchases of equipment and improvements ......... (168,855) (295,765)
Purchase of marketable securities ............... (3,177,570)
------------- -------------
Net cash used in investing activities ............ (168,855) (3,473,335)
------------- -------------
Cash flows from financing activities:
Proceeds from (repayments of) loans
payable, stockholders ........................... 1,117,708 (1,054,310)
Deferred registration costs ..................... (160,000)
Payment of preferred stock dividends ............ (51,625)
Proceeds from issuance of common stock ......... 1,539,583 17,098,164
Proceeds from issuance of preferred stock ......
Issuance of common stock of a subsidiary to
a minority interest ...........................
Purchase of treasury stock ..................... (206,260)
Proceeds from (repayments of) short-term
bank loan ....................................... 682,485 (226,158)
------------- -------------
Net cash provided by financing activities ......... 3,179,776 15,559,811
------------- -------------
Effect of exchange rate changes on cash ......... 55,962 110,611
------------- -------------
Net increase (decrease) in cash .................. (185,495) 7,673,683
Cash, beginning of period ........................ 198,879 264,661
------------- -------------
Cash, end of period .............................. $ 13,384 $ 7,938,344
============= =============
Supplemental disclosures of cash flow
information, cash paid during the period for
interest ....................................... $ 128,281 $ 181,028
============= =============
Supplemental schedule of non-cash operating
activities, common stock issued for services ..... $ 22,500
=============
Supplemental schedule of non-cash financing
activities, deferred registration cost paid
included in other assets and proceeds from
issuance of common stock ........................ $ 276,525
=============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BUSINESS AND ORGANIZATION:
IAT Holdings, Inc. was incorporated under the laws of Delaware in
September 1996 and changed its name to IAT Multimedia, Inc. ("IAT") in December
1996. During October 1996, IAT issued 4,375,000 shares of its common stock for
100% of the outstanding shares of common stock of IAT AG, a corporation
organized under the laws of Switzerland, in a transaction accounted for as a
pooling of interests. IAT develops, produces and sells desktop video
conferencing communications systems to customers mainly in Germany and
Switzerland.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation -- The consolidated financial statements
include the accounts of IAT, its wholly-owned subsidiary IAT AG, Switzerland,
and a 74.9% owned subsidiary, IAT Deutschland GmbH Interactive Mediem Systeme
("IAT GmbH"), Bremen (collectively the "Company"). All intercompany accounts
and transactions have been eliminated.
Inventories -- Inventories are valued at the lower of cost, on the
first-in, first-out method (FIFO), or market. Cost includes materials, labor
and manufacturing overhead.
Revenue Recognition -- Revenues from the sale of communications systems
are recognized upon shipment to customers. Revenues from the rental of
communications systems are recognized on a straight-line basis over the rental
time period.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Equipment and Improvements -- Equipment and improvements are stated at
cost. Depreciation and amortization are provided using the straight-line method
over the following estimated useful lives:
Computer hardware and software 3-5 years
Office furniture and equipment 8 years
Leasehold improvements 10 years
Foreign Currency Translation -- The Company has determined that the local
currency of its Switzerland subsidiary, Swiss Francs, is the functional
currency. The financial statements of the subsidiaries have been translated
into U.S. dollars in accordance with Statement of Financial Accounting
Standards No. 52 (SFAS No. 52), "Foreign Currency Translation". SFAS No. 52
provides that all balance sheet accounts are translated at year-end rates of
exchange, (l.15, 1.35 and 1.45 Swiss Francs for each U.S. Dollar at December
31, 1995, 1996 and September 30, 1997 (unaudited), respectively), except for
equity accounts which are translated at historical rates. Income and expense
accounts are translated at the average of the exchange rates in effect during
the period. The resulting translation adjustments are included as a separate
component of stockholders' equity (deficit), whereas gains or losses arising
from foreign currency transactions are included in results of operations.
Fair Value of Financial Instruments -- The fair value of the Company's assets
and liabilities which qualify as financial instruments under Statement of
Financial Accounting Standards No. 107 approximate the carrying amounts
presented in the consolidated balance sheets.
Stock Options -- In October 1995, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). SFAS 123 requires compensation
expense to be recorded (i) using the new fair value method or (ii) using
existing accounting rules prescribed by Accounting Principles Board Opinion No.
25. "Accounting for Stock Issued to
F-7
<PAGE>
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Employees" ("APB 25") and related interpretations with pro forma disclosure of
what net income and earnings per share would have been had the Company adopted
the new fair value method. The Company accounts for its stock based
compensation plans in accordance with the provisions of APB 25.
Income Taxes -- The Company complies with Statement of Financial Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes", which requires an
asset and liability approach to financial reporting for income taxes. Deferred
income tax assets and liabilities are computed based on differences between the
financial reporting and tax bases of assets and liabilities that will result in
taxable or deductible amounts in the future, based on enacted tax laws and
rates applicable to the period in which the differences are expected to
reverse. Valuation allowances are established, when necessary, to reduce the
deferred income tax assets to the amount expected to be realized.
Research and Development Costs -- Research and development expenditures
conducted for internal purposes are expensed as incurred. The expenditures
include the following cost elements directly relating to research and
development: materials costs, equipment and facilities depreciation, personnel
costs, contract services and certain general and administrative expenses.
Software development costs incurred subsequent to establishment of
technological feasibility have not been material.
Loss Per Common Share -- Loss per share of common stock is based upon the
weighted average number of shares outstanding, including common stock
equivalents. Shares of common stock, to be placed in escrow upon completion of
the proposed public offering, which are common stock equivalents, have been
excluded from the calculation of loss per share. The weighted average includes
shares and common stock equivalents issued within one year of the Company's
initial public offering (IPO) with an issue price less than the IPO price. In
addition, all shares have been adjusted to reflect the reverse stock split
discussed in Note 9.
Unaudited Consolidated Financial Statements -- The unaudited consolidated
financial statements included herein have been prepared in accordance with
generally accepted accounting principles. In the opinion of management, the
unaudited consolidated financial statements include all adjustments of a normal
and recurring nature, which are necessary for a fair presentation of financial
condition and results of operations. The results of operations for the nine
months are not necessarily indicative of the results expected for the full
year.
Minority Interest in Consolidated Subsidiary -- The Company records minority
interest in its consolidated subsidiary at the cost of the investment, adjusted
for the applicable loss. Losses, however, will be recorded only to the extent
of the original investment and previously recognized equity in earnings, if
any.
Research and Development Participation Agreements -- The Company has entered
into various agreements relating to the joint development of the Company's
products. In accordance with these agreements, the Company and its counterparts
each have rights for the use of the developed technology. Reimbursed research
and development costs for the years ended December 31, 1994, 1995, 1996 and the
nine months ended September 30, 1996 (unaudited) and 1997 (unaudited) were
$2,206,888, $868,335, $398,177, $272,071 and $94,070, respectively.
NOTE 3. INVENTORIES:
Inventories consist of the following:
December 31, September 30,
------------------------- --------------
1995 1996 1997
----------- ----------- --------------
(Unaudited)
Raw materials ...... $ 343,814 $ 406,202 $ 272,635
Finished goods ...... 132,673 30,926 75,931
--------- --------- ---------
$ 476,487 $ 437,128 $ 348,566
========= ========= =========
F-8
<PAGE>
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. EQUIPMENT AND IMPROVEMENTS:
Equipment and improvements consists of the following:
<TABLE>
<CAPTION>
December 31, September 30,
--------------------------- --------------
1995 1996 1997
------------ ------------ --------------
(Unaudited)
<S> <C> <C> <C>
Computer hardware and software ..................... $ 735,322 $ 806,768 $ 866,491
Office furniture and equipment ..................... 298,411 286,863 324,803
Leasehold improvements .............................. 344,791 294,624 276,236
---------- ---------- ----------
1,378,524 1,388,255 1,467,530
Less accumulated depreciation and amortization ...... 810,718 749,300 811,886
---------- ---------- ----------
$ 567,806 $ 638,955 $ 655,644
========== ========== ==========
</TABLE>
NOTE 5. NOTES PAYABLE, BANKS:
Notes payable, banks consist of the following:
<TABLE>
<CAPTION>
December 31, September 30,
---------------------------- --------------
1995 1996 1997
------------ ------------- --------------
(Unaudited)
<S> <C> <C> <C>
Note payable under a line of credit with a Swiss bank
for a maximum amount of approximately $1.4
million (approximately $900,000 at September 30,
1997, unaudited) net of cash deposits on account
with the financial institution, bearing interest at
6.5% per annum (at December 31, 1996), due on
demand and guaranteed by certain of the
stockholders of IAT ................................. $1,365,457 $ 1,209,770 $ 977,365
Notes payable to German banks, including a line of
credit arrangement for a maximum amount of
approximately $675,000 (approximately $600,000
at September 30, 1997, unaudited), bearing interest
at 10.5% per annum, due on demand, collateral-
ized by accounts receivable balances and guaran-
teed by the stockholders of IAT GmbH ................ 251,212 602,067 483,361
---------- ----------- ----------
$1,616,669 $ 1,811,837 $1,460,726
========== =========== ==========
</TABLE>
NOTE 6. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES:
Accounts payable and other current liabilities consist of the following:
<TABLE>
<CAPTION>
December 31, September 30,
------------------------- --------------
1995 1996 1997
---------- ------------ --------------
(Unaudited)
<S> <C> <C> <C>
Accounts payable, trade ......... $416,663 $ 347,615 $ 276,389
Value added taxes ............... 173,798 92,807 39,341
Payroll taxes .................. 143,393 120,486 96,698
Other current liabilities ...... 244,626 452,492 338,919
-------- ---------- ---------
$978,480 $1,013,400 $ 751,347
======== ========== =========
</TABLE>
F-9
<PAGE>
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. LOANS PAYABLE, STOCKHOLDERS:
Loans payable, stockholders consist of the following:
<TABLE>
<CAPTION>
December 31, September 30,
------------------------- --------------
1995 1996 1997
---------- ------------ --------------
(Unaudited)
<S> <C> <C> <C>
Unsecured loan payable to minority stockholder of
IAT GmbH, bearing interest at 5% per annum and
adjustable to 10% based upon the attainment of
retained earnings of IAT GmbH, as defined. Semi-
annual principal payments at 10% of outstanding
principal balance commence June 30, 2000. The
loan is subordinated to all other creditor claims,
except for amounts due from IAT GmbH to IAT
AG ................................................ $348,913 $ 482,222 $ 425,690
Unsecured loans payable to a stockholder, bearing
interest at 10% per annum. The loans are due the
earlier of June 30, 1997 or the completion of an
IPO. The loans are subordinated to all other
creditor claims ................................... 1,107,407
Unsecured loan payable to a stockholder bearing
interest at 8% per annum and due January 1, 1998.
The loan is subordinated to all other creditor
claims .......................................... 481,482 448,276
-------- ---------- ---------
348,913 2,071,111 873,966
Less current portion .............................. -- 1,107,407 448,276
-------- ---------- ---------
$348,913 $ 963,704 425,690
======== ========== =========
</TABLE>
Schedule aggregate payments of loans payable, stockholders are as follows:
Year Ending December 31,
- --------------------------------------
1997 $1,107,407
1998 481,482
1999 --
2000 96,444
2001 96,444
Thereafter 289,334
----------
$2,071,111
==========
NOTE 8. SERIES A CONVERTIBLE PREFERRED STOCK:
During October 1996, the Company issued 1,875,000 shares of Series A
Convertible Preferred Stock, par value $.01 per share (Series A), for net
proceeds of $1,400,000, after deducting expenses of $100,000. The Series A
Convertible Preferred Stock is convertible into 1,875,000 shares of the
Company's common stock subject to anti-dilution provisions and will
automatically convert upon the consummation of the Company's IPO under the
Securities Act of 1933, as amended. Each share of Series A has voting rights
equivalent to a common stockholder on an as converted basis. The Company is
required to pay a dividend at a rate of $.056 per share for the first year and
$.080 per share for each year thereafter. At any time after December 31, 1997,
the Company has the option to redeem all outstanding shares of Series A, and
the preferred stockholder has the option to require
F-10
<PAGE>
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the Company to purchase all, or a portion, of the Series A shares at any time
following the second anniversary of purchase, for an amount equal to the
liquidation preference, as defined, currently $0.80 per share. In addition, the
Company issued warrants to purchase 1,875,000 shares of common stock. The
warrants are exercisable at a per share price equal to 130% of the IPO price
per share, and expire at the earlier of the ten year anniversary date of the
IPO, or December 31, 2006.
NOTE 9. STOCKHOLDERS' EQUITY:
In connection with the issuance of the Company's common stock to certain
former IAT AG Stockholders, the Company issued warrants to purchase an
aggregate of 473,485 shares of the Company's common stock. The warrants are
exercisable at a per share price equal to 130% of the IPO price per share, and
expire at the earlier of the ten year anniversary date of the IPO, or December
31, 2006.
Certain of the Company's stockholders have agreed to place an aggregate of
498,285 shares of the Company's common stock in escrow. These shares will not
be assignable or transferable (but may be voted) until such time as they are
released from escrow based upon the Company meeting certain annual revenue and
or income levels or the common stock attaining certain price levels. All
reserved shares remaining in escrow on March 31, 2000 will be forfeited and
contributed to the Company's capital. In the event the Company attains any of
the earnings thresholds or stock prices providing for the release of escrow
shares to the stockholders, the Company will recognize compensation expense at
such time based on the fair market value of the shares.
In December 1996, the Company's board of directors and stockholders
approved the adoption of the Company's 1996 Stock Option Plan (the "1996
Plan"). The 1996 Plan provides for a grant of limited number of non-qualified
and incentive stock options in respect of up to 500,000 shares of common stock
to eligible employees and advisors. The 1996 Plan is administered by the Stock
Option Committee consisting of the independent directors of the Company. Each
option granted pursuant to the 1996 Plan is designated at the time of grant as
either an incentive stock option or as a non-qualified stock option. As of
September 30, 1997 (unaudited), no options have been granted under the plan.
In December 1996, the Board of Directors and stockholders of the Company
approved a reverse stock split whereby .947 shares of the common stock and
preferred stock were issued for each share outstanding at that time. All share
information in the consolidated financial statements has been restated to
reflect such stock split. In addition, the Company increased the amount of
authorized Preferred Stock $.01 par value, to 2,375,000 shares.
NOTE 10. DEPENDENCE UPON KEY RELATIONSHIPS:
Approximately $915,000, $1,032,000, $923,000, and $833,000 of the
Company's revenues for the years ended December 31, 1994, 1995, 1996 and for
the nine months ended and September 30, 1996 (unaudited) respectively, were
attributable to sales to one customer or affiliates of the customer. During the
nine months ended September 30, 1997 (unaudited) two customers accounted for
approximately 29% of revenues. Substantially all of the sales for the year
ended December 31, 1994, 1995, 1996 and the nine months ended September 30,
1996 (unaudited) and 1997 (unaudited) respectively, are from customers located
in Switzerland and Germany. At December 31, 1995 and 1996, and September 30,
1997, (unaudited) substantially all of the Company's assets and liabilities
were located in Germany and Switzerland.
The Company purchases several parts used in the production of its products
from certain vendors, even where multiple sources are available in an effort to
maintain quality control. The loss of either of these vendors could have a
material adverse effect on the Company's operations until the Company can
redesign its products or find an alternate source.
F-11
<PAGE>
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. INCOME TAXES:
For the years ended December 31, 1994, 1995 and 1996 and the nine months
ended September 30, 1996 (unaudited) and 1997 (unaudited), income taxes
computed at the statutory federal rates differ from the Company's effective
rate due to the change in the deferred tax asset valuation allowance. The
Company, since inception, has not generated taxable income within any taxing
jurisdiction in which the Company operates.
At December 31, 1996 and September 30, 1997 (unaudited), the Company has
net operating loss carryforwards ("NOL") for Swiss and German income tax
purposes of approximately $11,754,000 and $1,272,000, respectively, and
$12,945,000 and $2,153,000 , respectively. The Swiss NOLs expire between 1998
and 2005 and the German NOLs have no expiration date. As a result, at December
31, 1995 and 1996 and September 30, 1997 (unaudited), the Company recorded
deferred tax assets of approximately $3,669,000, and $4,162,000 and $5,068,000
, respectively and valuation allowances in the same amounts relating
principally to Swiss and German NOLs.
SFAS 109 requires that the Company record a valuation allowance when it is
"more likely than not that some portion or all of the deferred tax asset will
not be realized". The ultimate realization of this deferred tax asset depends
on the ability to generate sufficient taxable income in the future.
NOTE 12. COMMITMENTS AND CONTINGENCIES:
The Company has entered into operating leases for the use of office,
manufacturing facilities and equipment. Rent expense for the years ended
December 31, 1994, 1995, and 1996 and the nine months ended September 30, 1996
(unaudited) and 1997 (unaudited) was approximately $196,000, $306,000,
$400,000, $304,000 and $256,000, respectively.
Aggregate approximate future minimum rental payments under these operating
leases are as follows:
Year Ending December 31,
- --------------------------------
1997 $321,000
1998 220,000
1999 200,000
2000 3,000
--------
$744,000
========
The Company currently does not maintain product liability insurance, and
believes that it cannot obtain such insurance except at substantial cost. While
no product liability claims have been made against the Company, there can be no
assurance that such claims will not arise in the future. Any substantial
uninsured liability would have a material adverse effect on the results of
operations, cash flows or financial position of the Company.
The Company is a party to various legal actions, the outcome of which, in
the opinion of management, will not have a material adverse effect on results
of operations, cash flows or financial position of the Company.
In connection with the sale of the Series A shares, the Company entered
into a marketing agreement, with an affiliate of a Series A stockholder, to
assist with marketing the Company's products worldwide, and to arrange
financing for the Company's operations, leasing programs and distribution
arrangements. The agreement terminates in October 2001. Compensation under the
agreement is as follows:
$100,000 payable on the signing of the contract, $300,000 payable at such
time as the Company's consolidated stockholders' equity exceeds $6 million,
and an additional $100,000 payable at such time the Company's consolidated
stockholders' equity exceeds $8 million, as defined. The agreement may be
terminated at any time after June 30, 1997, if the Company's working
capital does not exceed $4 million.
F-12
<PAGE>
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. SUBSEQUENT EVENTS:
On April 1, 1997 the Company received proceeds from the IPO of
approximately $16,822,000 after underwriters' commissions and offering expenses
of approximately $3,278,000 from the sale of 3,350,000 shares of its common
stock. As a result of the consummation of the IPO, $400,000 was paid under a
marketing agreement (see Note 12), 1,875,000 shares of the Company's common
stock were issued in exchange for the Series A Preferred Stock and all
stockholder loans which became due at the completion of the IPO were paid.
SUBSEQUENT EVENTS (unaudited):
During July 1997, the Company issued 5,000 shares of its common stock in
exchange for consulting services and recorded an expense of $22,500 relating to
such issuance.
During July 1997, the Company purchased 50,000 shares of its common stock
for $206,260 in the open market. The stock will be held in the Company's
treasury, at cost.
In July and August 1997 the Company entered into stock option agreements
outside the stock option plan. These agreements with Mr. Wasserman and Mr.
Hallauer provide for the issuance of non-transferable options to purchase up to
an aggregate of 70,000 and 75,000 shares of the Company's common stock,
respectively, at a purchase price of $5.00 and $6.00 per share, respectively,
the fair market value on the date of the grant. The options vest in installments
through July 1999, as defined, and have piggy-back registration rights. As of
September 30, 1997, no options have been exercised.
On November 13, 1997, the Company acquired 100% of the interest in the
general partner of FSE Computer-Handel GmbH Co. KG ("FSE") and 80% of the
limited partnership interests of FSE from the sole limited partner, for an
aggregate purchase price of approximately $3,700,000. In connection with the
acquisition the Company paid approximately $1,855,000 in cash and issued 146,949
shares of its Common Stock valued at approximately $900,000 on the date of
issuance. In addition, during March 1998 the Company will be required to pay an
additional $927,000 in cash. The agreement also provides an option for the
Company to purchase an amount up to the remaining 20% of FSE based upon certain
criteria. The acquisition will be accounted for as a purchase transaction and
therefore the Company will record the net assets received at their fair market
value and record approximately $3,400,000 as goodwill to be amortized over a 10
year life. The Company used a portion of the proceeds from its IPO in April 1997
to pay the cash portion of the purchase price for the acquisition of FSE.
In December 1997, the Company singed a letter of intent with an
underwriting firm to raise $10 million of additional capital through an
offering of convertible debt securities.
F-13
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of FSE Computer-Handel GmbH & Co. KG, Pirmasens:
We have audited the accompanying balance sheets of FSE Computer-Handel GmbH &
Co. KG, Pirmasens, as of December 31, 1995 and 1996, and the related statements
of income, partners' capital accounts and cash flows for each of the three
years in the period ended December 31, 1996. 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our 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 FSE Computer-Handel GmbH & Co.
KG, Pirmasens, as of December 31, 1995 and 1996 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
The significant differences in the amounts due to partners resulting from
variances between accounting principles generally accepted in Germany and those
generally accepted in the United States are described in note 4 to the
financial statements.
Roseland, New Jersey
December 7, 1997
F-14
<PAGE>
FSE COMPUTER-HANDEL GmbH & CO. KG, PIRMASENS
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1995 1996
DM DM
-------------- -------------
<S> <C> <C>
ASSETS
Current assets
Cash .................................................................. 1,752,142 1,299,834
Marketable securities ................................................ 0 231,972
Accounts receivable ................................................... 2,930,308 1,872,498
Merchandise inventory ................................................ 2,242,308 2,930,748
Prepaid expenses ...................................................... 16,416 0
--------- ---------
Total current assets ................................................ 6,941,174 6,335,052
--------- ---------
Noncurrent assets
Leasehold improvements, operating equipment, furniture and fixtures ... 670,873 618,144
Deferred tax receivable ............................................. 8,700 0
Goodwill ............................................................ 1,166,424 975,082
--------- ---------
Total noncurrent assets ............................................. 1,845,997 1,593,226
--------- ---------
Total assets ...................................................... 8,787,171 7,928,278
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Bank indebtedness ................................................... 224 0
Accounts payable ...................................................... 3,679,366 1,538,252
Loans payable ......................................................... 227,565 205,000
Payroll taxes and social security payable ........................... 214,489 138,323
Value-added tax payable ............................................. 6,211 182,520
Other current taxes payable .......................................... 863,061 761,125
Accrued liabilities ................................................... 679,693 686,611
Deferred taxes payable ................................................ 197,472 265,400
Due to limited partner ................................................ 1,248,980 1,878,100
Due to silent partner ................................................ 0 7,500
Due to general partner ................................................ 0 199,382
Current portion of long-term bank loans .............................. 7,829 0
--------- ---------
Total current liabilities .......................................... 7,124,890 5,862,213
--------- ---------
Noncurrent liabilities
Long-term bank loan
Ford bank AG ......................................................... 7,829 0
Less: current portion ................................................ 7,829 0
--------- ---------
0 0
Accrued pension liability ............................................. 96,216 0
Loan from silent partner ............................................. 0 500,000
--------- ---------
Total noncurrent liabilities ....................................... 96,216 500,000
--------- ---------
Total liabilities ................................................... 7,221,106 6,362,213
--------- ---------
Partners' capital
Partners' fixed capital
General partner ...................................................... 0 0
Limited partner ...................................................... 250,000 250,000
Limited partner's revaluation capital ................................. 1,316,065 1,316,065
--------- ---------
Total Partners' capital ............................................. 1,566,065 1,566,065
--------- ---------
Total Liabilities and partners' capital ........................... 8,787,171 7,928,278
========= =========
</TABLE>
See accompanying notes to the financial statements
F-15
<PAGE>
FSE COMPUTER-HANDEL GmbH & CO, KG, PIRMASENS
INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
DM DM DM
------------ ------------ -----------
<S> <C> <C> <C>
Sales revenue .......................................... 36,266,391 64,235,750 61,648,921
Cost of goods sold .................................... 32,576,879 57,905,896 55,486,691
---------- ---------- ----------
Gross margin .......................................... 3,689,512 6,329,854 6,162,230
Selling expenses ....................................... 2,319,552 3,211,364 3,185,293
Administration expenses ................................. 805,771 991,513 1,699,712
Other operating expenses .............................. 0 65,588 24,628
---------- ---------- ----------
Operating income ....................................... 564,189 2,061,389 1,252,597
Other income .......................................... 81,481 12,133 131,516
Interest expense ....................................... 89,090 63,098 95,936
---------- ---------- ----------
Net income before income and income-related taxes ...... 556,580 2,010,424 1,288,177
Provision for income and income-related taxes ......... 297,667 692,840 292,274
---------- ---------- ----------
Net income for the year ................................. 258,913 1,317,584 995,903
========== ========== ==========
</TABLE>
See accompanying notes to the financial statements
F-16
<PAGE>
FSE COMPUTER-HANDEL GmbH & CO. KG, PIRMASENS
STATEMENT OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
Limited Partner Limited Partner
Fixed Capital Revaluation Capital Limited Partner
DM DM DM
----------------- --------------------- ----------------
<S> <C> <C> <C>
Balances January 1, 1994 .............................. 100,000 0 0
Net income for the year ................................. 258,913
Reclassification of amount due to limited partner ...... (258,913)
------- --------- ---------
Balances December 31, 1994 .............................. 100,000 0 0
Net income for the year ................................. 1,317,584
Contribution ............................................ 150,000
Withdrawals ............................................. (686,369)
Revaluation capital .................................... 1,316,065
Reclassification of amount due to limited partner ...... (631,215)
------- --------- ---------
Balances December 31, 1995 .............................. 250,000 1,316,065 0
Net Income for the year ................................. 995,903
Withdrawals .............................................
Reclassification of amount due to limited partner ...... (995,903)
------- --------- ---------
Balances December 31, 1996 .............................. 250,000 1,316,065 0
======= ========= =========
</TABLE>
See accompanying notes to the financial statements
F-17
<PAGE>
FSE COMPUTER-HANDEL GmbH & CO. KG, PIRMASENS
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
DM DM DM
------------ --------------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income for the year ................................. 258,913 1,317,584 995,903
Add: items not affecting cash
Depreciation of equipment .............................. 176,974 186,544 248,825
Amortization of goodwill .............................. 0 0 116,642
Loss (gain) on disposal of equipment .................. (14,419) 20,857 (14,916)
Gain on sale of marketable securities .................. 0 0 (8,034)
Pension expense ....................................... 0 96,216 44,758
Deferred tax expense (recovery), current ............... 158,000 (46,000) 142,628
Deferred tax expense, noncurrent ........................ 9,600 12,800 0
Increase (decrease) in cash from changes in non-cash assets
and liabilities:
Accounts receivable .................................... (463,099) (1,592,949) 1,057,810
Merchandise inventory ................................. (505,802) (797,951) (688,440)
Prepaid expenses ....................................... 3,012 (13,630) 16,416
Bank indebtedness ....................................... (3,395) 80 (224)
Accounts payable ....................................... 720,957 2,082,790 (2,141,114)
Loans payable .......................................... 0 (298,591) (22,565)
Payroll taxes and social security payable ............... 99,083 74,807 (76,166)
Value-added tax payable ................................. (30,280) (33,635) 176,309
Other current taxes payable ........................... 126,603 599,713 (101,936)
Accrued liabilities .................................... 142,610 341,001 6,918
Current portion of long-term bank loans ............... 456,623 (448,794) (7,829)
Due to silent partner ................................. 0 0 7,500
Due to general partner ................................. 0 0 67,108
Due to affiliate ....................................... (291,667) 0 0
-------- ---------- ----------
Cash inflow (outflow) from operating activities ......... 843,713 1,500,842 (180,407)
-------- ---------- ----------
FINANCING ACTIVITIES .......................................
Decrease in long-term bank loans .......................... (142,171) (7,829) 0
Loan from silent partner ................................ 0 0 500,000
Increase in limited partner's fixed capital .............. 100,000 0 0
Increase (decrease) in amount due to limited partner ..... (192,739) 520,263 (366,783)
Withdrawal ............................................... 0 (686,369) 0
-------- ---------- ----------
Cash outflow from financing activities ..................... (234,910) (173,935) 133,217
-------- ---------- ----------
INVESTING ACTIVITIES .......................................
Proceeds from sale of equipment .......................... 18,694 115,565 19,935
Proceeds from sale of marketable securities .............. 0 0 1,129,868
Purchase of equipment ................................... (26,991) (323,352) (201,115)
Purchase of marketable securities ....................... 0 0 (1,353,806)
-------- ---------- ----------
Cash outflow from investing activities ..................... (8,297) (207,787) (405,118)
-------- ---------- ----------
CASH INFLOW (OUTFLOW) DURING YEARS ........................ 600,506 1,119,120 (452,308)
CASH, BEGINNING OF YEARS ................................. 32,516 633,022 1,752,142
-------- ---------- ----------
CASH, END OF YEARS ....................................... 633,022 1,752,142 1,299,834
======== ========== ==========
Supplementary cash flow information:
Cash paid during the year for interest .................. 90,037 62,176 84,528
======== ========== ==========
Cash paid during the year for income and
income-related taxes .................................... 3,464 126,327 251,582
======== ========== ==========
</TABLE>
See accompanying notes to the financial statements
F-18
<PAGE>
FSE COMPUTER-HANDEL GmbH & CO. KG, PIRMASENS
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (Continued)
<TABLE>
<CAPTION>
1994 1995 1996
DM DM DM
-------- ------------- -------------
<S> <C> <C> <C>
Supplemental schedule of non-cash financing activities:
Transfer of assets from entities under common control not
affecting cash:
Leasehold improvements transferred in ........................ 176,824
Transfer in of deferred tax asset .............................. 59,700
-------
Change in amount due to affiliates ........................... 236,524
=======
Changes in assets and liabilities from the revaluation due to the
application of push-down accounting not affecting cash:
Loan granted by Mr. Straub .................................... (526,156)
Current deferred income tax payable ........................... (166,706)
Noncurrent deferred income tax assets ........................ 228,397
Valuation allowance on noncurrent deferred income tax assets (266,597)
Current deferred income tax assets ........................... 185,234
Inventory ...................................................... 339,547
Leasehold improvements ....................................... 276,997
Automobiles ................................................... 30,074
Operating equipment .......................................... 45,685
Furniture and fixtures ....................................... 3,166
Goodwill ...................................................... 1,166,424
---------
Revaluation capital .......................................... 1,316,065
=========
Noncash change in pension liability due to:
Deferred tax receivable transferred ........................ 8,700
Amount of pension obligation transferred ..................... (140,974)
--------
Change in amount due to general partner ..................... (132,274)
========
</TABLE>
See accompanying notes to the financial statements
F-19
<PAGE>
FSE COMPUTER-HANDEL GmbH & CO. KG, PIRMASENS
NOTES TO THE FINANCIAL STATEMENTS
1) Business and Organization:
FSE Computer-Handel GmbH & Co. KG, Pirmasens ("the Company") is a German
GmbH & Co. KG (Gesellschaft mit beschrankter Haftung and Company
Kommanditgesellschaft), a German limited partnership with a German GmbH (a
German limited liability company) as general partner. FSE Computer-Handel
Verwaltungsgesellschaft mbH, Mainz is the Company's sole general partner. The
Company's registered offices, head office and seat of business operations are
located in Pirmasens, Rhineland-Palatinate, Germany, but a retail store is also
maintained in Kaiserslautern, Rhineland-Palatinate.
The Company sells computer hardware, peripherals and accessories to
businesses, institutions and government agencies principally in Germany through
its direct sales force and its retail stores. The Company also engages in
mail-order sales.
2) Reorganization:
The Company was originally founded in 1987 as a sole proprietorship named
"Frank-Straub-Elektronik" by Mr. Frank Straub. In 1991 the net assets and
business of the proprietorship were transferred by Mr. Straub to the GmbH "FSE
Computer Handelsgesellschaft mbH" in exchange for 100 percent of the
GmbH-ownership interests. On December 21, 1995 Mr. Straub sold 100 percent of
his GmbH interests to Dr. Alfred Simmet. Under an owner's resolution dated July
26, 1996 notarized on August 1, 1996 Dr. Simmet resolved to convert the Company
from a GmbH into a GmbH & Co. KG, its present legal form, in accordance with
SectionSection 190 ff. i.V.m. SectionSection 226 Umwandlungsgesetz (Article 190
et seq. in connection with Articles 226 of the German Conversion Law). The
conversion became legally effective on September 17, 1996 upon the notarized
resolution having been registered at the Amtsgericht Pirmasens (Official Court
Pirmasens). Through this conversion, Dr. Simmet became the sole limited partner
and FSE Computer-Handel Verwaltungsgesellschaft mbH, Mainz, which is 100 percent
owned by Dr. Simmet, became the sole general partner.
The limited partnership is an unincorporated business and these financial
statements do not include all of the assets, liabilities, revenues and expenses
of the individual partners, and in particular, of the general partner.
3) Summary of Significant Accounting Policies:
a) Basis of Presentation and Preparation
These financial statements have been prepared in German marks ("DM") in
conformity with accounting principles generally accepted in the United States.
The effect of material differences between the financial statements prepared in
accordance with the German Commercial Code and those prepared in conformity
with accounting principles generally accepted in the United States on the
amounts due to partners are disclosed in note 4.
b) Accounting for Changes in Legal Form, Transfers and Exchanges between
Entities under Common Control, and Business Combinations
The transfer of the net assets of the proprietorship
"Frank-Straub-Elektronik" to FSE Computer Handelsgesellschaft mbH by Mr. Frank
Straub in exchange for 100% of its ownership interests has been recorded at
historical cost similar to that in pooling of interests accounting. Similarly,
leasehold improvements and bank loans payable transferred by affiliates under
common control in 1994 have been recorded at historical cost.
Because Dr. Simmet acquired all of the ownership interests of FSE Computer
Handelsgesellschaft mbH on December 21, 1995, the financial statements as of
December 31, 1995 reflect the application of push-down accounting, in which a
new basis of accounting for the purchased assets and liabilities has been
established. The net purchase price of DM 3,092 thousand for the Company
exceeded the net book value of the assets as at December 21, 1995 by some DM
1,316 thousand.
F-20
<PAGE>
FSE COMPUTER-HANDEL GmbH & CO. KG, PIRMASENS
NOTES TO THE FINANCIAL STATEMENTS
3) Summary of Significant Accounting Policies -- (Continued):
The adjustments to the book values of the identifiable assets and
liabilities of the Company to fair market value are summarized as follows:
<TABLE>
<CAPTION>
DM '000
--------
<S> <C>
Loan payable to Mr. Straub out of capital otherwise transferred ... (526)
Inventory ......................................................... 340
Leasehold improvements .......................................... 277
Operating and office equipment (including automobiles) ............ 76
Furniture and fixtures .......................................... 3
Current deferred tax liabilities, net ........................... 18
Noncurrent deferred tax assets, net .............................. 228
Valuation allowance for deferred tax assets ..................... (266)
Goodwill (see f) ................................................ 1,166
-----
1,316
=====
</TABLE>
The new basis of accounting is reflected in partners' capital as
revaluation capital. Because the purchase occurred a few business days before
the end of the year and business in 1995 subsequent to purchase was negligible,
it is assumed that no income was earned subsequent to purchase to December 31,
1995.
The conversion of FSE Computer Handelsgesellschaft mbH into FSE
Computer-Handel GmbH & Co. KG effective on September 17, 1996 was accounted for
at historical cost in a manner similar to that in pooling of interest
accounting.
Under pooling of interests accounting, the comparative figures of prior
years presented are restated on a combined basis as if companies had been
combined since the beginning of the earliest date presented. Therefore, the
equity in the Company of prior years has been restated to present the Company
as if it had been a limited partnership since inception.
c) Marketable Securities
Marketable Securities are accounted for in accordance with SFAS No. 115,
in which "Available-for-sale Securities" are reported at fair value and
unrealized holding gains and losses, if material, are reported as a separate
component of partners' equity. The cost of marketable securities is calculated
on a moving weighted average basis.
d) Inventory
Inventory items are valued individually at the lower of cost or market,
with cost determined on a moving weighted average basis for like items.
e) Leasehold Improvements, Operating Equipment, Furniture and Fixtures
Leasehold improvements, operating equipment, furniture and fixtures are
stated at cost net of accumulated depreciation. Depreciation is provided on a
straight-line basis over the estimated useful lives of the individual assets as
follows:
<TABLE>
<S> <C>
Leasehold improvements ....................................... Over term of lease
Operating and office equipment (including automobiles) ...... 2 - 5 years
Furniture and fixtures ....................................... 3 years
</TABLE>
f) Goodwill
Goodwill is stated at cost less accumulated amortization. The goodwill
relating to the purchase of the business by Dr. Simmet from Mr. Straub is being
amortized over its estimated useful life of ten years. Recognized tax benefits
for tax deductions for which valuation allowances have been recognized for
deferred tax assets at acquisition are applied to reduce goodwill related to
that acquisition.
F-21
<PAGE>
FSE COMPUTER-HANDEL GmbH & CO. KG, PIRMASENS
NOTES TO THE FINANCIAL STATEMENTS
3) Summary of Significant Accounting Policies -- (Continued):
g) Pension Obligations
Pension obligations are accounted for under the provisions of Statement of
Financial Accounting Standards No. 87 "Employers' Accounting for Pensions" in
which the minimum liability disclosed in the balance sheet is the sum of the
accumulated benefit obligation and accrued pension cost and pension cost is the
sum of service costs, interest on the projected benefit obligation, prior
service costs and gains or losses resulting from changes in the amount of the
projected benefit obligation. Since the pension plan is unfunded, no
determination of the value of plan assets is required.
h) Fair Value of Financial Instruments
The fair values of the Company's assets and liabilities which qualify as
financial instruments under Statement of Financial Accounting Standards No. 107
approximate the carrying amounts presented in the balance sheets.
i) Revenue Recognition
Revenue is recognized when the merchandise has been delivered to the
customer and the significant risks and rewards of ownership have been
transferred from the Company to the customer.
j) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
k) Foreign Exchange
Foreign exchange gains and losses on transactions during the period are
reflected in income. Assets and liabilities denominated in foreign currencies
are translated at the rate of exchange prevailing at the balance sheet date.
l) Income Taxes
The Company complies with Statement of Financial Accounting Standards No.
109 "Accounting for Income Taxes", which requires an asset and liability
approach to financial reporting for income taxes. Deferred income tax assets
and liabilities are computed based on differences between the financial
reporting and tax bases of assets and liabilities that will result in taxable
or deductible amounts in future, based on enacted laws and rates applicable to
the period in which the differences are expected to reverse. Valuation
allowances are established, when necessary, to reduce the deferred income tax
assets to the amount expected to be realized.
4) Significant Differences Between U.S. GAAP and German Accounting Principles
Resulting in Limitations on Partner Withdrawals:
These financial statements prepared under U.S. GAAP deviate significantly
from the statements prepared under German accounting principles. Under German
law, the amounts that can be withdrawn from the partnership are defined by
German accounting law rather than by U.S. GAAP. As at December 31, 1996 the
financial statements in accordance with German accounting principles disclose
an amount due to limited partner equal to DM 968,644, which is the amount that
is owed the limited partner under German law, rather than the DM 1,878,100 as
disclosed under U.S. GAAP. In addition, German accounting principles do not
allow the application of push-down accounting and therefore no revaluation
capital is included in the limited partner's capital accounts in the financial
statements prepared under German accounting principles.
F-22
<PAGE>
FSE COMPUTER-HANDEL GmbH & CO. KG, PIRMASENS
NOTES TO THE FINANCIAL STATEMENTS
5) Specific Provisions of the Partnership Agreement:
Under the limited partnership agreement, the limited partner, Dr. Simmet,
has fixed limited partner's capital of DM 250,000 and the general partner,
which has unlimited liability and is charged with managing the Company, has no
fixed capital in the limited partnership. The Company is to reimburse all
expenses incurred by the general partner in connection with its activities as
general partner. In addition, the general partner is to receive a risk premium
of DM 5,000 per year for providing its unlimited liability. The general partner
does not participate in the profits of the Company or in its losses insofar as
the losses do not cause its insolvency.
A current account is to be maintained for each partner, in which
transactions between each partner and the limited partnership are recorded.
Losses are to be recorded in special accumulated loss accounts. A separate
account is to be maintained for reserves held jointly and severally by the
partners. Partners' current account balances at the end of each month bear
interest at 2% annually above the current German Bundesbank discount rate. Ten
percent of the net income for the year after the deduction of the general
partner's risk premium and expense reimbursements are to be set aside as a
joint and severally held capital reserve of the partnership, as long as no
accumulated losses remain on the partners' special loss accounts. The remaining
net income is to be credited to the partners' current accounts.
In a general meeting of the partners on November 22, 1996, the partners
agreed to waive their right to interest on their current accounts and also
waived the creation of the capital reserve for the period ended December 31,
1996.
6) Silent Partner:
Under a silent partnership agreement dated January 1, 1996,
Mittelstandische Beteiligungsgesellschaft Rheinland-Pfalz mbH, Mainz ("MBG")
provided DM 500,000 in capital to the Company to assist in the financing of Dr.
Simmet's purchase of the Company. The silent partnership terminates on December
30, 2002. For the capital provided, MBG receives annual fixed compensation
equal to 7% of the capital provided payable quarterly. In addition, MBG
receives a share of annual net income for tax purposes, before special
write-downs and special items with an equity portion, of the Company not
exceeding 1.5% of its capital contribution and not exceeding 50% of the annual
net income of the Company. Unpaid amounts are accumulated and are payable in
subsequent years. MBG does not participate in the losses of the Company insofar
as it does not become insolvent: MGB's capital contribution is subordinated to
that of other creditors but ranks ahead of the liabilities due to general and
limited partners.
MBG has the right to represent its interests on any supervisory board of
the Company and its approval is required for any changes in the ownership
structure of the Company.
Because MBG does not participate in the losses of the Company and its
capital contribution receives a fixed compensation amount based on the size of
the contribution, which is analogous to interest, in economic substance the
capital contribution is a long-term loan rather than partnership capital.
Consequently, the MBG's interests in the Company are treated as a long-term
loan in these financial statements.
7) Marketable Securities:
Marketable securities consists of 30 Commerzbank US Dollar Money Market
Fund interest-bearing investment certificates which are being held as
"Available-for-sale Securities". The securities were purchased at a cost not
materially different from the market value presented in the balance sheet.
Other income for the year ended December 31, 1996 includes a gross gain (equal
to the net gain) of DM 8,034 from the sale of marketable securities purchased
at a cost of DM 1,121,834.
F-23
<PAGE>
FSE COMPUTER-HANDEL GmbH & CO. KG, PIRMASENS
NOTES TO THE FINANCIAL STATEMENTS
8) Leasehold Improvements, Operating Equipment, Furniture and Fixtures:
Leasehold improvements, operating equipment (including automobiles),
furniture and fixtures are as follows at December 31, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
DM DM
----------- ----------
<S> <C> <C>
Leasehold improvements .............................. 439,842 451,200
Automobiles .......................................... 260,030 307,820
Operating and office equipment ..................... 495,663 597,542
Furniture and fixtures .............................. 46,267 46,265
------- -------
1,241,802 1,402,827
Less accumulated depreciation and amortization ...... 570,929 784,683
--------- ---------
670,873 618,144
========= =========
</TABLE>
9) Goodwill:
Goodwill relates to the application of push-down accounting as noted in
Note 3b. The development of goodwill during the year 1996 is depicted as
follows:
<TABLE>
<CAPTION>
DM '000
--------
<S> <C>
Goodwill per acquisition ...................................................... 1,166
Amortization of goodwill ...................................................... (116)
-----
Reduction of goodwill due to recognition ....................................... 1,050
of tax benefit for which a valuation allowance had been accrued at acquisition (75)
-----
Goodwill as at December 31, 1996 ............................................. 975
=====
</TABLE>
The accumulated amortized goodwill as of December 31, 1996 was DM 116
thousand.
10) Long-term Bank Loan:
The long-term bank loan related to a car finance loan which bore interest
at 4.4% and was discharged in 1996.
11) Loan Payable:
The loan as at December 31, 1996 is payable to the former owner of the
Company, Mr. Straub, and is unsecured, bears interest at 7% per annum as of
October 1, 1995 and is due in January 1997. The loan was repaid in 1997.
12) Accrued Liabilities:
Accrued liabilities as at December 31, 1995 and 1996 include DM 385,000
and DM 370,000, respectively, estimated liability for warranties.
13) Accrued Pension Liability:
Under the terms of a pension agreement signed by the Company on December
22, 1995, Dr. Simmet is to receive a defined benefit pension with survivor's
benefits for his wife upon his reaching the age of 65. The pension includes
provisions for payment in case of disability or if he leaves the firm after
reaching the age of 60. The pension vests as of plan inception. The monthly
pension amount is calculated based upon 40% of the monthly gross salary
received before retirement, but includes increases based on Class A16 civil
servants' pension increases of the Federal Republic of Germany. His wife is to
receive 60% of the pension as survivor's benefits in the event of his decease.
The pension plan is entirely unfunded.
F-24
<PAGE>
FSE COMPUTER-HANDEL GmbH & CO. KG, PIRMASENS
NOTES TO THE FINANCIAL STATEMENTS
13) Accrued Pension Liability -- (Continued):
The pension liability and cost was based upon the report of an actuary
with the following assumptions: a 6% interest rate, an average 3% increase in
gross salary per year, and an average 2% increase in pensions per year for
civil servants Class A16.
As at December 31, 1995 the accumulated benefit obligation of DM 96,216
presented in the balance sheet does not materially deviate from the projected
benefit obligation of DM 116,790. Included in the income statement as pension
expense for 1995 is the increase in the accumulated benefit obligation from
plan inception of DM 96,216. The pension cost relates to service costs only.
As part of the conversion of the Company from a GmbH to a limited
partnership on September 17, 1996, the general partner accepted the obligations
under the pension plan.
14) Income Taxes:
No provision for corporate income tax has been made in these financial
statements for the year 1996, since the Company, as a limited partnership, is
not subject to this tax as of January 1, 1996. The financial statements for the
year 1996 include only provisions for income-related business taxes levied at a
local level. Both resident and nonresident incorporated partners of the Company
would be subject to German corporate tax on income earned from the partnership;
both resident and nonresident natural persons would be subject to income tax on
income earned from the partnership.
The tax rates applied to the years ended December 31, 1994 and 1995 were
calculated from the combined effect of both the locally-levied business income
tax and the corporate income tax levied at the state level.
<TABLE>
<CAPTION>
December 31, December 31,
1995 1996
DM DM
-------------- -------------
<S> <C> <C>
Components of net deferred tax liabilities or assets:
Total current deferred tax liabilities at applicable tax rate ........ 235,706 316,800
======= =======
Total current deferred tax assets at applicable tax rate .............. 38,234 51,400
======= =======
Total noncurrent deferred tax assets at applicable tax rate ........... 275,297 191,897
======= =======
Valuation allowance for noncurrent deferred tax assets .............. 266,597 191,897
======= =======
Approximate tax effect of temporary differences and carryforwards before
valuation allowances tax benefit (tax liability):
Allowance for doubtful accounts ...................................... 5,700
Accrued liability for warranties ...................................... (161,000) (177,000)
Differences in step up at purchase between GAAP and tax:
Inventory ........................................................... (36,472)
Leasehold improvements ............................................... 176,890 139,000
Automobiles ........................................................ 6,108
Operating and office equipment ...................................... 17,454
Lease contract ..................................................... 66,145 52,897
Pension obligation .................................................. 8,700
Inventory valuation .................................................. (139,800)
Loans payable valuation ............................................... 15,800
Value-added tax liability valuation ................................... 4,000
Other taxes payable valuation ......................................... 19,000
Due to general partner valuation ...................................... 6,900
-------- --------
Net temporary differences ............................................ 77,825 (73,503)
======== ========
</TABLE>
F-25
<PAGE>
FSE COMPUTER-HANDEL GmbH & CO. KG, PIRMASENS
NOTES TO THE FINANCIAL STATEMENTS
14) Income Taxes -- (Continued):
<TABLE>
<CAPTION>
1994 1995 1996
DM DM DM
------------ -------------- --------------
<S> <C> <C> <C>
Significant components of income tax expense attributable to
continuing operations:
Current tax expense ......................................... 130,067 726,040 149,646
Deferred tax expense (recovery) ............................. 138,600 (33,200) 67,928
Benefits of operating loss carryforwards (without expiry date) 29,000 0 0
Tax expense resulting from allocation of tax benefits to
reduce goodwill ........................................... 0 0 74,700
------- ------------ -------
297,667 692,840 292,274
======= ============ =======
Reconciliation of reported income tax expense to amount of
income tax expense resulting from applying statutory tax
rates:
Income tax expense resulting from applying statutory tax rates
Income before tax .......................................... 556,580 2,010,423 1,288,177
Combined statutory tax rate ................................. 51.3% 54% 19%
------- ------------ ---------
Notional income tax expense ................................. 285,526 1,085,628 244,754
======= ============ =========
Reconciliation to reported income tax expense
Reported income tax expense ................................. 297,667 692,840 292,274
Tax effect of permanent differences:
Deemed dividend for tax purposes ........................... (13,600)
Corporate tax component of temporary differences not
subject to valuation allowances that will not reverse
due to conversion of Company from corporation to
limited partnership ....................................... 348,000
Tax expense from reduction of goodwill for tax benefit
previously allowed for .................................... (74,700)
Component II goodwill amortization ........................ 22,200
Miscellaneous items ....................................... 1,459 44,788 4,980
------- ------------ ---------
285,526 1,085,628 244,754
======= ============ =========
</TABLE>
15) Financial Commitments:
Future annual commitments under operating leases requiring annual rental
payments are estimated as follows:
DM
--------
1997 ........................ 99,414
1998 ........................ 93,099
1999 ........................ 0
2000 ........................ 0
2001 ........................ 0
Thereafter .................. 0
------
192,513
=======
During 1994, 1995 and 1996 expenses incurred under operating leases
amounted to DM 149,909, DM 99,483, and DM 99,414, respectively.
The Company has two long-term contracts for services which result in
financial commitments of approximately DM 210,000 for 1997 and DM 10,000 for
1998. The expense incurred for such services amounted to DM 0 in 1995 and 1994
and DM 191,000 for 1996.
F-26
<PAGE>
FSE COMPUTER-HANDEL GmbH & CO. KG, PIRMASENS
NOTES TO THE FINANCIAL STATEMENTS
16) Related Party Transactions:
During 1996 the Company reimbursed DM 511,537 in expenses incurred by the
general partner on behalf of the Company. DM 506,537 of these expenses had been
charged by the Company to the general partner. Other transactions with the
limited partner and the silent partner are presented in the statement of
partners' current accounts. On October 1, 1995 the Company signed an agreement
with Dr. Simmet whereby he is to manage the Company as managing director. Under
the agreement, Dr. Simmet is to receive a gross salary totalling DM 25,000 per
month plus a bonus equal to 10% of income before taxes and bonuses under German
accounting principles. This agreement remained effective after the change in
ownership of the Company.
Dr. Simmet's wife is employed by the Company as an administrative
assistant at a gross salary of DM 5,548 per month.
17) Contingencies:
The Company has given guarantees on a DM 1,233,330 bank loan granted to
Dr. Simmet from the Kreissparkasse Kusel. In particular, the Company has given
a general guarantee and has pledged its merchandise inventory and trade
accounts receivable as well as its leasehold improvements, operating and office
equipment (including automobiles), furniture and fixtures.
In the ordinary course of business activities, the Company may become
contingently liable for litigation and claims with customers, suppliers and
former employees. Although it is not possible to estimate the extent of
potential costs and losses, if any, management believes that the ultimate
resolution of any such contingencies which may arise will not have a material
adverse effect on the financial position of the Company. Management believes
that the provisions made for contingent losses for estimated future warranty
claims (see note 12) are adequate.
18) Subsequent Events:
On November 13, 1997, 100% of the general partnership interest of the
Company and 80% of the limited partnership interests in the Company were sold
for an aggregate purchase price of DM 6,400,000, subject to certain adjustments
as defined. Pursuant to the agreement an amount up to an additional 10% limited
partnership interest may be sold to the purchaser for DM 1 million, subject to
certain conditions, and the remaining 10% may be sold to certain managers of the
Company for DM 800,000, subject to certain conditions. The purchase price will
be paid in cash of DM 3.2 million at closing, DM 1.6 million in cash payable on
March 31, 1998 and DM 1,6 million of common stock on the date of issuance
(146,949 shares) of IAT Multimedia, Inc., the purchaser. In connection with the
sale, the Company's general guarantee and pledge of certain of its assets to
Kreissparkasse Kusel (see note 17) have been released. In addition, the
Company entered into a two year employment agreement with Dr. Simmet, the
selling partner. The agreement provides for a monthly salary of DM 25,000.
On November 15, 1997, the Company repaid all amounts due to the Company's
silent partner.
F-27
<PAGE>
FSE COMPUTER-HANDEL GmbH & CO, KG, PIRMASENS
UNAUDITED BALANCE SHEETS AS OF SEPTEMBER 30, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
DM DM
----------- ----------
<S> <C> <C>
Assets
Current assets
Cash ................................................ 1,707,974 1,447,697
Marketable securities .............................. 1,121,834 893,427
Accounts receivable ................................. 2,406,131 2,658,304
Merchandise inventory .............................. 2,793,704 2,235,734
Prepaid expenses .................................... 12,792 21,315
--------- ---------
Total current assets .............................. 8,042,435 7,256,477
--------- ---------
Noncurrent Assets .......................................
Leasehold improvements, operating equipment, furniture
and fixtures ....................................... 641,771 736,510
Goodwill ............................................. 1,018,004 852,502
--------- ---------
Total noncurrent assets ........................... 1,659,775 1,589,012
--------- ---------
Total assets ....................................... 9,702,210 8,854,489
========= =========
Liabilities and Partners' Capital
Liabilities
Current liabilities
Bank indebtedness .................................... 3,021 0
Accounts payable .................................... 4,359,476 3,039,594
Loans payable ....................................... 239,512 0
Payroll taxes and social security payable ............ 0 99,571
Value-added tax payable .............................. 2,090 69,597
Other current taxes payable ........................ 849,698 19,274
Accrued liabilities ................................. 549,682 650,758
Deferred taxes payable .............................. 211,000 280,000
Due to limited partner .............................. 1,222,608 2,359,985
Due to silent partner .............................. 15,250 7,125
Due to general partner .............................. 183,808 253,520
--------- ---------
Total current liabilities ........................... 7,636,145 6,779,424
Noncurrent liabilities
Loan from silent partner .............................. 500,000 500,000
--------- ---------
Total liabilities .................................... 8,136,145 7,279,424
--------- ---------
Parnters' Capital
Partners' fixed capital
General partner ....................................... 0 0
Limited partner ....................................... 250,000 250,000
Limited partner's revaluation capital .................. 1,316,065 1,316,065
--------- ---------
Total partners' capital .............................. 1,566,065 1,566,065
--------- ---------
Total liabilities and partners' capital ............ 9,702,210 8,845,489
========= =========
</TABLE>
See accompanying notes to the unaudited financial statements
F-28
<PAGE>
FSE COMPUTER-HANDEL GmbH & CO. KG, PIRMASENS
UNAUDITED INCOME STATEMENTS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
DM DM
------------ -----------
<S> <C> <C>
Sales revenue ....................................... 43,292,061 46,356,386
Cost of goods sold ................................. 39,634,365 41,829,606
---------- ----------
Gross margin ....................................... 3,657,696 4,526,780
Selling expenses .................................... 2,121,243 2,311,881
Administration expenses ........................... 1,190,907 1,433,268
Other operating expenses ........................... 15,065 26,495
---------- ----------
Operating income .................................... 330,481 755,136
Other income ....................................... 166,605 327,187
---------- ----------
Income before interest and income taxes ............ 497,086 1,082,323
Interest expense .................................... 87,041 72,020
---------- ----------
Income before income and income-related taxes ...... 410,045 1,010,303
Provision for income and income-related taxes ...... 98,778 227,863
---------- ----------
Net income for the periods ........................ 311,267 782,440
========== ==========
</TABLE>
See accompanying notes to the unaudited financial statements
F-29
<PAGE>
FSE COMPUTER-HANDEL GMBH & CO. KG, PIRMASENS
UNAUDITED STATEMENTS OF PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
<TABLE>
<CAPTION>
Limited Limited
Partner Partner Limited
Fixed Capital Revaluation Capital Partner
DM DM DM
--------------- --------------------- -------------
<S> <C> <C> <C>
Balances January 1, 1996 .............................. 250,000 1,316,065 0
Net income for the period .............................. 311,267
Reclassification of amount due to limited partner ...... (311,267)
------- --------- --------
Balances September 30, 1996 ........................... 250,000 1,316,065 0
======= ========= ========
Balances January 1, 1997 .............................. 250,000 1,316,065 0
Net income for the period .............................. 782,440
Reclassification of amount due to limited partner ...... (782,440)
------- --------- --------
Balances September 30, 1997 ........................... 250,000 1,316,065 0
======= ========= ========
</TABLE>
See accompanying notes to the unaudited financial statements
F-30
<PAGE>
FSE COMPUTER-HANDEL GmbH & CO, KG, PIRMASENS
UNAUDITED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
DM DM
--------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income for the periods .......................................... 311,267 782,440
Add: items not affecting cash depreciation of equipment ............... 182,943 235,646
Amortization of goodwill .......................................... 87,482 87,480
Gain on disposal of equipment ....................................... (14,925) (7,021)
Gain on sale of marketable securities .............................. 0 (39,125)
Pension expense ................................................... 44,758 0
Deferred tax expense ................................................ 74,466 49,700
Increase (decrease) in cash from changes in non-cash assets and
liabilities:
Accounts receivable ................................................ 524,177 (785,806)
Merchandise inventory ............................................. (551,396) 695,014
Prepaid expenses ................................................... 3,624 (21,315)
Bank indebtedness ................................................... (5,032) 0
Accounts payable ................................................... 680,110 1,501,342
Loans payable ...................................................... 11,947 (205,000)
Value-added tax payable ............................................. (4,121) (112,923)
Payroll taxes and social security payable ........................... (214,489) (38,752)
Other current payable ............................................. (13,363) (741,851)
Due to silent partner ............................................. 15,250 (375)
Due to general partner ............................................. 51,534 54,138
Accrued liabilities ................................................ (130,011) (35,853)
-------- ---------
Cash inflow from operating activities ................................. 1,054,221 1,417,739
--------- ---------
FINANCING ACTIVITIES:
Loan from silent partner ............................................. 500,000 0
Decrease in amount due to limited partner ........................... (337,639) (300,555)
--------- ---------
Cash inflow (outflow) from financing activities ..................... 162,361 (300,555)
--------- ---------
INVESTING ACTIVITIES:
Proceeds from sale of equipment ....................................... 19,935 18,051
Proceeds from sale of marketable securities ........................... 0 861,598
Purchase of marketable securities .................................... (1,121,834) (1,483,928)
Purchase of equipment ................................................ (158,851) (365,042)
---------- ----------
Cash outflow from investing activities .............................. (1,260,750) (969,321)
---------- ----------
CASH INFLOW (OUTFLOW) DURING PERIODS ................................. (44,168) 147,863
CASH, BEGINNING OF PERIODS ............................................. 1,752,142 1,299,834
---------- ----------
CASH, END OF PERIODS ................................................... 1,707,974 1,447,697
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the periods for interest ............................. 68,041 47,190
========== ==========
Cash paid during the periods for income and income-related taxes ..... 37,675 920,014
========== ==========
</TABLE>
See accompanying notes to the unaudited financial statements
F-31
<PAGE>
FSE COMPUTER-HANDEL GmbH & CO, KG, PIRMASENS
UNAUDITED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 (CONTINUED)
<TABLE>
<CAPTION>
1996 1997
DM DM
------------- ------
<S> <C> <C>
Supplemental disclosure of non-cash financing activity:
Noncash change in pension liability due to:
Deferred tax receivable transferred .................. 8,700 --
Amount of pension obligation transferred ............ (140,974) --
-------- ------
Change in amount due to general partner ............ (132,274) --
======== ======
</TABLE>
See accompanying notes to the unaudited financial statements
F-32
<PAGE>
FSE COMPUTER-HANDEL GmbH & CO. KG, PIRMASENS
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
1) Business and Organization:
FSE Computer-Handel GmbH & Co. KG, Pirmasens ("the Company") is a German
GmbH & Co. KG (Gesellschaft mit beschrankter Haftung and Company
Kommanditgesellschaft), a German limited partnership with a German GmbH (a
German limited liability company) as general partner. FSE Computer-Handel
Verwaltungsgesellschaft mbH, Mainz is the Company's sole general partner. The
Company's registered offices, head office and seat of business operations are
located in Pirmasens, Rhineland-Palatinate, Germany, but a retail store is also
maintained in Kaiserslautern, Rhineland-Palatinate. The Company's fiscal year
is the calender year.
The Company sells computer hardware, peripherals and accessories to
businesses, institutions and government agencies principally in German through
its direct sales force and its retail stores. The Company also engages in
mail-order sales.
2) Reorganization:
The Company was originally founded in 1987 as a sole proprietorship named
"Frank-Straub-Elektronik" by Mr. Frank Straub. In 1991 the net assets and
business of the proprietorship were transferred by Mr. Strau(beta) to the GmbH
"FSE Computer Handelsgesellschaft mbH" in exchange for 100 percent of the
GmbH-ownership interests. On December 21, 1995 Mr. Straub sold 100 percent of
his GmbH interests to Dr. Alfred Simmet. Under an owner's resolution dated
July 26, 1996 notarized on August 1, 1996 Dr. Simmet resolved to convert the
Company from a GmbH into a GmbH & Co. KG, its present legal form, in
accordance with Sections 190 ff. i.V.m. Sections 226 Umwandlungsgesetz
(Article 190 et seq. in connection with Articles 226 of the German Conversion
Law). The conversion became legally effective on September 17, 1996 upon the
notarized resolution having been registered at the Amtsgericht Pirmasens
(Official Court Pirmasens). Through this conversion, Dr. Simmet became the
sole limited partner and FSE Computer-Handel Verwaltungsgesellschaft mbH,
Mainz, the sole general partner, which is 100% owned by Dr. Simmet.
The limited partnership is an unincorporated business and these financial
statements do not include all of the assets, liabilities, revenues and expenses
of the partners, and in particular, of the general partner.
3) Significant Accounting Policies:
a) Basis of Presentation and Preparation
These financial statements have been prepared in German marks ("DM") in
conformity with accounting principles generally accepted in the United
States. The effect of material differences between the financial statements
prepared in accordance with the German Commercial Code and those prepared
in conformity with accounting principles generally accepted in the United
States on the amounts due to partners is disclosed in note 4.
b) Accounting for Changes in Legal Form, Transfers and Exchanges between
Entities under Common
Control, and Business Combinations
The transfer of the net assets of the proprietorship
"Frank-Strau(beta)-Elektronik" to FSE Computer Handelsgesellschaft mbH by
Mr. Frank Straub in exchange for 100 % of its ownership interests has been
recorded at historical cost similar to that in pooling of interests
accounting. Similarly, leasehold improvements and bank loans payable
transferred by affiliates under common control in 1994 have been recorded
at historical cost.
Because Dr. Simmet acquired all of the ownership interests of FSE
Computer Handelsgesellschaft mbH on December 21, 1995, the financial
statements since December 21, 1995 reflect the application of push-down
accounting, in which a new basis of accounting for the purchased assets
and liabilities has been established. The net purchase price of DM 3,092
thousand for the Company exceeded the net book value of the assets as at
December 21, 1995 by some DM 1,316 thousand.
F-33
<PAGE>
FSE COMPUTER-HANDEL GmbH & CO. KG, PIRMASENS
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
The adjustments to the book values of the identifiable assets and liabilities
of the Company to fair market value are summarized as follows:
<TABLE>
<CAPTION>
DM '000
--------
<S> <C>
Loan payable to Mr. Straub out of Capital otherwise transferred ... (526)
Inventory ......................................................... 340
Leasehold improvements ............................................. 277
Operating and office equipment (including autos) .................. 76
Furniture and fixtures ............................................. 3
Current deferred tax liabilities, net .............................. 18
Noncurrent deferred tax assets, net .............................. 228
Valuation allowance for deferred tax assets ........................ (266)
Goodwill (see f) ................................................... 1,166
-----
1,316
=====
</TABLE>
The new basis of accounting is reflected in partners' capital as
revaluation capital. Because the purchase occurred a few business days before
the end of the 1995 business year and business in 1995 subsequent to purchase
was negligible, it was assumed that no income was earned subsequent to purchase
to December 31, 1995. The conversion of FSE Computer Handelsgesellschaft mbH
into FSE Computer-Handel GmbH & Co. KG effective on September 17, 1996 was
accounted for at historical cost in a manner similar to that in pooling of
interest accounting.
Under pooling of interests accounting, the comparative figures of prior
years presented are restated on a combined basis as if companies had been
combined since the beginning of the earliest date presented. Therefore, the
equity in the Company of prior years has been restated to present the Company
as if it had been a limited partnership since inception.
c) Marketable Securities
Marketable Securities are accounted for in accordance with SFAS No. 115,
in which "Available-for-sale Securities" are reported at fair value and
unrealized holding gains and losses, if material, are reported as a
separate component of partners' equity. The cost of marketable securities
is calculated on a moving weighted average basis.
d) Inventory
Inventory items are valued individually at the lower of cost or market,
with cost determined on a moving weighted average basis for like items.
e) Leasehold Improvements, Operating Equipment, Furniture and Fixtures
Leasehold improvements, operating equipment, furniture and fixtures are
stated at cost net of accumulated depreciation. Depreciation is provided on
a straight-line basis over the estimated useful lives of the individual
assets as follows:
<TABLE>
<S> <C>
Leasehold improvements ....................................... Over term of lease
Operating and office equipment (including automobiles) ...... 2 - 5 years
Furniture and fixtures ....................................... 3 years
</TABLE>
f) Goodwill
Goodwill is stated at cost less accumulated amortization. The goodwill
relating to the purchase of the business by Dr. Simmet from Mr. Straub is
being amortized over its estimated useful life of ten years. Recognized tax
benefits for tax deductions for which valuation allowances have been
recognized for deferred tax assets at acquisition are applied to reduce
goodwill related to that acquisition.
F-34
<PAGE>
FSE COMPUTER-HANDEL GmbH & CO. KG, PIRMASENS
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
g) Fair Value of Financial Instruments
The fair value of the Company's assets and liabilities which qualify as
financial instruments under Statement of Financial Accounting Standards
No. 107 approximate the carrying amounts presented in the balance sheets.
h) Revenue Recognition
Revenue is recognized when the merchandise has been delivered to the
customer and the significant risks and rewards of ownership have been
transferred from the Company to the customer.
i) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
j) Foreign Exchange
Foreign exchange gains and losses on transactions during the period are
reflected in income. Assets and liabilities denominated in foreign
currencies are translated at the rate of exchange prevailing at the balance
sheet date.
k) Income Taxes
The Company complies with Statement of Financial Accounting Standards
No. 109 "Accounting for Income Taxes", which requires an asset and
liability approach to financial reporting for income taxes. Deferred
income tax assets and liabilities are computed based on differences
between the financial reporting and tax bases of assets and liabilities
that will result in taxable or deductible amounts in future, based on
enacted laws and rates applicable to the period in which the differences
are expected to reverse. Valuation allowances are established, when
necessary, to reduce the deferred income tax assets to the amount expected
to be realized.
4) Significant Differences Between U.S. GAAP and German Accounting Principles
Resulting in
Limitations on Partner Withdrawals:
These financial statements prepared under U.S. GAAP deviate significantly
from the statements prepared under German accounting principles. Under German
law, the amounts that can be withdrawn from the partnership are defined by
German accounting law rather than by U.S. GAAP. As at September 30, 1997 the
financial statements in accordance with German accounting principles disclose
an amount due to limited partner equal to DM 1,631,109, which is the amount
that is owed the limited partner under German law, rather than the DM 2,359,985
as disclosed under U.S. GAAP. In addition, German accounting principles do not
allow the application of push-down accounting and therefore no revaluation
capital is included in the limited partner's capital accounts in the financial
statements prepared under German accounting principles.
5) Specific Provisions of the Partnership Agreement:
Under the limited partnership agreement, the limited partner, Dr. Simmet,
has fixed limited partner's capital of DM 250,000 and the general partner,
which has unlimited liability and is charged with managing the Company, has no
fixed capital in the limited partnership. The Company is to reimburse all
expenses incurred by the general partner in connection with its activities as
general partner. In addition, the general partner is to receive a risk premium
of DM 5,000 per year for providing its unlimited liability. The general partner
does not participate in the profits of the Company or in its losses insofar as
the losses do not cause its insolvency.
A current account is to be maintained for each partner, in which
transactions between each partner and the limited partnership are recorded.
Losses are to be recorded on special accumulated loss accounts. A separate
F-35
<PAGE>
FSE COMPUTER-HANDEL GmbH & CO. KG, PIRMASENS
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
account is to be maintained for reserves held jointly and severally by the
partners. Partners' current account balances at the end of each month bear
interest at 2% annually above the current German Bundesbank discount rate. Ten
percent of the net income for the year after the deduction of the general
partner's risk premium and expense reimbursements are to be set aside as a
joint and severally held capital reserve of the partnership, as long as no
accumulated losses remain on the partners' special loss accounts. The remaining
net income is to be credited to the partners' current accounts.
In a general meeting of the partners on November 22, 1996, the partners
agreed to waive their right to interest on their current accounts and also
waived the creation of the capital reserve for the period ended December 31,
1996; in another general meeting of the partners on September 29, 1997, the
partners waived the creation of the capital reserve for the period ended
September 30, 1997.
6) Silent Partner:
Under a silent partnership agreement dated January 1, 1996,
Mittelstandische Beteiligungsgesellschaft Rheinland-Pfalz mbH, Mainz ("MBG")
provided DM 500,000 in capital to the Company to assist in the financing of Dr.
Simmet's purchase of the Company. The silent partnership terminates on December
30, 2002. For the capital provided, MBG receives annual fixed compensation
equal to 7% of the capital provided payable quarterly. In addition, MBG
receives a share of annual net income for tax purposes, before special
write-downs and special items with an equity portion, of the Company not
exceeding 1.5% of its capital contribution and not exceeding 50% of the annual
net income of the Company. Unpaid amounts are accumulated and are payable in
subsequent years. MBG does not participate in the losses of the Company insofar
as it does not become insolvent: MBG's capital contribution is subordinated to
that of other creditors but ranks ahead of the liabilities due to general and
limited partners.
MBG has the right to represent its interests on any supervisory board of
the Company and its approval is required for any changes in the ownership
structure of the Company.
Because MBG does not participate in the losses of the Company and its
capital contribution receives a fixed compensation amount based on the size of
the contribution, which is analogous to interest, in economic substance the
capital contribution is a long-term loan rather than partnership capital.
Consequently, the MBG's interests in the Company are treated as a long-term
loan in these financial statements.
7) Marketable Securities:
Marketable securities consists of Commerzbank Money Market Fund US Dollar
investment certificates which are being held as "Available-for-sale
Securities". The market value of the securities presented in the balance sheets
is not materially different from cost.
8) Leasehold Improvements, Operating Equipment, Furniture and Fixtures:
Leasehold improvements, operating equipment (including automobiles),
furniture and fixtures comprise:
<TABLE>
<CAPTION>
1996 1997
DM DM
----------- ----------
<S> <C> <C>
Leasehold improvements .............................. 444,564 451,200
Automobiles .......................................... 282,716 315,366
Operating and office equipment ..................... 587,025 918,198
Furniture and fixtures .............................. 46,267 46,265
------- -------
1,360,572 1,731,029
Less accumulated depreciation and amortization ...... 718,801 994,519
--------- ---------
641,771 736,510
========= =========
</TABLE>
F-36
<PAGE>
FSE COMPUTER-HANDEL GmbH & CO. KG, PIRMASENS
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
9) Goodwill:
Goodwill relates to the application of push-down accounting as noted in
Note 3b. The development of goodwill during the periods is depicted as follows:
<TABLE>
<CAPTION>
1996 1997
DM '000 DM '000
--------- --------
<S> <C> <C>
Goodwill at January 1 ............................................. 1,166 975
Amortization of goodwill .......................................... (87) (87)
----- ---
1,079 888
Reduction of goodwill due to recognition of tax benefit for which a
valuation allowance had been accrued at acquisition ............ (61) (35)
----- ---
Goodwill as at September 30 ....................................... 1,018 853
===== ===
</TABLE>
The accumulated amortization of goodwill amounted to DM 87 thousand and DM 174
thousand as at September 30, 1996 and 1997, respectively.
10) Loan Payable:
The loan as at September 30, 1996 is payable to the former owner of the
Company, Mr. Straub and is unsecured, bears interest at 7% per annum as of
October 1, 1995 and is due in January 1997. The loan was repaid in 1997.
11) Accrued Liabilities:
Accrued liabilities include a DM 356,250 and DM 413,430 estimated
liability for warranties as at September 30, 1996 and 1997, respectively.
12) Income Taxes:
No provision for corporate income tax has been made in these financial
statements, since the Company, as a limited partnership, has not been subject
to this tax as of January 1, 1996. The financial statements include only
provisions for income-related business taxes levied at a local level. Both
resident and nonresident incorporated partners of the Company would be subject
to German corporate tax on income earned from the partnership; both resident
and nonresident natural persons would be subject to income tax on income earned
from the partnership.
The provision for income taxes includes DM 24,312 and DM 178,163 current
tax expense as well as DM 74,466 and DM 49,700 deferred tax expense for the nine
months ended September 30, 1996 and 1997, respectively.
13) Financial Commitments:
Future annual commitments under operating leases requiring annual rental
payments are estimated as follows:
DM
--------
1997 ........................ 99,414
1998 ........................ 93,099
1999 ........................ 0
2000 ........................ 0
2001 ........................ 0
------
Thereafter .................. 192,513
=======
During the periods expenses incurred under operating leases amounted to DM
72,656 and DM 97,048 for the nine months ended September 30, 1996 and 1997,
respectively.
F-37
<PAGE>
FSE COMPUTER-HANDEL GmbH & CO. KG, PIRMASENS
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
The Company has two long-term contracts for services which result in
financial commitments of approximately DM 210,000 for 1997 and DM 10,000 for
1998. The expense incurred for such services during the periods amounted to DM
107,623 and DM 184,630 for the nine months ended September 30, 1996 and 1997,
respectively.
14) Related Party Transactions:
On October 1, 1995 the Company signed an agreement with Dr. Simmet whereby
he is to manage the Company as managing director. Under the agreement, Dr.
Simmet is to receive a gross salary totalling DM 25,000 per month plus a bonus
equal to 10% of the income before taxes and bonuses under German accounting
principles. This agreement remained effective after the change in ownership of
the Company. Dr. Simmet's wife is employed by the Company as an administrative
assistant at a gross salary of DM 5,548 per month.
15) Contingencies:
The Company has given guarantees on a DM 1,233,330 bank loan granted to
Dr. Simmet from the Kreissparkasse Kusel. In particular, the Company has given
a general guarantee and has pledged its merchandise inventory and trade
accounts receivable as well as its leasehold improvements, operating and office
equipment (including automobiles), furniture and fixtures.
In the ordinary course of business activities, the Company may become
contingently liable for litigation and claims with customers, suppliers and
former employees. Although it is not possible to estimate the extent of
potential costs and losses, if any, management believes that the ultimate
resolution of any such contingencies which may arise will not have a material
adverse effect on the financial position of the Company. Management believes
that the provisions made for contingent losses for estimated future warranty
claims (see note 11) are adequate.
16) Subsequent Events:
On November 13, 1997, 100% of the general partnership interest of the
Company and 80% of the limited partnership interests of the Company were sold
for an aggregate purchase price of DM 6,400,000, subject to certain adjustments
as defined. Pursuant to the agreement an amount up to an additional 10% limited
partnership interest may be sold to the purchaser for DM 1 million, subject to
certain conditions, and the remaining 10% may be sold to certain managers of the
Company for DM 800,000, subject to certain conditions. The purchase price will
be paid in cash of DM 3.2 million at closing, DM 1.6 million in cash payable on
March 13, 1998 and DM 1.6 million of common stock on the date of issuance
(146,949 shares) of IAT Multimedia, Inc., the purchaser. In connection with the
sale, the Company's general guarantee and pledge of certain of its assets to
Kreissparkasse Kusel (see note 15) have been released. In addition, the Company
entered into a two year employment agreement with Dr. Simmet, the selling
partner. The agreement provides for a monthly salary of DM 25,000.
On November 15, 1997, the Company repaid all amounts due to the Company's
silent partner.
F-38
<PAGE>
==============================================================================
No dealer, salesman or other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or by the Underwriter.
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, any securities offered hereby by anyone in any jurisdiction in
which such offer or solicitation is not authorized or in which the person
making such offer or solicitation is not qualified to do so or to anyone to
whom it is unlawful to make such offer, or solicitation.
-----------------------------------
TABLE OF CONTENTS
Page
---------
Prospectus Summary .............................. 1
Risk Factors .................................... 8
Use of Proceeds ................................. 21
Dividend Policy ................................. 21
Exchange Rate ................................. 21
Price Range of Common Stock ..................... 22
Capitalization ................................. 22
Pro Forma Condensed Consolidated Financial
Information ................................. 23
Notes to Pro Forma Condensed Consolidated
Financial Statements ........................ 27
Selected Financial Data ........................ 29
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................. 32
Business ....................................... 40
Management .................................... 55
Certain Transactions ........................... 61
Principal Stockholders ........................ 65
Description of Notes ........................... 68
Description of Capital Stock .................. 78
Shares Eligible for Future Sale ............... 80
Certain Federal Income Tax Considerations ...... 82
Underwriting .................................... 84
Legal Matters ................................. 85
Experts ....................................... 85
Additional Information ........................ 86
Index to Financial Statements .................. F-1
Until [-------------------------- ], all dealers effecting transactions
in the registered securities, whether or not participating in this
distribution, may be required to deliver a Prospectus. This is an addition to
the obligation of dealers to deliver a Prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
==============================================================================
<PAGE>
==============================================================================
IAT MULTIMEDIA, INC.
10% Convertible Subordinated
Notes due ---------------------- , 2003
------------------
PROSPECTUS
------------------
ROYCE INVESTMENT
GROUP, INC.
-------------- , 1997
==============================================================================
<PAGE>
PART II - Information Not Required In Prospectus
Item 13. Other Expenses of Issuance and Distribution.
The estimated expenses payable by the Registrant in connection with the
issuance and distribution of the securities being registered (other than
underwriting discounts and commissions and the Underwriter's non-accountable
expense allowance of $ ) are as follows:
Amount
----------
SEC Registration Fee .................. 3,762
NASD Filing Fee ..................... 1,777
Printing and Engraving Expenses ...... *
Accounting Fees and Expenses ......... *
Legal Fees and Expenses ............... *
Blue Sky Fees and Expenses ............ *
Trustee's Fees and Expenses ......... *
Miscellaneous Expenses ............... *
-----
Total ................................. $ *
=======
- ------------
* To be completed by amendment
Item 14. indemnification of Directors and Officers.
The Certificate of Incorporation and By-Laws of the Registrant provide
that the Registrant shall indemnify any person to the full extent permitted by
the General Corporation Law of the State of Delaware (the "GCL"). Section 145
of the GCL, relating to indemnification, is hereby incorporated herein by
reference.
In accordance with Section 102(a)(7) of the GCI, the Certificate of
Incorporation of the Registrant eliminates the personal liability of directors
to the Registrant or its stockholders for monetary damages for breach of
fiduciary duty as a director with certain limited exceptions set forth in
Section 102(a)(7).
Reference is made to Section 6 of the Underwriting Agreement (Exhibit 1.1)
which provides for indemnification by the Underwriter of the Registrant and its
directors.
Item 15. Recent Sales of Unregistered Securities.
In connection with its organization in October 1996, the Registrant
exchanged 4,620,000 of its Common Stock and warrants to purchase 500,000 shares
of Common Stock for all of the issued and outstanding stock of IAT AG, a
corporation organized under the laws of Switzerland. Since its organization,
the Registrant has sold and issued the following unregistered securities:
In October 1996, the Registrant sold 1,980,000 shares of Series A
Preferred Stock and warrants to purchase 1,980,000 shares of Common Stock to
Vertical Financial Holdings, Behala Anstalt, Henilia Financial Limited, Lupin
Investment Services Ltd. and Avi Suriel.
In June 1997, the Company issued 5,000 shares of Common Stock to Ballin &
Partners, as compensation for marketing services rendered.
In November 1997, the Company issued 146,949 shares of Common Stock to Dr.
Simmet as partial payment of the purchase price pursuant to the Company's
acquisition of FSE.
The above transactions were private transactions not involving a public
offering and were exempt from the registration provisions of the Securities Act
of 1933, as amended, pursuant to Section 4(2) thereof. The sale of securities
was without the use of an underwriter, and the certificates evidencing the
shares bear a restrictive legend permitting the transfer thereof only upon
registration of the shares or an exemption under the Securities Act of 1933, as
amended.
II-1
<PAGE>
In December 1996, the Registrant effected a reverse stock split resulting
in a reduction of its outstanding stock from 4,620,000 shares of Common Stock
to 4,375,000 shares and from 1,980,000 shares of Series A Preferred Stock to
1,875,000 shares. The Registrant's outstanding Warrants were similarly
affected.
Item 16. Exhibits and Financial Statement Schedules
<TABLE>
<S> <C>
*1.1 Form of Underwriting Agreement
3.1 + Amended and Restated Certificate of Incorporation of the Registrant
3.2 + By-laws of the Registrant
4.1 + Form of Warrant Agreement
4.2 + Form of Underwriter's Warrant
4.3 + Warrant issued to Vertical Financial Holdings (one in a series of warrants with identical terms)
4.4 + Warrant issued to Stockholders (one in a series of warrants with identical terms)
4.5 + Escrow Agreement
*4.6 Form of Indenture
*4.7 Form of Underwriter's Warrant
*5.1 Opinion of Baker & McKenzie
10.1 + IAT Multimedia, Inc. 1996 Stock Option Plan
10.2 + Stock Purchase Agreement, dated as of October 4, 1996, by and among IAT Multimedia, Inc. (for-
merly known as IAT Holdings, Inc.), IAT AG, IAT Deutschland, GmbH, Vertical Financial Holdings
and the stockholders of IAT AG
10.3 + Investor's Rights Agreement, dated as of October 24, 1996, by and between IAT Multimedia, Inc.
(formerly known as IAT Holdings, Inc.) and Vertical Financial Holdings
10.4 + Marketing Agreement, dated as of October 24, 1996, by and between IAT Multimedia, Inc. (formerly
known as IAT Holdings, Inc.) and General Capital
10.5 + Contract of the Communications Computer Development Community (EGKR), dated August 12,
1992, by and between IAT Deutschland GmbH and Deutsche Bundespost Telekom Siegen Telecom-
munications Office, SfE EKOM
10.6 + Cooperation Contract Covering the Development of Version 3 of the Multimedia Information and
Communications System MIKS, dated December 16, 1994, by and among The Deutsche Bundespost
Telekom, IBM Deutschland Informationssysteme GmbH and IAT Schwiez AG
10.7 + General Cooperation Agreement Concerning Joint Further Development of the IAT/Deutsche Tele-
kom Software Codec on the Basis of the Texas Instruments Parallel Processor TMS320C8x, dated
October 16, 1995, by and between Deutsche Telekom AG and IAT Schweiz AG
10.8 + Extension of Agreement Concerning MIKS Version 3, dated July 30, 1996, by and among IBM
Deutschland Informationssysteme GmbH, Deutsche Telekom AG and IAT AG
10.9 + Licensing and General Distribution Agreement, dated as of April 11, 1994, by and between Deutsche
Bundespost Telekom and IAT AG
10.10+ Program License Agreement, dated November 10, 1993, by and between Texas Instruments Deut-
schland GmbH and IAT AG Geschaeftshaus Wasserschloss
10.11+ Form of MVP Cross License Agreement by and between the Texas Instruments France and IAT AG
10.12+ Form of Joint Development and Cross License Agreement by and between Texas Instruments, Inc.
and IAT AG
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
10.13+ Wavelet Data Compression for the Transmission of High-Quality Still Video Images, dated as of May
15, 1996, by and between IAT AG and Prof. Dr. R. Seiler
10.14+ Cooperation Agreement, dated March 18, 1996, by and between Olympus Optical (Europe) GmbH
and IAT Deutschland GmbH
10.15+ Loan Agreement for Current Account Credit Lines between IAT Deutschland GmbH and Volksbank
Sottrum eG
10.16+ Agreement, dated September 1, 1992, by and between Grissemann Consulting SA and IAT AG
10.17+ Addendum to the Agreement of September 1, 1992, dated December 14, 1994, by and between Gris-
semann Consulting SA and IAT AG
10.18+ Employment Contract, dated as of July 1, 1993, by and between IAT AG and Mr. Franz Muller
10.19+ Amendment No. I to Stock Purchase Agreement, dated as of October 4, 1996, by and among IAT
Multimedia, Inc. (formerly known as IAT Holdings, Inc.), IAT AG, IAT Deutschland GmbH Vertical
Financial Holdings, and the stockholders of IAT AG
10.20+ Amendment No. I to Marketing Agreement, dated as of October 24, 1996, by and between IAT Mul-
timedia, Inc. (formerly known as IAT Holdings, Inc.) and General Capital
10.21+ Letters of Consent dated December 20, 1996
10.22++ Amendment No. 1 to the Joint Development and Cross License Agreement, dated June 2, 1997,
between Texas Instruments Incorporated and IAT AG
10.23++ License Agreement, dated June 2, 1997, between Texas Instruments Incorporated and IAT AG
10.24+++ Purchase Agreement, dated November 13, 1997, by and between IAT Multimedia, Inc. and Dr. Alfred
Simmet
10.25 Consulting Agreement, dated July 18, 1997, by and between IAT Multimedia, Inc. and Arnold J.
Wassserman
10.26 Retainment Agreement, dated August 25, 1997, by and between IAT Multimedia, Inc. and Reiner
Hallauer
10.27 Stock Option Agreement for Arnold J. Wasserman, dated July 18, 1997, by and between IAT Multi-
media, Inc. and Arnold J. Wasserman
10.28 Stock Option Agreement for Reiner Hallauer, dated August 25, 1997, by and between IAT Multime-
dia, Inc. and Reiner Hallauer
10.29 Management Contact, dated as of November 13, 1997, by and between FSE Computer Handel-
Verwaltungs GmbH and Dr. Alfred Simmet
10.30 Credit Agreement, dated as of February 5, 1996, by and between IAT AG and Swiss Bank Corpora-
tion
10.31 Agreement by and between Swiss Bank Corporation and IAT Multimedia, Inc.
10.32 License Agreement, dated as of July 2, 1997, by and between IAT AG and Proton Communications
Technologies Inc
10.33 License Agreement, dated as of July 23, 1997, by and between IAT AG and Sony Electronics Inc.
10.34 Consent of Sony Electronics Inc.
10.35 License Agreement, dated as of June 12, 1997, by and between IAT Multimedia, Inc. and Precision
Digital Images Corporation
10.36 Development Agreement, dated as of June 20, 1997, by and between IAT Multimedia, Inc, and Pre-
cision Digital Images Corporation
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
10.37 Letter of Intent, dated November 18, 1997, by and between Olympus Co. (Europe) GmbH and IAT
Deutschland GmbH
10.38 Annex to the OKI Semiconductor Gate Array, Standard Cell, Macrocell Products Development and
Purchase Agreement, dated as of June 5, 1997, by and among IAT Multimedia, Inc., Precision Digi-
tal Images Corporation and OKI Semiconductor
10.39 Settlement Agreement, dated November 12, 1997, by and between IAT Deutschland GmbH, IAT Multimedia,
Inc. and Mr. Wilhelm Gudauski
*10.40 Letter of Termination from Deutsche Telekom
*10.41 Letter of Termination from IBM Deutschland
11.1 ++ Statement re computation of per share earnings
21.1 List of Subsidiaries of Registrant
23.2 Consent of Rothstein Kass & Company
24.1 Power of Attorney (included on Signature pages hereto)
*25 Statement of eligibility of Trustee
*27.1 Financial Data Schedules
</TABLE>
- ------------
* To be filed by amendment.
+ Incorporated by reference in the Registrant's Registration Statement on Form
S-1 (Reg. No. 333-18529) as filed on December 23, 1996.
++ Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
as filed on November 14, 1997
+++ Incorporated by reference to the Registrant's Current Report on Form 8-K as
filed on November 26, 1997
Item 28. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a, fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
II-4
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of the
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereto.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York on the 9th day of December, 1997.
IAT MULTIMEDIA, INC.
By: /s/ Viktor Vogt
-------------------------------------
Viktor Vogt
Chief Executive Officer and President
POWER OF ATTORNEY
In accordance with the requirements of the Securities Act of 1993, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated. Each person whose signature to this
Registration Statement appears below hereby appoints Viktor Vogt or Jacob Agam
as his attorney-in-fact to sign on his behalf, individually and in the
capacities stated below, and to file (i) any and all amendments and post
effective amendments to this Registration Statement and (ii) any registration
statement relating to the same offering pursuant to Rule 462(b) under the
Securities Act of 1933, which amendment or amendments or registration statement
may make such changes and additions as such attorney-in-fact may deem necessary
or approximate.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------ ------------------------------------------------- -----------------
<S> <C> <C>
/s/ Viktor Vogt Co-Chairman of the Board of Directors and December 9, 1997
- --------------------- Chief Executive Officer and President
Viktor Vogt (Principal Executive Officer)
/s/ Jacob Agam Co-Chairman of the Board of Directors December 9, 1997
- ---------------------
Jacob Agam
/s/ Klaus Grissemann Chief Financial Officer and Director (Principal December 9, 1997
- --------------------- Accounting and Financial Officer)
Klaus Grissemann
/s/ Volker Walther Director December 9, 1997
- ---------------------
Volker Walther
/s/ Reiner Hallauer Director December 9, 1997
- ---------------------
Reiner Hallauer
/s/ Arnold Wasserman Director December 9, 1997
- ---------------------
Arnold Wasserman
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- --------------- ----------- -----
<S> <C> <C>
*1.1 Form of Underwriting Agreement
3.1 + Amended and Restated Certificate of Incorporation of the Registrant
3.2 + By-laws of the Registrant
4.1 + Form of Warrant Agreement
4.2 + Form of Underwriter's Warrant
4.3 + Warrant issued to Vertical Financial Holdings (one in a series of warrants with identi-
cal terms)
4.4 + Warrant issued to Stockholders (one in a series of warrants with identical terms)
4.5 + Escrow Agreement
*4.6 Form of Indenture
*4.7 Form of Underwriter's Warrant
*5.1 Opinion of Baker & McKenzie
10.1 + IAT Multimedia, Inc. 1996 Stock Option Plan
10.2 + Stock Purchase Agreement, dated as of October 4, 1996, by and among IAT Multime-
dia, Inc. (formerly known as IAT Holdings, Inc.), IAT AG, IAT Deutschland, GmbH,
Vertical Financial Holdings and the stockholders of IAT AG
10.3 + Investor's Rights Agreement, dated as of October 24, 1996, by and between IAT Mul-
timedia, Inc. (formerly known as IAT Holdings, Inc.) and Vertical Financial Holdings
10.4 + Marketing Agreement, dated as of October 24, 1996, by and between IAT Multimedia,
Inc. (formerly known as IAT Holdings, Inc.) and General Capital
10.5 + Contract of the Communications Computer Development Community (EGKR), dated
August 12, 1992, by and between IAT Deutschland GmbH and Deutsche Bundespost
Telekom Siegen Telecommunications Office, SfE EKOM
10.6 + Cooperation Contract Covering the Development of Version 3 of the Multimedia
Information and Communications System MIKS, dated December 16, 1994, by and
among The Deutsche Bundespost Telekom, IBM Deutschland Informationssysteme
GmbH and IAT Schwiez AG
10.7 + General Cooperation Agreement Concerning Joint Further Development of the
IAT/Deutsche Telekom Software Codec on the Basis of the Texas Instruments Parallel
Processor TMS320C8x, dated October 16, 1995, by and between Deutsche Telekom
AG and IAT Schweiz AG
10.8 + Extension of Agreement Concerning MIKS Version 3, dated July 30, 1996, by and
among IBM Deutschland Informationssysteme GmbH, Deutsche Telekom AG and IAT
AG
10.9 + Licensing and General Distribution Agreement, dated as of April 11, 1994, by and
between Deutsche Bundespost Telekom and IAT AG
10.10+ Program License Agreement, dated November 10, 1993, by and between Texas Instru-
ments Deutschland GmbH and IAT AG Geschaeftshaus Wasserschloss
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Page
- --------------- ----------- -----
<S> <C> <C>
10.11+ Form of MVP Cross License Agreement by and between the Texas Instruments France
and IAT AG
10.12+ Form of Joint Development and Cross License Agreement by and between Texas
Instruments, Inc. and IAT AG
10.13+ Wavelet Data Compression for the Transmission of High-Quality Still Video Images,
dated as of May 15, 1996, by and between IAT AG and Prof. Dr. R. Seiler
10.14+ Cooperation Agreement, dated March 18, 1996, by and between Olympus Optical
(Europe) GmbH and IAT Deutschland GmbH
10.15+ Loan Agreement for Current Account Credit Lines between IAT Deutschland GmbH
and Volksbank Sottrum eG
10.16+ Agreement, dated September 1, 1992, by and between Grissemann Consulting SA and
IAT AG
10.17+ Addendum to the Agreement of September 1, 1992, dated December 14, 1994, by and
between Grissemann Consulting SA and IAT AG
10.18+ Employment Contract, dated as of July 1, 1993, by and between IAT AG and Mr.
Franz Muller
10.19+ Amendment No. I to Stock Purchase Agreement, dated as of October 4, 1996, by and
among IAT Multimedia, Inc. (formerly known as IAT Holdings, Inc.), IAT AG, IAT
Deutschland GmbH Vertical Financial Holdings, and the stockholders of IAT AG
10.20+ Amendment No. I to Marketing Agreement, dated as of October 24, 1996, by and
between IAT Multimedia, Inc. (formerly known as IAT Holdings, Inc.) and General
Capital
10.21+ Letters of Consent dated December 20, 1996
10.22++ Amendment No. 1 to the Joint Development and Cross License Agreement, dated June
2, 1997, between Texas Instruments Incorporated and IAT AG
10.23++ License Agreement, dated June 2, 1997, between Texas Instruments Incorporated and
IAT AG
10.24+++ Purchase Agreement, dated November 13, 1997, by and between IAT Multimedia, Inc.
and Dr. Alfred Simmet
10.25 Consulting Agreement, dated July 18, 1997, by and between IAT Multimedia, Inc. and
Arnold J. Wassserman
10.26 Retainment Agreement, dated August 25, 1997, by and between IAT Multimedia, Inc.
and Reiner Hallauer
10.27 Stock Option Agreement for Arnold J. Wasserman, dated July 18, 1997, by and
between IAT Multimedia, Inc. and Arnold J. Wasserman
10.28 Stock Option Agreement for Reiner Hallauer, dated August 25, 1997, by and between
IAT Multimedia, Inc. and Reiner Hallauer
10.29 Management Contact, dated as of November 13, 1997, by and between FSE Computer
Handel-Verwaltungs GmbH and Dr. Alfred Simmet
10.30 Credit Agreement, dated as of February 5, 1996, by and between IAT AG and Swiss
Bank Corporation
10.31 Agreement by and between Swiss Bank Corporation and IAT Multimedia, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Page
- --------------- ----------- -----
<S> <C> <C>
10.32 License Agreement, dated as of July 2, 1997, by and between IAT AG and Proton
Communications Technologies Inc
10.33 License Agreement, dated as of July 23, 1997, by and between IAT AG and Sony
Electronics Inc.
10.34 Consent of Sony Electronics Inc.
10.35 License Agreement, dated as of June 12, 1997, by and between IAT Multimedia, Inc.
and Precision Digital Images Corporation
10.36 Development Agreement, dated as of June 20, 1997, by and between IAT Multimedia,
Inc, and Precision Digital Images Corporation
10.37 Letter of Intent, dated November 18, 1997, by and between Olympus Co. (Europe)
GmbH and IAT Deutschland GmbH
10.38 Annex to the OKI Semiconductor Gate Array, Standard Cell, Macrocell Products
Development and Purchase Agreement, dated as of June 5, 1997, by and among IAT
Multimedia, Inc., Precision Digital Images Corporation and OKI Semiconductor
10.39 Settlement Agreement, dated November 12, 1997, by and between IAT Deutschland GmbH,
IAT Multimedia, Inc. and Mr. Wilhelm Gudauski
*10.40 Letter of Termination from Deutsche Telekom
*10.41 Letter of Termination from IBM Deutschland
11.1 ++ Statement re computation of per share earnings
21.1 List of Subsidiaries of Registrant
23.2 Consent of Rothstein Kass & Company
24.1 Power of Attorney (included on Signature pages hereto)
*25 Statement of eligibility of Trustee
*27.1 Financial Data Schedules
</TABLE>
- ------------
* To be filed by amendment.
+ Incorporated by reference in the Registrant's Registration Statement on Form
S-1 (Reg. No. 333-18529) as filed on December 23, 1996.
++ Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
as filed on November 14, 1997
+++ Incorporated by reference to the Registrant's Current Report on Form 8-K as
filed on November 26, 1997
<PAGE>
IAT MULTIMEDIA, INC.
Geschaftshaus Wasserschloss
Aarestrasse 17
CH-5300 Vogelsang-Turgi
Switzerland
July 18, 1997
Mr. Arnold J. Wasserman
Arnold J. Wasserman Companies
1 Brookwood Drive
West Caldwell, New Jersey 07006
Re: IAT Multimedia, Inc.
--------------------
Dear Arnold:
IAT Multimedia, Inc. (the "Company") and you have agreed that upon
countersigning this letter in the space therefor provided you will be a
consultant to the Company from the date hereof until July 18, 2000 unless
terminated prior to such date by either party upon thirty days written notice.
As a consultant to the Company you will provide marketing and business
related services to the Company over the term of this agreement in consideration
for the issuance of options to purchase a total of 70,000 shares of Common Stock
of the Company at an exercise price of $5.00 per share. The options will have a
five year term and will vest over a three year term as follows: (i) options to
purchase 40,000 shares will vest on the date of this agreement, (ii) options to
purchase 15,000 shares will vest on July 17, 1998, and (iii) options to purchase
15,000 shares will vest on July 17, 1998, provided, however, that in the event
you are no longer a consultant to the Company any unvested options will be
forfeited. You agree to enter into a stock option agreement to provide for
further terms including piggy-back registration rights and cashless option
exercise.
In addition, the Company requests that you to provide services with respect
to every aspect of its operations in the United States commencing on October 1,
1997. You will be paid $5000 per month by the Company for five days of such
services per month, payable quarterly. In the event the Company requests
additional services, you will bill the Company at a rate of $800 per day,
payable at the end of the quarter. You will also be reimbursed for your
expenses, provided, however, that any expense item exceeding $500 requires
approval from
<PAGE>
Mr. Arnold J. Wasserman
July 18, 1997
Page 2
either Mr. Agam or Mr. Vogt prior to incurrence.
Sincerely,
IAT MULTIMEDIA, INC.
By: /s/ Jacob Agam
-------------------------------------
Jacob Agam
Co-Chairman
By: /s/ Viktor Vogt
-------------------------------------
Viktor Vogt
Co-Chairman
AGREED:
/s/ Arnold J. Wasserman
- --------------------------------
Arnold J. Wasserman
<PAGE>
RETAINMENT AGREEEMENT
("the Agreement")
between
IAT Multimedia, Inc., c/o IAT AG, Geschaftshaus Wasserschloss,
Aarestrasse 17, CH-5300 Vogelsang-Turgi (the "Company")
and
Reiner Hallauer, Wettersteinstrasse 2, D-86949 Windach
Pursuant to the Meeting of the Board of Directors of IAT Multimedia, Inc. of
August 14 and 15, 1997 and after discussing your involvement with IAT with Jacob
Agam, we confirm your retainment agreement as follows:
1. Duties
1.1 Responsibilities. You will take over the position of a Managing Director of
IAT Deutschland GmbH, Bremen and in this capacity you will have the overall
responsibility for the IAT Deutschland GmbH, Bremen operations and in
particular to execute the cost-reduction plan that has been decided. In
addition, you will be responsible to execute all issues relating to the
integration of new businesses to be acquired into IAT as well as overseeing
the marketing strategy of IAT.
You must update the CEO Dr. Vogt as to all decisions to be made in
connection with the IAT operations. In the event that Dr. Vogt may have a
different opinion as to the decisions to be made, such decision shall be
brought to Jacob Agam's attention and Jacob Agam shall either decide as to
the decision itself or will bring it to the Board for decision up to his
discretion.
1.2 Full Time Attention. You will devote substantially all of your business
time and attention, energy and skills to the Company during the Retainment
Term as if you were fully employed by IAT Multimedia, Inc. The days on
which you will not be available for IAT business are mentioned in Annex 1
of this Agreement.
2. Effectiveness, Duration and Termination
2.1 Your retainment will be effective as of August 25, 1997 and has a fixed
duration of six months. During such period the agreement can be terminated
at any time by either party by giving notice thirty days in advance.
<PAGE>
3. Fees
3.1 The retainment fees will be DM 5,000 for each full business week worked on
behalf of the Company. The Company will provide you with a company car and
will rent for you an apartment in Bremen.
4. Stock Option Plan
4.1 In addition to the fees provided above, the Company grants you options to
purchase up to 75,000 shares of the Company's common stock at an exercise
price which is equal to $__, the fair market value of the stock on August
25, 1997 which stock options will vest as follows:
a) upon signing of the agreement: options to purchase 25,000 shares of
IAT Multimedia, Inc.
b) on February 25, 1998: options to purchase 25,000 shares of IAT
Multimedia, Inc.
c) upon decision of the Compensation Committee of the Board of Directors
(excluding yourself): options to purchase 25,000 shares of IAT
Multimedia, Inc.
These stock options will expire on August 25, 2007. You will enter into a
stock option agreement with the Company containing the terms and provisions
of such options set forth herein together with such other terms and
conditions as counsel for the Company requires to assure compliance with
applicable federal or state law.
5. Confidentiality.
5.1 Proprietary Information. You agree that you will not disclose any
Proprietary Information (as hereinafter defined) to any individual or
entity at any time while you are retained by the Company or at any time
thereafter, except as is necessary and appropriate in the ordinary course
of performing your duties to the Company during your retainment under this
Agreement, or unless such disclosure has been authorized in writing by the
Board, or unless such disclosure is required by law. For purposes of this
Agreement, the term "Proprietary Information" shall mean any information
that was developed by, became known by, or was assigned or otherwise
conveyed, to the Company, and which has commercial value in the Company's
business. Proprietary Information includes, but is not limited to, trade
secrets, financial information, customer lists and information, marketing
plans, strategies, business forecasts, computer programs, product plans,
research and development information, testing methods and results,
inventions, improvements, formulas, processes, techniques, designs,
know-how and data. Proprietary Information also includes, without
limitation, any information which is generally regarded as confidential in
the Company's industry or which is generally treated as confidential by the
Company.
5.2 Return of Property. You agree that all documents, records, apparatus,
equipment and other physical property which is furnished or obtained by you
in the course of your retainment with the Company shall be and remain the
sole property of the Company. You agree that, upon the termination of your
retainment, you shall return all such property and any other property of
the Company or of any of the Company's subsidiaries that may have come into
your possession in the course of the retainment
<PAGE>
relationship (whether or not it pertains to Proprietary Information), and
agree not to make or retain copies, reproductions or summaries of any such
property.
Place and date: Place and date:
/signed/ Bremen, 25/08/1997 Windach, 23/08/1997
- ----------------------------- ----------------------------------
/signed/ Dr. Viktor Vogt /signed/ Reiner Hallauer
- ----------------------------- ----------------------------------
IAT Multimedia, Inc. Reiner Hallauer
<PAGE>
[Letterhead]
Reiner Hallauer Dipl.-Kfm.
Marketing Consultant
- ------------------------------
23.08.1997
IAT Multimedia, Inc.
c/o IAT AG
Geschaftshaus Wasserschloss
Aarestrasse 17
CH-5300 Vogelsang-Turgi
Dear Sirs
With reference to Point 1.2 of the proposed Retainment Agreement I herewith
would like to inform you about those days during the business weeks of the
coming 6 months until end of February 1998 on which I am not available to
execute the defined responsibilities:
September 1997: 1, 29, 30
October 1997: 1, 2, 3, 6, 17, 20
December 1997: 22, 23, 24, 29, 30, 31
January 1998 2
February 1998: 16 to 20, 23, 24
With kind regards
/s/ R. Hallauer
===================================
Wettersteinstr. 2 * D-86949 Windach
Tel: ++49 (0)8193-999-482 * Fax: ....483
Mobile: ++49 (0)1728310821 * E-Mail: [email protected]
<PAGE>
STOCK OPTION AGREEMENT
FOR
ARNOLD J. WASSERMAN
This Stock Option Agreement (the "Agreement") is effective on and as of
July 18, 1997, between IAT MULTIMEDIA, INC., a Delaware corporation with its
principal office at IAT AG, Geshaftshaus Wasserschloss, Aarestrasse 17, CH-5300
Vogelsang-Turgi, Switzerland, fax number 41-56-223-5023 (the "Company") and
ARNOLD J. WASSERMAN, an individual residing at 1 Brookwood Drive, West Caldwell,
New Jersey 07006. fax number 201-228-3336 ("Mr. Wasserman").
W I T N E S S E T H:
WHEREAS, Mr. Wasserman is a director of the Company and a consultant of the
Company; and
WHEREAS, the Company desires to provide an incentive to Mr. Wasserman to
remain a consultant of the Company and to encourage stock ownership; and
WHEREAS, the achievement of these goals will be assisted by the grant of an
option to purchase shares of the Company's Common Stock, $0.01 par value (the
"Stock")
NOW, THEREFORE, the parties agree as follows:
1. Grant of Option. Subject to the terms and conditions herein set forth,
the Company hereby grants to Mr. Wasserman the right and option (the "Option")
to purchase from the Company a total of 70,000 shares of Stock at a purchase
price per share equal to $5.00 per Share pursuant to the terms and conditions
set forth in section 2 hereof.
2. Terms and Conditions of Option
(a) Expiration Date. Subject to earlier termination or expiration of the
Option as provided in this Agreement, the Option shall expire on July 18, 2002.
(b) Vesting of Option. Mr. Wasserman may not exercise the Option for any
shares of Stock until the Option has vested. Mr. Wasserman's rights with respect
to the Option shall become vested according to the following schedule:
Time Amount of Options Vested
---- ------------------------
July 18, 1997 40,000
July 18, 1998 15,000
July 17, 1999 15,000
1
<PAGE>
(c) Exercise Upon Termination of Consulting Agreement. If Mr. Wasserman
ceases to be a consultant of the Company pursuant to termination by either party
of the Consulting Agreement of even date herewith between the Company and Mr.
Wasserman, or by reason of Mr. Wasserman's death or disability, the vested
portion of the Option may be exercised by Mr. Wasserman, or his heirs, devises,
or legatees no later than three (3) months from the date of termination and the
unvested portion of the Option shall be forfeited, but in no event shall any
portion of the Option remain exercisable after the expiration date of the
Option as specified in paragraph (a) of this Section 2.
(d) Method of Exercise. (i) Subject to the terms and conditions of this
Agreement, to the extent the right to purchase shares of Stock has accrued, the
Option may be exercised, in whole or in part, from time to time, by written
notice and payment to the Company in accordance with the procedure prescribed
herein. Each notice shall (x) state the election to exercise the Option and the
number of shares in respect of which it is being exercised; and (y) be
accompanied by payment, by cash or certified check payable to the order of the
Company in the amount of the purchase price for the shares being purchased in
the event Mr. Wasserman elects to exercise by payment of the exercise. In the
event Mr. Wasserman elects for cashless exercise of the Option, the notice shall
so state and the Company will calculate the amount of shares of Stock to be
withheld in payment for the exercise of the option price based upon the closing
sales price of the Stock on the date elected by Mr. Wasserman to exercise the
Option.
(ii) The certificate or certificates for shares of Stock as to which
the Option shall be exercised will be registered in the name of Mr.
Wasserman and will bear the following legend:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933, as
amended, and may not be sold, transferred or otherwise
disposed of except as expressly permitted under the
terms of that certain Stock Option Agreement, dated as
of July 18, 1997, between IAT Multimedia, Inc. and
Arnold J. Wasserman."
(e) Non-Transferability. The Option shall not be transferable other than by
will or by the laws of descent and distribution. During the lifetime of Mr.
Wasserman, the Option shall be exercisable only by Mr. Wasserman. Mr. Wasserman
may not pledge, hypothecate or otherwise encumber or permit any liens to attach
to the Option.
(f) Tax Withholding. In the event the Company determines that it is
required to withhold amounts for payment of federal, state and local income
taxes, or any other taxes in connection with the exercise of the Option or the
disposition of shares of Stock issued pursuant to the exercise of the Option,
Mr. Wasserman or any person succeeding the rights of Mr. Wasserman, as a
condition to such exercise or disposition, shall make arrangements satisfactory
to the Company to enable it to satisfy such withholding requirements.
(g) Regulatory Compliance. If at any time the Board determines that (a) the
2
<PAGE>
listing, registration or qualification of shares of Stock upon any securities
exchange or under any state or federal law, (b) the consent or approval of any
government or regulatory body or (c) an agreement or representations by Mr.
Wasserman with respect thereto, is necessary then the exercise of the Option
shall not be consummated in whole or in part unless such listing, registration,
qualification, consent, approval, agreement or representations shall have been
effected or obtained.
(h) Adjustments. In the event of any reorganization, recapitalization,
stock split, stock dividend, combination of shares, consolidation, merger (other
than a merger or consolidation which does not result in any reclassification,
conversion, exchange or cancellation of outstanding shares), any sale or
transfer by the Company of all or substantially all of its assets or any
exchange offer for or the acquisition, directly or indirectly, by any person or
group of all or a majority of the then outstanding voting securities of the
Company, rights offering, or any other change in the corporate structure or
rights with respect to any shares of the Company, the Board shall make (or shall
cause the Board of Directors of any corporation which merges with, or acquires
the stock or assets of the Company to make) such equitable and proportionate
adjustment of the number and class of shares of stock then covered by the
Option, or of the purchase price, or both, in order to prevent dilution or
enlargement of the rights of Mr. Wasserman.
(i) Fractional Shares. The Option is only exercisable with respect to whole
shares of Stock and not fractions thereof unless the Board otherwise agrees.
Accordingly, the Company shall not be required to issue certificates
representing fractions of shares of Stock upon any exercise of the Option.
3. Piggy-Back Registration Rights. (a) If (but without any obligation to do
so) the Company proposes to register (including for this purpose a registration
effected by the Company for stockholders other than Mr. Wasserman) any of its
stock under the Securities Act of 1933, as amended (the "Act") in connection
with the public offering of such securities (other than a registration relating
solely to the sale of securities to participants in a Company stock plan, a
registration relating solely to a Rule 145 transaction, a registration on any
form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of Stock
or a registration in which the only Stock being registered is Stock issuable
upon conversion of debt securities which are also being registered), the Company
shall, at such time, promptly give Mr. Wasserman written notice of such
registration. Upon the written request of Mr. Wasserman given within twenty (20)
days after giving of such notice by the Company, the Company shall, subject to
the provisions of section 3(b), cause to be registered under the Act all of the
Stock that Mr. Wasserman has requested to be registered, provided, that the
Company shall not be obligated to effect more than two (2) registrations
pursuant to this Section 3(a).
(b) In connection with any offering involving an underwriting of shares of
the Company's Stock pursuant to Section 3(a), the Company shall not be required
under Section 3(a) to include any of Mr. Wasserman's securities in such
underwriting unless Mr. Wasserman accepts the terms of the underwriting as
agreed upon between the Company and
3
<PAGE>
the underwriters, and if the underwriter advises Mr. Wasserman in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Company shall exclude from such underwriting (i) an
amount of stock from Mr. Wasserman which equals, pro rata to the extent
practicable, the amount of stock which is being excluded from the underwriting
from the other stockholders participating in such underwriting, or (ii) in the
event no other stockholder is participating in such underwriting, the minimum
amount of stock as is necessary in the opinion of the underwriter(s) to reduce
the size of the offering.
4. Treatment of Option as Non-Qualified Stock Option. The Company and Mr.
Wasserman acknowledge that the Option granted hereunder shall be treated as a
non-qualified stock option for U.S. federal income tax purposes.
5. 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 by facsimile or personally on the party to whom
notice is to be given, or within seven (7) days after mailing, if mailed to the
party to whom notice is to be given, by first class mail (airmail, if
international), registered or certified, postage prepaid, and properly addressed
to the party, if to the Company or Mr. Wasserman, at the address set forth on
the first page of this Agreement or any other address that the Company or Mr.
Wasserman may designate by written notice to the other party.
6. Acknowledgment. Mr. Wasserman agrees to be bound by the terms of this
Agreement and hereby acknowledges that all decisions, determinations and
interpretations of the Board in respect of this Agreement and the Option shall
be final, conclusive and binding on Mr. Wasserman and his legal representatives
and beneficiaries.
7. No Rights as Stockholder. Neither Mr. Wasserman nor Mr. Wasserman's
legal representative, legatees or distributees, as the case may be, shall have
any of the rights or privileges of a stockholder of the Company by virtue of the
Option except with respect to any shares of Stock actually issued or transferred
of record and delivered to one of the aforementioned persons.
8. Reservation of Shares. The Company shall at all times during the term of
the Option reserve and keep available such number of shares of Stock then
subject to the Option as will be sufficient to satisfy the requirements of this
Agreement.
9. Agreement to Perform Necessary Acts. Each party to this Agreement agrees
to perform any further acts and execute and deliver any documents that may be
reasonably necessary to carry out the provisions of this Agreement.
10. Amendments. The provisions of this Agreement may be waived, altered,
amended or repealed, in whole or in part, only upon the written consent of all
parties hereto.
11. Governing Law. The Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to conflicts
of laws
4
<PAGE>
principles.
12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first written above.
IAT MULTIMEDIA, INC.
By: /s/ Jacob Agam
-------------------------------------
Name: Jacob Agam
Title: Co-Chairman
/s/ Arnold Wasserman
----------------------------------------
ARNOLD J. WASSERMAN
<PAGE>
Exhibit 10.28
STOCK OPTION
AGREEMENT
FOR
REINER HALLAUER
This Stock Option Agreement (the "Agreement") is effective on and as of
August 25, 1997, between IAT MULTIMEDlA, INC., a Delaware corporation with its
principal office at IAT A.G., Geschaftshaus Wasserschloss, Aaresstrasse 17,
CH-5300 Vogelsang-Turgi, Switzerland, fax number 41-56-223-5023 ("the Company"),
and REINER HALLAUER, an individual residing at Wettersteinstrasse 2, D-86949
Windach, Germany, fax number +49 8193 999 483, ("Mr. Hallauer").
W I T N E S S E T H:
WHEREAS, Mr. Hallauer is a director of the Company and a consultant of the
Company, and
WHEREAS, the Company desires to provide an incentive to Mr. Hallauer to
remain a consultant of the Company and to encourage stock ownership, and
WHEREAS, the achievement of these goals will be assisted by the grant of an
option to purchase shares of the Company's common stock, $0.01 par value (the
"Stock").
NOW, THEREFORE, the parties agree as follows:
1. Grant of Option. Subject to the terms and conditions herein set forth,
the Company hereby grants to Mr. Hallauer the right and option (the "Option") to
purchase from the Company a total of 75,000 shares of Stock at a purchase price
per share equal to $6 per Share pursuant to the terms and conditions set forth
in section 2 hereof.
2. Terms and Conditions of Option.
(a) Expiration Date. Subject to earlier termination or expiration of the
Option as provided in this Agreement, the Option shall expire on August 25,
2007.
(b) Vesting of Option. Mr. Hallauer may not exercise the Option for any
shares of Stock until the Option has vested. Mr. Hallauer's rights with respect
to the Option shall become vested according to the following schedule:
Time Amount of Options Vested
---- ------------------------
August 25, 1997 25 000
February 25, 1998 25,000
Upon determination by the
Compensation Commitee
(excluding Mr. Hallauer) 25,000
1
<PAGE>
(c) Exercise Upon Termination of Retainment Agreement. The vested portion
of the Option may be exercised by Mr. Hallauer, or his heirs, devises, or
legatees no later than one (1) year from February 25, 1998 or the date Mr.
Hallauer's death or disability and the unvested portion of the Option shall be
forfeited, but in no event shall any portion of the Option remain exercisable
after the expiration date of the Option as specified in paragraph (a) of this
Section 2.
(d) Method of Exercise. (i) Subject to the terms and conditions of this
Agreement, to the extent the right to purchase shares of Stock has accrued, the
Option may be exercised, in whole or part, from time to time, by written notice
and payment to the Company in accordance with the procedure prescribed herein.
Each notice shall (x) state the election to exercise the Option and the number
of shares in respect of which it is being exercised; and (y) be accompanied by
payment, by cash or certified check payable to the order of the Company in the
amount of the purchase price for the shares being purchased in the event Mr.
Hallauer elects to exercise by payment of the exercise. In the event Mr.
Hallauer elects for cashless exercise of the Option, the notice shall so state
and the Company will calculate the amount of shares of Stock to be withheld in
payment for the exercise of the option price based upon the closing sales price
of the Stock on the dates elected by Mr. Hallauer to exercise the Option and
will deliver the remaining shares of Stock to Mr. Hallauer.
(ii) The certificate or certificates for shares of Stock as to which the
Options shall be exercised will be registered in the name of Mr. Hallauer and
will bear the following legend:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933, as
amended, and may not be sold, transferred, or otherwise
disposed of except as expressly permitted under the
terms of that certain Stock Option Agreement, dated as
of August 25, 1997, between IAT Multimedia, Inc. and
Reiner Hallauer."
(e) Non-Transferability. The Option shall not be transferable other than by
will or by the laws of descent and distribution. During the lifetime of Mr.
Hallauer, the Option shall be exercisable only by Mr. Hallauer. Mr. Hallauer may
not pledge, hypothecate or otherwise encumber or permit any liens to attach to
the Option.
(f) Tax Withholding. In the event the Company determines that it is
required to withhold amounts for payment of federal, state and local income
taxes, or any other taxes in connection with the exercise of the Option or the
disposition of shares of Stock issued pursuant to the exercise of the Option,
Mr. Hallauer or any person succeeding to the rights of Mr. Hallauer, as a
condition to such exercise or disposition, shall make arrangements satisfactory
to the Company to enable it to satisfy such withholding requirement.
(g) Regulatory Compliance. If at any time the Board determines that (a)
the listing, registration or qualification of shares of Stock upon any
securities exchange or under any state or federal law, (b) the consent or
approval of any government or regulatory body or (c) an agreement or
representations by Mr. Hallauer with respect thereto, is necessary then the
exercise of the Option shall not be consummated in whole or in part unless
such listing, registration, qualification, consent, approval, agreement or
representations shall have been effected or obtained.
2
<PAGE>
(h) Adjustments. In the event of any reorganization, recapitalization,
stock split, stock dividend, combination of shares, consolidation, merger
(other than a merger or consolidation which does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares),
any sale or transfer by the Company of all or substantially all of its assets
or any exchange offer for or the acquisition, directly or indirectly by any
person or group of all or a majority of the then outstanding voting securities
of the Company, rights offering, or any other change in the corporate
structure or rights with respect to any shares of the Company, the Board shall
make (or shall cause the Board of Directors of any corporation which merges
with, or acquires the stock or assets of the Company to make) such equitable
and proportionate adjustment of the number and class of shares of stock then
covered by the Option, or of the purchase price, or both, in order to prevent
dilution or enlargement of the rights of Mr. Hallauer.
(i) Fractional Shares. The Option is only exercisable with respect to whole
shares of Stock and not fractions thereof unless the Board otherwise agrees.
Accordingly, the Company shall not be required to issue certificates
representing fractions of shares of Stock upon any exercise of the Option.
3. Piggy-Back Registration Rights. (a) If (but without obligation to do so)
the Company proposes to register (including for this purpose a registration
effected by the Company for stockholders other than Mr. Hallauer) any of its
stock under the Securities Act of 1933, as amended (the "Act") in connection
with the public offering of such securities (other than a registration relating
solely to the sale of securities to participants in a Company stock plan, a
registration relating solely to a Rule 145 transaction, a registration on any
form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of Stock
or a registration in which the only Stock being registered is Stock issuable
upon conversion of debt securities which are also being registered), the Company
shall, at such time, promptly give Mr. Hallauer written notice of such
registration. Upon written request of Mr. Hallauer given within twenty (20) days
after giving of such notice by the Company, the Company shall, subject to the
provisions of section 3(b), cause to be registered under the Act all of the
Stock that Mr. Hallauer has requested to be registered, provided, that the
Company shall not be obligated to effect more than two (2) registrations
pursuant to this Section 3(a).
(b) In connection with any offering involving an underwriting of shares of
the Company's Stock pursuant to Section 3(a), the Company shall not be required
under Section 3(a) to include any of Mr. Hallauer's securities in such
underwriting unless Mr. Hallauer accepts the terms of the underwriting as agreed
upon between the Company and the underwriters, and if the underwriter advises
Mr. Hallauer in writing that marketing factors require a limitation of the
number of shares to be underwritten, then the Company shall exclude from such
underwriting (i) an amount of stock from Mr. Hallauer which equals, pro rata to
the extent practicable, the amount of stock which is being excluded from the
underwriting from the other stockholders participating in such underwriting, the
minimum amount of stock as is necessary in the opinion of the underwriter(s) to
reduce the size of the offering.
3
<PAGE>
4. Treatment of Option as Non-Qualified Stock Option. The Company and Mr.
Hallauer acknowledge that the Option granted hereunder shall be treated as a
non-qualified stock option for U.S. federal income tax purposes.
5. 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 by facsimile or personally on the party to whom
notice is to be given, or within seven (7) days after mailing, if mailed to the
party to whom notice is to be given, by first class mail (airmail, if
international), registered or certified, postage prepaid, and properly addressed
to the party, if to the Company or Mr. Hallauer, at the address set forth on the
first page of this Agreement or any other address that the Company or Mr.
Hallauer may designate by written notice to the other party.
6. Acknowledgment. Mr. Hallauer agrees to be bound by the terms of this
Agreement and hereby acknowledges that all decisions, determinations and
interpretations of the Board in respect of this Agreement and the Option shall
be final, conclusive and binding on Mr. Hallauer and his legal representatives
and beneficiaries.
7. No Rights as Stockholder. Neither Mr. Hallauer nor Mr. Hallauer's
legal representative, legatees or distributees, as the case may be, shall have
any of the rights or privileges of a stockholder of the Company by virtue of the
Option except with respect to any shares of Stock actually issued or transferred
of record and delivered to one of the aforementioned persons.
8. Reservation of Shares. The Company shall at all times during the term of
the Option reserve and keep available such number of shares of Stock then
subject to the Option as will be sufficient to satisfy the requirements of this
Agreement.
9. Agreement to Perform Necessary Acts. Each party to this Agreement agrees
to perform any further acts and execute and deliver any documents that may be
reasonably necessary to carry out the provisions of this Agreement.
10. Amendments. The provisions of this Agreement may be waived, altered,
amended or repealed, in whole or in part, only upon the written consent of all
parties hereto.
11. Governing Law. The Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to conflicts
of laws principles.
12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first written above.
IAT MULTIMEDIA, INC.
By: /s/ Viktor Vogt
-------------------------------------
Name: Dr. Viktor Vogt
Title: Co-Chairman
/s/ Reiner Hallauer
----------------------------------------
REINER HALLAUER
<PAGE>
Management Contract
By and between
FSE-Computer-Handel-Verwaltungs GmbH
represented by its sole agent, manager Dr. Alfred Simmet
(hereinafter referred to as "the company") - party of the first part -
and
Dr. Alfred Simmet
Finkenweg 30
66869 Kusel
- party of the second part -
the following employment contract is concluded, effective November 12, 1997:
Art. 1
The company employs Dr. Alfred Simmet as sole agent and manager.
The manager shall manage the company's business in accordance with the law, the
articles of association and this management contract. This includes in
particular the management of FSE-Computer-Handels GmbH & Co. KG.
Art. 2
The manager shall manage the business as a prudent businessman. He shall not be
authorized to assume or continue other activities without the consent of the
company. The consent shall be denied only for important reasons.
He shall keep all internal matters and events which are in the company's
interests confidential from all third parties, unless he has been expressly
released from this duty by the company.
The manager is released from the restriction of Art. 181 BGB [civil law].
Art. 3
For his activity, the manager shall receive a gross monthly salary of DM 25,000,
payable at the end of the month.
This salary shall cover the entire activity of the manager on the company's
behalf; no separate payment shall be made for overtime.
The company shall provide the manager with a top class car, which may also be
used for private purposes. The manager shall pay the tax on its use, pursuant to
the pertinent regulations.
<PAGE>
Travel and other expenses shall be reimbursed by the company by a lump sum
allowed by the income tax law; additional amounts shall be refunded upon the
presentation of evidence.
Art. 4
The manager shall be entitled to 30 vacation days per year. Saturdays shall not
be considered business days.
The starting date of vacation shall be determined in agreement with the company.
If for business or personal reasons, the manager has been unable to take a
vacation by 3/31 of the following year, he shall receive 1/30 of his gross
salary per unused vacation day.
Art. 5
If the manager is temporarily prevented from exercising his activities by
sickness or other causes not due to his fault, he shall receive his full salary
pursuant to Art. 3 para 1 for up to 6 months.
Art. 6
This contract is concluded for 2 years. It may be terminated with 6-months
notice by either party, effective at the end of a calendar year.
This contract may be extended by one year by agreement between the company and
Dr. Alfred Simmet.
Art. 7
Amendments and supplements to this contract shall be made in writing.
Frankfurt, on November 13, 1997
/s/ Dr. Simmet /s/ Dr. Simmet
- ---------------------------------- ------------------------------------
Manager FSE-Computer-Handel-Verwaltungs GmbH
Dr. Alfred Simmet represented by its manager
<PAGE>
/emblem/Swiss Bank Corporation
CREDIT AGREEMENT
by and between
IAT AG, Aarestrasse 17, 5300 Vogelsang-Turgi
(hereinafter referred to as the "borrower")
and
Swiss Bank Corporation, Lowenstrasse 49, 8021 Zurich
(hereinafter referred to as the "bank").
- --------------------------------------------------------------------------------
The bank grants the borrower a credit under the following conditions:
1. Amount of the credit
SFr 1,900,000.00 (one million, nine hundred thousand 00/100 Swiss francs)
2. Purpose
- to finance working capital
- to handle import credits via our bank
- to grant sureties and guarantees
3. Utilization of the credit (under file No. P4-664'213)
3.1 SFr 700,000.00 like a current account in Swiss francs and/or up
to the equivalent of the limit in freely available,
valid foreign currency
and
3.2 SFr 600,000.00 as loan 1 under loan account No. P4-664'213.2
and
3.3 SFr 600,000.00 as loan 2 under loan account No. P4-664'213.3.
4. Conditions (presently and until further notice
4.1 When using it as a current account in Swiss francs
Debit interest rate 5 1/2% p.a.
<PAGE>
Credit Agreement by and between IAT AG,
Vogelsang-Turgi
and
Swiss Bank Corporation, 8021 Zurich
- --------------------------------------------------------------------------------
Credit commission 1/4% per quarter on the highest amount of the
credit utilized
4.2 When using it as a current account in valid foreign currency
Debit interest will be charged at the market rate.
4.3 When using it as a loan
5 1/2% p.a. net.
This interest rate may be adjusted by the bank with advance notice of 30
days, effective at the end of the month.
4.4 When using it as a credit, for sureties and guarantees
The commission shall be determined for each transaction individually.
The bank reserves the right to adjust the interest rates and commissions to
current conditions on the money and capital markets.
Postage and charges shall be debited to the borrower.
5. Sureties / formalities
5.1 Credit in current account
- Joint guarantee of SFr 700,000.00 by Mr. Klaus D. Sippel, 5415
Nussbaumen, dated 6/9/93
- Joint guarantee of SFr 700,000.00 by Mr. Cornelis Holthuizen, 8116
Wurenlos, dated 6/24/93
- Joint guarantee of SFr 500,000.00 by Mr. Richard Suter, 8484
Weisslingen, dated 5/10/93
- Joint guarantee of SFr 200,000.00 by Mr. Richard Suter, 8484
Weisslingen, dated 6/22/93
5.2 Loan 1
- Joint guarantee of SFr 600,000.00 by Mr. Klaus D. Sippel, 5415
Nussbaumen, dated 12/21/93
- Joint guarantee of SFr 600,000.00 by Mr. Richard Suter, 8484
Weisslingen, dated 12/21/93
5.2 Loan 2
- --------------------------------------------------------------------------------
2
<PAGE>
Credit Agreement by and between IAT AG,
Vogelsang-Turgi
and
Swiss Bank Corporation, 8021 Zurich
- --------------------------------------------------------------------------------
- Joint guarantee of SFr 600,000.00 by Mr. Klaus D. Sippel, 5415
Nussbaumen, dated 2/11/94
- Joint guarantee of SFr 600,000.00 by Mr. Richard Suter, 8484
Weisslingen, dated 2/11/94
The notarized forms "Joint guarantee by persons," bearing authorized
signatures, is on file at the bank.
6. Statements of account
Statements of account shall be issued quarterly, as of March 31, June 30,
September 30 and December 31.
Loan interest shall be payable quarterly and shall be debited to the
pertinent current account.
7. Cancellation
The credit account may be cancelled by either party at any time, pursuant
to Article 7 of the bank's general business conditions (AGB).
8. Presentation of the balance sheet
For the duration of the credit relationship, within 3 months from the close
of the fiscal year the borrower shall send the annual audited balance sheet
with the profit and loss account (individual and consolidated balances)
including the auditor's report and enclosures, to the bank. Upon request,
the borrower shall also give the bank explanations and additional
information on individual items of the balance sheet and profit and loss
account. The bank shall keep this information confidential.
9. Additional conditions
The bank's general business conditions are an integral component of this
contract and are applicable unless they are amended by special stipulations
in writing.
During the entire credit relationship, the borrower shall not directly or
indirectly secure any credits or other obligations of its affiliates or
third parties by guarantees, sureties or similar instruments without
approval from the bank.
This contract is issued in five copies and replaces the one of the Swiss
Bank Corporation, Aarau, of February 22, 1995. The borrower, the bank and
the joint guarantors each receive one copy.
/signature/ Turgi, 2/13/96 [by hand]
IAT AG, Vogelsang-Turgi Place and date
(borrower)
- --------------------------------------------------------------------------------
3
<PAGE>
Credit Agreement by and between IAT AG,
Vogelsang-Turgi
and
Swiss Bank Corporation, 8021 Zurich
- --------------------------------------------------------------------------------
/signature/ Baden, 2/23/96 [by hand]
Klaus D. Sippel, Nussbaumen Place and date
(joint guarantor)
/signature/ Turgi, 2/13/96 [by hand]
Cornelis Holthuizen, Wurenlos Place and date
(joint guarantor)
/signature/ Weisslingen, 2/23/96
[by hand]
Richard Suter, Weisslingen Place and date
(joint guarantor)
Swiss Bank Corporation
Companies and institutions
/signature/ /signature/
R. Lang Ph. Hanni Zurich, February 5, 1996
- --------------------------------------------------------------------------------
4
<PAGE>
Agreement
between
Swiss Bank Corporation, Lowenstrasse 49, 8021 Zurich
(hereinafter referred to as "SBV")
and
IAT Multimedia, Inc., Aarestrasse 17, 5300 Vogeslang-Turgi
(hereinafter "IAT Inc.")
With the agreement of February 5, 1996 SBV granted to IAT AG, Vogelsang-Turgi
(hereinafter "IAT") against several guarantees a credit line of CHF 1,900,000
which as of October 30, 1997 has been reduced to CHF 1,300,000. The current
account debt as well as the claims of SBV from the Loans 1 and 2 including
interests, commissions and charges amount to CHF 1,341,449.82 as of October 30,
1997 (s.e. & o.).
The parties agree as follows:
1. IAT Inc. acquires from SBV its claim towards IAT AG from the account No.
P4-664'213 (current account as well as Loan 1 and Loan 2) with all
preferential and subsidiary rights.
2. The parties agree a purchase price of CHF 1,341,449.82 for the acquisition
of the claim (current account debt and claims from Loan 1 and 2). The
purchase price shall be paid in monthly installments of CHF 200,000,
payable on the first day of the month by transfer on the account No.
P0-248,343.0 made out in the name of Schweizerischer Bankverein, Postfach,
8010 Zurich.
3. Upon receipt of each partial payment according to item 2 above, SBV shall
assign partial claims towards IAT Inc. from the account No. P4-664'213
(current account and Loan 1 and 2) in the amount of CHF 200,000 at a time
with all preferential and subsidiary rights and future interests to IAT
Inc. The assignment of the partial claim towards IAT Inc. will be carried
out upon confirmation of the receipt of the payment. A sample of the text
to be used can be found in the enclosure to this agreement.
4. SBV guarantees for the validity and assignability of the claim or partial
claims respectively, but assumes no responsibility for the solvency of the
debtor.
5. Should the remaining claim of SBV from the current account No. P4-664'213
amount to less than the payment effected by IAT Inc. as last installment at
the time of the assignment of the last partial claim (see item 2 above),
SBV shall reimburse the difference to IAT Inc.
<PAGE>
6. The handing over of the deeds (documents) and means of evidence regarding
the assigned claim, especially regarding the corresponding preferential and
subsidiary rights, will take place after complete payment of the purchase
price by IAT Inc.
7. This agreement is subject to Swiss law. Zurich 1 shall be the place of
jurisdiction. The place of performance is also Zurich 1. At said place, IAT
Inc. chooses a special domicile for the fulfillment of its obligations.
Zurich, 11/6/1997 Vogelsang-Turgi, 11/4/1997
Schweizerischer Bankverein IAT Multimedia, Inc.
__________________________ ____________________________
Vogelsang-Turgi, _________
IAT AG
__________________________
<PAGE>
Addendum to the Agreement of ________________
Text for confirmation of receipt
With reference to the agreement between you and us of the _______________ we
confirm the receipt of your partial payment for the month ___________ in the
amount of CHF 200,000.--. On the other hand, according to item 3 of the
agreement, we assign to you the partial amount of CHF 200,000.--of our claim
against IAT AG. Correspondingly, the debt of IAT AG on the current account No.
P4-664,213.0/.2/.3 is reduced according to the enclosed statement.
Best regards,
Swiss Bank Corporation
Enclosures
<PAGE>
Exibit 10.32
[LOGO] IAT
----------------------
THE ELECTRONIC MEETING
LICENSE AGREEMENT
BETWEEN
IAT AG
Aarestrasse 17, CH - 5300 Vogelsang-Turgi, Switzerland
(hereinafter "IAT")
and
PROTON COMMUNICATIONS TECHNOLOGIES INC.
15 Fl., No.51 Sec.2, Kee-Lung Road, Taipei, Taiwan, ROC
(hereinafter "Licensee")
Whereas Licensee wishes to use certain products of IAT as defined in the Annex
(the "PRODUCTS") to evaluate, develop or produce an application based on the TMS
320 C 8X processor (the "Application");
Whereas IAT is willing to license such PRODUCTS useful for such purposes;
Whereas IAT is the (proprietary) owner of any copyright, know-how, patent,
trade mark, trade secret or other proprietary right necessary for the purpose
of this Agreement ("intellectual property rights") or has from its suppliers
the right to license the use of the PRODUCTS; and
Whereas the parties agree that the annex to this agreement (the "Annex") shall
be an integral part of this agreement (both collectively hereinafter the
"Agreement").
<PAGE>
- 2 -
Now, therefore, the parties agree as follows:
1. License
1.1 IAT hereby grants to Licensee a non-exclusive, non-transferable,
non-assignable license to use the PRODUCTS solely in conjunction with
systems designed exclusively for one of TMS 320 product families and on the
conditions set forth herein only for the purposes of evaluation,
development or production of the Application and demonstration of the
Application by Licensee to third parties. Licensee shall not use the
PRODUCTS for the benefit of any third party and has no right to sub-license
or distribute the PRODUCTS except as expressly provided for in this
Agreement.
1.2 Licensee may use, modify, compile, or otherwise develop as applicable, a
software program ("Modified Application Program") and/or a hardware
reference design ("Modified Hardware Reference Design"), which may be
original or derivative with respect to the PRODUCTS, for use solely in
conjunction with systems designed exclusively for one of the TMS 320
product families. Any modification made by Licensee shall be the property
of Licensee, but Licensee shall not acquire any rights in the PRODUCTS.
"Modifications" is defined as additions to the existing code or replacement
or changes to the existing code.
1.3 Licensee may use the PRODUCTS only in its premises or any other location /
place/territory as defined in the Annex.
1.4 IAT shall transmit to Licensee under the terms of this Agreement its most
recent version of the PRODUCTS which are designed for the system as defined
in the Annex. No title to, or ownership of the PRODUCTS or the information
contained in it is transferred to Licensee, and Licensee agrees that its
receipt and use shall be subject to the terms and conditions set forth in
this Agreement.
<PAGE>
- 3 -
1.5 Any and all intellectual property rights, whether registered or not, with
respect to the PRODUCTS or any part thereof remain the sole property,
right, title and interest of IAT or its suppliers. Nothing in this
Agreement shall be deemed to be a transfer of intellectual property rights.
Licensee acknowledges that it acquires only such rights of use as
explicitly granted in this Agreement.
1.6 Licensee may make one copy of the PRODUCTS for internal back-up purposes.
Licensee agrees that as a condition for obtaining its rights hereunder,
each copy of the PRODUCTS of any portion thereof or documentation therefor,
shall contain a valid copyright notice and any other proprietary notices,
including the copyright notices of IAT or IAT's suppliers, which appear on
or in the PRODUCTS and documentation delivered to Licensee hereunder or as
IAT may require from time to time, in order to protect IAT's copyright and
other ownership interests. Presence of a copyright notice does not
constitute an acknowledgment of publication. Licensee shall reproduce on
the copy of the PRODUCTS, and on all copies of the Modified Application
Program or the Modified Hardware Reference Design, all copyright notices
and any other proprietary notices exactly as and where they appear on the
PRODUCTS delivered, or as closely as possible where a change in media
precludes exact reproduction.
1.7 Licensee shall maintain any source code of the PRODUCTS as confidential,
and shall not disclose, distribute, or disseminate any such source code to
any third parties.
1.8 Subject to mandatory law, Licensee is expressly prohibited from reverse
compiling, reverse assembling, and reverse engineering any portion of the
PRODUCTS provided in object format.
<PAGE>
- 4 -
2. Compensation
For such license as deemed in art. 1.1, Licensee shall pay the compensation
in the amount and according to the terms as listed in the Annex.
3. Support and Maintenance
Except as otherwise provided for in the Annex, IAT shall have no obligation
with respect to support or maintenance of the PRODUCTS.
4. Updates etc.
Unless otherwise provided for in the Annex, nothing contained in this
Agreement shall be construed as granting or conferring any rights by
license or otherwise, expressly, impliedly, or otherwise, for any
invention, discovery or improvement (i.e. updates) made, conceived or
acquired by IAT prior or after the date of this Agreement.
5. Warranty
All PRODUCTS and information are furnished "as is" and IAT gives not
warranty, express, implied or statutory, including any implied warranty of
merchantability or fitness for a particular purpose as to such PRODUCTS or
its use by Licensee. In particular, IAT gives no warranty with respect to
the success of any developments, projects or productions made by Licensee
based on the PRODUCTS.
<PAGE>
- 5 -
6. Disclaimer and Limitation of Liability
IAT may only be held liable for any damages if and when such damages are
proved to have been caused by willful default or gross negligence of IAT.
The Licensee is self-responsible for any commercial success resulting from
the PRODUCTS.
7. Product Liability
Licensee is obligated to maintain an appropriate product liability
insurance. Licensee indemnifies IAT with respect to all claims by third
parties based on product liability. Licensee also holds IAT harmless for
any claims by third parties based on statements by the Licensee with
respect to the PRODUCTS.
8. Export
Licensee hereby agrees that it will not knowingly export or re-export,
directly or indirectly, (i) PROPRIETARY INFORMATION (technical data as
defined in the US Export Administration Regulations or by governmental
authorities) received from IAT under this Agreement, or (ii) any immediate
product, process or service directly produced by the use of such
PROPRIETARY INFORMATION, to any destination to which such export or
re-export is restricted or prohibited by US or non-US law, without
obtaining prior authorization from the competent governmental authorities
as required by those laws. This provision shall survive expiration,
termination or cancellation of this Agreement.
<PAGE>
- 6 -
9. License to Distribute
9.1 Licensee shall not distribute any Modified Application Program or Modified
Hardware Reference Design or other items based on the PRODUCTS without
first obtaining a distribution license from IAT according to art. 9.2.
9.2 Licensee shall, if so expressly provided for in the Annex, under the
conditions and upon payment of the amount listed in the Annex, be granted a
non-exclusive, worldwide license to distribute any part of the PRODUCTS
forming part of a Modified Application Program or a Modified Hardware
Reference Design. Said right to distribute shall only be for use in
conjunction with the Application.
The following terms and conditions shall apply to said license to
distribute (if any):
a) Licensee shall ensure that a valid, enforceable and written license
agreement is entered into containing the same restrictions on
disclosure of the Modified Application Program, the Modified Hardware
Reference Design and/or PRODUCTS as those contained in this Agreement
as well as a reasonable restriction on reverse compilation thereof.
b) Licensee shall ensure that all sub-licensees must reproduce on every
copy made for backup purpose, all copyright notices as they appear on
or in the PRODUCTS.
10. Secrecy and Security
10.1 Neither party shall publicly announce or publicly disclose the existence of
this Agreement or its terms and conditions, or advertise or release any
publicity regarding this Agreement, without the prior written consent of
the other party.
<PAGE>
- 7 -
10.2 Licensee will provide physical security measures for the prevention of
unauthorized access to or use of the PRODUCTS similar to those used for its
own products of similar nature. In addition, Licensee undertakes that use
of and access to the PRODUCTS will be limited to those of its employees
being in charge of the design and simulation of the Application and that
such employees have undertaken to comply with the obligations concerning
use and non-disclosure of PRODUCTS and other proprietary information
provided to Licensee under this Agreement.
10.3 Licensee agrees that it will not make or permit to be made, without IAT's
prior written consent, any copies of the PRODUCTS except as may be required
for routine system backup or for development of the Application. Licensee
shall reproduce on all such authorized copies of the PRODUCTS all copyright
notices and proprietary legends exactly as and where they appear on the
PRODUCTS delivered, or as closely as possible where a change in media
precludes exact reproduction. Licensee will not transfer the PRODUCTS, or
copies thereof, to any third party.
10.4 Licensee agrees that it will not disclose to any other person, firm or
corporation, or use except as permitted by this Agreement, PRODUCTS and any
other information received from IAT that is marked STRICTLY PRIVATE,
INTERNAL DATA, PROPRIETARY or other comparable legend ("Confidential
Information").
10.5 Information shall not be deemed Confidential Information and Licensee shall
have no obligation under this Agreement with respect to any information
which:
a) is already known to Licensee, or
b) is or becomes publicly known through no wrongful act of Licensee, or
c) is rightfully received from a third party without similar restriction
and without breach of this Agreement, or
<PAGE>
- 8 -
d) is independently developed by Licensee, or
e) is furnished to a third party by IAT without a similar restriction on
the third party's rights, or
f) is approved for release by written authorization of IAT.
11. Notices
Any notice relating to this Agreement shall be deemed given when sent by
registered mail with proof of delivery to carrier, or to the other party at
the address listed in the Annex.
12. Integration
This Agreement constitutes the entire Agreement between the parties with
respect to the subject matter hereof, and supersedes all previous
communications, representations, understandings and agreements, either oral
or written, between the parties or any official representative thereof.
This Agreement shall be modified only by an instrument in writing and
signed by duly authorized representatives of the parties.
Should the terms of the Annex be in conflict with this Agreement, the Annex
shall prevail.
<PAGE>
- 9 -
13. Term and Termination
13.1 This Agreement is concluded for a period of three (3) years and shall be
automatically extended from year to year after 3 years unless terminated as
provided herein.
13.2 IAT may, in its sole discretion, terminate this Agreement at any time in
the event of a breach by Licensee, with forty-five (45) days prior written
notice from IAT, and failure to cure by Licensee within that forty-five
(45) day period, or if one of IAT's suppliers terminates an agreement
relevant for this Agreement.
13.3 After three (3) years, either party may, in its sole discretion, terminate
this Agreement at any time with thirty (30) days prior written notice.
13.4 Upon termination, Licensee shall transfer to IAT all PRODUCTS and
information received and cease to use such PRODUCTS and information.
14. Non-Competition Clause
During the validity of this Agreement, Licensee shall not produce or sell
any items competing with the PRODUCTS. Licensee shall in particularly not
use the information received under this Agreement for the productions, use
of or sale of competing items.
In each case of violation of this clause Licensee is obligated to pay a
contractual penalty of US $ 50'000.-. Payment of the contractual penalty
shall not relieve Licensee from the non-competition duty as agreed herein;
claims for further damages are reserved.
<PAGE>
- 10 -
15. Governing Law and Jurisdiction
15.1 This Agreement shall be governed by the laws of Switzerland.
15.2 Any dispute arising out of or in connection with this Agreement or any
future agreement related hereto shall be exclusively settled by the
competent court at the domicile of IAT.
IAT has, however, the right to bring any claim before the competent courts
at the domicile of Licensee.
In witness whereof, the parties agree that the effective date of this Agreement
shall be:
IAT: Licensee:
[SEAL] Chinese Seal
By: /s/ V. Vogt By: /s/ Yin-Wu Chen
--------------------- ------------------------
Name: Mr. V. Vogt Name: Mr. Yin-Wu Chen
Title: CEO / Title: President
Date: Date: July 2, 1997
--------------------- ------------------------
ENCLOSURE: ANNEX
<PAGE>
- 1 -
[LOGO] IAT
----------------------
THE ELECTRONIC MEETING
ANNEX
to
LICENSE AGREEMENT
dated 24. June 1997
concluded between
IAT AG, Aarestr. 17, CH-5300 Vogelsang-Turgi
and
PROTON Communications Technologies Inc., Taipei, Taiwan
1. Compensation and Payment Terms
Upfront: 16 000,- USD
Royalties: 0.008% of Upfront per piece
1.2 Payment:
Upfront: within 30 days after delivery (already delivered by Texas
Instruments)
Royalties: payable after delivery of target product by licensee, the
delivered quantity has to be reported and paid quarterly to IAT
2. Product, System and Location
2.1 Products Licensed by Licensee.
H.324 Development Release for TMS320C8x
2.2 Target Product of Licensee.
Stand alone videophone based on TMS320C8x
H.324 Library in Object Code for TMS320C8x (Modified Application Program)
3. Support
For support IAT will charge, and Licensee agrees to pay, a support fee of
USD 150.- (exclusive VAT) per hour.
<PAGE>
- 2 -
4. Updates, Upgrades
Not covered.
5. License to Distribute
5.1 Licensee is entitled to distribute the Target Product of Licensee as
defined in this ANNEX, Item 2.2 subject to the provisions of art. 9.2 and
subject to 1. Compensation and Payment Terms of this ANNEX.
5.2 In case of termination of the License Agreement as defined in art. 13.3,
Licensee is still entitled to distribute the Target Product of Licensee as
defined in this ANNEX, Item 2.2. subject to the provisions of art. 9.2 and
subject to 1.
6. Sublicensing of Protons modified source code
Proton has the right to sublicense the modified source code of Proton,
containing the original H.324 source code of TI/IAT to their customers.
Proton has to report each sublicensing immediately to IAT. For each
sublicense, Proton (or sublicensee) has to pay to IAT: Upfront: 14 000,-
USD, within 30 days after delivery through Proton. Royalties: 0.008% of
Upfront per piece, payable after delivery of target product of sublicensee.
The delivered quantity has to be reported and paid quarterly to IAT.
7. Notices
Licensee: [SEAL] Chinese Seal IAT:
PROTON Communications IAT AG
Taipei, Taiwan Vogelsang-Turgi, Switzerland
Mr. Yin-Wu Chen / President Mr. V. Vogt / CEO
Place, Date 7/2/1997 Taipei July 2, 1997
------------------------ --------------------------
/s/ Yin-Wu Chen /s/ V. Vogt
- ------------------------ -------------------------
Licensee: IAT:
<PAGE>
LICENSE AGREEMENT
between
IAT AG, Aarestrasse 17, CH-5300 Vogelsang-Turgi
(hereinafter "IAT")
and
Sony Electronics Inc., San Diego, California, USA
(hereinafter "Licensee")
Whereas Licensee wishes to use certain products of IAT as defined in the Annex
(the "PRODUCTS") to evaluate, develop or produce an application based on the TMS
320 C 8X processor (the "Application");
Whereas IAT is willing to license such PRODUCTS useful for such purposes;
Whereas IAT is the owner of any copyright, know-how, patent, trade mark, trade
secret or other proprietary right necessary for the purpose of this Agreement
("intellectual property rights") or has from its suppliers the right to license
the use of the PRODUCTS; and
Whereas the parties agree that the annex to this agreement (the "Annex") shall
be an integral part of this agreement (both collectively hereinafter the
"Agreement").
Now, therefore, the parties agree as follows:
1. License
1.1 IAT hereby grants to Licensee a non-exclusive, non-transferable,
non-assignable license to use the PRODUCTS solely in conjunction with
systems designed exclusively for one of TMS 320 product families and on the
conditions set forth herein only for the pur-
<PAGE>
- 2 -
poses of evaluation, development or production of the Application and
demonstration of the Application by Licensee to third parties. Licensee
shall not use the PRODUCTS for the benefit of any third party and has no
right to sub-license or distribute the PRODUCTS except as expressly
provided for in this Agreement.
1.2 Licensee may use, modify, compile, or otherwise develop as applicable, a
software program ("Modified Application Program") and/or a hardware
reference design ("Modified Hardware Reference Design"), which may be
original or derivative with respect to the PRODUCTS, for use solely in
conjunction with systems designed exclusively for one of the TMS 320
product families. Any modification made by Licensee shall be the property
of Licensee, but Licensee shall not acquire any rights in the PRODUCTS.
"Modifications" is defined as additions to the existing code or
replacement or changes to the existing code.
1.3 Licensee may use the PRODUCTS only in its premises or any other location /
place / territory as defined in the Annex.
1.4 IAT shall transmit to Licensee under the terms of this Agreement its most
recent version of the PRODUCTS which are designed for the system as defined
in the Annex. No title to, or ownership of the PRODUCTS or the information
contained in it is transferred to Licensee, and Licensee agrees that its
receipt and use shall be subject to the terms and conditions set forth in
this Agreement.
1.5 Any and all intellectual property rights, whether registered or not, with
respect to the PRODUCTS or any part thereof remain the sole property,
right, title and interest of IAT or its suppliers. Nothing in this
Agreement shall be deemed to be a transfer of intellectual property rights.
Licensee acknowledges that it acquires only such rights of use as
explicitly granted in this Agreement.
1.6 Licensee may make one copy of the PRODUCTS for internal back-up purposes.
Licensee agrees that as a condition for obtaining its rights hereunder,
each copy of the PRODUCTS of any portion thereof or documentation therefor,
shall contain a valid copyright notice and any other proprietary notices,
including the copyright notices of IAT or IAT's suppliers, which appear on
or in the PRODUCTS and documentation delivered to Licensee hereunder or as
IAT may require from time to time, in order to protect IAT's copyright and
other ownership interests. Presence of a copyright notice does
<PAGE>
- 3 -
not constitute an acknowledgment of publication. Licensee shall reproduce
on the copy of the PRODUCTS, and on all copies of the Modified Application
Program or the Modified Hardware Reference Design, all copyright notices
and any other proprietary notices exactly as and where they appear on the
PRODUCTS delivered, or as closely as possible where a change in media
precludes exact reproduction.
1.7 Licensee shall maintain any source code of the PRODUCTS as confidential,
and shall not disclose, distribute, or disseminate any such source code to
any third parties.
1.8 Subject to mandatory law, Licensee is expressly prohibited from reverse
compiling, reverse assembling, and reverse engineering any portion of the
PRODUCTS provided in object format.
2. Compensation
For such license as defined in art. 1.1, Licensee shall pay the
compensation in the amount and according to the terms as listed in the
Annex.
3. Support and Maintenance
Except as otherwise provided for in the Annex, IAT shall have no obligation
with respect to support or maintenance of the PRODUCTS.
4. Updates etc.
Unless otherwise provided for in the Annex, nothing contained in this
Agreement shall be construed as granting or conferring any rights by
license or otherwise, expressly, impliedly, or otherwise, for any
invention, discovery or improvement (i.e. updates) made, conceived or
acquired by IAT prior or after the date of this Agreement.
5. Warranty
All PRODUCTS and information are furnished "as is" and IAT gives not
warranty, express, implied or statutory, including any implied warrant of
merchantability or fitness for a particular purpose as to such PRODUCTS or
its use by Licensee. In particu-
<PAGE>
- 4 -
lar, IAT gives no warranty with respect to the success of any developments,
projects or productions made by Licensee based on the PRODUCTS.
6. Disclaimer and Limitation of Liability
IAT may only be held liable for any damages if and when such damages are
proved to have been caused by willful default or gross negligence of IAT.
The Licensee is self-responsible for any commercial success resulting from
the PRODUCTS.
7. Product liability
Licensee is obligated to maintain an appropriate product liability
insurance. Licensee indemnifies IAT with respect to all claims by third
parties based on product liability. Licensee also holds IAT harmless for
any claims by third parties based on statements by the Licensee with
respect to the PRODUCTS.
8. Export
Licensee hereby agrees that it will not knowingly export or re-export,
directly or indirectly, (i) PROPRIETARY INFORMATION (technical data as
defined in the US Export Administration Regulations or by governmental
authorities) received from IAT under this Agreement, or (ii) any immediate
product, process or service directly produced by the use of such
PROPRIETARY INFORMATION, to any destination to which such export or
re-export is restricted or prohibited by US or non-US law, without
obtaining prior authorization from the competent governmental authorities
as required by those laws. This provision shall survive expiration,
termination or cancellation of this Agreement.
9. License to Distribute
9.1 Licensee shall not distribute any Modified Application Program or Modified
Hardware Reference Design or other items based on the PRODUCTS without
first obtaining a distribution license from IAT according to art. 9.2.
<PAGE>
- 5 -
9.2 Licensee shall, if so expressly provided for in the Annex, under the
conditions and upon payment of the amount listed in the Annex, be granted a
non-exclusive, worldwide license to distribute any part of the PRODUCTS
forming part of a Modified Application Program or a Modified Hardware
Reference Design. Said right to distribute shall only be for use in
conjunction with the Application.
The following terms and conditions shall apply to said license to
distribute (if any):
a) Licensee shall ensure that a valid, enforceable and written license
agreement is entered into containing the same restrictions on
disclosure of the Modified Application Program, the Modified Hardware
Reference Design and/or PRODUCTS as those contained in this Agreement
as well as a reasonable restriction on reverse compilation thereof.
b) Licensee shall ensure that all sub-licensees must reproduce on every
copy made for backup purpose, all copyright notices as they appear on
or in the PRODUCTS.
10. Secrecy and Security
10.1 Neither party shall publicly announce or publicly disclose the existence of
this Agreement or its terms and conditions, or advertise or release any
publicity regarding this Agreement, without the prior written consent of
the other party.
10.2 Licensee will provide physical security measures for the prevention of
unauthorized access to or use of the PRODUCTS similar to those used for its
own products of similar nature. In addition, Licensee undertakes that use
of and access to the PRODUCTS will be limited to those of its employees
being in charge of the design and simulation of the Application and that
such employees have undertaken to comply with the obligations concerning
use and non-disclosure of PRODUCTS and other proprietary information
provided to Licensee under this Agreement.
10.3 Licensee agrees that it will not make or permit to be made, without IAT's
prior written consent, any copies of the PRODUCTS except as may be required
for routine system backup or for development of the Application. Licensee
shall reproduce on all such authorized copies of the PRODUCTS all copyright
notices and proprietary legends exactly as and where they appear on the
PRODUCTS delivered, or as closely as possible
<PAGE>
- 6 -
here a change in media precludes exact reproduction. Licensee will not
transfer the PRODUCTS, or copies thereof, to any third party.
10.4 Licensee agrees that it will not disclose to any other person, firm or
corporation, or use except as permitted by this Agreement, PRODUCTS and any
other information received from IAT that is marked STRICTLY PRIVATE,
INTERNAL DATA, PROPRIETARY or other comparable legend ("Confidential
Information").
10.5 Information shall not be deemed Confidential Information and Licensee shall
have no obligation under this Agreement with respect to any information
which:
a) is already known to Licensee, or
b) is or becomes publicly known through no wrongful act of Licensee, or
c) is rightfully received from a third party without similar restriction
and without breach of this Agreement, or
d) is independently developed by Licensee, or
e) is furnished to a third party by IAT without a similar restriction on
the third party's rights, or
f) is approved for release by written authorization of IAT.
11. Notices
Any notice relating to this Agreement shall be deemed given when sent by
registered mail with proof of delivery to carrier, or to the other party at
the address listed in the Annex.
12. Integration
This Agreement constitutes the entire Agreement between the parties with
respect to the subject matter hereof, and supersedes all previous
communications, representations, understandings and agreements, either oral
or written, between the parties or any offi-
<PAGE>
- 7 -
cial representative thereof. This Agreement shall be modified only by an
instrument in writing and signed by duly authorized representatives of the
parties.
Should the terms of the Annex be in conflict with this Agreement, the Annex
shall prevail.
13. Term and Termination
13.1 This Agreement is concluded for a period of three (3) years and shall be
automatically extended for successive one (1) year periods unless
terminated as provided herein.
13.2 IAT may, in its sole discretion, terminate this Agreement at any time in
the event of a breach by Licensee, with forty-five (45) days prior written
notice from IAT, and failure to cure by Licensee within that forty-five
(45) day period, or if one of IAT's suppliers terminates an agreement
relevant for this Agreement.
13.3 After three (3) years, either party may, in its sole discretion, terminate
this Agreement at any time with thirty (30) days prior written notice.
13.4 Upon termination, Licensee shall transfer to IAT all PRODUCTS and
information received and cease to use such PRODUCTS and information.
14. Non-Competition Clause
N/A
15. Governing Law and Jurisdiction
15.1 This Agreement shall be governed by the laws of Switzerland.
l5.2 Any dispute arising out of or in connection with this Agreement or any
future agreement related hereto shall be exclusively settled by the
competent court at the domicile of IAT.
IAT has, however, the right to bring any claim before the competent courts
at the domicile of Licensee.
<PAGE>
- 8 -
In witness whereof, the parties agree that the effective date of this Agreement
shall be:
IAT: Licensee:
By: /s/ Viktor Vogt By: /s/ Tei Iki
---------------------- ---------------------
Name: Dr. Viktor Vogt Name: Tei Iki
Title: CEO Title: Sr. Vice President
Date: July 18, 1997 Date: July 23, 1997
Enclosure: Annex
- ----------------
IAT Software Use Agreement 0407 - MG/hu
<PAGE>
ANNEX
to
LICENSE AGREEMENT
dated April 30, 1997
concluded between
IAT AG, Aarestrasse l7, CH-5300 Vogelsang-Turgi
and
SONY Electronics Inc., San Diego, California, USA
1. Compensation and Payment Terms
l.l Licensee shall deliver two (2) Mini 1000's to IAT free of charge.
2. Product, System and Location
2.1 IAT Products Licensed by Licensee
H.221 / H.242 / H.230 - library, running on TMS 320 C80/50 MHz
2.2 License according to 1.1 is granted world-wide.
2.3 Target Product of Licensee
Mini 1000
3. Support
IAT will provide free of charge a support of five (5) man-days within six
(6) months after delivery at IAT site in Bremen.
For additional support IAT will charge, and Licensee agrees to pay, a
support fee of USD l50,- per hour.
1
<PAGE>
4. Up-dates etc.
4.1 IAT will provide free of charge updates of products as defined in this
ANNEX, item 2.1 within one (1) quarter after delivery.
4.2 Not covered are functional upgrades.
5. License to Distribute
5.1 Licensee is entitled to distribute the Target Product of Licensee as
defined in this ANNEX, Item 2.2 subject to the provisions of art. 9.2 and
subject to 1. Compensation and Payment Terms of this ANNEX.
5.2 In case of termination of the License Agreement as defined in art. 13.3,
Licensee is still entitled to distribute the Target Product of Licensee as
defined in this ANNEX, Item 2.2 subject to the provisions of art. 9.2 and
subject to 1.
6. Others
Sony may disclose the source code to independent contractors in order to
modify the IAT software, provided that the independent contractors comply
with the terms of this license agreement. Licensee is fully responsible for
such compliance.
7. Notices
Licensee: IAT:
SONY ELECTRONICS, INC. IAT AG
San Diego, California Vogelsang-Turgi, Switzerland
Tei Iki Dr. Victor Vogt
Sr. Vice President CEO
Place, Date San Diego, July 23, 1997, Vogelsang, July 18, 1997
/s/ Tei Iki /s/ Victor Vogt
-------------------- --------------------
Licensee IAT
2
<PAGE>
SONY
Sony Electronics Inc.
16450 West Bernardo Drive, San Diego, California 92127 Telephone (619) 487-8500
================================================================================
November 21, 1997
Ms. Monica Germann
IAT AG
Aarestrasse 17
CH-5300 Vogelsang-Turgi
Switzerland
Dear Monica:
Sony hereby gives permission for the disclosure of the July 23, 1997 License
Agreement between IAT AG and Sony Electronics, Inc. to be made to the Securities
and Exchange Commission of the United States to the degree required by law.
Sincerely,
/s/ Tei Iki
Tei Iki
Senior Vice President
Display Systems
<PAGE>
PRECISI0N DIGITAL IMAGES CORP.
LICENSE AGREEMENT
This License Agreement ("Agreement") is made and entered into as of the
later of the two dates on the signature page (the "Effective Date") by and
between IAT Multimedia, Inc. ("IAT"), a Delaware corporation, and Precision
Digital Images Corporation ("PDI"), a Washington corporation.
Recitals
WHEREAS, PDI has developed an ASIC that is an important component of a
product designed by IAT; and
WHEREAS, PDI and IAT have expressed a desire to work together to jointly
produce this ASIC; and
WHEREAS, pursuant to this Agreement, PDI is willing to grant to IAT a
license to produce the ASIC pursuant to the terms and conditions contained
herein; and
WHEREAS, pursuant to an ASIC Development Agreement, between the parties
hereto and dated as of the date of this Agreement, PDI is willing to perform
certain services relating to the development of the ASIC;
NOW, THEREFORE, in consideration of the covenants and conditions
hereinafter set forth, PDI and IAT agree as follows:
AGREEMENT
1. Definitions. For purposes of this Agreement, the following terms,
whenever initially capitalized, shall have the following meanings:
(a) "ASIC" means the application specific integrated circuit chip
designed by PDI as described in Exhibit A attached hereto.
(b) "ASIC Derivatives" means any application specific integrated circuit
chip derived from any of the major functional components of the ASIC in a
stand-alone chip.
(c) "Design Documents" means the Veritog (HDL) files, script files, test
modules and any other files or documentation required to manufacture the ASIC.
(d) "Licensed Technology" means any Design Documents, information and data
of PDI (whether confidential or not) which is necessary and sufficient to
modify, improve, enhance, manufacture, assemble, test, operate, maintain and
repair ASIC products and parts,
<PAGE>
and which is now or hereafter owned, controlled or possessed by PDI, including,
without limitation, invention records, research records and reports, flow
charts, state diagrams, logic diagrams, block diagrams, development reports,
experimental and other engineering reports, circuits, bill of materials,
production specifications, raw material specifications, quality control reports
and specifications, drawings and photographs, manufacturing and production
techniques, processes, methods, test information, software (including source
and object code listings and supporting documentation), repair and maintenance
procedures, manuals, basic process steps, vendor lists or any other information
possessed by PDI.
All other initially capitalized terms shall have the meanings hereinafter
assigned to them.
2. License Grant. PDI hereby grants to IAT, and IAT hereby accepts, a non-
exclusive, non-transferable, non-assignable, royalty free (except as stated in
Exhibit B), fully paid up, perpetual, worldwide, terminable right and license:
(a) to use and apply all Licensed Technology (developed (i) pursuant to the
Development Agreement or in conjunction with IAT or (ii) for use in IAT
products) and related intellectual property rights (including all current and
future patents or copyrights and patent applications with respect thereto),
together with any and all improvements, enhancements, additions, changes or
derivatives developed by PDI during the term of this Agreement in connection
with the design, manufacture, use, sale, lease and distribution of ASIC
products, ASIC Derivatives and any other devices incorporating the Licensed
Technology and (b) to receive all documentation and other printed information
reasonably necessary to enable IAT to exploit the Licensed Technology to the
fullest extent and to reproduce the documentation for the purposes of sales,
marketing and field- and depot-level maintenance and repair by IAT. All rights
not expressly granted herein are reserved by PDI.
3. Payment. IAT shall pay PDI the license fees set forth in Exhibit B,
according to the payment terms set forth in Exhibit B.
4. Delivery. Immediately upon the effective date of this Agreement and
throughout the term of this Agreement PDI will: (a) provide to IAT all Licensed
Technology and all current ASIC Product user manuals and documentation in a
reproducible form; (b) allow IAT access to all tooling owned or controlled by
PDI related to the ASIC product or parts covered in this Agreement for the
purpose of securing parts necessary for the manufacture of the ASIC product or
parts; (c) provide IAT with all enhancements, updates, releases, additions, and
new or updated manuals or addenda sheets and new or revised data for all other
affected documentation furnished under this Agreement as such information is
available within PDI, but in any event not later than 30 days prior to the
effective date of the change; and (d) make qualified technical personnel
reasonably available, for a reasonable fee, to IAT's technical staff by
telephone, electronic or written communication on a reasonable "as needed" basis
to answer questions or provide information regarding the ASIC product and the
manufacture thereof.
-2-
<PAGE>
5. Warranties.
(a) Non-Infringement. PDI warrants to IAT that the ASIC does not infringe
the copyright or trade secret of any third party.
(b) No Conflicting Rights. PDI warrants to IAT that PDI has not previously
and will not grant any rights to any third party that are inconsistent with the
rights granted to IAT herein.
(c) Adequacy of Disclosure & Deliveries. The documentation and Licensed
Technology delivered to IAT will be sufficient, complete and adequate in all
material respects and in such form as to enable IAT to manufacture such ASIC
products to conform to the intended specifications for the ASIC products and
the technical, certification, manufacturing, quality control, and documentation
standards applicable in the industry;
(d) NO OTHER WARRANTIES. EXCEPT AS SET FORTH IN SECTIONS 5(a) AND (b),
THE LICENSED TECHNOLOGY IS PROVIDED "AS IS", INCLUDING PDI DISCLAIMS ALL OTHER
WARRANTIES AND CONDITIONS, EITHER EXPRESSED OR IMPLIED, INCLUDING WITHOUT
LIMITATION IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE, WITH REGARD TO THE ASIC.
6. Disclaimer, Limitation of Liability.
(a) DISCLAIMER. NEITHER PARTY SHALL BE LIABLE FOR ANY INDIRECT,
CONSEQUENTIAL, INCIDENTAL OR EXEMPLARY DAMAGES (INCLUDING WITHOUT LIMITATION
DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS
INFORMATION, AND THE LIKE) EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
(b) LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY'S TOTAL
LIABILITY FOR ANY DAMAGES IN CONNECTION WITH THIS AGREEMENT EXCEED THE LICENSE
FEES PAID BY IAT HEREUNDER, REGARDLESS OF WHETHER SUCH LIABILITY ARISES FROM ANY
CLAIM BASED UPON CONTRACT, WARRANTY, TORT, OR OTHERWISE.
7. Termination. Either party may terminate this Agreement immediately upon
written notice in the event the other party is in material breach of this
Agreement, including without limitation failure to pay any license fees due
thereunder, and such breach is not cured
-3-
<PAGE>
by the breaching party within thirty (30) days after receipt of written notice
of default from the other party. Immediately upon termination of this
Agreement, IAT shall cease use, distribution or other exercise of rights in the
Licensed Technology, and shall destroy all copies of Design Documents in IAT's
possession or control. Upon delivery of written notice to PDI, IAT will further
have the right to terminate the license granted herein if IAT no longer desires
to utilize the licensed technology in connection with the manufacture, use,
sale, lease or distribution of ASIC products.
8. Intellectual Property and Proprietary Rights. PDI maintains ownership of
the Licensed Technology, including documentation generated for the ASIC design.
IAT will have the right to modify, improve and enhance the Licensed Technology
from time to time. PDI will not have any ownership with respect to rights to any
such modification, improvement or enhancement developed by IAT.
9. Non-Disclosure. Each party expressly undertakes to retain in confidence
all information and know-how transmitted to such party by the other party that
the other party has designated as proprietary and/or confidential or that, by
the nature of the circumstances surrounding the disclosure, ought in good faith
to be treated as proprietary and/or confidential ("Confidential Information").
Each party shall take reasonable security precautions at least as great as the
precautions it takes to protect its own confidential information of a similar
nature, to safeguard the Confidential Information. Each party may disclose the
Confidential Information to its employees, consultants and fabricators only on a
need-to-know basis. Each party shall enter into and maintain appropriate written
agreements with its employees, consultants and fabricators sufficient to enable
it to comply with all provisions of this Agreement. Each party shall notify the
other party in writing of any misuse or misappropriation of Confidential
Information that may come to its attention. The obligations under this Section 9
shall survive any termination of this Agreement.
10. Notices and Requests. All notices and requests in connection with
this Agreement shall be deemed given as of the day they are received either by
messenger, delivery service, or in the United States of America mails, postage
prepaid, certified or registered, return receipt requested, and addressed as
follows:
IAT: IAT Multimedia, Inc.
c/o IAT AG
Geschaftshaus Wasserschloss
Aarestrasse 17, CH-5300 Vogelsang-Turgi
Attention: Mr. Franz Muller
PDI: Precision Digital Images
8520 154th Avenue, N.E.
Redmond, WA 98052
Attention: Mr. Wayne Smith
-4-
<PAGE>
or to such other address as the party to receive the notice or request so
designates by written notice to the other.
11. Miscellaneous.
(a) Relationship of the Parties. The parties hereto are independent
contractors and nothing in this Agreement shall be construed as creating an
agency relationship, a partnership, a franchise, or a joint venture between the
parties.
(b) Governing Law. This Agreement shall be governed by the laws of the
State of Washington. In any action or suit to enforce any right or remedy under
this Agreement or to interpret any provision of this Agreement, the prevailing
party shall be entitled to recover its costs, including reasonable attorneys'
fees.
(c) Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof, and merges all
prior and contemporaneous communications. It shall not be modified except by a
written agreement dated subsequent to the date of this Agreement and signed on
behalf of IAT and PDI by their respective duly authorized representatives.
(d) Assignment. This Agreement may be assigned by PDI provided that all of
its obligations thereunder have been faithfully performed. IAT may assign its
rights under this Agreement only with PDI's prior written approval, except that
IAT will not need PDI's consent if such assignment is in connection with the
sale of all or substantially all of IAT's assets. Except as otherwise provided,
this Agreement shall be binding upon and inure to the benefit of the parties'
successors and lawful assigns.
(e) Arbitration. Any dispute, controversy, or claim arising out of this
Agreement, or the interpretation, performance, breach, enforcement or
termination thereof, or arising out of the respective rights and duties of the
parties to this Agreement, will be settled by arbitration in accordance with
the Arbitration Rules of the United Nations Commission on International Trade
Law (UNCITRAL), in effect as of the date hereof. This provision does not apply
to disputes, claims, or controversies involving any issues of or disputes
relating to patent validity or infringement arising out of or relating to this
Agreement, which will be determined by a court of competent jurisdiction. The
parties have agreed on this mechanism in order to obtain prompt and
expeditious resolutions of disputes. Unless the parties agree in writing on
the appointment of a single arbitrator, the matter will be referred to three
arbitrators; one to be appointed by each party, and the third, who will act as
Chairman, being nominated by the two so selected by the parties. The award is
to be given by a majority decision; however, if there be no majority, the
award will be made by the Chairman of the arbitral tribunal alone. The cost of
the proceeding will initially be borne equally by the parties to the dispute,
but the prevailing party in such proceeding will be entitled to recover, in
addition to reasonable attorney' fees and all other
-5-
<PAGE>
expenses, its contribution for the reasonable expenses of the arbitrator as an
item of damage and/or recoverable expenses. The exclusive venue of arbitration
will be in New York City, New York. The language of such arbitration will be
English; all documents and agreements relative to any such dispute will be read,
interpreted, and construed from English versions thereof. Judgment on the award
rendered by the arbitrators may be entered in any court of competent
jurisdiction, or application may be made to such court for judicial acceptance
of the award and/or an order of enforcement as the case may be.
Precision Digital Images Corporation IAT Multimedia, Inc.
("PDI") ("IAT")
/s/ G. Wayne Smith /s/ Viktor Vogt
By (Sign) By (Sign)
G. Wayne Smith Dr. Viktor Vogt
Name (Print) Name (Print)
CEO CEO
Title Title
5 June 1997 June 12, 1997
Date Date
-6-
<PAGE>
EXHIBIT A
ASIC Specifications
Kirby ASIC designed for the Vision Point 80 board as defined in the Joint
Development and Cross-License Agreement with Texas Instruments.
-7-
<PAGE>
EXHIBIT B
License Fees
1. IAT shall pay PDI Fifty Thousand Dollars (US$50,000) upon signing of
this Agreement.
2. In the event that IAT produces the ASICs while PDI is concurrently
producing ASICs, IAT will pay a royalty to PDI of Four Dollars (US$4.00) per
ASIC chip manufactured by IAT.
-8-
<PAGE>
PRECISION DIGITAL IMAGES CORP.
DEVELOPMENT AGREEMENT
This Development Agreement ("Agreement") is made and entered into as of the
later of the two dates on the signature page (the "Effective Date") by and
between IAT Multimedia, Inc. ("IAT"), a Delaware corporation, and Precision
Digital Images Corporation ("PDI"), a Washington corporation.
Recitals
WHEREAS, PDI has developed an ASIC that is an important component of a
product designed by IAT; and
WHEREAS, PDI and IAT have expressed a desire to work together to jointly
produce this ASIC; and
WHEREAS, pursuant to this Agreement, PDI is willing to perform certain
services relating to the further development of the ASIC pursuant to the terms
and conditions contained herein; and
WHEREAS, pursuant to an ASIC License Agreement, between the parties hereto
and dated as of the date of this Agreement, PDI is willing to grant to IAT a
license to produce the ASIC pursuant to the terms and conditions contained
therein (the "License Agreement");
NOW, THEREFORE, in consideration of the covenants and conditions
hereinafter set forth, PDI and IAT agree as follows:
AGREEMENT
1. Definitions. For purposes of this Agreement, any initially capitalized
terms shall have the meanings hereinafter assigned to them and any capitalized
terms not defined in his Agreement will have the meanings assigned to such terms
in the License Agreement.
2. Description of Services. Subject to the terms and conditions of this
Agreement, IAT hereby engages PDI to perform services hereunder (the "Services")
consisting in the development of the Deliverables specifically described in
Exhibit A ("ASIC Deliverables and Specifications") attached hereto and
incorporated herein and related materials and documentation (the
"Deliverables"), and PDI will perform the Services. In performing the Services
during the term of this Agreement, PDI shall report to such representatives of
IAT as IAT shall designate from time to time.
3. Payment. Upon acceptance of the Submissions by IAT in accordance with
Section 6 below, IAT shall pay PDI the development fees set forth in Exhibit B.
<PAGE>
4. Delivery. PDI shall deliver to IAT a notice of completion ("Submission")
in accordance with the milestones set forth on Exhibit B. The last Submission
shall include the Design Documents and shall conform to the specifications set
forth in Exhibit A.
5. Acceptance Period. Upon receipt of the last Submission and IAT's
acknowledgment of such receipt, IAT shall have a period of fifteen (15) days
within which to reject or accept such Submission (the "Acceptance Period"). If
IAT rejects such Submission, IAT shall notify PDI of the reasons for such
rejection in a written report (the "Test Report").
6. Correction & Acceptance. If IAT notifies PDI within the Acceptance
Period that the Submission does not conform to the specifications set forth in
Exhibit A, PDI shall, within fifteen (15) days of the receipt of any such Test
Report, or within such longer period as IAT may expressly allow in writing in
each particular case (the "Correction Period"), make all necessary revisions or
corrections and re-deliver the revised or corrected version of such Submission
to IAT at no additional charge. The procedures set forth in Sections 5 and 6
shall be repeated until IAT accepts the Submission or cancels this Agreement in
accordance with the provisions of Section 13.
7. Sourcing of Production. PDI acknowledges and agrees that IAT has the
right to enter into separate agreements with such manufacturers of the ASICs
developed pursuant to this Agreement as IAT chooses and upon such terms and
conditions as IAT may agree to in its sole discretion pursuant to the terms and
conditions of this Agreement and the License Agreement.
8. Indemnity. PDI will indemnify and hold IAT harmless, and will defend IAT
against any and all loss, liability, damage, claims, demands or suits and
related costs and expenses and attorneys' fees to persons or property that
arise, directly or indirectly, from acts or omissions of PDI, or from breach of
any term or condition of this Agreement.
9. IAT Proprietary Materials. PDI understands that IAT possesses or will
possess "IAT Proprietary Materials" which are important to its business. For
purposes of this Agreement, "IAT Proprietary Materials" are documents or other
media or tangible items that contain or embody Confidential Information or any
other information concerning the business, operations or plans of IAT, whether
such documents have been prepared by PDI or by others. "IAT Proprietary
Materials" include, but are not limited to, blueprints, drawings, photographs,
charts, graphs, notebooks, customer lists, computer disks, tapes or printouts,
sound recordings and other printed, typewritten or handwritten documents, as
well as samples, prototypes, models, products and the like. All IAT Proprietary
Materials will remain the sole property of IAT. PDI agrees that during, the term
of this Agreement, PDI will not deliver any IAT Proprietary Materials to any
person or entity outside IAT, except as IAT may be required to do in connection
with performance of the Services under this Agreement. PDI further agrees that,
immediately upon IAT's request and in any event upon completion of the Services,
PDI will deliver to IAT all IAT Proprietary Materials.
<PAGE>
10. Support. PDI shall provide support services to designated IAT personnel
to assist such personnel in resolving problems, obtaining clarification
relative to the Deliverables, and providing assistance regarding suspected
defects or errors in the Deliverables at no additional charge. PDI shall
promptly resolve and eliminate defects and errors in the Deliverables.
11. Representations of PDI. PDI hereby represents and warrants to IAT that:
(a) With respect to the Deliverables and any and all matters pertaining
thereto which PDI may disclose, use, and/or deliver in connection with the
performance of PDI's obligations hereunder, PDI has the right to make such
disclosure, use and/or delivery thereof without liability to any third party;
(b) The Deliverables shall not infringe upon or violate any patent,
copyright, trademark, trade secret or other proprietary right of any third
party;
(c) The execution, delivery and performance of this Agreement by PDI shall
not be in conflict with or in breach of any applicable legislation or
regulations or other agreement by which PDI is bound;
(d) There are no liens or encumbrances on or against the Deliverables which
could derogate from or be inconsistent with any of the rights, title and
interest herein granted to IAT;
(e) PDI has obtained all the necessary approvals and licenses, if any such
approvals or licenses are required, and has the full power and authority to
enter into this Agreement, to perform PDI's obligations hereunder, and to grant
the rights herein granted to IAT with respect to the Deliverables; and
(f) The Deliverables will, under normal use, perform substantially in
accordance with the specifications set forth in Exhibit A.
12. Disclaimer, Limitation of Liability.
(a) DISCLAIMER. NEITHER PARTY SHALL BE LIABLE FOR ANY INDIRECT,
CONSEQUENTIAL, INCIDENTAL OR EXEMPLARY DAMAGES (INCLUDING WITHOUT LIMITATION
DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS
INFORMATION, AND THE LIKE) EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
-3-
<PAGE>
(b) LIMITATI0N OF LIABILITY. IN NO EVENT SHALL EITHER PARTY'S TOTAL
LIABILITY FOR ANY DAMAGES IN CONNECTION WITH THIS AGREEMENT EXCEED THE
DEVELOPMENT FEES PAID BY IAT HEREUNDER, REGARDLESS OF WHETHER SUCH LIABILITY
ARISES FROM ANY CLAIM BASED UPON CONTRACT, WARRANTY, TORT, OR OTHERWISE.
13. Termination. Either party may terminate this Agreement immediately upon
written notice in the event the other party is in material breach of this
Agreement, and such breach is not cured by the breaching party within thirty
(30) days after receipt of written notice of default from the other party. In
the event of breach by PDI, all Submissions, Deliverables and any revisions or
modifications thereto which have been completed or are in progress at the time
of termination (the "Completed Work") shall be assigned and delivered to IAT.
14. Best Efforts/Conflict of Interest. PDI shall, at all times during
the term of this Agreement, exercise its best efforts in the performance of the
duties set forth herein and perform the Services with all diligence and in
accordance with the practices and standards of the industry. PDI covenants that
PDI presently has no interest or obligation which would conflict in any manner
or degree with the performance of the Services required hereunder and that PDI
shall not, during the term hereof, make any commitments which would interfere
with PDI's ability to perform the Services.
15. Intellectual Property and Proprietary Rights. PDI maintains ownership
of the intellectual property rights in the Deliverables, including documentation
generated for the ASIC design, subject to the licenses granted to IAT pursuant
to the License Agreement. IAT will have the right to modify, improve and enhance
the Deliverables from time to time. PDI will not have any ownership with respect
to rights to any such modification, improvement or enhancement developed by IAT.
16. Non-Disclosure. The confidentiality provisions of the License Agreement
shall apply equally to any Confidential Information that is exchanged pursuant
to this Agreement.
17. Notices and Requests. All notices and requests in connection with this
Agreement shall given in a manner consistent with the provisions set forth in
the License Agreement.
18. Miscellaneous. The provisions of Section 11 of the License Agreement,
entitled, "Miscellaneous" shall apply equally to this Agreement.
19. Time of Essence. Time is of the essence in this Agreement.
-4-
<PAGE>
Precision Digital Images Corporation IAT Multimedia, Inc.
("PDI") ("IAT")
/s/ G. Wayne Smith /s/ Viktor Vogt
By (Sign) By (Sign)
G. Wayne Smith Dr. Viktor Vogt
Name (Print) Name (Print)
CEO CEO
Title Title
06/06/97 06/20/97
Date Date
-5-
<PAGE>
EXHIBIT A
ASIC Deliverables and Specifications
The "Deliverables" will be a ASIC verified and ready for volume production and
satisfactorily tested on the Vision Point 80 board.
The Specifications for the Deliverables will be as defined in the License
Agreement.
-6-
<PAGE>
EXHIBIT B
Development Milestones and Fees
1. Milestones. PDI shall deliver to IAT the Submissions in accordance with
the following milestones and completion dates:
<TABLE>
<CAPTION>
ESTIMATED DEVELOPMENT
MILESTONES: COMPLETION DATES FEE
----------- ---------------- ---
<S> <C> <C>
Pre-layout simulation completed and verified 14 June, 1997 $15,000
Post-layout simulation completed and verified 14 July, 1997 $15,000
First samples of the ASIC out of fabrication 19 August, 1997 $ 5,000
ASIC verified and ready for volume production 30 August, 1997 $15,000
</TABLE>
2. Fees. IAT shall pay PDI a total of Fifty Thousand Dollars (US$50,000)
upon completion of all the milestones set forth above. The Development Fees
shall be paid upon receipt of Submission for each milestone, except for the
Final Fee, which shall be paid upon acceptance of the final Submission pursuant
to Sections 4 through 6 of this Agreement.
[DATES TO BE PROVIDED BY PDI]
-7-
<PAGE>
Letter of Intent
between:
Olympus
Optical Co. (Europe) GmbH
Wendenstrasse 14-16
D-20097 Hamburg
(referred to hereafter as SYSTEM PARTNER)
and
IAT Deutschland GmbH
Fahrenheitstr. 9
D-28359 Bremen
(referred to hereafter as IAT)
including
IAT AG
Aarestr. 17
CH-5300 Vogelsang-Turgi
<PAGE>
1 Subject of Agreement
Subject of this Letter of Intent (LOI) is an agreement upon the installation of
a marketing and distribution partnership between SYSTEM PARTNER and IAT with the
purpose to place IAT products on the market segments of TeleMedicine and/or
TeleService. Both partners strive for conclusion of a detailed system
partnership contract within the next 4 (four) weeks.
2 Product Range
The following systems and products of IAT will be offered to the SYSTEM PARTNER
for marketing:
o Basic system TeleService
o High end system TeleService
o Basic system TeleMedicine
o High end system TeleMedicine
o Supplementary products for basic and high end systems
o Upgrade kits for TeleService and TeleMedicine systems
3 Mutual Activities
o Both partners strive for opening up the market for the systems and products
mentioned in para. 2, and will mutually set up a marketing and distribution
plan as a base for the martketing success.
o IAT will provide the required training of the SYSTEM PARTNER's marketing
and support staffers, and will also provide the required marketing
material.
o SYSTEM PARTNER will purchase the demo systems required for his particular
market segment at special conditions and will instant a 1st Line Support
Call Desk.
o IAT will grant SYSTEM PARTNER access to the 2nd Line Support Call Desk.
o SYSTEM PARTNER will be free as far as the prices for his customers are
concerned.
o IAT will support SYSTEM PARTNER with exetensive projects by providing
appropriate consult.
-2-
<PAGE>
4 Publication
SYSTEM PARTNER agrees to inform IAT about this letter of intent in the next
edition of its customers' publication 'insight' if the SYSTEM PARTNER contract
has not been signed by both parties at the publication's next deadline.
5 Secrecy
No party is entitled to use, or to pass on to third parties, any company matters
or trade secrets, nor other confidential information or material, which has
become known during the duration of this agreement, without prior written
consent by the other party.
Signed in the name of Signed in the name of
IAT Deutschland GmbH Olympus Optical Co. (Europa) GmbH
Fahrenheitstr. 9 Wendenstrasse 14-16
D-28359 Bremen D-20097 Hamburg
Signature: /signed/ Signature: /signed/
------------------------ -------------------------
Name: ppa. Reiner Hallauer Name: Ralph Martinke
Function: Managing Director Function: General Manager
Date: 11/12/97 Date: 11/18/97
-3-
<PAGE>
IAT Multimedia, Inc., Geschaftshaus Wasserschloss [LOGO]
Aarestrasse 17, CH-5300 Vogelsang-Turgi IAT
Telefon +41 56 223 50 22, Fax +41 56 223 50 23 ----------------------
THE ELECTRONIC MEETING
IAT MULTIMEDIA
2911 ST. ANDREWS
RICHARDSON, TX 75082
(972) 699-8921
ATTN: TOM WEISMAN
OKI SEMICONDUCTOR
785 North Mary Avenue, Sunnyvale,
California, 94086
OKI SEMICONDUCTOR GATE ARRAY, STANDARD CELL, MACROCELL PRODUCTS DEVELOPMENT AND
PURCHASE AGREEMENT.
This letter is considered as an ANNEX to the OKI SEMICONDUCTOR GATE ARRAY,
STANDARED CELL, MACROCELL PRODUCTS DEVELOPMENT AND PURCHASE AGREEMENT entered
into June 1997 between Precision Digital Images, Inc. and OKI SEMICONDUCTOR. It
regulates only the payment of the NRE and payment and delivery of the first
5,000 chips.
Statement:
"IAT will guaranty for payment of the NRE of $80,000 on standard credit terms
for the ASIC contract between PDI and OKI Semiconductor upon invoice from PDI to
IAT, payable directly to OKI. IAT will further guarantee payment of the first
5,000 chips produced under this contract, within 30 days of invoice, in the
event PDI is unable to meet its payment obligations."
In case PDI is unable to meet its payment obligations, the guarantee payment of
the first 5,000 chips produced under that agreement is valid under the following
conditions:
o The delivery address for the first 100 chips is PDI.
o The delivery address for the remaining 4900 is IAT MULTIMEDIA.
o The price per chip payable by IAT is the cost price of PDI.
o The ASIC is tested and running according to its specification.
<PAGE>
IAT Multimedia, Inc., Geschaftshaus Wasserschloss [LOGO]
Aarestrasse 17, CH-5300 Vogelsang-Turgi IAT
Telefon +41 56 223 50 22, Fax +41 56 223 50 23 ----------------------
THE ELECTRONIC MEETING
* In case PDI is unable to deliver the ASIC chips to IAT or PDI is bankrupted,
IAT will be able to purcase ASIC chips directly from OKI on the same terms
and conditions as in the above referred agreement.
IAT Mulumedia, Inc. Precision Digital Images Corporation
("IAT") ("PDI")
/s/ Viktor Vogt /s/ G. Wayne Smith
- ------------------------------ ------------------------------------
By (Sign) By (Sign)
Dr. VIKTOR VOGT G. Wayne Smith
- ------------------------------ ------------------------------------
Name (Print) Name (Print)
CEO CEO
- ------------------------------ ------------------------------------
Title Title
5/June/97 5 June 1997
- ------------------------------ ------------------------------------
Date Date
Signature of OKI Semicontuctor concerning the paragraph with the "*".
/s/ Jamshed Qamar
- ------------------------------
By (Sign)
Jamshed Qamar
- ------------------------------
Name (Print)
Director & GM of ASBU
- ------------------------------
Title
July 31, 1997
- ------------------------------
Date
<PAGE>
<TABLE>
<S> <C> <C> <C>
785 NORTH MARY AVENUE - SUNNYVALE, CA 94086-2909 o PHONE (408) 720-1900 INVOICE
---------------------------------------------------------------------------------
INVOICE NO. AIRWAY BILL NO.
213447 RI BILLING ONLY
---------------------------------------------------------------------------------
OKI Semiconductor INVOICE DATE SHIPPED DATE CARRIER NAME
07/09/97 07/09/97 FED-X P1-NEXT DAY B
---------------------------------------------------------------------------------
SO NUMBER PACKING SLIP NO.
505419 SO 14283
--------------------------------------------
BILL TO: SHIP TO:
170000 170000
PRECISION DIGITAL IMAGES PRECISION DIGITAL IMAGES
8520 154TH AVENUE N.E. 8520 154TH AVENUE N.E.
REDMOND WA 98052 REDMOND WA 98052
- ------------------------------------------------------------------------------------------------------------------------------------
CUSTOMER P.O. NO. TERMS F.O.B. REF NO. REP NAME REFERENCE (SPSSL NO.)
97214 UPON INVOICE REC. FOB-SHIPPING PO 1003 ELECTRA 100
- ------------------------------------------------------------------------------------------------------------------------------------
M NO. PART NUMBER CUSTOMER PART NO. U/M QUANTITY UNIT PRICE EXTENSION
- ------------------------------------------------------------------------------------------------------------------------------------
1.001 IC-SK (NRE 30R0440-014) EA S 1 40,000.00 40,000.00
* BILLING ONLY*
NRE 50%
OKI
Semiconductor
- -----------------------------------------------
785 North Mary Avenue Phone: [ILLEGIBLE]
Sunnyvale, CA 94086-2909 FAX: [ILLEGIBLE]
Juana Mendoza
Sales Administrator
(408) 737-6303
E-mail: [email protected]
Please Remit To. . . OKI SEMICONDUCTOR SUB TOTAL 40,000.00
785 NORTH MARY AVENUE -------------------------
SUNNYVALE CA 94086 SALES TAX 0.00
</TABLE>
<PAGE>
Settlement Agreement,
in connection with the termination of September 09, 1997,
by and between
IAT Deutschland GmbH, Fahrenheitstrasse 9, D - 28359 Bremen, [Germany],
represented by
1) IAT AG, Aarestrasse 17, CH - 5300 Vogelsang-Turgi, [Switzerland],
represented, in turn, by Dr. Viktor Vogt,
and
2) Hanseatische Industrie-Beteiligungen GmbH, Martinistrasse 34, D - 28195
Bremen, [Germany],
represented, in turn, by Mr. Manfred Pleis,
parties of the first part,
and
IAT Multimedia, Inc., Aarestrasse 17, CH - 5300 Vogelsang-Turgi, [Switzerland],
represented by Dr. Viktor Vogt,
party of the second part,
and
Mr. Wilhelm Gudauski, Krumhornweg 20, D - 28259. Bremen, [Germany],
party of the third part.
The parties stipulate the following
1.
IAT Deutschland GmbH terminates its current employment relationship with Mr.
Wilhelm Gudauski, effective as of 03/09/98, on the basis of a letter of
termination dated 09/09/97 in accordance with the managing director's employment
contract of 12/14/95.
Until that time, Mr. Gudauski shall be irrevocably released from performing his
duties. This release shall be subject to continued payment of his contractual
remuneration; any and all vacation time not yet taken shall be credited to the
time during which he is released from the performance of his duties.
<PAGE>
Mr. Gudauski shall have the right to use the company car provided to him for
private purposes. The car shall be returned at the time the employment contract
ends. In the alternative, Mr. GudausKi shall have the right to acquire the car
for himself.
Mr. Gudauski agrees to make himself available to IAT for two (2) days during
the time in which he is released from the performance of his duties for the
purpose of carrying out tasks related to the settlement.
2.
Mr. Gudauski is removed from his position as the managing director of IAT
Deutschland GmbH as of 08/27/97 and withdraws from the management of the
company as of that date.
The company hereby approves the'actions of Mr. Gudauski and confirms to him that
any and all taxes and social security contributions that were due until the date
of his withdrawal from his position of managing director were duly paid by the
company.
The shareholders of the company waive their right to claims for damages arising
from known or unknown events that occurred or might have occurred during his
tenure until 08/27/97. However, this waiver shall not apply to claims for
damages arising from grossly negligent actions or intentional and harmful
actions on the part of Mr. Gudauski.
3.
Mr. Gudauski assumed an absolute guaranty for any amount up to DM 350,000.00
relative to Volksbank Sottrum eG for the purpose of securing all existing,
future, and conditional claims of the Volksbank Sottrum against IAT.
IAT undertakes to submit to Mr. Gudauski, by 10/31/97, a legally binding
declaration of the Volksbank Sottrum eG according to which it irrevocably
waives its rights to any and all claims against Mr. Gudauski under the
aforementioned guaranty. The original of the guaranty assumed by IAT shall be
submitted to Mr. Gudauski by the same date.
IAT Multimedia, Inc., hereby releases Mr. Gudauski and holds him harmless from
any and all liabilities under the aforementioned guaranty for the time until
both the declaration of waiver of the Volksbank Sottrum eG and the original
guaranty document are. submitted to Mr. Gudauski.
4.
Instead of a severance payment, at the suggestion of IAT, Mr. Gudauski is\
granted the possibility of selling 130,682 shares of the shares he holds to an
interested party at a price to be negotiated by mutual consent.
2
<PAGE>
The procedure shall be stipulated in a Stock Purchase Agreement.
IAT AG warrants that this deal shall be settled correctly and in due time.
If the stipulated sale of shares to an interested party is not effected for any
reasons, for which Mr. Gudauski is not responsible, an adequate agreement shall
be negotiated.
5
The prohibition against competition stipulated in the managing director's
employment contract of 12/14/95 is revoked, effective immediately.
IAT and Mr. Gudauski hereby mutually agree to revoke any and all provisions
concerning the prohibition against competition set forth in Section 6 of the
managing director's employment contract and mutually waive any and all rights to
which they may be entitled under such prohibition against competition.
Specifically, Mr. Gudauski is permitted, effective immediately, to work on
behalf of a competitor and to cooperate, directly or indirectly, in the
establishment or operation of such a company or to participate therein. This
does not require special permission on the part of IAT or the shareholders of
IAT.
6.
IAT shall issue a recommendation to Mr. Gudauski in which his work on behalf of
the company shall be judged, in its entirety and without any restrictions, in a
positive manner.
7.
IAT shall send a letter to all clients and partners, by 12/31/97, at the latest,
notifying them of Mr. Gudauski's withdrawal; the text of this letter conforms to
Mr. Gudauski"s wishes and has been signed by him.
8
Pursuant to the respective stipulations in his managing director's employment
contract of 12/14/95, Mr. Gudauski is entitled to a company pension plan from
IAT. In reference to this stipulation, the insurance contracts shall be
transferred to Mr. Gudauski, effective 03/01/98, and any and all claims in
connection with these insurance contracts shall be assigned to the person or
entity accepting such assignment.
3
<PAGE>
9
Modifications of or amendments to this agreement shall be made in writing to be
effective.
Any ineffectiveness of a provision of this agreement shall not affect the
effecfiveness of the remaining provisions thereof. Mr. Gudausld and IAT shall
undertake to agree to a replacement provision that approximates the ineffective
provision as closely as possible.
Bremen shall be the place of jurisdiction for any and all disputes arising from
this agreement. This agreement shall be subject to German law.
For
IAT Deutschland GmbH, Bremen
1) IAT AG 11/12/97
/signed/ /signed/
Dr. Viktor Vogt Wilhelm Gudauski
2) Hanseatische Industrie-Beteiligungen GmbH
/signed/
Manfred Pleis
3) IAT Multimedia, Inc.
/signed/
Dr. Viktor Vogt
4
<PAGE>
List of Subsidiaries of Registrant
----------------------------------
Name Place of Incorporation
- ---- ----------------------
IATAG Switzerland
IAT Deutschland GmbH
Interaktive Medien Systeme Germany
FSE Computer-Handel GmbH Germany
& Co. KG
<PAGE>
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in the Registration Statement of IAT Multimedia, Inc. on
Form S-1 of our report dated January 31, 1997, except for Note 13 as to which
the date is April 1, 1997, on the consolidated financial statements of IAT
Multimedia, Inc. and to the the reference to our firm under the caption
"Experts" in such Prospectus.
ROTHSTEIN, KASS & COMPANY, P.C.
Roseland, New Jersey
December 9, 1997
<PAGE>
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in the Registration Statement of IAT Multimedia, Inc. on
Form S-1 of our report dated December 7, 1997, on the financial statements of
FSE Computer - Handel GmbH & Co, KG Pirmasens and to the reference to our firm
under the caption "Experts" in such Prospectus.
ROTHSTEIN, KASS & COMPANY, P.C.
Roseland, New Jersey
December 9, 1997
